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Market Segmentation and Target Marketing

Chapter 6
by

Karen Campbell

on 19 May 2016

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Transcript of Market Segmentation and Target Marketing

Chapter 6
Market Segmentation & Target Marketing
photo (cc) Malte Sörensen @ flickr
A group of people who have-
a similar need for product/service
the resources to purchase
the willingness and ability to buy it
What is a Market?
Reality?
Most products/services are marketed to smaller groups called segments that fall within larger mass markets.
Suppose you have an idea for a great new offering you hope will become a hot seller. Before you quit your day job, you’ll need to ask yourself...
Suppose you have an idea for a great new offering you hope will become a hot seller. Before you quit your day job, you’ll need to ask yourself, “Who’s going to buy my product?” and “Will there be enough of these people to make it worth my while?”
“Does my idea satisfy consumers’ needs and add value to existing products?”
“Who’s going to buy my product?”
“Will there be enough of these people to make it worth my while?”
Your goal is to figure out which people and organizations are interested in your product ideas. To do this you will need to divide or segment the people and organizations into different groups of potential buyers with similar characteristics. This process is called market segmentation and involves asking the
This process is called market segmentation!
Your goal is to figure out which people and organizations are interested in your product ideas. To do this you will need to divide or segment the people and organizations into different groups of potential buyers with similar characteristics.
Important Question???
What groups of buyers are similar enough that the same product or service will appeal to all of them?
After all, your marketing budget is likely to be limited...you need to get the biggest...
for your...
by focusing on those people you truly have a shot at selling to and tailoring your offering toward them.
Depending on an organization’s size and resources, different market segmentation strategies may be employed at the same time.
1:1
Niche
Segment 3
Segment 2
Segment 1
Mass Market
Levels of Market Segmentation
One basic marketing strategy appealing to a broad range of consumers, not addressing any distinct characteristics among the consumers.
Mass Marketing
Wal-Mart appeals to the masses. Competitors have a difficult time responding to their success.
Cross section of North America. Most income brackets love a deal.
Leading mass merchandiser in Canada with over $14.3 billion a year in sales!
Mass marketing, or undifferentiated marketing, came first. It evolved along with mass production and involves selling the same product to everybody. You can think of mass marketing as a
shotgun approach:
you blast out as many marketing messages as possible on every medium available as often as you can afford.
Marketers devise and implement marketing strategies that are tailored to the various segments they pursue.
“The division of a market into smaller groups (called segments) based on similar needs, characteristics or lifestyles.”
So along came the concept of
Market Segmentation!
Coca-Cola offers customers choice, variety and balance.
Brands
Coca-Cola
Diet Coke
Coke Zero
Dasani
Powerade
Full Throttle
Vault
Nestea
Far Coast
Product Categories
Soft Drinks
Juices and Fruit Beverages
Water
Sports Drinks
Energy Drinks
Tea and Coffee
Coca-Cola practices market segmentation by offering products in a variety of beverage categories.
Market Segmentation
Picaroons only operates in the premium segment (a niche) sometimes referred to as 'craft brew'.

Lids operates in the hat segment of the sports store market.

Sun Glass Hut only markets sunglasses.
Niche marketing strategies focus on sub-groups within a market segment. It is like an optimized form of segmentation.
Niche-Marketing
Devising and implementing unique programs to meet the needs and preferences of individual customers.
Direct (1:1) Segmentation
Mass Marketing
But what if you sell smart cars?
You need a "rifle" approach!
You might be interested to know that before GM declared bankruptcy in 2009, it was widely believed the automaker actually had too many car models. After eliminating many models including Pontiac and Oldsmobile, General Motors made a turnaround and posted a large profit for 2011!
Then Alfred P. Sloan, the head of General Motors (GM), appeared on the scene.
Sloan began to segment consumers in the automobile market—to divide them up by the prices they wanted to pay and the different cars they wanted to buy.
The idea was to offer a car for every target market or for every income level. His efforts were successful, and in the 1950s, GM overtook Ford as the nation’s top automaker
http://www.gm.ca/gm/
Class Activity:
Find a 'big player' in the following mass markets ( a company that has several product lines)-
Footwear
Household Products
Personal Care Products
Coffee Shops
Clothing Stores (think chains that own several different types of stores)
Digital Entertainment/Electronics
Food & Grocery
Other?
Find an images that shows all the products offered through their effort to practice MARGET SEGMENTATION.

