MBA MARKETING MANAGEMENT

Marketing Segmentation Lecture Overview

Introduction Marketing targeting Market segmentation - Why segment markets?
- Bases for segmentation - Criteria for segmentation

Market targeting
- Evaluating market segments
- Selecting market segments (market coverage strategies)

Positioning

- Differential advantage
- Market positioning - Positioning alternatives and strategies
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 Introduction
While marketing as a business philosophy makes the customer central to the objectives of an organisation, it is the concepts of marketing that have been developed from this philosophy which has made marketing so relevant to business and other organisations. In the 1950s the pioneers of mass-marketing, multinational firms such as Proctor&Gamble, Ford and Coca Cola, had the power to sell large quantities of standardised goods to a homogeneous mass market, using the promotional attraction of mass media, especially television. But, times have changed and to be successful Coca Cola now offer caffeine free, diet, cherry, vanilla and other variants. Ford make many cars, from the Ka retailing at just over 7,000, to the Explorer, a four wheel drive vehicle retailing at around 30,000 all of which are available in a host of colours, finishes and specifications. The reason for this explosion of product choice, is an attempt to meet customer needs more precisely.

If the marketing task is to satisfy the needs and wants of customers then those wants must be established, even if they are found to be different from every single consumer. While it is recognised that customers do not always form a homogeneous group, nevertheless. Marketing is a 2 way exchange process which involves profitable and beneficial exchanges. As such, part of the marketing process is to identify wants that groups of individuals share such that it can offer to meet these group needs profitably.
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 Introduction
In the previous session it was suggested that buying decisions should be linked to relevant characteristics associated with individual buyers e.g. New mothers buy baby food, or business suits are purchased by white collar workers. These examples illustrate how one specific group or segment could be more likely to buy a particular product from another. This process if called Target Marketing which seeks to identify market segments, selecting one more of them and developing the right product for each target market.
Because no organisation ever really is without competition, the 4Ps of product, price, place and promotion are adjusted (like the sights on a rifle) to ensure the offer hits its target market such that the customer prefers the offer to that of its competitors.

MARKET TARGETING
Market Segmentation
1. Identify the bases for segmenting the market
2. Develop profiles of resulting segments

Market Targeting
3. Evaluate attractiveness of each market segment
4. Select the target segment(s)

Market Positioning
5. Identify differential advantage for each segment

6. Develop marketing mix for each target segment

6 Steps in Market Segmentation, Targeting and Positioning

A market consists of customers with similar needs. But, customers in a market are never homogeneous in that they differ in terms of the benefits wanted, the amount they can afford or are willing to pay, the media they see and the quantities they buy. It therefore makes sense for marketers to segment the market and target one or more of these segments with specialised, tailored offerings.
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MARKET SEGMENTATION
A market segment is a customer group within the market that has special characteristics which are significant for marketing strategy. In most markets the need for segmented offerings is obvious because a single product will not satisfy all the customers. For example acute asthma patients need different drugs to mild or infrequent sufferers, rich people want more luxurious hotel accommodation that that of poorer people.
Segmentation increases profit opportunities because different groups of customers attach different economic or psychological values to the solution offered.

Airline Demonstration British Airways did not always segment their market. But, it became clear to them that passengers differ in their expectations of flight travel. Business travellers valued convenience, comfort and efficient service, while leisure passengers were more interested in low price.

The table below illustrates the pricing and cost options for a carrier flying from London to New York using a 300 seater plane and anticipating an average load factor of 80%.

If it pursued an undifferentiated strategy (i.e. one class plane) a price of 250 was deemed to be the highest price chargeable to achieve an 80% occupancy load. The budgeted profit from the trip was calculated at 5200. However, to marketers it was obvious that, while a price of 250 begins to lose the business of low-budget travellers, business people and more affluent customers would be willing to pay much more for a superior service and comfort. The result the airline moved to a differentiated strategy whereby they offer three levels of service on the plane economy, business and first class at very different price levels.
SEGMENTATION OF AIRLINE PASSENGERS Class Passengers Price Variable cost Revenue Variable cost Fixed cost Profit

Undifferentiated strategy
240 Differentiated strategy Economy 144 250 20 36,000 2,800 250 20 60,000 4,800 50,000 5,200

Business
First

72
24 240

500
1000

40
100

36,000
24,000 96,000

2,880
2,400 8,160 50,000 37,840

The consequence is Massively increased revenues and profitability. The differentiated service better meets the needs of all customers by offering different values that the type of passenger groups prefer.

Another Example Scotch whiskey until the 1980s Scotch was an undifferentiated market. When Guinness bought out United Distillers, the main brand leader Johnnie Walker Red was priced at 9 per litre. The new company decided to launch a deluxe version called Johnnie Walker Black at 80% price premium (16 per litre) selling to status orientated customers. Later it added Johnnie Walker Swing (30), Premier (70), Blue (90) and Johnnie Walker Honour (129). In a market which is static in volume terms, United Distillers profits exploded.

