Unit 2 Segmentation and Target Market

Question 1

What is STP

Answer 1

STP – segmentation, targeting, positioning is a decision process

Whose needs within-groups are similar and whose needs between-groups are different (S)

Who can be reached profitably (T)

With a focused marketing program (P)

Question 2

What does segmentation include?

Answer 2

Phase 1 – segment the market using basis variables (Has to make sense with your market)

Phase 2 – describe the market segment identified using variables that help the firm understand how to serve those customers

Question 3

What does targeting include?

Answer 3

Phase 3 – evaluate the attractiveness of each segment using variables that quantify the demand levels and opportunities associated with each segment

Phase 4 – select one or more target segments to serve on the basis of their profit potential and fit with the firm’s corporate strategy

Phase 5 – find and reach targeted customers and prospects within targeted segment in a variety of ways

Question 4

what are the segmentation basis?

Answer 4

geographic - country, continent, region
demographic - age, gender, income, education, etc.
psychographic - lifestyle, values, personality, etc.
behavioral - benefits, usage rates, user status, loyalty

Question 5

Geographic segmentation

Answer 5

Divide market into separate geographic units

Countries, provinces, cities, neighborhoods climate, etc.

Develop appropriate marketing programs

Ex. Sobeys or Loblaw’s stores carry differentiate products

Based on their location

Think how in Atlantic Canada serves lobster at McDonalds

Question 6

Demographic segementation

Answer 6

Most common method

Divide market into groups based on
- Gender
- Age
- Ethnic group
- Family lifecycle stage
- Household type
- Income
- Other

not always useful: stereotyping could lead to poor STP strategies

Question 7

Psychographic segmentation

Answer 7

How consumers describe themselves

Self-values – life goals, self-respect, self-fulfillment, a sense of belonging

Self-concept – the image people have of themselves

Lifestyles – how we live lives and achieve goals

Question 8

Behavioral segmentation

Answer 8

Benefit segmentation
- Groups consumers based on the benefits they derive form products or services
- RBC divides customers into 5 primary benefit groups: youth, nexus, borrowers/builders, wealth accumulators, wealth preservers

Loyalty segmentation
- Strategy of investing in retention and loyalty initiatives to retain the firm’s most profitable customers
- Air Canada super elite card

Usage rate: heavy users, regular users, occasional users

User status: current users, ex-users, potential users

Question 9

What is the criterion for effective segmentation

Answer 9

1. size and growth
2. structural characteristics (competition, segmentation saturation, protectability, environmental risk)
3. Product market fit (fit, relationships with other segments, profitability)

Question 10

Criterion: size and growth

Answer 10

size - market potential, current market penetration

growth - growth forcasts of adopting new technologies

Question 11

criterion: structural characteristics

Answer 11

competition - barriers to entry, barriers to exit, position of competitors, ability to retaliate

segment saturation - gaps in the market

protectability - patentability of products, barriers to entry

environmental risk - economic, political, and technological change

Question 12

criterion: product market fit

Answer 12

fit - coherence with company’s strengths and image

relationships with other segments - synergy, cost interactions, image transfers, cannibalization

profitability - entry costs, margin levels, return on investment

Question 13

Managing segmentation for marketing analytics

Answer 13

1. Define segmentation problem
2. Identify data needs
3. Conduct market research
4. Build segmentation database
5. Define market segments
6. Describe market segments
7. Implement results

Question 14

Data analytics

Answer 14

data -> business understanding -> data understanding -> data preparation -> modeling -> evaluation -> deployment

Question 15

what is a target market

Answer 15

Group of people or organizations for which an organizations designs, implements, and maintains a marketing mix intended to meet the needs of that group, resulting in mutually satisfying exchanges

Question 16

what are the 4 targeting strategies

Answer 16

Undifferentiated Targeting Strategies, or Mass Marketing

Multi-segment (differentiated) targeting strategy

Concentrated (niche) targeting strategy

Micromarketing

Question 17

Mass or undifferentiated segmentation strategy

Answer 17

Everyone might be considered as a potential user
Not a common strategy
Ex. Neighborhood bakery

