Marketing Management

Session 6
Segmentation, Targeting, Positioning (II)
Summary Session for Quiz 1
Prof. Wenbo Wang
 Update

• Submit your group list on canvas

• Ungrouped students
 Last session

What is my
3C
Business?
CUSTOMER COMPANY COMPETITION
BUSINESS
STRATEGY

Where do I want to
go? SEGMENTATION TARGETING POSITIONING STP
MARKETING
STRATEGY

How do I get
there?
PRODUCT PRICE PROMOTION PLACE
MARKETING
MIX/PLAN
4P
 Marketing Framework

What is my
Business? CUSTOMER COMPANY COMPETITION
BUSINESS
STRATEGY

Where do I want
to go? SEGMENTATION TARGETING POSITIONING
MARKETING
STRATEGY

Create an image or identity

Decide which groups in the target market for the
Divide a market into
to market to product
smaller subsets of
customers

STP Strategy
 Positioning: creating an image or identity in the
target market for the product
Cadillac CTS

Target Segment

Positioning

Cadillac has broken a lot of new ground with its all-new CTS. It drives like a
European luxury sports sedan and, like Mercedes-Benz and BMW, this new
Cadillac uses rear-wheel drive instead of front-wheel drive. It is designed to
appeal to younger buyers who want European performance in an American
luxury product.
Write a Positioning Statement
Positioning statement (also known as “Value
proposition”) should include three components:

1. State who the product is for (targeting information)

2. State what the product does for the consumer (product benefit)

3. State a product’s benefits relative to competition (What is

different from other products)
Example

• “For consumers who like to wear comfortable shoes

(athletic shoes), Nike produces high-end athletic shoes
and lifestyle footwear. Unlike other footwear brands,
Nike focuses more on lifestyle footwear categories
than athletic shoes and offers more premium and
fashion-oriented products.”

• Who the product is for (targeting information)

• What the product does for the consumer (product benefit)
• A product’s benefits relative to competition (What is different
from other products)
Excise
• Write a positioning statement for

Lady Gaga

• Yourself
Product Differentiation & Positioning
“No matter how commonplace a product may appear, it
does not have to be a commodity. Every product,
every service can be differentiated”
- Dermot Dunphy, CEO, Sealed Air Corp.

• Differentiation can be achieved by various positioning

strategies
Positioning Strategies

• By Benefit or Attribute, e.g.,

 iPhone: “smart” phone
 Baking soda toothpaste.
Positioning Strategies

• By Price/Quality
• By Use/Occasion
Positioning by
Product User
e.g., Gerber baby
food
Positioning Strategies
• By Benefit/Attribute (Baking soda toothpaste)
• By Price/Quality (Wal-Mart)
• By Use/Occasion (Ritz)
• By Product User (Gerber Baby Food)
Successful Positioning Strategies

1. Build on Existing Consumer Beliefs & Perceptions

• Don’t create something so radically new and different that
consumers can not understand it.
2. Carve out a new category and OWN it!
• Be the first to represent the category and carve a niche in
consumer’s mind.
 Fast Food - McDonalds (KFC in China)
 Smart phone - iPhone
 Tablet - iPad
 Smart glasses – Google glasses
 Photography - Kodak
Summary Session
Quiz 1
• Lecture Theater A (LTA in the main building)

• Sep 27, 19:00-20:00

• Sit on your assigned seat (will post seating plan on LTA doors)

• Multiple choice questions only, 25 questions in total. One or more than one
correct answers.

• Sample questions (online under “files”)

• Contents under “Marketing Overview, 3C, STP” will be tested in quiz 1

• Class section “Marketing Research I” will NOT be tested in quiz 1, but will
be in quiz 2.
Sample questions

Which of the following is NOT one of the four p’s of marketing?

a) Promotion
b) Positioning
c) Product
d) Price
e) Place
 The Framework: Concepts & Tools for Problem Analyses

What is my
3C
Business?
CUSTOMER COMPANY COMPETITION
BUSINESS
STRATEGY

Where do I want to
go? SEGMENTATION TARGETING POSITIONING STP
MARKETING
STRATEGY

How do I get
there?
PRODUCT PRICE PROMOTION PLACE
MARKETING
MIX/PLAN
4P
 The Framework
What is my
Business?
CUSTOMER COMPANY COMPETITION
BUSINESS
STRATEGY

Business: web social network

Who are the customers?
A simple rule: whoever directly and/or indirectly pay for the product
Customer: a roadmap to understand customers
Understand
Customers

Firms’ Valuation
Value to Customers
of Customers

• Needs/ Wants • Lifetime Value of a Customer

• Decision Making Process • Acquisition Costs of a Customer
• How to Influence Decisions • Customer Retention
- Economics of Loyalty
- Loyalty Programs
Needs vs. Wants
NEED WANT
• A lack of something requisite, • To have a strong desire for
desirable, or useful something

• Occurs when a person feels • A felt need shaped by a

physiologically or person’s knowledge, culture
psychologically deprived of and context (derived from
basic necessities, such as a need)
food, clothing and shelter.

