www wessexlearning com Managing Markets Strategically Professor Noel

www. wessexlearning. com Managing Markets Strategically Professor Noel Capon R. C. Kopf Professor of International Marketing Columbia Business School New York, NY © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 1

Managing Markets Strategically www. wessexlearning. com Section 1: Marketing and the Firm Section 2: Fundamental Insights for Strategic Marketing Section 3: Strategic Marketing Chapter 6: Identifying, Choosing Opportunities Chapter 7: Market Segmentation, Targeting Chapter 8: Market Strategy – Integrating Firm Efforts for Marketing Success Chapter 9: Managing through the Life Cycle Chapter 10: Managing Brands Section 4: Implementing the Market Strategy © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 2

www. wessexlearning. com CHAPTER 7 Market Segmentation, Targeting © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 3

Chapter Roadmap www. wessexlearning. com The Market Segmentation Process Market Segments Targeting Market Segments 1. Levels of Segmentation – Discrete groups of segments Ask key questions about market segments 2. Developing Market Segments – two approaches: customer needs or candidate descriptor • How many segments? • Market segment attractiveness • Can individual customers be a segment? • Business strengths 3. Methodological Approaches to Forming Segments – Qualitative or quantitative • Do market segments evolve? • How do customer life cycles affect market segments? 1. The Multifactor Matrix Approach to Targeting 2. Targeting Market Segments and Company Size • Does segment of customers differ from a group? © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 4

Six Marketing Imperatives www. wessexlearning. com • Imperative 1: Determine, recommend which markets to address • Imperative 2: Identify, target market segments • Imperative 3: Set strategic direction, positioning • Imperative 4: Design the market offer • Imperative 5: Secure support from other functions • Imperative 6: Monitor, control execution/performance © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 5

Market Segmentation, Targeting www. wessexlearning. com Market segment: A subset of a total market comprising a grouping of customers with similar needs, seeking similar sets of benefits and values, with similar levels of priority. Market segmentation: The process of grouping together actual and potential customers in a market for the purpose of forming segments. Targeting: The process of deciding which segments receive most effort, and which segments receive little or no effort. Since firms typically have insufficient resources and/or capabilities to address all segments, they must make choices. © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 6

Market Segmentation, Targeting www. wessexlearning. com Session Roadmap • The marketing process • Market segmentation • Targeting market segments © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 7

Market Segmentation, Targeting www. wessexlearning. com Session Roadmap • The marketing process • Market segmentation • Targeting market segments © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 8

The Marketing Process www. wessexlearning. com Market, Customer, Competitor, Company, Complementer Insight Planning Assumptions Chapters 3, 4, 5 Transition to Strategic Marketing Identify Market Opportunities Chapter 6 Identify Market Segments Chapter 7 Target Selected Market Segments Chapter 7 Formulate Market-Segment Strategy, Positioning (for each target segment) Chapter 8 Implement Market-Segment Strategy (for each target segment) Chapters 1 – 20 Market-Segmentation Process Targeting Decision Develop Market-Segment Strategy, Positioning Design the Market Offer © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 9

The Marketing Process www. wessexlearning. com Market, customer, competitor, company, complementer insight Strategic Marketing Implementing market strategy © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 10

Market Segmentation. Targeting www. wessexlearning. com Session Roadmap A • The marketing process • Market segmentation • Targeting market segments © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 11

Market Segmentation www. wessexlearning. com Session Roadmap AA • Market segment illustrations • Market segment matrix • Descriptor (segmentation) variables • Criteria for good market segments • Developing market segments • More market segment illustrations • Questions about market segments © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 12

Market Segmentation www. wessexlearning. com Illustration: Analgesics Market Level Market Segments Customer Segments © Noel Capon, 2017. All rights reserved. Pain Market Back Pain Migraine Headache General Foot Pain Tension Etc. PRESENTATION 7 OF 20 / 13