WHY SEGMENT MARKETS?

Better matching of customer needs offering one service or one product invariably means someone will be unhappy. Enhanced profits customers differ in their price sensitivities and by segmenting the market, we can raise average prices. Enhanced opportunities for growth segmentation can build sales growth. By not offering premium services or brands allows specialist competitors to cream off your customers. Retention of customers as individual circumstances change with age, family and income so buying patterns change. By offering products say to reflect the family life cycle stages, marketers can retain their customer base. Targeted Communications difficult to have one message to meet all needs.

Warning Unless a brand is the biggest, or second biggest, in terms of share, it is unlikely to be profitable.. Minor brands suffer from lack of scale economies in production and marketing and pressures from intermediaries with limited space.

BASES OF SEGMENTATION
We start by segmenting markets into Consumer and Industrial markets:

Consumer segmentation
There are 2 different approaches to segmenting consumer markets. 1. 2. Characteristics of the buyer Demographic Geographic Psychographic and lifestyle Buyer behaviour Benefits sought Behavioural

Demographic segmentation these are the most commonly used segmentation classifications of market segments. The traditional demographic bases are:
Marital status Socioeconomic Occupation Family size
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Gender Age

Income levels Ethnic origins

Education levels Life cycle stages

Geographic segmentation Issues relating to rural vs. urban, warm vs. cold, north vs. south can be considered here. Geo-demographic bases such as ACORN, MOSSAIC etc have used this approach in location planning for new retail outlets. Psychographic and Lifestyle segmentation This approach is to classify people according to their personality traits such as socialibility, self-reliance, conservativeness or their social class. They are often used in relation to consumer products. Lifestyle on the other hand, covers attitudes interests and opinions which is useful to marketers because it provides a simple link to the variables used in buyer behaviour e.g. attitudes, perception and social influences. Benefit segmentation This approach depends on casual relationships rather than descriptive criteria. Product features sought by a motorist will be different based on the benefits they seek. For example, a family person may seek a large car with plenty of seats, whereas for an older less well of person, a smaller car offering economy may be sought. (e.g. Trust House Group next to Little Chef restaurants) Behavioural This is often based on usage of a product/service, level of loyalty and occasions.

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Industrial segmentation
Here management must segment the market by benefits sought, then they have to describe the characteristics of these customers. The most common profiles in organisational markets are as follows.

Industry or end user (e.g. agriculture, aerospace, construction) Organisational type (e.g. public or private sector) Size of organisation (e.g. big or small, national, multinational) Geographic locations (e.g. region, urban, rural) Application (e.g. heavy or light use) Usage (e.g. heavy or light user, loyal or non-loyal) Purchasing organisation (e.g. centralised or decentralised, nature of decision unit, (DMU)

making

Criteria for segmentation

Measurability the size, buying power and profits of the segment need measuring. Accessibility can the markets be effectively reached and served? Profitable are the market segments large enough to be profitable? Actionable can you actually serve the markets identified using the resources you have?

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MARKET TARGETING
Market segmentation reveals the firms market segment opportunities. We now need to evaluate the various segments and decide which, if any, to serve. Evaluating market segments There are a number of factors to consider here: Segmentation attractiveness is the segment big? Is it growing? What are the projected sales and profit margins for each segment? What degree of competition exists? Is there a threat of substitute products? What is the relative power of buyers? Business strengths do the firm have the energy and resources to match the requirements of the market segment? Do they have the skills superior to the competition in order to build market share?

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Selecting market segment A firm can adopt one of the market coverage strategies when deciding how many markets to serve as show below.

Company marketing mix A. Undifferentiated Marketing Company marketing mix 1 Marketing mix 2 Marketing mix 3 B. Differentiated Marketing

Market

Market Coverage Strategies

Segment 1 Segment 2

Segment 3

Company marketing mix

Segment 1 Segment 2 Segment 3

C. Concentrated Marketing
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 Undifferentiated marketing Here the company ignores market segment differences and goes after the whole market with one offer. The offer is seen to focus on what is common in the needs of consumers rather than what is different. The approach relies on on quality, mass distribution and mass advertising to give the product a superior image (e.g. Coca Cola, Polo, Esso). This approach provides for cost economies while the narrow product line keeps down production, inventory and transportation costs. Differentiated marketing Here the company targets several market segments and designs separate offers for each. General Motors tries to produce a car for every purse, purpose and personality. By doing so it hopes to achieve higher sales and stronger position within each segment. Concentrated marketing Where resources/skills or both are limited companies can seek to concentrate their efforts in going after sub-sectors of the markets sometimes called niches. It is a good way for new entrants into a market to gain a foothold because they can gain strong market share albeit in the smaller section and focus their expertise where it will be most effective. The problem is, this approach attracts higher risks. When times are hard, serving such a small sector could prove a problem - it could just disappear (e.g. Sock Shop)
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 Positioning Consumers typically choose products and services that give them the greatest value. The key to winning and keeping customers is to understand these needs and buying processes better than your competitors do, and to deliver more value. The extent to which a company can position itself as providing superior value to selected target markets is dependent on its competitive advantages. Companies therefore choose target market segments based on their ability to compete.
Differentiated advantage Differentiated advantage could be based on the buyers perceived product quality, performance, better service support, or lower prices. Searching for differential advantage begins with an understanding of what the customer values. The drivers of value are shown below. Product drivers Performance (e.g. speed, capacity accuracy) Features (sunroof, electric windows, stereo) Reliability Standard specification Durability Serviceability

