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Market Segmentation Marketing & Advertising Mr. Arbiter Introduction • As society gradually became less homogenous, mass marketing became more the exception than the rule in Western Marketing. • Mass marketing can be thought of as the shotgun approach, while target marketing is much more of a surgical or strategic approach to building relationships with customers. Introduction •The broad term, Target Marketing consists of three distinct steps: • Market segmentation • Target marketing • Market positioning The Target Marketing Process Market Segmentation Target Marketing • Identify bases for segmenting the market develop segment profiles • Develop measures of segment attractiveness and select target segments Market Positioning • Develop positioning for each segment and develop a marketing mix for each segment Market Segmentation •There is no single way to segment a consumer market. •Marketers use different segment variables alone or in combination to find the best way to view market structure. Market Segmentation • The major variable categories are: • Geographic • Demographic • Psychographic • Behavioral Geographic Segmentation Calls for dividing markets into different geographical units such as: •Nations •Regions •States •Counties •Cities •Neighborhoods •Climate •Density Geographic Segmentation Examples • Campbell Soup • Cajun Gumbo Soup in Louisiana and Mississippi • Nacho Cheese Soup in Texas and California • Starbucks • More desserts and larger, more comfortable coffee shops in the South where customers tend to come in later and stay longer. • Parker Bros. • Offers localized versions of it’s popular Monopoly game for New York, Las Vegas, Chicago and San Diego Hot Question How can segmentation aid in Marketing Management? Demographic • Age (and lifecycle) • Gender • Family size • Income • Occupation • Education • Religion • Race • Generation • Nationality Demographic Segmentation Examples • Age & Lifecycle Demographic Segmentation Examples • Gender Proctor and Gamble was the first company to offer a brand of deodorant that was specifically formulated for women. Demographic Segmentation Examples Income High Income Low Income • Neiman Marcus • Sachs Fifth Avenue • Lord & Taylor • American Express • Blue Nile • Cadillac • Lincoln Continental • • • • • • • • Dollar General Family Dollar Dollar Tree Walmart K-Mart Nissan Toyota Hyundai Psychographic Segmentation • Divides buyers into different groups based on: • Social Class • Lifestyle • Personality Psychographic Segmentation • People in the same Demographic Group can have very different Psychographic characteristics • Young & Rubicam, the 10th largest advertising agency in the world, created the 4C model for developing Psychographic Lifestyle Profiles. http://www.bing.com/videos/search?q=Market+Sevemntation+McDonalds+Video&FORM=HDRSC3#view=detail&m id=24DAFC63490A1E8CC3D024DAFC63490A1E8CC3D0 VALS Profile of American Consumers • http://www.strategicbusinessinsight s.com/vals/ustypes.shtml Behavioral Segmentation • Behavioral segmentation divides buyers into groups based on their knowledge, attitudes, uses or responses to a product. • Many marketers believe that behavioral variables are the best starting point for building market segments. Behavioral Segmentation • Typical Behavioral factors will include: • Occasions • Benefits Sought • User Status • Usage Rates • Loyalty Status Behavioral Segmentation • Occasions • Buyers can be grouped according to occasions when they get the idea to buy a particular product. • One advertising campaign which was similar to “Got Milk” was called the “Incredible Edible Egg.” • It was designed to develop non-breakfast occasions to consume eggs. • Other Occasions include: • Thanksgiving • Mother’s/Father’s Day Behavioral Segmentation • Benefits Sought Segmentation divides consumers into the benefits they seek in a particular product (or service). • This model requires an understanding of the specific benefits consumers seek in a particular product or class of products. Behavioral Segmentation Benefits Sought Segmentation Examples • Proctor & Gamble, a leading manufacturer of soap and detergent products segments its products according to this model and develops classes of detergents that consumers seek out in terms of the specific benefits they offer. • Champion Sportswear loosely segments products into the following categories: “Fit & Polish”, “Serious Sports Competitors” & “ValueSeeking Moms.” Behavioral Segmentation • Typical Behavioral factors will include: • Occasions • Benefits Sought • User Status • Usage Rates • Loyalty Status Behavioral Segmentation • Segmentation based on User Status • Typical User Segmentation • • • • • Nonusers Ex-users Potential users First-time users Regular users • Blood Banks cannot only rely on regular donors. They have to constantly market to potential donors to ensure a continued blood supply. • Significantly different marketing efforts are applied to regular donors to ensure continuing donations. Behavioral Segmentation • Marketing to Potential Users • Proctor & Gamble acquires the manes of parents-to-be and showers them with product samples and ads for its Pampers and other baby products. • The goal is to hook these parents early in the product adoption process to create regular users. • P&G offers their customers access to Pampers.com. This site is a venue for P&G to sell their products while giving parents access to expert parenting advice. • www.pampers.com Behavioral Segmentation • Typical Behavioral factors will include: • Occasions • Benefits Sought • User Status • Usage Rates • Loyalty Status Behavioral Segmentation • USAGE RATES • Light users • Medium users • Heavy users • Importance of understanding this segment-In the fast food industry, heavy users make up just 20% of the patrons that visit fast food stores however they consume approximately 60% of all food served. • Typically, while