Segmentation, Targeting and CRM Flashcards
Introduction on Market fragmentation
Ø Peoples interests, backgrounds and needs divide them into many different groups
Ø Diversity of people means that the same service or product will not apply to everyone
Ø Technology, cultural developments, globalization and societal sophistication are all drivers of market fragmentation
Sociology: Durkheim mechanical (similarity) and organic (dependence) solidarity of societies
The problem of segmentation ?
Balancing the efficiency of mass marketing (same items and services for everyone) with the effectiveness of offering each individual exactly what he or she wants.
Historical Definition of Segmentation :
“a rational and more precise adjustment of product and marketing effort to consumer or user requirements; it consists of viewing a heterogeneous market as a number of smaller homogeneous markets”
(Smith 1956)
Benefits of Segmentation & Targeting:
Ø Places customers at the core of all decisions
Ø Enhances your understanding of your customers
Ø To build loyalty, identify high-potential customers, predict future purchase patterns
Ø Enables you to position your products closely to the target segment
Ø Efficient use of resources
Ø Enables you to identify new product and service opportunities
Segmentation definition/process
“Segmentation involves identifying (selecting) and describing marketing segments.”
Segmentation is the process of dividing (analysis) a larger market into smaller pieces based on one or more meaningful shared characteristics.
What are the Segmenting categories ?
Ø Age: Generational marketing (boomers, gen x, gen y, millennials)
Ø Psychographics: lifestyle
Ø Gender: Female, male, metero, gay, lesbian, hyphenated
Ø Family: Family need over time, single, collective
Ø Class and income: buying power, differentiated taste and aesthetics
Ø Ethnicity: national cultures of consumption
Ø Place: Geographic segmentation, geodemography,
geocoding online advertisement (turn addresses into coordinates, coordinates into addresses, or to locate a point-of-interest.)
Psychographic Segmentation:
Psychographic segmentation is dividing your market based upon consumer personality traits, values, attitudes, interests, and lifestyles. Segmentation will allow you to better develop and market your products because there will be a more precise match between the product and each segment’s needs and wants.
Conceptual Framework
People have different interests, attitudes, and traits. For example, some people really care about the environment, while other people don’t. Some people are very fitness and health conscious while others are foodies. Some people take sports very seriously, while some just want to have some fun on the weekends. Psychographic segmentation occurs when you break your market down along these interests and attitudes so you can market the appropriate product to each segment of the market.
Examples of Psychographic Segmentation
You are the president of an automobile company and decide to segment your market into consumers who are interested in luxury, consumers who are interested in practicality, and consumers who are interested in the environment. You focus your product design and marketing of luxury sedans on one segment, station wagons and SUVs on another segment, and your electric hybrids on the environmentally-conscious market segment.
Example of Bad Psychographic Segmentation
Behaviour Segmentation
Focuses on the consumer’s relationship with the product
- End use (e.g., baking soda)
- Transaction frequency (e. g. , from scanner data), profitability of the customer, loyalty of the customer, and so on
- Benefits sought in the product
- Less vulnerable to competition
- Is a good basis for creating meaningful segments, but the segments need to be ‘described’ based on observable variables
Behaviour Segmentation in details:
- Benefits sought from purchasing a specific product. For instance hair shampoo can be targeted towards normal hair, colour hair, sensitive scalp, split ends, anti-dandruff etc. Other example would be a toothpaste that customer buys to have whiter teeth or protect his or her sensitive teeth. Discount or the appearance of a shop can also be a benefit.
- The other variable is the occasion when customers purchase, use or think of buying a product. For instance cereal advertisements encourage consumers to eat breakfast cereals on the “occasion” of getting up. However, consumption patterns can be changed by targeting
occasion. The same cereal could be promoted as an anytime snack food. Research shows that during festival seasons consumers became less price sensitive and purchase more premium priced products. Therefore products such as chocolates, flowers and premium foods will sell out on Valentine’s Day. - Usage rate divides customers according to the level of usage they make of the product. We can distinguish heavy, medium or light users. Let’s take the example of beauty products. Heavy users will use and buy eye shadows and lipsticks quite often while light users will buy them rarely. Other example would be airlines that focus on frequent flyers, because they are a lucrative market and their needs are different than those who fly only once a year. The objective of an organisation should be to attract heavy users who will make a greater contribution to sales.
- Customers can be grouped according to their level of loyalty to the product. Consumers are loyal to brands at different levels. Some individuals will always buy a particular brand, others will buy this brand occasionally and ‘switchers’ will switch between brands. Many companies try to segment their markets into those where loyal customers can be found and retained as it is much more profitable than acquiring new customers. The best example of behavioural segmentation by loyalty can be seen in the hospitality sector where airlines, hotels and restaurants give their best to provide the best possible customer service so that they can retain their customer.
- User status groups customers based on whether they are potential users, first-time users, regular users, non-users or ex-users of a product which can be very useful
- The last variable is a Buyer readiness stage where customers are segmented according to their readiness to purchase the product. There are 6 stages of buyer readiness (awareness, knowledge, liking, preference, conviction and purchase). Sales promotion discounts, or personal selling through sales representatives may be used to encourage customer to purchase.
A word of caution: racism, sexism, stereotypes etc… don’t be a douche bag
To me grouping people according to some essentialized characteristic has severe ethical implications
Sexism, racism, social stereotypes and other pitfalls are very dangerous territory and should be combatted at every level.
“Good” segments are…
Customer Relationship management (CRM), how to?
- Identify customers in as great detail as possible
- Differentiate in terms of needs and value to customers
- Interact with customers in the most cost efficient way
- Customise aspects of the product or service: treating individuals or segments differently according to step 2
Why do CRM?
- Increase share of customer rather than share of market (lifetime value and customer equity)
- Instead of getting a lot of customers who each buy a little, get a few who buy a lot!
- Think about customers as being customers for life: calculate how much they spend over an average lifetime
- CRM is about relationships with key customers
Other bad segmentation ideas:
Example concentrated strategy:
Example Differentiated strategy:
- Adidas
- L’Oréal’s 27 brands (Garnier, YSL, Cacharel, The Body Shop…)
Example Customized (micro) strategy
Example Unifferentiated Strategy
