Segmentation Targeting and Positioning 1016 2018 Concepts Concerning

Segmentation, Targeting, and Positioning 10/16, 2018

Concepts Concerning Segmentation u u u Segmentation is a compromise between treating each customer as unique and assuming all customers are equal A market segment is a group of actual or potential customers who can be expected to respond in a similar way to a product or service offer Market segmentation is the process of dividing customers whose valuations of a product or service vary greatly into groups or segments containing customers whose valuations vary very little within the group but vary greatly among groups

Desirable Criteria for Segments u Sizable u Identifiable u Reachable u Respond Differently u Coherent u Stable

Methods for Market Definition and Segmentation u Cluster analysis: – The basic philosophy is to find a group of customers who, with respect to some set of characteristics, are similar within groups (high internal (within-cluster) homogeneity) but different among groups (high external (between-cluster) heterogeneity) u Substitution among products – The basic philosophy is to find a set of products that are substitutes for one another

Principles of Cluster Analysis

Plot of Concentration versus Category Growth Chocolate Market

Cluster Analysis

Drawing Industry Boundaries : Identifying the Relevant Market u What industry is BMW in: – World Auto industry – European Auto industry – World luxury car industry? u Key criterion: SUBSTITUTABILITY – On the demand side : are buyers willing to substitute between types of cars and across countries – On the supply side : are manufacturers able to switch production between types of cars and across countries u May need to analyze industry at different levels for different types of decision

The Basis for Segmentation: Customer and Product Characteristics of the Buyers Industrial buyers *Size *Technical sophistication *OEM/replacement Household buyers *Demographics *Lifestyle *Purchase occasion Distribution channel Opportunities for Differentiation Characteristics of the Product Geographical location *Size *Distributor/broker *Exclusive/ nonexclusive *General/special list *Physical size *Price level *Product features *Technology design *Inputs used (e. g. raw materials) *Performance characteristics *Pre-sales & post-sales services

Bases for Segmenting Consumer Markets u Geographic (region; city size; density; climate) u Demographic (age; family size; gender; income; occupation; education; religion; race; generation; nationality; social class) u Psychographic (social class; life style; personality) – AIO variables (Activities; Interests; Opinions) u Behavioral (occasions; benefits; user status; usage rate; loyalty status; readiness stage; attitude toward product)

Demographic Segmentation u Age and life-cycle stage – Our wants and abilities change with age u Life stage – A person’s major concern (e. g. , divorce)

Demographic Segmentation u Gender – Men and women have different attitudes and behave differently u Income – Income segmentation is a long-standing practice

Geographic Segmentation u Geographical units – Nations, states, regions, counties, cities, or neighborhoods u Nielsen Claritas’ PRIZM – Education and affluence – Family life cycle – Urbanization – Race and ethnicity – Mobility

PRIZM u u u A geodemographic system, marketed by Claritas Corp. Potential Rating Index by Zip Market Begins by clustering a reduced set of 1, 000 possible demographic measures The basic unit of analysis is Zip Code areas Each Zip Code represents a row of the data matrix; demographic attributes define the columns Nearly 40, 000 ZIP codes are clustered into 62 different groups

Prizm Geodemographic Segmentation u u PRIZM develops cluster solutions, provides a profile of demographic attributes for each cluster, and relates membership in the geodemographic clusters to purchasing of various products and services An application of PRIZM to the beer market – “Blue Blood Estates” – “Urban Gold Coast” – “Gray Collars”

VALS u u Based on attitudes toward issues such as the importance of work, the effectiveness of free enterprises, concentration of power, women’s role, strength of religious belief, personality, and satisfaction An analysis of 800 such measures across 2, 713 consumers produced nine clusters that were labeled: Inner-directed consumers – Integrated; Societally conscious; Experientials; I-am-me consumers u Outer-directed consumers – Achievers; Emulators; Belongers u Need-driven consumers – Survivors; Sustainers

Three Categories of Consumer Values and Lifestyles u u u Need-driven consumers: Exhibit spending driven by need rather than preference and are subdivided into survivors and sustainers, the former among the most disadvantaged people in the economy Outer-directed consumers: Are the backbone of the marketplace and generally buy with awareness of what other people will attribute to their consumption of that product Inner-directed consumers: They comprise a much smaller percentage of the population. Their lives are directed more toward their individual needs than toward values oriented to externals. Although their numbers are small, they may be important as trend setters or groups through whom successful ideas and products trickle down

Jeep u Shows how a person’s lifestyle can help marketers understand consumer values and their impact on buying behavior. u Ad targets people who want to “leave the civilized world behind. ”

Bases for Segmenting Business Markets u u u Demographic (industry; company; location) Operating Variables (technology; user or nonuser status; customer capability) Purchasing Approaches (purchasing-function organizations; power structure; nature of existing relationships; general purchase policies; purchasing criteria) Situational Factors (urgency; specific application; size of order) Personal Characteristics (innovativeness; buyer-seller similarity; attitude toward risk; loyalty)

Segmentation Analysis: The Principal Stages u Identify key variables and categories. u Construct a segmentation matrix u Analyze segment attractiveness u Identify KSFs in each segment u Analyze benefits of broad vs. narrow scope. Identify segmentation variables Reduce to 2 or 3 variables Identify discrete categories for each variable Potential for economies of scope across segments Similarity of KSFs Product differentiation benefits of segment focus