Post to Bb Blog!
Subgroup has unique and identifiable characteristics, and even though the segment is small its presents sufficient opportunity and profit potential.
SportChek operates in the sports apparel market segment.
Lids (owned by Hat World) has chosen to operate in a narrow niche within the sports apparel market.
Walmart mass markets and has apparel which includes sports related items.
Niche Markets that expand with new competitors and more mainstream consumers often become a market segment.
Behavioural targeting! Database-driven marketing systems...a system that tracks a consumer's behaviour to determine his or her interests and then serves ads to that person relevant to those interests.

Software cookies monitor Internet surfing behaviour so that someone spending time on a financial website looking up mortgage rate suddenly gets a pop-up ad from a mortgage company
CRM?
Remember - CRM systems allow companies to have frequent contact with customers and detailed knowledge about a customer...creates the sense of intimacy like my State Farm Insurance guy sends me a birthday card.
Mass Customization?
Products and messages that target an audience of ONE!
Nike launched a website on which shoppers can design their own shoes, picking their 'swoosh' color and adding their own phrase on the tongue.
What is Brand Democratization?
A situation in which a customer can interact with a brand, giving the customer some control over the marketing of the brand...example: soliciting consumers opinions and participation online.
QR Code!
What emerges is a target market profile; a portrait of the ideal consumer .
Demographic
Psychographic
Geographic
Behaviour Response
Targets are described on the basis of characteristics in common.
Identifying Targets
Marketers monitor demographic trends and adjust marketing strategies appropriately.
Characteristics
Age
Gender
Education
Income
Occupation
Marital Status
Household Formation
Ethnic Background
Demographic Segmentation
Canada’s population is aging.

Generation X and Y will become a powerful buying group.

Retaining older customers while attracting new, younger customers is a marketing challenge.
Youth
Generation Y
Generation X
Baby Boomers
Seniors
Age Segments
Marketers must avoid stereotypical portrayals or suffer the consequences.

More unisex targeting
Gender has always been a means of distinguishing product categories, but empowered women and changing roles and responsibilities has forced marketers to rethink things.
Gender Segmentation

Ethnic-inspired products and marketing communications do have an impact.
Ethnic Segmentation
Regional opportunities must be assessed (costs versus benefits). Unique needs may necessitate micro-marketing strategies.
Language
Culture
Urban
Suburban
Rural
Distinct geographic regions present challenges for marketers.
Geographic Segmentation
Axe deodorant was launched solely on the basis of psychographic profiling of young males.

Lifestyle considerations add a new dynamic to a demographic target profile.
“Identifying a target based on activities, interests, and opinions (the lifestyle) of consumers.”
Psychographic Segmentation
Loyalty
Response
Usage
Rate
Benefits Sought
Occasion for Use
Behavioural influences are considered along with other segmentation variables.
Behaviour Response Segmentation
What's next?...Market Positioning Strategies!
The "P" in STP!

Positioning is a 2-Step Process:
Develop a product that meets a need(s).
Create appropriate appeals to differentiate the product in the customer’s mind.
“The place a brand occupies in the customer’s mind in relation to competing products.”
Positioning
An effective tagline often summarizes the positioning strategy. Plants the idea!

“Visa. All you need.”
"Life Takes Visa."
"More People Go With Visa."

