SEGMENTATION TARGETING AND POSITIONING Segmentation Product positioning strategy

SEGMENTATION, TARGETING, AND POSITIONING Segmentation Product positioning strategy Bases for segmentation • Positioning • Targeting • Repositioning • •

Text, Exhibit 9. 1: The Segmentation, Targeting, and Positioning Process Establish strategy or objectives Evaluate segment attractiveness Identify and develop positioning strategy Use segmentation methods SEGMENTATION BUAD 307 Select target market TARGETING SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 2

SEGMENTATION, TARGETING, AND POSITIONING SEGMENTATION IDENTIFYING MEANINGFULLY DIFFERENT GROUPS OF CUSTOMERS TARGETING PROUDCT PRICE SELECTING WHICH SEGMENT(S) TO SERVE POSITIONING PROMOTION IMPLEMENTING CHOSEN IMAGE AND APPEAL TO CHOSEN SEGMENT DISTRIBUTION BUAD 307 SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 3

LEARNING OBJECTIVES • Identify – Different unique needs and expectations of different customer groups – Tradeoffs among strategies of serving different segments – Methods for selecting and targeting customer groups – Bases for implementing target selection through positioning BUAD 307 SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 4

DEFINITIONS Segmentation: Although not all these consumers are completely alike, they share relatively similar needs and wants. “Aggregating prospective buyers into groups that (1) have common needs and (2) will respond similarly to a marketing action. ” Marketing action involves: efforts, resources, and decisions--product, distribution, promotion, and price. BUAD 307 “The process of dividing a market into meaningful, relatively similar, and identifiable segments or groups. ” SEGMENTATION, TARGETING, AND POSITIONING 5 Lars Perner, Instructor

SEGMENTS--EXAMPLES (1) �Air Travel �Business/Executive: Inflexible; relatively price insensitive (Small number of people, but travel often) �Leisure Traveler/Student: Relatively flexible; very price sensitive (other methods of travel-e. g. , bus, car, train--are feasible; travel may not be essential) (Very large segment) �Comfort Travelers: Comfort (e. g. , space, food) important; willing to pay (Small segment) BUAD 307 SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 6

SPECIFYING SEGMENTS • Variables involve descriptors such as age, gender, income, price sensitivity, brand loyalty, geographic location, usage rate, and involvement • Levels involve the different categories within each variable. For example, for age, levels might be 0 -20, 21 -30, 31 -40, 41 -55, 56 -65, and 66; for geographic location, Northeast, Southeast, Midwest, Southwest, West or urban, rural. • Segments are obtained by “crossing” the combinations—e. g. , crossing usage rate (high, medium, low) with brand loyalty (high, medium, low) gives nine combinations (e. g. , low usage, low loyalty; medium usage, low loyalty; high usage, medium loyalty). BUAD 307 SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 7

SOME BASES FOR SEGMENTATION �Geographic (technically part of demographics) �Demographic �Psychographic �Benefit Desired �Behavioral � Loyalty � Scanner data based approaches BUAD 307 SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 8

GEOGRAPHIC (technically a case of demographic segmentation) �Regional differences �Climate and physical environment �Tastes � Campbell’s Soup �Lifestyle and values � Urban vs. rural areas �Micro-segmentation �Adaptation of retail store assortment to the specific area based on: � Residential demographics � Other characteristics (e. g. , vicinity of a beach) � May be largely data-driven based on past sales (scanner data) BUAD 307 SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 9

DEMOGRAPHICS �Age �Gender �Income—not generally a reliable predictor (willingness to spend is more useful) �Income ≠ willingness to spend! �Ethnicity �Family lifecycle stage BUAD 307 SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 10

INCOME AND PRICE SENSITIVITY • Income and wealth are NOT reliable predictors of price Important sensitivity. distinction! • In order to be able to buy certain high priced items, a certain level of income or wealth is a necessary, but not sufficient, condition. • A book titled The Millionaire Next Door provides strong evidence that many wealthy people have developed wealth through frugality rather than high incomes. • Wealthier individuals will NOT necessarily choose higher priced options. • Therefore, segmenting on price sensitivity rather than income or wealth makes more sense. BUAD 307 SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 11

