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Principles of Marketing “ Segmentation, Targeting, and Positioning: Building the Right Relationship with the Right Customers” We’ve understood what marketing is, how consumers behave and the market place environment, the next step is to divide customers into meaningful groups in order to choose the most lucrative segment and create offers that serve the chosen segment best. Why is Segmentation important? 1. 2. 3. 4. Companies have moved away from mass marketing (mass producing, mass distributing and mass promoting) – the shot-gun approach is over. It is no longer about one size fits all. The world’s mass market has now slowly splintered into smaller segments. Companies are now focusing their efforts on buyers who have greater interest in the values they create best (the rifle approach). Companies today recognize that they cannot appeal to all buyers in the marketplace or at least not all the buyers in the same way because buyers are too numerous , too widely scattered and to varied in their needs and buying practices. Different people want different mix of benefits from the products they buy. The Segmentation Process Market segmentation Target Marketing Market Positioning Identify basis for segmenting the market. Develop segment profiles Develop measure of segment attractiveness Select target segments Develop positioning for target segments Develop a marketing mix for each segment Market Segmentation: Through this process companies divide large heterogeneous markets into smaller markets that can be reached more efficiently and effectively with products and services that match their unique needs. Market segmentation is dividing a market into smaller groups of buyers distinct needs, characteristics, or behavior who might require separate products or marketing mixes. Major variables used in segmenting consumer markets Geographic Segmentation: Dividing a market into different geographical units such as nations, states , regions, countries, cities or neighborhoods. Demographic Segmentation: Dividing the market into groups based on; a) age b) gender c) family size d) family life-cycle e) income f) occupation g) education h) religion i) race and nationality j) generation Innovators High resources High innovation Primary motivation Ideals Achievement Self-expression THE Thinkers Achievers Experiencers VALS TYPOLOGY Believers Strivers Makers Low resources Survivors Low innovation • • • • The VALS ( Values & Lifestyle) Typology classifies people according to how they spend their time (primary motivation) and money, knowledge, strength, health (resources) People guided by ideals are guided by knowledge and principles. If they have high resources they will be Thinkers and if they have low resources they will be Believers. People guided by achievement look for products and services that demonstrate success to their peers. If they have high resources they will be Achievers and if they have low resources they will be Strivers. People guided by self-expression desire social or physical activity , variety and risk. If they have high resources they will be Experiencers and if they have low resources they will be Makers. If level of resources is too high then we have Innovators, these people exhibit all three primary motivations in varying degrees. When level of resources is too low , we have Survivors, i.e. people who do not show any primary motivation and just focus on meeting their needs rather than fulfilling their desires. Major variables used in segmenting consumer markets • Behavioral Segmentation: Dividing a market into groups based on consumer knowledge , attitude, use or response to a product. a) Occasional Segmentation is dividing the market into groups according to occasions when buyers get the idea to buy, actually make their purchase or use the purchased items. b) Benefit Segmentation is diving the market into groups according to the different benefits that consumers seek from the products. i) User Status – nonusers, ex-users, potential users, first time users and regular users of a product. ii) Usage rate – light, medium and heavy product users iii) Loyalty – very loyal to brand or company, less loyal or non-loyal. Psychographic Segmentation: Dividing the market into different groups based on social class, lifestyle or personality characteristics. People in the same demographic groups can have very different psychographic makeups. Lifestyles define a person’s pattern of living as expressed in his or her activities, interests and opinions. Major variables used in segmenting business markets Business buyers are segmented in relatively the same way as consumer markets yet they can have some additional variables such as customer operating characteristics, purchasing approaches, situational factors and personal characteristics. Major variables used in segmenting International markets Forming segments of consumers who have similar needs and buying behavior even though they are located in different countries. World markets can also be segmented based on economic factors, geographic, political and cultural factors. Inter-market segmentation occurs where segments are formed across countries comprising of people with the same needs and buying behavior. Effective Segmentation: 1. 2. 3. 4. 5. Measurable – size purchasing power of segments can be measured Accessible – the market segments can be effectively reached and served. Substantial – Choosing market segments that re large and profitable to serve. A segment should be the largest possible homogenous group worth pursuing. Differentiable – the segments are conceptually distinguishable and respond differently to different marketing mix elements and programs. Actionable – Effective programs should be designed to target different groups and the company should have adequate resources to serve the segments. Target Marketing: Market Segmentation reveals the firm’s market segment opportunities, the firm will evaluate the various segments and decide how may and which segments it can serve best. Target Marketing is the process of evaluating each market segment’s attractiveness and selecting one or more segments to enter. The Steps of Target Marketing 1. Evaluate the Market Segments. 2. Select Target Market Segments 3. Choose a Target marketing Strategy. Evaluate the Market Segments. 1. Segment Size and growth: The company must collect and analyze data regarding the current segment’s sales, growth rates and profitability. Right size and growth is a relative matter. A company will select a segment which is more appropriate to handle as per the size of the company. 2. Segment Structural Attractiveness: This factor goes down if competitors are a lot and aggressive, substitute products are present, power of buyers is high and powerful suppliers are present. 