"It's better than fast food!"
"Always fresh!"
All Visa marketing strategies are designed to fit with this positioning statement.
To reinforce Visa’ leadership position in the credit card market and to firmly establish Visa as the preferred provider for all future purchases.
Sample Positioning Statement

Lifestyle

There are several commonly used positioning strategies.
Positioning Strategies
Cadillac is no longer grandpa’s car! It’s new, sporty look appeals to dad. The average age of a Cadillac buyer is now much younger. Cadillac successfully repositioned itself.
Repositioning is necessary because of:

Changing preferences of a target market.
“Changing the place a brand occupies in the customer’s mind.”
Repositioning
So how does this connect to the chapters we've covered so far?
Chapter 2 - Social & Demographic Trends!
Aging Population
Ethnic Diversity
New Household Formations
Social Responsibility
People marrying later causes and increase in single person households
Same sex households
Empty nest households
When identifying target markets, organizations must consider trends...
What new opportunities do the trends present?
Let's look at some examples:
Profitable Ethnic Markets
Repositioning to attract new groups
Product changes to adapt...
The Abercrombie and Fitch “Magalog”
Abercrombie and Fitch created a unique way to appeal to the lifestyle element of
t
he Generation Y segment. Research told them that Generation Y is not interested in catalogs like previous generations were and thus, they created the “magalog”. A magalog is the unique combination of a magazine and a catalogue.
It features Abercrombie and Fitch products integrated with entertaining magazine type articles to keep the consumer interested. It offers everything from music reviews to advice on travel in South Africa to tips on making cheap feature films.
TD’s “Pump Up Your Savings” Campaign
During the 2009 back to school season, TD ran their “Pump Up Your Savings” Campaign targeting Generation Y students. The marketing initiative made use of concerts, social media, and was an overall fun and unique idea, all of which appeal to Generation Y.
Old Spice “The Man Your Man Could Smell Like” Campaign
Old Spice has recently come out with a new marketing campaign directed at Generation Y. The campaign includes TV commercials, takes advantage of social media, and has a quirky interactive webpage geared at this segment.
The campaign consists of a series of humorous commercials depicting an a
t
tractive man talking about the many ways “your man” is inferior to him, but could be like him if he used Old Spice deodorant. In addition to the highly successful TV commercials are a series of YouTube videos starring “the man your man could smell like” answering user submitted questions in a comical fashion. A large number of the questions don’t have anything to do with deodorant, but are extremely effective in engaging Generation Y.
This campaign has been successful in appealing to Generation Y for many reasons. Firstly, it is genuine. Old Spice does not come across as trying too hard to be funny. It is simple, unique, and memorable. Secondly, it takes full advantage of social media.
So let's recap:
We begin to segment a market and identify targets by looking at the variables that help create a target market profile.
e
Mercedes' strength is with 35 to 45 year old bracket - working professionals with higher education and healthy incomes, so...
Interesting twist...Gen Y are known to be more responsible and often mature beyond their years...so can you market the same product to the 20-something crowd and their parent?
Behavioral segmentation divides people and organization into groups according to how they behave with or act toward products.
A Vintage Colgate Commercial from the 1950s
Watch the YouTube video to see a vintage Colgate toothpaste ad that describes the product’s various benefits to consumers. (Onscreen kissing was evidently too racy for the times.)
Segmenting buyers by personal characteristics such as age, income, ethnicity and nationality, education, occupation, religion, social class, and family size is called demographic segmentation.
So let's review age demographic categories:
Google Gen?
Retro brands—old brands or products that companies “bring back” for a period of time—were aimed at baby boomers during the recent economic downturn. Marketing professionals believe they appealed to baby boomers because they reminded them of better times—times when they didn’t have to worry about being laid off, about losing their homes, or about their retirement funds and pensions drying up.
Advergames are likewise being used to appeal to the two demographic groups. Advergames are electronic games sellers create to promote a product or service. Would you like to play one now? Click on the following link to see a fun one created by Burger King to advertise its Tender Crisp Chicken.
Burger King Advergame
http://web.archive.org/web/20110426194400/http://www.bk.com/en/us/campaigns/subservient-chicken.html
Traditionally, higher education levels usually result in higher paying jobs and greater social status so the makers of upscale products such as Rolexes and Lamborghinis aim their products at high-income groups.
But remember...sometimes income isn’t always indicative of who will buy your product. Companies are aware that many consumers want to be in higher income groups and behave like they are already part of them. Mercedes Benz’s cheaper line of “C” class vehicles is designed to appeal to these consumers.
Income Segmentation
Income is used as a segmentation variable because it indicates a group’s buying power and may partially reflect their education levels, occupation, and social classes.
Marketing professionals don’t stop there, though. For example, because women make many of the purchases for their households, market researchers sometimes try to further divide them into subsegments. (Men are also often subsegmented.)

