Week 2: Chapter 3 Flashcards
what is segmentation (the concept)
when different customers have different needs, wants, beliefs, values, incentives, and constraints and firms segment them based on that too meet individual needs
what is a market segment
customers who are looking for an offering to provide a benefit or solution to their specific problem
what is segmentation (definition)
- a business process
- enables firms to evaluate attractiveness of each segment and select those who they can serve effectively and profitably
how does segmentation add value to a firm
- companies targets the specific needs of a customer
- the customer values it and becomes loyal to the company (more recurring revenues)
- the loyalty causes increased market share (stable)
- causes barriers to competition
- leads to more profitability for the firm
what is the stp approach
- 5 phases
- segmentation (phase 1 & 2)
- targeting (phase 3-5)
- and then the firm would identify a positioning concept for their products/services that attracts target customers and enhances its desired corporate image
what is the phase 1
(segmentation) segment the market using basis variables
what are examples of basis variables
customer
- needs
- wants
- benefits sought
- problem solutions desired
- preferences
- values
- usage situations
what is phase 2
(segmentation) describe the market segments identified using variables that help the firm understand how to serve those customers, how to talk to these customers, and buyer switching costs
what are examples of what firms are looking for to serve their customers
- shopping patterns
- geographic location
- clothing size
- family size
what are examples of what firms are looking for to talk to their customers
- media preferences and use
- attitudes
- activities
- interests
- opinions
what are buyer switching costs
costs associated with changing products or suppliers
what is phase three
(targeting) evaluate the attractiveness of each segment using variables that quantify the demand levels and opportunities associated with each segment (ex. growth rate), the cost of serving each segment (ex. distribution costs), the costs of producing the offerings that customers want (ex. production and product differentiation costs), and the fit between the firm’s core competencies and the target market opportunity
what is phase 4
(targeting) select one or more target segments to serve on the basis of their profit potential and fit with the firm’s corporate strategy; determine the level of resources to allocate those segments
what is phase 5
(targeting) find and reach targeted customers and prospects within targeted segments in a variety of ways, including direct mail contact, advertising in selected media vehicles, targeted sales force presentations, etc.
what are the different types of segmentation bases
- geographic
- demographic
- psychographic
- behaviour
what are examples of the segments in geographic segmentation
- country
- province
- city
- urban/rural
- climate
- region
what is an example of how marketing would be different based on geographic segmentation
- products are catered towards those in the specific location
- in terms of what they actually like or like language of the products
what are examples of the segments in demographic segmentation
- age
- gender
- income
- education
- ethnic background
- religion
- family life cycle etc.
what is an example of how marketing would be different based on demographic segmentation
- ex. the style of watches targeted differs between a man, women, boy, and girl
what are examples of the segments in psychographic segmentation
- lifestyles
- values
- personality
- self-concept
what is an example of how marketing would be different based on psychographic segmentation
- ex. targeting different types of cars based on the demographic
- ex. targeting trucks to those that work in trades, or cheaper ones to those with lower incomes
what are examples of the segments in behavioural segmentation
- benefits sought
- usage rates
- user status
- loyalty
what is an example of how marketing would be different based on behavioural segmentation
ex. someone is loyal to crest, so they target the entire line of goods to them
what is the geographic segment
- divides the market into separate geographic units
- where they develop appropriate marketing programs
- ex. stores carrying different products in different locations
what is the demographic segment
- the most common method
- when you divide the market into groups based on the demographic
- ex. for age, a more colourful cereal is targeted to kids, while a healthier one is for adults
why is the demographic segment not always useful
- because it can be a generalization/oversimplification of segments
- consumer interests can change
- its stereotyping which could lead to poor STP strategies
- ex. nike assuming that active wear is only for young and active people
- but all age groups can decide to purchase it, and the fitness and health trend and comfortable fit can appeal to all ages
what is the psychographic segment
- how consumers describe themselves
- self values: life goal (self-respect, self-fulfillment, sense of belonging)
- self concepts: the image people of themselves (ex. loreal “because im worth it”)
- lifestyles: how they live their lives to achieve their goals (ex. lululemon built on healthy, balanced, fun-filled lifestyle)
what are the different behavioural segmentations
- benefit segmentation
- loyalty segmentation
- usage rate
- user status
what is benefit segmentation
- when consumers are grouped based on the benefits they get from products or services
- ex. rbc divides customers into benefit groups: youth, nexus, borrowers/builders, wealth accumulators, wealth preservers