SOME DEMOGRAPHIC TARGETS • The George Foreman Grill—infomercial initially featured footage of his boxing career, which was not of interest to much of his target market (women). Instead, a subsequent version featured pictures with his family. • “Free Style Cruising” at Norwegian Cruise Lines: Do what you want when you want. Cruises had historically been more regimented, and catered in large part to “the newly wed and the nearly dead”—honeymooning couples and senior citizens. In attempting to appeal to families, the experience was made more flexible. BUAD 307 SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 12

PSYCHOGRAPHICS: A combination of demographics and lifestyle �Motives �Values �Lifestyle �Usually more practical than personality BUAD 307 SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 13

BEHAVIOR: Habits, choices, and tendencies • Some examples: – Usage rate – Brand switching • Brand switchers—variety seeking • Brand switchers—motivated by price • Loyals—extreme temptation is needed to bring about switch • Inertials – Habitual buyers – “If it ain’t broke…” – Likely switch if there is a good reason • Other scanner data based methods BUAD 307 SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 14

Cracking Down on Excess Retail Store Returns • Best Buy and a number of other retail chains engage the services of Retail Equation, a service tracking return patterns of customers • Certain customers who have made “excessive” returns are told that they will no longer be able to return items for a certain period of time even if this would generally be permitted under the retailer’s return rules • These restrictions are intended to: – Curtail abuse (e. g. , wearing clothes or using a product and then returning it) – Guard against stolen items or items bought elsewhere being “returned” – Guard against excessively costly customers (an estimated 11% of retail store merchandise is being returned) BUAD 307 SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 15

Predicting Pregnancy from Target Purchases • Twenty-five variables used to predict—e. g. , – Change to unscented lotions and cotton balls – Dramatic increase in purchases of • • Hand sanitizers Selected vitamins Wash cloths Cotton balls • Legal issues • Ethical and public relations issues BUAD 307 SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 16

USAGE RATE �“ 80/20” rule— 20% of consumers may account for 80% of consumption (in many product categories) �Note that larger consumption rate segments may be subject to heavy competition �Reasons for targeting smaller segments � Reduced competition � Opportunity for growth BUAD 307 SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 17

DYNAMIC PRICING • The effective price may be set based on the past behavior of the customer – Customers who have not shopped at Staples or Staples. com recently may receive a coupon – Amazon. com may base the price offered on previous purchases. New customers may receive lower price offers. – Those who elect to pay for airline upgrades (e. g. , to first class) may be less likely to get such upgrades as comps BUAD 307 SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 18

BENEFITS SOUGHT �Based on �Differences in arbitrary tastes—a matter of preference rather than significant tradeoffs (e. g. , cola vs. non-cola drink) �Tradeoffs (e. g. , taste vs. calories; price vs. performance) �Usage situation (e. g. , coffee for camping (instant) vs. higher quality for home brewing) BUAD 307 SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 19

TARGETING: SELECTING SEGMENT(S) AND SPECIALIZING �“You can’t be all things to all people” ---> choose one or more groups. �Focus narrows scope of competition, but demands are greater. BUAD 307 SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 20

SOME CRITERIA IN EVALUATING SEGMENT ATTRACTIVENESS • Identifiability (and distinctiveness from other segments) • Reachability • Substantiality (segment size)— note that a large segment may attract heavy competition, however. • Profitability • Responsiveness BUAD 307 SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 21

APPROACHES TO TARGETING • Undifferentiated: Offering sold as a commodity by everyone to call customers • Differentiated: Firm makes different offerings to each of several different segments (e. g. , auto manufacturers make different cars and trucks aimed at different customer groups) • Concentrated: Firm focuses on serving one segment (or offering one benefit)—e. g. , Tesla (electric cars) • Micro-marketing (one-to-one): Unique offerings to each customer BUAD 307 SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 22