For women, those segments might include stay-at-home housewives, plan-to-work housewives, just-a-job working women, and career-oriented working women.

Research has found that women who are solely homemakers tend to spend more money, perhaps because they have more time.
In addition to segmenting by gender, market researchers might couple gender with marital status and other demographic characteristics. For, example, did you know that more women in America than ever before (51 percent) now live without spouses? Can you think of any marketing opportunities this might present?
So, Dove took advantage of the frustration...
This works!
This backfired!
Gender is another way to segment consumers. Men and women have different needs and also shop differently.
Consequently, the two groups are often, but not always, segmented and targeted differently.
Why use Psychographics?
Let's think about cereal...
The group of potential consumers for cereal could be “almost” everyone although groups of people may have different needs with regard to their cereal.
Are there added vitamins?
Is there a toy?
Fiber?
What grains are used?
Associating these specific needs with consumers in a particular demographic group could be difficult!
Marketing professionals want to know why consumers behave the way they do, what is of high priority to them, or how they rank the importance of specific buying criteria.
That is psychographics!
Think of some of your friends who seem like you "demographically" (age, income, social class etc.)
Have you ever gone to their homes and been shocked by their lifestyles and how vastly different they are from yours?
Activities? Going out with girls.
Young Male Profile
(please forgive the stereotype :)
Opinions? Girls are neat.
Interests? Girls.
Attitudes? I will be popular if I go out with girls.
Values? I respect girls who will go out with me.
Lifestyle? Eat, sleep, school/work, go out with girls.
Problem?
It kind of backfired... why?
INNOVATORS
EXPERIENCERS
ACHIEVERS
THINKERS
Innovators are successful, sophisticated, take-charge people with high self-esteem. Because they have such abundant resources, they exhibit all three primary motivations in varying degrees. They are change leaders and are the most receptive to new ideas and technologies. Innovators are very active consumers, and their purchases reflect cultivated tastes for upscale, niche products and services. Image is important to Innovators, not as evidence of status or power but as an expression of their taste, independence, and personality.
Thinkers are motivated by ideals. They are mature, satisfied, comfortable, and reflective people who value order, knowledge, and responsibility. They tend to be well educated and actively seek out information in the decision-making process. They are well informed about world and national events and are alert to opportunities to broaden their knowledge. Thinkers have a moderate respect for the status quo institutions of authority and social decorum but are open to consider new ideas. Although their incomes allow them many choices, Thinkers are conservative, practical consumers; they look for durability, functionality, and value in the products they buy.
Motivated by the desire for achievement, Achievers have goal-oriented lifestyles and a deep commitment to career and family. Their social lives reflect this focus and are structured around family, their place of worship, and work. Achievers live conventional lives, are politically conservative, and respect authority and the status quo. They value consensus, predictability, and stability over risk, intimacy, and self-discovery. With many wants and needs, Achievers are active in the consumer marketplace. Image is important to Achievers; they favor established, prestige products and services that demonstrate success to their peers.
Experiencers are motivated by self-expression. As young, enthusiastic, and impulsive consumers, Experiencers quickly become enthusiastic about new possibilities but are equally quick to cool. They seek variety and excitement, savoring the new, the offbeat, and the risky. Their energy finds an outlet in exercise, sports, outdoor recreation, and social activities. Experiencers are avid consumers and spend a comparatively high proportion of their income on fashion, entertainment, and socializing. Their purchases reflect the emphasis they place on looking good and having “cool” stuff.
STRIVERS
BELIEVERS
MAKERS
SURVIVORS
http://www.strategicbusinessinsights.com/vals/presurvey.shtml
VALS Website Survey
Which category are you in?
Like Thinkers, Believers are motivated by ideals. They are conservative, conventional people with concrete beliefs based on traditional, established codes: family, religion, community, and the nation. Many Believers express moral codes that are deeply rooted and literally interpreted. They follow established routines, organized in large part around home, family, community, and social or religious organizations to which they belong. As consumers, Believers are predictable; they choose familiar products and established brands. They favor American products and are generally loyal customers.