fast food chains rely on heavy users, a significant percentage of marketing dollars are spend on light users. Behavioral Segmentation • Typical Behavioral factors will include: • Occasions • Benefits Sought • User Status • Usage Rates • Loyalty Status Behavioral Segmentation Loyalty Status • A market can also be segmented based on loyalty. • Customers can be loyal to a: • Brand-Tide Laundry Detergent • Store-Walmart • Company-Ford • Apple has a cult-like following. • IOS vs. Android • OSX vs. Windows Behavioral Segmentation • LOYALTY STATUS Macolyte-One who is fanatically devoted to Apple products. www.urbandictionary.com • Other products, companies and ideas have developed loyal users such as: • • • • • • Volkswagen Jeep Lexus New York Times Democrats/Republicans Coke/Pepsi Brief Review and Refocus •Why do companies segment their markets? Companies segment their markets to improve their competitiveness and profitability in fundamental ways: • By focusing product development, marketing, and service resources on segments with the most potential, companies literally can multiply their marketing and service efficiency. Companies segment their markets to improve their competitiveness and profitability in fundamental ways: • By developing products, services, and marketing messages that address those segments’ specific needs, they can greatly improve their share of the most desirable business. • At the same time, by focusing on the needs of the most desirable customers, companies can improve retention of those customers. Using Multiple Segmentation Bases • Marketers rarely use one or only a few segmentation variables. • They typically use multiple segmentation bases in an effort to better define their target groups. • For example, a bank might not only identify a group of wealthy retired adults, but may profile several other segments based on their income, assets and risk tolerance. • The same bank may choose to segment it’s potential customers by housing and lifestyle variables. Nielsen Prizm Segmentation System • The Nielsen Prizm Segmentation model breaks markets down into 66 individual segments based on a combination of segmentation variables such as age, income, life-style and geographics. • Here’s an example: 05 Country Squires Upscale Middle Age w/ Kids The wealthiest residents in exurban America live in Country Squires, an oasis for affluent Baby Boomers who've fled the city for the charms of small-town living. In their bucolic communities noted for their recently built homes on sprawling properties, the families of executives live in six-figure comfort. Country Squires enjoy country club sports like golf, tennis, and swimming, as well as skiing, boating, and biking. Traits of the “Country Squire” • Demographics Traits • • • • • • • • • Urbanicity: Town/Rural Income: Upscale Income Producing Assets: High Age Ranges: 35-54 Presence of Kids: HH w/ Kids Homeownership: Mostly Owners Employment Levels: Management Education Levels: Graduate Plus Ethnic Diversity: White, Asian, Mix • Lifestyle & Media Traits • • • • • Order from amazon.com Vacation at ski resorts Read Shape Watch The Biggest Loser” Chevy Suburban Flex Fuel A look at Neilsen Prizm • http://www.claritas.com/MyBestSegments/Default.jsp?ID=30&menu Option=segmentexplorer&pageName=Segment%2BExplorer Requirements for Effective Segmentation • Measurable • Accessible • Substantial • Differentiatable • Actionable Requirements for Effective Segmentation • Measurable • The following variables need to be measurable for effective segmentation: • Size • Purchasing power • Profiles • Certain segmentation variables are difficult to measure or use, for example there are approximately 32,500,000 left-handed Americans. • This is relatively certain statistical measure, but we don’t know who they are. Requirements for Effective Segmentation • Accessible • The market segments can be effectively reached and effectively served. • Suppose a fragrance company finds that heavy users of its brand are single men and women who stay out late and socializes a lot. • If that group does not live or shop in certain places or are exposed to certain media, then members can be difficult to reach. Requirements for Effective Segmentation • Substantial • The market segments identified are large enough or profitable enough to serve. • A segment should be a large homogeneous group worth perusing with a tailored marketing plan. • For example, car manufacturers would not find it profitable to build cars for or market to men under five feet tall or over seven feet tall. Requirements for Effective Segmentation • Differentiable • The segments must be conceptually distinguishable and respond differently to different marketing mix elements. • If for example, married and unmarried women respond similarly to a sales promotion on perfume, they don’t constitute separate segments. Requirements for Effective Segmentation • Actionable • Effective and attractive programs can be designed for attracting and serving the segments identified. • A small airline identified several market segments that were likely to be reachable. Unfortunately, the airline did not have the staff or financial resources to reach the segment. • A careful cost/benefit analysis should be completed before attempting to market to a particular segment to ensure that the marketing dollars are well-spent. The Marketing Concept Knowing the needs and wants of a target market and delivering these needs and wants better than the competition. Sample Essay Question In a fully developed essay, explain the process of market segmentation. Your explanation should include the various segmentation variables and their usefulness. You should also include examples of products that might fit certain segmentation variables. In order to be successful, your essay must touch upon demographic, psychographic, and behavioral variables. You should also explain why segmentation is used for purposes of target marketing.