• Difficult to create • Can be influenced

Marketing usually does not create a need, but shapes wants.

 Maslow’s Hierarchy of Needs
Maslow’s Hierarchy of
Needs:
People are motivated
to satisfy a need only
after more basic needs
are satisfied
What are the limitations of Maslow’s
conceptualization of the hierarchy of human needs?
• Conflict between needs? Compromise lower
order needs to satisfy higher order ones: starving
artists
• Cultural differences – importance of different
needs
• Consumers may not know/realize what they
need
• Multiple selves
Customer: a roadmap to understand customers
Understand
Customers

Firms’ Valuation
Value to Customers
of Customers

• Needs/ Wants • Lifetime Value of a Customer

• Decision Making Process • Acquisition Costs of a Customer
• How to Influence Decisions • Customer Retention
- Economics of Loyalty
- Loyalty Programs
Decision making
• Use Intuitions
• Representativeness:
- “If it looks like a dog and smells like a dog then I’ll think it’s a dog”
- “IMB is a great brand, so its new product must be good!”

• Availability:
- “I don’t know which perfume to buy, and I will just buy the brand whichever
comes to my mind first ”

• Use Reasonings
- Addition of utilities rule
Customer: a roadmap to understand customers
Understand
Customers

Firms’ Valuation
Value to Customers
of Customers

• Needs/ Wants • Lifetime Value of a Customer

• Decision Making Process • Acquisition Costs of a Customer
• How to Influence Decisions • Customer Retention
- Economics of Loyalty
- Loyalty Programs
Lifetime Customer Value
Lifetime Customer Value (LCV)
 The present value of the profit stream that
the company would have realized if the
customer had not defected prematurely.

 Example: Lifetime for one baby using diaper is about 30

months. LCV is all the value a company can get from this
30 months period.
 What is the cost of acquiring a customer?
Citibank: direct mail
Direct Mail
Prospects 300,000
Response Rate 2%
No. of Responses 6,000
% Qualified 66.7%
Qualified Prospects 4,002
Cost per = Cost of Contacting All Prospects
% Converted 80% Customer No. of Customers Obtained
Customers 3,202
“Effective” Conversion Rate 1.1%
Cost per Prospect $1.50
Total Cost ($) 450,000
Cost per Customer $140.55
 Why loyal customers are more profitable?
• Acquisition Cost
• Base Profit
Still don’t get the idea?
• Revenue Growth Think about marriage
• Cost Savings
• Referrals
• Price Premium

29
The logics for loyalty programs

• What is the psychological reason for loyalty programs?

--- Need to complete (an experiment in 1920s)
--- A mouse runs faster and faster when it is close to a cheese

• Do loyalty programs really lock in customers?

--- The lock-in dilemma
 A too short lock-in time window (e.g., “fly 5 times get 1 free
ticket”) does not really lock in customers in long run
 A too long lock-in time window (e.g., “fly 30 times get 1 free
ticket”) make the loyalty program not attractive to customers at
all!
 The logics for loyalty programs

• Share of Wallet (SOW)

my spending on firm A
My SOW at firm A =
my spending on the category

My credit card my spending at Citibank 100$

SOW at Citibank =
my credit card spending at all banks 200$

= 50%
Share of Wallet: If Citibank knows his customers’ SOW, then….

0: Assess the “true value” of its own customer (spending at your own company,
category spending)

1: Drop the unwanted (low SOW and low category spending)

2: Retain good existing customers (high SOW and high category spending)

3: Acquire promising customers (low SOW but high category spending)

4: Develop targeting promotion for the three types of customers in 1-3.