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Service drivers Credit and finance Order facilities Delivery Installation Training and consultancy After sales service Guarantees
Image drivers Branding Association (e.g. sponsorship, wants) Recognition (e.g. symbols, logos, promotion) Cost drivers Economies of scale Experience Timing Capacity Location

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MARKET POSITIONING
A products position is the way the product is defined by the buyers on important attributes the place the product occupies in consumers minds relative to competing products. For example, Skoda and Subaru are positioned on economy, , Mercedes and Jaguar on luxury and Porsche, Saab and BMW on performance. A company's competitive advantage and its product position can be quite different. A competitive advantage is the strength of the company, while a products position is the customers perception of a product. Competition advantage like, low costs or high quality can influence a products position, but in many cases it is not central to it. For example, low costs and access to Heathrow are two of British Airways competitive advantages, but its position is based on popularity and its global network. The Worlds favourite Airline. Consumers are overloaded with information about products and services. They cannot re-evaluate products every time they make a buying decision. To simplify the buying decision process, consumers organise products into categories (i.e. they position products, services and organisations in their minds.

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A position is in effect a complex set of perceptions, impressions and feelings that the consumer holds for the product compared with competing products. Positioning is not something therefore you specifically do to the product, except in its development stage, rather its what you do to the mind of the prospective consumer. Ries and Trout demonstrated that in overcrowded markets, where there is so much advertising that consumers screen out most of the messages, it is important that you present a unique selling proposition , such that, they can remember and clearly understand the offer. In the form of a product ladder, consumers can only remember the top rungs or the main products or brands even if the market is made up of lots more. The trick is to be at the top of the ladder because people tend to remember No.1. Ask yourself who won the Football Premiership Title last year now answer who came second. The trick as we said is to find a position which your consumers value and make it yours.

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POSITIONING ALTERNATIVES
1. Strengthening a brands current position.

(e.g. Avis took its second position in the car rental market and made a strong point about it. Were number two. We try harder!
2. Search for an unoccupied position (e.g. Vidal Sassoons Wash and Go was based on recognising that the fashion for exercise meant that people washed their hair frequently, quickly and away from home. By combining shampoo and conditioner the company as able to fulfil a latent market need.) 3. Reposition of the competition (e.g. most USA buyers of dinnerware thought that Lennox China and Royal Doulton both came from England. Royal Doulton countered with ads showing that Lennox China was from New Jersey, but theirs came from England.)

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POSITIONING STRATEGIES
Marketers can follow several positioning strategies all of which use association to change peoples perception of products/services. Product attributes product attributes position many technical products (e.g. Breitling exclusive watch makers, Baure and Mercier position themselves on mechanical movement.) the benefits the attributes offer/or the needs they fill position many products (e.g. Crest toothpaste reduces cavities, Sensodyne toothpaste relieves pain from sensitive teeth). In confectionary, Ferrero Rocher is provided as a gift, but Mars and Snickers satisfy hunger. Usage Occasions Kellogg's cornflakes is positioned as a morning breakfast, Kit Kat and After Eight mints are sold alongside Ferreo Rocher and Snickers, but their positioning is on usage occasion. Kit Kat means Have A Break, while After Eight is an after dinner mint to share. Users Johnson&Johnson improved their market share for its baby shampoo from 3 to 14% by repositioning the product towards a new user category of adults who wash their hair frequently and need a gentle shampoo. Often products are positioned by associating them with their user class. Nescaf Gold Blend increased sales dramatically after showing Ads romancing thirty-somethings.
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 Activities activities also position products (e.g. Omega in sailing and aerospace The first watch on the moon!) Personalities prestigious brands are often positioned using successful personalities who can add to a products character. American Express runs ads showing caricatures of famous business people who are also users, Jameson Whiskey uses sportsmen, as do Nike. Origin again association with a place helps position a product. Perriers success depended on the sophistication of its French origin. Similarly, Audis Vorsprung durch Technik positioned its cars as German. Fosters and Castlemaine XXXX lagers positioning users their Australian heritage, plus masculine humour.

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