Strivers are trendy and fun loving. Because they are motivated by achievement, Strivers are concerned about the opinions and approval of others. Money defines success for Strivers, who don’t have enough of it to meet their desires. They favor stylish products that emulate the purchases of people with greater material wealth. Many see themselves as having a job rather than a career, and a lack of skills and focus often prevents them from moving ahead. Strivers are active consumers because shopping is both a social activity and an opportunity to demonstrate to peers their ability to buy. As consumers, they are as impulsive as their financial circumstance will allow.
Like Experiencers, Makers are motivated by self-expression. They express themselves and experience the world by working on it—building a house, raising children, fixing a car, or canning vegetables—and have enough skill and energy to carry out their projects successfully. Makers are practical people who have constructive skills and value self-sufficiency. They live within a traditional context of family, practical work, and physical recreation and have little interest in what lies outside that context. Makers are suspicious of new ideas and large institutions such as big business. They are respectful of government authority and organized labor but resentful of government intrusion on individual rights. They are unimpressed by material possessions other than those with a practical or functional purpose. Because they prefer value to luxury, they buy basic products.
Survivors live narrowly focused lives. With few resources with which to cope, they often believe that the world is changing too quickly. They are comfortable with the familiar and are primarily concerned with safety and security. Because they must focus on meeting needs rather than fulfilling desires, Survivors do not show a strong primary motivation. Survivors are cautious consumers. They represent a very modest market for most products and services. They are loyal to favorite brands, especially if they can purchase them at a discount.
Developing a marketing strategy based on a regional or local basis giving consideration to the unique needs and 'geodemographics' of that area!
"Broad strokes" of national marketing won't work.
Geographic segmentation divides the market into areas based on location and explains why the checkout clerks at stores sometimes ask for your zip code.
You are where you live!
http://www.claritas.com/MyBestSegments/Default.jsp?ID=20.
Which benefit is most important to you when you buy a toothpaste: The toothpaste’s price, ability to whiten your teeth, fight tooth decay, freshen your breath, or something else?
Perhaps it’s a combination of two or more benefits. If marketing professionals know what those benefits are, they can then tailor different toothpaste offerings to you (and other people like you).
Benefits segmentation—segmenting buyers by the benefits they want from products—is very common.
How often, if ever, they use certain products.
General Rule? 8o% of a product's sales volume comes from 20% of its users
Ready for
another
beer example?
Well...the battle rages on to attract the 19-25 year old male beer drinker...
Show how the product can be used for various occasions!
What makes an attractive target market?
Large enough to be profitable
3 billions world-wide own cell phones BUT 3 billion still do not!
It is growing
It's not swamped by competitors
Can you stand out in that crowd?
Is it accessible? Can you find a way to reach it?
UNILEVER hires women in third-world countries to deliver products to rural customers who lack access to stores.
Also consider...
Can you compete with the resources you have?
Is the target market a good fit with your company's mission?
Still need an example of target marketing? Think about how women seem to be an attractive target market for yogurt sellers? The maker of this humorous YouTube video thinks so. (She seems to imply they are the only market.) Watch how the messages are so blatantly targeted at a certain segment of women.
Multisegmenting or Market Integration...more examples!
Marriott Courtyard.
Targeted at over-the-road travelers.
Ritz-Carlton Hotels.
Targeted at luxury travelers.
Marriott Conference Centers.
Targeted at businesses hosting small- and midsized meetings.
Marriott ExecuStay.
Targeted at executives needing month-long accommodations.
Marriott Vacation Clubs.
Targeted at travelers seeking to buy timeshares.
More examples of Concentrated or Niche Marketing or One-to-one
A multisegment marketing strategy can allow firms to respond to demographic changes and other trends in markets. For example, the growing number of people too old to travel have the option of moving into one of Marriott’s “Senior Living Services” facilities, which cater to retirees who need certain types of care.
Auto parts to aerospace
Be a big fish in a small pond!
NICHE
CONCENTRATED
1:1
vs
One way to position your product is to plot customer survey data on a perceptual map. A perceptual map is a two-dimensional graph that visually shows where your product stands, or should stand, relative to your competitors, based on criteria important to buyers.
Head-on
Brand Leadership (Coke)
Product Differentiation
Technical Innovation
The first example relates to Mother Energy Drinks, which was launched into the Australian market in 2006 by the Coca-Cola Company.