Identifiability and Reachability • Members of a segment need to be identified either individually or as a group with characteristics and to be reachable (i. e. , targeted with advertising and reached with stores or other sales outlets) • Lists of very specific segments—to whom catalogs and other materials can be sent—can be bought from brokers. Examples of lists available: – Occupation (especially if licensed or listed in Yellow pages) – Organizational membership – Medical condition • Reach through specialized media BUAD 307 SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 23

Reaching Target Markets • TV network viewer demographics, lifestyles, and interests – Food network vs. ESPN vs. Bloomberg • Retail store level scanner data— e. g. , drug store chain predicting pregnancy • Direct mail lists – – – – BUAD 307 Previous purchases Auto and real estate ownership Medical conditions Profession organization membership Warranty registrations Area of residence Estimated income Other demographics • Specialty media – Specialized TV programs addressing product of interest (e. g. , food, travel) – Print or online specialty magazines (e. g. , digital photography, home improvement, jogging, travel, hunting) • Search behavior – Paid search—”pay per click” – Products explored online – Sites frequented Data enhancement: Matching individuals across sources to combine comprehensive information—multiple variables SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 24

Direct Mail Catalogs • Still used – Spam e-mail is technically illegal and viewed unfavorably – Catalogs get more attention – More elegant and higher resolution images • The “Merge-Purge” process: Combining different sources – Available sources include magazine subscription lists, competitors’ customers (more catalogs are believed to increase the “pie” size rather allowing competitors to take away) – No one source contains all potential customers; thus, sources are added together (merge) – There will likely be some overlap between sources, so duplicates must be removed (purge) • Limited response rates – Typically 1 -3% when highly relevant sources are used (e. g. , past purchase) – Merely sending to everyone in the phone book would result in a much lower rate! – The 1 -3% response rate is considerably greater than response to TV, newspaper, and magazine advertising BUAD 307 SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 25

Merge-Purge: Identifying Potential Buyers of Baby Clothes GYMBOREE. COM NAMES AND ADDRESSES FROM ALL SOURCES COMBINED PARENTING AMERICAN BABY NEW PARENT CARTER’S OSHKOSH. COM BONPOINT BABY CLOTHES ACTIVE BABY DEPOT BUAD 307 REMOVE DUPLICATES BABY & TODDLER MOMS CLUB NONREDUNDANT FINAL LIST SPOLING GRANDMAS’ ASSOCIATION COOL DADS’ SOCIETY SEGMENTATION, TARGETING, AND POSITIONING KOREAN-AMERICAN FAMILY CENTERS Lars Perner, Instructor 26

Clarification: Data enhancement vs. the merge-purge process • Data enhancement – Increases the amount of information available about each individual but not necessarily the total number of individuals in the database (individuals are matched across databases and their information is combined in a new, comprehensive one) • Merge-purge – Increases the number of individuals in the database but does not necessarily add more information about each individual BUAD 307 SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 27

POSITIONING: Text, Exhibit 9. 8: The Value Proposition Competitor offerings Customer needs and wants BUAD 307 Value Proposition: Desired benefits for a particular customer not readily available from competitors Firm offerings SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 28

SOME POSITIONING STRATEGIES • The value proposition—some possible benefits – Unique product/service – Price • Low price as benefit • Good value compared to competitors – Quality – Prestige – Customer values (e. g. , cruelty free foods and personal care items) • Customer communication and education needed BUAD 307 SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 29

SEGMENTATION, TARGETING, AND POSITIONING PROUDCT PRICE PREMIUM POSITIONING BASIC DURABLE IMPLEMENTING CHOSEN IMAGE AND APPEAL TO CHOSEN SEGMENT PROMOTION BUAD 307 LOW PRICE VALUE DISTRIBUTION PRESTIGE INTENSIVE FUN SELECTIVE POWERFUL EXCLUSIVE SEGMENTATION, TARGETING, AND POSITIONING Lars Perner, Instructor 30