what is loyalty segmentation
- investing in retention and loyalty initatives to retain most profitable customers
- ex. air canada super elite card, mcdonalds monopoly game, amazon prime
what is usage rate
heavy users, regular users, light users, ocassional users
what is user status
current users, ex-users, and potential users
what are the criteria for effective segmentation
- size and growth
- structural characteristics
- product market fit
what is the criteria in size and growth
- size
- growth
what is are examples of considerations for size
market potential, current market penetration
what is an example of a consideration for growth
growth forecasts of adopting new technologies
what is the criteria in structural characteristics
- competition
- segment saturation
- protectability
- environmental risk
what is are examples of considerations for competition
barriers to entry, barriers to exit, position of competitors, ability to retaliate
what is an example of a consideration for segment saturation
gaps in the market (ex. can’t sell to much EVs in rural areas where there isn’t enough charging stations)
what is are examples of considerations for protectability
patentability of products, barriers to entry
what is are examples of considerations for environmental risk
economic, political, and technological change
what is the criteria in product market fit
- fit
- relationships with other segments
- profitability
what is an example of a consideration for fit
coherence with company’s strengths and image
what is are examples of considerations for relationships with other segments
synergy, cost interactions, image transfers, cannibalization
what is are examples of considerations for profitability
entry costs, margin levels, return on investment
what are the steps in 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
what are the variables to segment and describe markets like (chart) - who do they target, and what are the descriptors
targeting: b2c or b3b
descriptors: demographics, psychographics, behaviour, decision making, media patterns
what are the segmentation bases like for consumer (b2c) markets
needs, wants, benefits, solutions to problems, usage situation, usage rate
what are the segmentation bases like for b2b markets
needs, wants, benefits, solutions to problems, usage situation, usage rate, size, industry
what are demographics like for b2c
age, income, marital status, family type and size, gender, social class, etc.
what are demographics like for b2b
industry, size, location, current supplier(s), technology utilization etc.
what are psychographics like for b2c
lifestyle, values, and personality characteristics
what are psychographics like for b2b
personality characteristics of decision makers
what are behaviour like for b2c
use occasions, usage level, complementary and substitute products used, brand loyalty, etc.
what are behaviour like for b2b
use occasions, usage level, complementary and substitute products used, brand loyalty, order size, applications etc.
what are decision making like for b2c
individual or group (family) choice, low or high involvement purchase, attitudes and knowledge about product class, price sensitivity, etc.
what are decision making like for b2b
formalization of purchasing procedures, size and characteristics of decision making group, use of outside consultants, purchasing criteria, (de)centralized buying, price sensitivity, switching costs, budget cycle, tc.
what are media patterns like for b2c
level of use, types of media used, times of use, etc.
what are media patterns like for b2b
level of use, types of media used, times of use, patronage at trade shows, receptivity to salespeople etc.
what are the steps in segmentation analytics
- reduce the data
- develop measures of association
- identify and remove outliers
- form segments
- profile segments and interpret results
- customer data is put on a data matrix (chart), where each row is the information about the specific customer, and the two columns are about the variables that are created as a base for the segmentation
what is the step of reducing the data
- need to remove irrelevant variables from the study
- doing factor analysis
- choosing a smaller set of independent indicators
- done by finding the interrelationships from the large number of segmentation basis variables, and separate them based on common factors
what is the step to developing measures of association
- the analyst needs to define a measure of similarity for every pair of respondents
- measures fall into two categories: scaled dat and nominal data
what is scaled data
- asking things like how much do you agree or disagree with the following statement
- it uses distance-type measures
what is nominal data
- asks questions like is feature X required or not required
- using matching-type measures
- Ex. asking how many times out of all possible matches any two respondents agree on features that are required or not
what is the step to identify and remove outliers
there are different reasons for outliers:
(1) data errors, (2) significantly different needs
(1) data errors: errors from participants misunderstanding questions/put answers in the wrong place, or from coding/transcription errors -> should be corrected or removed from the data set
(2) significantly different needs: can be significantly different from having uninteresting unique set of needs, or those whose needs indicate an emerging new segment -> should be removed from the data set, but an emerging new segment can be early indications of where other segments may be going in the near future
what is the step to profile segments and interpret the results