3. Company Objectives and Resources: Some attractive segments can be dismissed quickly because they do not mesh with the company's longrun objectives, or the company may lack skill and resources needed to succeed in an attractive segment. The company should enter only segments in which it can offer superior value and gain advantages over competitors. Select Target Market Segments After segments have been evaluated, the company will select which and how many segments it will target. A target market is selected, this consists of buyers who share a common need or characteristics that the company decides to serve. Its focus may be broad , narrow or somewhere in between, based on these there are 3 target marketing strategies 1. Undifferentiated marketing, 2. Differentiated Marketing 3. Concentrated Marketing 4. Micro Marketing Undifferentiated Marketing Here the firm decides to ignore market segment differences and target the whole market with one offer Also know as mass marketing Focus is on common need rather than on what is different A product or marketing offer that appeals to the largest number of buyers is selected. Mass marketers often have trouble competing with more focused firms. Differentiated Marketing Here the firm decides to target several market segments and designs separate offers for each. By offering products and marketing variations to segments, companies hope for a higher sales and stronger position with in each segment This strategy increases costs of doing business. Concentrated (Niche) Marketing Here the firm goes after a large share of one or a few segments or niches. Good for firms with limited resources. The firm achieves a strong position because of its greater knowledge regarding a segment. It can market more efficiently and effectively. Niches are smaller and offer only one or few competitors, henceforth smaller companies can focus their resources more aptly. Once established in a niche, a company may grow into a larger firm. Niche marketing involves higher risk for companies whose business is dependent on one or few segments. Micro Marketing Here the firm goes after the ‘individual’ in every customer rather than the customer in every individual. This is the practice of tailoring products and marketing programs to the needs and wants of specific individuals and local customer groups. Local Marketing: Focused on local customer groups, This can drive up he marketing costs, it can create logistics problem and the over all brand image may be diluted if the brand message is too varied across groups. Individual Marketing: Tailoring products to fit the needs and preferences of individual customer – ‘customized marketing’ , ‘one to one marketing’ – Mass customization This helps smaller companies stand out against larger competitors. Mass customization has made customer relationships very important Self marketing is coming into play where customers are taking more responsibility for their choices. Choose a Target Marketing Strategy Factor Strategy Company Resources are low Concentrated Marketing Product Variability is low Undifferentiated marketing Product life cycle stage is ‘new product’ Undifferentiated or concentrated marketing Product life cycle stage is mature Differentiated marketing Market Variability is low Undifferentiated marketing Competitors Marketing Strategy – if undifferentiated Differentiated or Concentrated. In target marketing the issue is not who is targeted but rather how and for what the audience is targeted - Socially responsible target marketing comes into play. Market Positioning Once the segments have been evaluated, selected and targeted. Now the company must work on positioning its product in the mind of the customer. Product position is the way the product is defined by the consumer on important attributes , or the place a product occupies in the mind of a consumer relative to competing products. Positioning helps to simplify the buying process and the customer does not have to re-evaluate the products status. Marketers must plan their ‘product position’ to gain maximum advantage. price Perceptual positioning maps show the consumer perceptions of their brands versus competing products on important buying dimensions. The position of each circle indicates the brands perceived positioning on two different dimensions and the size indicates the brand’s relative market share. luxury Performance orientation Choosing a Positioning Strategy 1. Identifying a set of possible competitive advantages upon which to build a position. 2. Choosing the right competitive advantage. 3. Selecting an overall positioning strategy. Identifying possible competitive advantages 1. 2. 3. 4. 5. Competitive advantage can be gained through: Product Differentiation Services Differentiation Channel Differentiation ( how products get to customers) People Differentiation Brand Differentiation ( Ritz Carlton, Nike, UPS) Choosing the Right Competitive Advantage How many Differences to promote – USP, you could promote one or two competitive attributes but be careful not to promise to many things because there is a risk of disbelief and loss of clear positioning. Which Differences to promote – your brand may have several attributes but its is important to know which ones are meaningful enough to communicate to the customers, henceforth a difference is worth establishing to the extent that is satisfies the following criteria: 1. Important – perceived as a highly valued benefit to target buyers 2. Distinctive – not offered by competitors 3. Superior – Superiors to others 4. Communicable – is visible to the buyers 5. Preemptive – cannot be easily copied 6. Affordable – Buyers can afford to pay for the difference 7. Profitable – the company can introduce the difference profitably Value Proposition The full positioning of a brand – the full mix of benefits upon which it is positioned. Value Proposition (VP) is the answer to the customer’s question “ Why should I buy your product instead of the competitor’s?” VP is how a company will differentiate and position it self in the marketplace VP is the set of benefits or value the company promises to deliver to consumers to satisfy their needs. Selecting an overall Positioning Strategy Mfm – 50 rs main 2.5 ltr pepsi Price Mfs – 40 rs main 20% ziyada Mfl-30 rs main 1.5 ltr more The same less Sfl- 1.5 ltr for 20rs Lfl – 200 ml for 12 rs benefits more The same less More for more More for More same for less The same for less Less for the less The five blue cells represent winning value propositions, where as the orange cells represent the losing value propositions. The center yellow cell represents at best a marginal value proposition. More for more involves providing the most upscale product or service and charging a high price to cover the costs. More for the same is when a brand is introduced offering comparable quality but at a lower price. More for less is quite a winning proposition. The same for less is also a powerful proposition because everyone likes a good deal. Less for much less is for the market which always exists to take products that offer less and therefore cost less.. This involves meeting consumer lower performance or quality requirements at a much lower price. Develop a Positioning Statement The statement should follow the form: To (target segment and need) our (brand) is (concept) that (point of difference) Good marketers promise their customers only what they can deliver and then over-deliver and delight their customers.