Market Segmentation www. wessexlearning. com Session Roadmap AA • Market segment illustrations • Market segment matrix • Descriptor (segmentation) variables • Criteria for good market segments • Developing market segments • More market segment illustrations • Questions about market segments © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 14

Market Segmentation www. wessexlearning. com Market Segment Matrix Definition of segments Customer needs/ required benefits © Noel Capon, 2017. All rights reserved. A B C ZZZ 5 2 4 YYY 4 1 5 XXX 2 4 1 WWW 1 3 2 VVV 3 5 3 Priority ordering PRESENTATION 7 OF 20 / 15

Market Segmentation www. wessexlearning. com Session Roadmap AA • Market segment illustrations • Market segment matrix • Descriptor (segmentation) variables • Criteria for good market segments • Developing market segments • More market segment illustrations • Questions about market segments © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 16

Market Segmentation www. wessexlearning. com Candidate Descriptor Variables Variable Type Examples of Descriptor Variables Geographic Country, region, county size, city or Standard Metropolitan Statistical Area (SMSA) size, population density, climate Demographic B 2 C — age, education, family life-cycle stage, family size, gender, income, language, national origin, occupation, race, religion, social class, wealth B 2 B — balance sheet items, firm size, growth, industry, profitability, legal entity, length of time at location, number of years in business Behavioral Composition/type of purchase decision, decision-making practice, decision-making unit, new or existing user, use occasion, user situation B 2 B variables: procurement organization — centralized/decentralized, and power structure — like engineering dominated, financial dominated Sociopsychologic al B 2 C — attitudes; life stage; personality (ambitiousness, authoritarianism, autonomy, compulsiveness, conservatism, gregariousness, leadership); sexual orientation B 2 B — inward/outward orientation and organizational climate and culture © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 17

Market Segmentation www. wessexlearning. com Candidate Descriptor Variables Firms use candidate descriptor variables to construct customer groups and then searches for homogenous profiles within each group Variable Type Examples of Descriptor Variables Geographic Country, region, county size, city or Standard Metropolitan Statistical Area (SMSA) size, population density, climate Demographic B 2 C — age, education, family life-cycle stage, family size, gender, income, language, national origin, occupation, race, religion, social class, wealth B 2 B — balance sheet items, firm size, growth, industry, profitability, legal entity, length of time at location, number of years in business Behavioral Composition/type of purchase decision, decision-making practice, decision-making unit, new or existing user, use occasion, user situation B 2 B variables: procurement organization — centralized/decentralized, and power structure — like engineering dominated, financial dominated Sociopsychologic al B 2 C — attitudes; life stage; personality (ambitiousness, authoritarianism, autonomy, compulsiveness, conservatism, gregariousness, leadership); sexual orientation B 2 B — inward/outward orientation and organizational climate and PRESENTATION 7 OF 20 / 18 culture © Noel Capon, 2017. All rights reserved.

Market Segmentation www. wessexlearning. com Descriptor Variables: Illustration – Candidate Groups Variable Type Variable Examples of Descriptor Variables Demographic (B 2 C) Education Grade school or less Some high school High school graduate Some college College graduate Demographic (B 2 B) Firm size Fortune 500 Fortune 501 to 1000 Sales > $100 million Sales $50 to $100 million Sales <$50 million Sociopsychologi cal (B 2 C) Life stage Single Just married Married with children Divorced with children Empty-nester couple Empty-nesters with grandchildren Widow/widower © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 19

Market Segmentation and Targeting www. wessexlearning. com Class Discussion • Tune hotels believes mid-range and budget travelers are highly price sensitive • Discuss Tune Hotels approach to market segmentation and analyze how the Internet impacts the segmentation © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 20

Market Segmentation www. wessexlearning. com Descriptor Variables — Forming Market Segments: Illustration – Sneaker Manufacturer – gender Gender Male Female 20 years 40 years Age © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 21

Market Segmentation www. wessexlearning. com Forming Market Segments: Illustration – Sneaker Manufacturer – age Gender Male Female 20 years 40 years Age © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 22