- determine distinct clusters (finding homogeneous needs)
- which ones should be retained
- how good and robust the clusters are
- how they should be profiled
what does it mean if there are no meaningful clusters
- it means that the clusters aren’t really close together, they are pretty spread out
- or that there are only a few distinct ones (1-2)
- it can mean that just no distinct segments exist, the segmentation bases weren’t chosen right, or that the sample of customers just have similar preferences
how many clusters (segments) should be retained
2-3
how do you determine how good the clusters are at representing the entire market
- when the clusters seem to be the same when using multiple different segmentation methods
- the higher the %, the better the clusters are
- also if the users of the results find it valuable
- can managers create names for the segments easily based on the characteristics of them
what should managers note when naming clusters
- make sure the names don’t lead to wrong conclusions about actionable items
- ex. naming a group demanding may seem like they are too much work when in reality, they may be willing to pay a higher premium
what is the differences in real-life applications
- they are much more complex
- they are many more questions, leading to much more dimensions (instead of just 2 (x & y))
- there are also many more respondents (points)
what do we need for larger datasets
- a more systematic approach
- a more formal definition of “similarity”
- a more formal definition of “loss of information”
what is a target market
a group of people or organizations an organization designs, implements, and maintains a marketing mix to meet their needs, resulting in mutually satisfying exchanges
what are the different types of targeting strategies
- undifferentiated/mass marketing
- multisegment/differentiated
- concentrated/niche
- micromarketing
what is multisegment/differentiated segmentation strategy
- when a firm targets several market segments with a different offering for each
Ex. adidas reebok offers athletic shoes, rockport offers comfortable shoes, and taylormade adidas golf lines
what is mass/undifferentiated segmentation strategy
- when everyone is considered as a potential user
- not a common strategy
- ex. the neighbourhood bakery (targeting to everyone in the neighbourhood)
what is concentrated (niche) segmentation strategy
- selecting a single primary target market and focusing all energies on providing a product to fit that market’s needs
- ex. marketing to a specific type of people (ex. targeting lululemon to those types of people that have their life together)
what are advantages to undifferentiated targeting
potential savings on product/marketing costs
what is micromarketing segmentation strategy
- one-to-one marketing
- an extreme form of segmentation that tailors a product or service to suit an individual customer’s wants or needs
- ex. allowing a customer to customize the good to their exact requests
what are disadvantages to undifferentiated targeting
- unimaginative product offerings
- company more susceptible to competition
what are disadvantages to concentrated targeting
- segments too small or changing
- large competitors may more effectively market to niche segment
what are advantages to concentrated targeting
- concentrates resources
- can better meet the needs of a narowly defined segment
- allows some small firms to better compete with larger firms
- provides strong positioning
what are advantages to multisegment targeting
- greater financial success
- economies of scale in producing/marketing
what are advantages to one-to-one targeting
- delivers highly customized service
- high customer engagement/retention
- increasing revenue through loyalty
what are disadvantages to multisegment targeting
- high costs
- cannibalization
describe the market attractiveness/competitive position matrix
- x axis is segment attractiveness, going from low, average, high
- y axis is firm’s strengths and competencies going from weak, medium strong
- as segments move towards the right and up, they are more attractive since they align more with firm’s competencies
- so the most attractive segment is the top right corner, and the least attractive is the bottom left
what strategies is recommended when the segment attractiveness is low and the firm’s competitive position is weak
harvest or divest
what strategies is recommended when the segment attractiveness is average and the firm’s competitive position is weak
harvest or divest
what are disadvantages to one-to-one targeting
high costs
what strategies is recommended when the segment attractiveness is average and the firm’s competitive position is medium
cautious investment
what strategies is recommended when the segment attractiveness is low and the firm’s competitive position is medium
harvest or divest
what strategies is recommended when the segment attractiveness is high and the firm’s competitive position is weak
- opportunities investment
- build strength or exit
what strategies is recommended when the segment attractiveness is low and the firm’s competitive position is strong
- protect position
- manage for cash generation
what strategies is recommended when the segment attractiveness is high and the firm’s competitive position is medium
invest to challenge the leader
what strategies is recommended when the segment attractiveness is average and the firm’s competitive position is strong
- selective investment
- build on strengths
what strategies is recommended when the segment attractiveness is high and the firm’s competitive position is strong
- maximum investment
- consolidate position