Coca-Cola used a heavy launch program to generate trials of the product. In particular, they had a series of TV commercials that have a look and feel similar to the Madagascar movie that was popular at the time. They leveraged their extensive distribution channels and were able to get the product in many retailers, with prominent point-of-sale displays. The can’s packaging had a tattoo look about it, again tapping into the popular culture of the time.



Obviously, Coca-Cola is a major firm in beverage, so a poorly performing product is simply not suitable for them. Therefore, they had to decide whether to improve and reposition the product or to withdraw it and replace it with a new brand and product. The firm decided to reposition the product. This is because they had done such a good job with the launch, that the brand awareness (a key part of brand equity) was very high in the marketplace.

With the relaunch and repositioning project, their biggest challenge was to convince consumers to re-trial the product. As a result, they changed the packaging, increased the size of the can and, of course, improved the product’s taste.

However, they approached the problem of the product’s perceived poor taste head-on. For instance, on the can’s packaging, in quite prominent letters, they had “New Mother, tastes nothing like the old one”. Their TV commercials for the relaunch (see below), which used a humor appeal, showed commandos breaking into the lab to get the scientists that invented the original formula.

As a consequence, they are able to reposition the product as having a great taste and many consumers were willing to re- trial the product and today the product enjoys a good share of the Australian market and is performing to the firm’s expectations.
Mother Energy Drink (Coca-cola) While the launch campaign was professionally and effectively executed, the taste of the product was not great and repeat purchases were quite low as a consequence. Coca-cola decided to REPOSITION the product.
The End
See p.. 161
I need more bacon in my life...
Segmentation Alternatives
Marketers choose among four basic segmentation alternatives:

1. Mass Marketing
One basic strategy that appeals to a broad range of consumers.

2. Market Segmentation
Dividing a large market into smaller homogeneous markets (targets) on the basis of common characteristics.

3. Niche Marketing
Targeting one particular segment of the market.

4. Direct Segmentation
Uniquely designed marketing strategies directed at individual consumers.

Large companies practice segmentation so much that today 10 corporations control almost everything you buy!
http://www.policymic.com/articles/71255/10-corporations-control-almost-everything-you-buy-this-chart-shows-how
Many large companies are so good at bombarding us with multiple messages, their logos become instantly recognizable because consciously OR subconsciously, we 'see' them so much.

See how many of these letters of the alphabet you can connect to a mass marketed brand...
Behavioural targeting

Direct forms of communications with consumers

Mass customization of products

Etsy has it all!
Behavioural Targeting!
Direct Communication!
Mass Customization!
Direct Communication!
http://econsultancy.com/ca/blog/62397-qr-codes-the-good-the-bad-and-the-ugly
A few more direct segmentation options:
Geo-targeting
Customizing a message for a product or service to a market based on the geographic location of buyers (province, city, postal code).

Location-based Targeting
An effort to integrate consumers’ location (while they are on the move) into a marketing strategy (tracking whereabouts by smartphone).

Marketers can target customers individually based on where they live!

Truly Loyal
: Resist competitive offerings - APPLE
Emotionally Loyal
: Satisfied but can be vulnerable to competitive offerings - Vote Liberal...unless...
Circumstantially Loyal
: Have not yet formed relationship with a brand and vulnerable - Drink Pepsi only because it's the only soft drink available on campus
Out of necessity, Nutella recently repositioned itself in the minds of young Canadian mothers.
New Development:
Slowly, Walmart is trying to shed its "one size fits all" strategy in favour of regional and local marketing practices. Various demographic/geographic factors are at the root of this change.

The company has started tailoring its stores across Canada to meet local market needs, reflecting ethnic diversity (food, music and hair products), again population and lifestyles.


That means the marketing mix!
New segment based on demographics, psychographics, behavioural (occasion for use)!
But what if they wanted to come up with a marketing mix that targeted a different SEGMENT?
Look at how this wildly successful campaign targets this HIGH USAGE RATE target segment!
Full transcript