Market Segmentation www. wessexlearning. com Forming Market Segments: Illustration – Sneaker Manufacturer – exercise behavior Gender Male Female 20 years 40 years Age © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 23

Market Segmentation www. wessexlearning. com Market Segment Matrix: Illustration – Skin Care Cream Customer Need/Required Benefits and Values Age-Based Market Segments 14– 18 19– 29 30– 39 40– 49 50– 64 65 and over Beauty 5 4 1 2 2 3 Confidence 2 2 3 3 3 4 Economy 4 5 7 7 6 5 Health 6 6 4 4 4 2 Sexual Allure 3 1 2 5 5 6 Status 1 3 6 6 7 7 Youthfulness 7 7 5 1 1 1 © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 24

Market Segmentation www. wessexlearning. com Session Roadmap AA • Market segment illustrations • Market segment matrix • Descriptor (segmentation) variables • Criteria for good market segments • Developing market segments • More market segment illustrations • Questions about market segments © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 25

Market Segmentation www. wessexlearning. com Criteria for Good Market Segments Differentiated Stable Identifiable Criteria for Market Segments Accessible Measurable © Noel Capon, 2017. All rights reserved. Appropriately sized PRESENTATION 7 OF 20 / 26

Market Segmentation www. wessexlearning. com Session Roadmap AA • Market segment illustrations • Market segment matrix • Descriptor (segmentation) variables • Criteria for good market segments • Developing market segments • More market segment illustrations • Questions about market segments © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 27

Market Segmentation www. wessexlearning. com Type of Data Two-Variable Segmentation: Illustration – Physicians Relies on scientific evidence Risk taker Hard headed Relies on clinical experienc e Path finder Tortoise Aggressive Conservative Approach to Treatment Behavioral and sociopsychological variables may be more effective than geographic and demographic variables © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 28

Market Segmentation www. wessexlearning. com Session Roadmap AA • Market segment illustrations • Market segment matrix • Descriptor (segmentation) variables • Criteria for good market segments • Developing market segments • More market segment illustrations • Questions about market segments © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 29

Targeting Market Segments www. wessexlearning. com Illustration: Best Buy • Barry – An affluent tech enthusiast • Buzz – A young gadget fiend • Jill – A busy suburban mom • Mr. Storefront – Owns a small business • Ray – A price-conscious family guy © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 30

Targeting Market Segments www. wessexlearning. com Illustration: Marriott Hotels • Courtyard • EDITION hotels • Execu. Stay • Fairfield Inn & Suites • Renaissance hotels • Residence Inn • Ritz-Carlton • Springhill Suites • Towne. Place Suites © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 31

Market Segmentation www. wessexlearning. com Market Segments: Illustration – Gasoline Buyers Taxonomy at the Pump: Mobil’s Five Types of Gasoline Buyers Road Warriors (10%) Generally higherincome, middleaged men who drive 25, 000 to 50, 000 miles a year…buy premium with a credit card…purchase sandwiches and drinks from the convenience store…will © Noel Capon, 2017. All rights reserved. sometimes wash True Blues (10%) Usually men and women with moderate to high incomes who are loyal to a brand sometimes to a particular station…frequently buy premium gasoline and pay in cash. Generation F 3 (27%) (Fuel, Food, Fast) Upwardly mobile men and women – half under 25 years of age – who are constantly on the go…drive a lot and snack heavily from the convenience store. Homebodies (21%) Usually housewives who shuttle their children around during the day and use whatever gasoline station is based in town or along their route of travel. Price Shoppers (20%) Generally aren’t loyal to either a brand or a particular station, and rarely buy the premium line…frequently on tight budgets…efforts to woo them have been the basis of Source: The Wall Street Journal, January 30, 1995 marketing strategies for years. PRESENTATION 7 OF 20 / 32

Market Segmentation www. wessexlearning. com Market Segments: Illustration – Dog Food • Candidate descriptor variables • hair • size • weight • breed © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 33