Segmenting the World Automobile Market REGION US& Canada Luxury Cars Full-size sedans Mid-size sedans Small sedans Station wagons Passenger minivans Sports cars Sport-utility Pick-up trucks W. Europe E. Europe Asia Lat America Australia Africa

Vertical Segmentation & Industry Profit Pools —The US Auto Industry 25 % Operating margin 20 Service & repair Leasing 15 Warranty Auto manufacturing New car dealers 10 5 Auto loans Used car dealers Auto insurance Aftermarket parts Auto rental 0 0 Gasoline Share of industry revenue 100%

Identifying Key Success Factors Pre-requisites forsuccess Pre-requisites for What do customers want? Analysis of demand • Who are our customers? • What do they want? How does the firm survive competition Analysis of competition • What drives competition? What are drives • • What the competition? main • What are the dimensions of main competition? dimensions of competition? • • Howintenseis iscompetition? Howcan canwe weobtainaasuperior • • How superior competitive position? KEY SUCCESS FACTORS

Segmentation and Key Success Factors in the U. S. Bicycle Industry SEGMENT Low price bicycles sold primarily through department and discount stores, mainly under the retailer’s own brand (e. g. Sears’ “Free Spirit”); Medium-priced bicycles sold primarily under manufacturer’s brand name and distributed mainly through specialist bicycles stores; KEY SUCCESS FACTORS * Low-costs through global sourcing of components & low-wage assembly. * Supply contract with major retailer. Leading competitors: Taiwanese & Chinese assemblers, some U. S manufacturers, e. g. Murray Ohio, Huffy *Cost efficiency through large scale operation and either low wages or automated manufacturing. *Reputation for quality (durability, reliability) through effective marketing to dealers and/or consumers. * International marketing & distribution. Leading competitors: Raleigh, Giant, Peugeot, Fuji High-priced bicycles for enthusiasts. Children’s bicycles (and tricycles) sold primarily through toy retailers (discount toy stores, department stores, and specialist toy stores). *Quality of components and assembly, Innovation in design (e. g. minimizing weight and wind resistence). *Reputation (e. g. through success in racing, through effective brand management). *Strong dealer relations. Similar to low-price bicycle segment.

Evaluating Market Segments u Segment Size and Growth – Analyze current segment sales, growth rates, and expected profitability. u Segment Structural Attractiveness – Consider competition, existence of substitute products, and the power of buyers & suppliers. u Company Objectives and Resources – Examine company skills & resources needed to succeed in that segment. – Offer superior value & gain advantages over competitors.

Brand Category Development High Low Market Penetration C DI Maintain Point of Entry BDI Category Build Low ?

Positioning u Positioning refers to the act of locating a brand in customers’ minds over and against other products in terms of product attributes and benefits that the brand does or does not offer – – Attribute or Benefit Quality and Price Use or User Competition

Competition-Based Positioning Triangle Category Po or int Ex of am Pa pl rity ar f P lar to p in am Po Ex or Brand A Point of Difference Brand B

Goal-Based Positioning Triangle Point of Commonality Brand Essence Goal Laddering Occupation Brand Other Objects Point of Complementarity Car Entertainment

Gap Analysis u Its maps of the market are used to determine how various products are perceived by how they are positioned on the market map u On any map the items plotted tend to cluster here and there, with open space between them u These open spaces are gaps, and a map that show gaps is called a gap map

Gap Maps u Determinant gap map: managerial expertise and judgment (our factors and our scores) – Attributes that are both differentiating and important are called determinant attributes u AR perceptual gap map: customer attribute rating (our attributes and customers’ scores) u OS perceptual gap map: overall similarities (customers’ attributes and customers’ scores)

Determinant Gap Map Crunchiness • Peanuts • Pretzels High • Fritos • Raw vegetables • Nachos • Granola bar • Potato chips • Apple • Popcorn • Corn curls $? • Beef jerky • Soda crackers • Cookies • Raisins • Candy bar • Pizza Nutritional Value • Bagels High Low • Pie $? • Donut • Cake • Banana • Ice cream • Cheese • Yogurt $? • Soda pop Low • Fruit juice

Multidimensional Scaling (MDS) u The purpose of MDS is to transform consumer judgments of similarity or preference (e. g. , preference for stores or brands) into distances represented in multidimensional space u The resulting perceptual maps show the relative positioning of all objects

AR Perceptual Gap Maps u Attributes ratings (AR) perceptual gap mapping asks market participants (buyers and users of the product) to tell what attributes they believe products have u Perceptual maps are based on marketplace perceptions of reality, which may or may not be accurate

Attribute Perceptions Questionnaire Rate each brand you are familiar with each of the following: 1. Attractive design 2. Stylish 3. Comfortable to wear 4. Fashionable 5. I feel good when I wear it 6. Is ideal for swimming 7. Looks like a designer label 8. Easy to swim in 9. In style 10. Great appearance 11. Comfortable to swim in 12. This is a designer label 13. Gives me the look I like 14. I like the colors it comes in 15. Is functional for swimming Disagree Agree 1. . . 2. . . 3. . . 4. . . 5 1. . . 2. . . 3. . . 4. . . 5

AR Perceptual Map of Swimsuit Brands Comfort Gap 1 • Aqualine • Islands • Molokai Fashion • Splash • Sunflare Gap 2

OS Perceptual Gap Maps u OS techniques run on perceptions of overall similarities between pairs of choices u Dissimilarity (Similarity) Matrix u Convert the similarity ratings into a perceptual map