Unit 2 Segmentation and Target Market Flashcards
What is STP
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)
What does segmentation include?
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
What does targeting include?
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
what are the segmentation basis?
geographic - country, continent, region
demographic - age, gender, income, education, etc.
psychographic - lifestyle, values, personality, etc.
behavioral - benefits, usage rates, user status, loyalty
Geographic segmentation
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
Demographic segementation
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
Psychographic segmentation
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
Behavioral segmentation
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
What is the criterion for effective segmentation
- size and growth
- structural characteristics (competition, segmentation saturation, protectability, environmental risk)
- Product market fit (fit, relationships with other segments, profitability)
Criterion: size and growth
size - market potential, current market penetration
growth - growth forcasts of adopting new technologies
criterion: structural characteristics
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
criterion: product market fit
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
Managing segmentation for marketing analytics
- Define segmentation problem
- Identify data needs
- Conduct market research
- Build segmentation database
- Define market segments
- Describe market segments
- Implement results
Data analytics
data -> business understanding -> data understanding -> data preparation -> modeling -> evaluation -> deployment
what is a target market
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
what are the 4 targeting strategies
Undifferentiated Targeting Strategies, or Mass Marketing
Multi-segment (differentiated) targeting strategy
Concentrated (niche) targeting strategy
Micromarketing
Mass or undifferentiated segmentation strategy
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
Multisegmented (differentiated) segmentation strategy
a firm targets several market segments with a different offering for each
+ greater financial success
+ economies of scale in producing/marketing
- high costs
- cannibalization
Concentrated (niche) segmentation strategy
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
Micromarketing
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
What is a Market Segment
Customers in a segment are looking for similar product offerings and respond to a company’s marketing communications
What is market Segmentation
A process for a business to evaluate the attractiveness of each segment to maximize profitability
what are the 3 fundamental factors to segment successfully
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
What are the benefits of STP
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
What are the parts in the segmentation model
Dependent variable = segmentation basis (different valuations and offerings)
Independent variables = segmentation descriptors (age, income, etc.)
Analytical methods: regression or discriminant
What are the two phases in segmentation
Phase 1 - Segment market using basis variables
Phase 2 - Describe market segments identified using variables that help them serve customers
What are the 3 phases in Targeting (phases 3 - 5 in STP)
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)
What are the 3 types of segmentation in segmenting markets (phase 1)
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)
What are the 5 steps to meet customer needs
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
What kind of market segments can there be (STP phase 2)
- first time prospects
- novices
- sophisticates
- B2C
- B2B
what are the benefits sought for: First Time Prospects
Benefits sought:
- know business
- honest sales representation
- vendor who has experience
- sales representative who can communicate well
Theme: “take care of me”
What are the benefits sought for: Novices
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”
What are the benefits sought by: Sophisticates
Benefits Sought:
- compatibility with systems
- customization
- track record of vendor
- sales support and technical assistance
Theme: “Talk technology”
What variables help describe the market? (phase 3)
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
What are the options to serve segments when Selecting target segments (phase 4)
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)
what is the 6 step process for selecting a segment (phase 4)
- 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)
- Weight drivers
- Rate segments on each driver
- Multiply weights by ratings for each segment
- View resulting group
- Review/sensitivity analysis
What are the 3 strategies when finding targeted customers (phase 5)
- 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)
- 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) - Macro-targeting - Targeting effort to identify one or more desirable segments and then devise the means to broadly reach customers in those segments
what are the 4 steps to segmentation research?
- Develop the measurement instrument - What information needs to be collected, and how should it be collected
- Select a sample - Who needs to be studied?
- Select and aggregate respondents - How to differentiate responses from several individuals in a group combine to predict how the group will behave
- 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
what are the types of data
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
What is the managerial criteria for profiling segments
The market should be heterogeneous
Segments should be accessible
Segmentation should be cost effective
What is the technical criteria for profiling segments
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