+ potential savings on production/marketing costs
- unimaginative product offerings
- company more susceptible to competition

Question 18

Multisegmented (differentiated) segmentation strategy

Answer 18

a firm targets several market segments with a different offering for each

+ greater financial success
+ economies of scale in producing/marketing
- high costs
- cannibalization

Question 19

Concentrated (niche) segmentation strategy

Answer 19

a marketing strategy of selecting a single primary target market and focusing all energies on providing a product to fit that market needs

+ concentrates resources
+ meet needs of narrowly defined segment
+ allows some small firms to compete with larger firms
+ strong positioning
-segments too small or changing
- large competitors may more effectively market to niche segment

Question 20

Micromarketing

Answer 20

One to one marketing

An extreme form of segmentation that tailors a product or service to suit an individual customer’s wants or need

+ delivers highly customized service
+ high customer engagement/retention
+increasing revenue through loyalty
- high costs

Question 21

What is a Market Segment

Answer 21

Customers in a segment are looking for similar product offerings and respond to a company’s marketing communications

Question 22

What is market Segmentation

Answer 22

A process for a business to evaluate the attractiveness of each segment to maximize profitability

Question 23

what are the 3 fundamental factors to segment successfully

Answer 23

Heterogeneity – different customers want different products and services

Clusters – form groups where members needs are similar

Costs – of serving a segment must be equal or less than the prices they are willing to pay

Question 24

What are the benefits of STP

Answer 24

Focusing marketing resources to meet needs of customers to profitably deliver more value to customers

Customers who perceive more value from specific brands will develop a stronger preference for it than competing brands

A firm that continues to provide good value creates loyal customers who repeat purchases

Strong brand loyalty can lead to increased market share

Strong brand loyalty requires less marketing resources to maintain the same market share

Question 25

What are the parts in the segmentation model

Answer 25

Dependent variable = segmentation basis (different valuations and offerings)

Independent variables = segmentation descriptors (age, income, etc.)

Analytical methods: regression or discriminant

Question 26

What are the two phases in segmentation

Answer 26

Phase 1 - Segment market using basis variables

Phase 2 - Describe market segments identified using variables that help them serve customers

Question 27

What are the 3 phases in Targeting (phases 3 - 5 in STP)

Answer 27

Phase 3
- Evaluate attractiveness of each segment using variables
- Quantify demand levels and opportunities for each segment
- Growth rate – costs of SERVING each segment
- Distribution costs - What are the costs of PRODUCING each segment
- Production and product differentiation costs – costs of producing offerings that customers want

Phase 4
- Select one or more target segments to serve based on profit potential
- Determine the level of resources to allocate to those segments

Phase 5
- Find and reach targeted customers in a variety of ways (mail contact, advertising in select vehicles, targeted sales force presentations)

Question 28

What are the 3 types of segmentation in segmenting markets (phase 1)

Answer 28

Priori segmentation
- Using industry knowledge or market research to segment based on observable characteristics (gender, specialties, etc.)

Traditional segmentation methos - segment customers by composite measure due to observable characteristics
(Ex. Different customers have different valued price ranges could be a result of where they live (rich place vs poor place) or the generational divide (older vs younger) )

Latent class segmentation - Segmentation that cannot be described by observable differences
(Ex. Pharmeceutical segments based on the type of doctor (patient focused vs research focused – those who prescribe based on latest scientific findings); this difference could be a result of when or where the doctor studied)

Question 29

What are the 5 steps to meet customer needs

Answer 29

Step 1 – understand strategic intent: What is the objective of segmentation and what advantages or disadvantages could the segmentation process include

Step 2 – set the variables

Step 3 – statistical procedures to create segments:
a) Discrete – each customer is only in one segment
b) Overlapping – a customer can appear in two or more segments
c) Fuzzy – each customer is assigned a proportion membership of each segment

Steps 4 &5 – find the ideal number of segments and search which segments to target