Market Segmentation www. wessexlearning. com Market Segments: Illustration – Dog Food Doter Loving parent Caring companion Casual friend Indifferent acquaintance % of households 17 22 18 25 18 Emotional bond Love Affection Casual attachment Nature of relationship Dog as grandchild Dog as best friend Dog for the family Dog as dog Attitude expressed in dog food Indulgence Love/do what’s best Health & nutrition Basic fuel Cheap/conve nient fuel Ante (cost of entry) • Premium • Strong dog appeal • Complete nutrition • Quality • Health/nutritio nal • Price • Rationalized variety • Price • Convenience • Flavor/variety • Brand image • Health performance • Variety • Professional recommendat ion • Price/emotion • Great price Driver (of brand choice) © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 34

Market Segmentation www. wessexlearning. com Session Roadmap AA • Market segment illustrations • Market segment matrix • Descriptor (segmentation) variables • Criteria for good market segments • Developing market segments • More market segment illustrations • Questions about market segments © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 35

Market Segmentation www. wessexlearning. com Questions about Market Segments • How many market segments are enough? • Should we target large segments or small segments? • Can an individual customers be a market segment? • Do market segments evolve? • How do customer life cycles affect market segments? • Focus on fixed age group • Retain consumers as they age • Does a segment of customers differ from a group of customers? • Can we develop segments based on just our current customers? © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 36

Market Segmentation www. wessexlearning. com • Market segment illustrations • Market segment matrix • Descriptor (segmentation) variables • Criteria for good market segments • Developing market segments • More market segment illustrations • Questions about market segments © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 37

Market Segmentation and Targeting www. wessexlearning. com Session Roadmap • The marketing process • Market segmentation • Targeting market segments • principle of selectivity and concentration • targeting illustrations • targeting matrix © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 38

Targeting Market Segments www. wessexlearning. com • Principle of selectivity and concentration • Targeting illustrations • Targeting matrix © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 39

Targeting Market Segments www. wessexlearning. com Principle of selectivity and concentration • Marketing must carefully choose targets for the firm’s efforts • The firm should concentrate its resources against those targets © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 40

Targeting Market Segments www. wessexlearning. com Market segment attractiveness versus business strengths Market-Segment Attractiveness 1000 High G B A D H C F E I 700 Medium 400 Low 100 Low 400 Medium 700 High 1000 Business Strengths © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 41

Targeting Market Segments www. wessexlearning. com Assessing Market Segment Attractiveness: Illustration The firm should identify useful factors for evaluating segments, then ask the question “Given our history, objectives, culture, management style, successes, and failures, we like to be in market segments that offer…” Ability to build new strengths Easy customer access High market growth Large potential size Little regulation Opportunity to use excess resources Weak competition © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 42

Targeting Market Segments www. wessexlearning. com Assessing Business Strengths: Illustration The firm should ask the question: “To be successful in this market segment, any competitor must possess the following strengths…” Deep pockets Fast-moving organization Good R&D High-quality service In-place distribution Low-cost operations Well-trained sales force © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 43

Targeting Market Segments www. wessexlearning. com Shifting Position • left to right – improve business strengths • bottom to top – conduct finer-level segmentation Market-Segment Attractiveness 1000 High G B A Z D H X C Y F E I 700 Medium 400 Low 100 Low 400 Medium 700 High 1000 Business Strengths © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 44

Market Segmentation, Targeting www. wessexlearning. com Class Discussion • Can you think of a small business and a big business which have created an advantage/disadvantage via market segmentation? • Large firms and small firms each have advantages in targeting market segments. Missteps can cause each to lose a strong position. © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 45

Market Segmentation, Targeting www. wessexlearning. com Session Roadmap • The marketing process • Market segmentation • Targeting market segments © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 46

www. wessexlearning. com CHAPTER 7 Market Segmentation, Targeting © Noel Capon, 2017. All rights reserved. PRESENTATION 7 OF 20 / 47