Question 30

What kind of market segments can there be (STP phase 2)

Answer 30

• first time prospects
• novices
• sophisticates
• B2C
• B2B

Question 31

what are the benefits sought for: First Time Prospects

Answer 31

Benefits sought:
- know business
- honest sales representation
- vendor who has experience
- sales representative who can communicate well

Theme: “take care of me”

Question 32

What are the benefits sought for: Novices

Answer 32

Benefits sought:
- easy to read manuals
- technical support hotlines
- high level of training
- sales representative who knows about the products and services

Theme
“help me make it work”

Question 33

What are the benefits sought by: Sophisticates

Answer 33

Benefits Sought:
- compatibility with systems
- customization
- track record of vendor
- sales support and technical assistance

Theme: “Talk technology”

Question 34

What variables help describe the market? (phase 3)

Answer 34

1) Size and growth
size - market potential, current market penetration
growth - growth forecasts of new technologies

2) structural characteristics
competition - barriers to entry and exit, position of competitors, ability to retaliate
segmentation saturation - gaps in the market
protectability - patents, and barriers to entry
environmental risk - economic, political, technological

3) product market fit
fit - coherence with company’s strengths
relationships with other segments - synergy, cost interactions, image transfers, cannibalization
profitability - entry costs, margin levels, ROI

Question 35

What are the options to serve segments when Selecting target segments (phase 4)

Answer 35

Concentrate on a single segment

Select segments in which to specialize

Provide a range of offerings to a specific segment

Provide one offering to many segments

Cover the whole market (all offerings to all segments)

Question 36

what is the 6 step process for selecting a segment (phase 4)

Answer 36

1. Specify drivers of each dimension (Start with dimensions (size/growth, structural characteristics, product-market fit) and determine which factors are most important for their specific strategy)
2. Weight drivers
3. Rate segments on each driver
4. Multiply weights by ratings for each segment
5. View resulting group
6. Review/sensitivity analysis

Question 37

What are the 3 strategies when finding targeted customers (phase 5)

Answer 37

1. Customer self-selection: The company offers a range of products and services that fit the needs of different target segments. Customers sort through this assortment to choose the offering that best fits their needs (ex. Retail)
2. scoring/classification methods
   CART (classification and regression trees) - identifies a small subset of variables that can be used to assign customers to segments (Discriminant analysis requires at least 5 – 10 questions to assign customer to a segment)
3. Macro-targeting - Targeting effort to identify one or more desirable segments and then devise the means to broadly reach customers in those segments

Question 38

what are the 4 steps to segmentation research?

Answer 38

1. Develop the measurement instrument - What information needs to be collected, and how should it be collected
2. Select a sample - Who needs to be studied?
3. Select and aggregate respondents - How to differentiate responses from several individuals in a group combine to predict how the group will behave
4. Analyze the data and segment the market - What statistical procedures will segment (potential) customers and describe aspects of their characteristics or behavior that are crucial to serving their needs

Question 39

what are the types of data

Answer 39

Demographic descriptors – age, income, marital status, education, and industry classification, size, and job responsibilities

Psychological descriptors – activities, interests, and lifestyle

Demand – including historical purchases or consumption and anticipated future purchases

Needs – whether stated or in terms of customer value

Attitudes – pertaining to products, suppliers, purchase risk, or the product adoption process

Media and distribution channel use – types and amount of media used and where products and services are typically bought

Question 40

What is the managerial criteria for profiling segments

Answer 40

The market should be heterogeneous

Segments should be accessible

Segmentation should be cost effective

Question 41

What is the technical criteria for profiling segments

Answer 41

Homogeneity - Measures the degree to which potential customers within a segment have similar needs and values

Heterogeneity - Measures the degree to which groups of customers differ

Identifiability - The degree to which marketers, using observable characteristics (descriptors) of the segments, can identify (and reach) segment members

Parsimony - Measure of how well the segmentation scheme derived from the data about (potential) customers trades off the amount of within-group homogeneity against the amount of between-group heterogeneity in a cost-effective way