5: Early detection of customer defection

Company
The big question: how do you see yourself/company?
One of the popular tools: SWOT Analysis
http://www.youtube.com/watch?v=9n-erTzwu8I (from 1:01 to 3:25)

Strength
Weakness
Opportunity
Threat

33
Competitors
The big question: how to identify your competitors?
• Serving the same customers (recall the Facebook example)
• Satisfying same/similar needs / wants

Competitors can be from

• Your own industry (BMW, Audi) or similar
industry (taxi, mini-bus, MTR)
• Your partners (iPhone, carrier, content provider)

34
 Apple’s competitors
Product level
competitors
Samsung

Nokia

Carrier (AT&T)
Upstream suppliers: Apps Final
screen, battery, shell…
Apple’s iPhone
product
Content (music,
movie, book)

Value-chain level When analyzing competition, think about

competitors both on product level and value chain level.

Value chain: a business chain that receives raw materials as input, add value to the raw
materials through various processes, and sell final products to customers.
 Marketing Framework

What is my
Business? CUSTOMER COMPANY COMPETITION
BUSINESS
STRATEGY

Where do I want
to go? SEGMENTATION TARGETING POSITIONING
MARKETING
STRATEGY

Decide which groups Create an image or identity in

Identify unique
to market to the target market for the
segments/groups of
customers product

STP Strategy
Segmentation
• Segmentation is the process of dividing a
market into smaller subsets of customers with
similar needs and responses to marketing
actions.

• Two aspects we will cover today:

 Characteristics of a good segment?
 Bases for Segmenting? Age, sex, lifestyle.
 Characteristics of a good segment
• Separating customers into segments, so as to
maximize:
 Within Segment Similarity
 Needs/wants are similar
 Responses to marketing actions are similar
 Between Segment Dissimilarity
 Large Enough (segment size)
 Distinctive (how unique is the target segment, compared to others)
 Identifiable (can easily identify the customers in the segment)
 Stable (customers in the segment do not leave or change their needs
easily)
Bases for Segmenting Consumer Markets

Geographic
Nations, states,
regions, cities, climate

Demographic
Age, gender, family size and
life cycle, or income

Psychographic
Social class, lifestyle, or
personality

Behavioral
Occasions, BENEFITS,
uses, or responses
Targeting Strategies
• Single target approach
 Select one of the segments as the firm’s target market

SEGMENTS

Military Business Engineering Humanity

Targeting Strategies
• Multiple target approach
 Choose two or more segments and offer different
marketing mixes for each segment
SEGMENTS

Military Business Engineering Humanity

 Volkswagen: multiple target approach with multiple
brands
Why not use VW’s own for high end segments?

Low end High end

VW VW VW VW
City Golf Beetle Routan Passat
Write a Positioning Statement
Positioning statement (also known as “Value
proposition”) should include three components:

1. State who the product is for (targeting information)

2. State what the product does for the consumer (product benefit)

3. State a product’s benefits relative to competition (What is

different from other products)
Example

• “For consumers who like to wear comfortable shoes

(athletic shoes), Nike produces high-end athletic shoes
and lifestyle footwear. Unlike other footwear brands,
Nike focuses more on lifestyle footwear categories
than athletic shoes and offers more premium and
fashion-oriented products.”

• Who the product is for (targeting information)

• What the product does for the consumer (product benefit)
• A product’s benefits relative to competition (What is different
from other products)
Positioning Strategies
• By Benefit/Attribute (Baking soda toothpaste)
• By Price/Quality (Wal-Mart)
• By Use/Occasion (Ritz)
• By Product User (Gerber Baby Food)
 Marketing Framework

What is my
3C
Business?
CUSTOMER COMPANY COMPETITION
BUSINESS
STRATEGY

Where do I want to
go? SEGMENTATION TARGETING POSITIONING STP
MARKETING
STRATEGY

How do I get
there?
PRODUCT PRICE PROMOTION PLACE
MARKETING
MIX/PLAN
4P
Price: Real Life Price Decisions
• Optimal price (restaurants, mobile phone service, club
goods)?
• Seasonal pricing (airlines)?
• Price reaction to competitors? (price match)
• Price of buyback, price of second hand book (Amazon
bookstore)?
• Consumer psychology (9.99 vs. 10.02)?
• ……

Pricing puzzle:
Gym club pricing: Bally Total Fitness
Night club pricing: fixed vs. free entry fee
Promotion
• Promotion represents the various aspects of marketing
communication, that is, the communication of
information about the product with the goal of
generating a positive customer response

• Promotion decisions include:

 Advertisings, Personal selling & sales force, Sales promotions,
Word of mouth management, Public relations
Place
• Place (also called distribution) is about getting
the products to the customer.

Place decisions include:

• Market coverage
• Location
• Distribution channels (retailer, wholesale, direct
marketing)
• Partnership (iPhone partners with PCCW)
• International presence
• ……
Good luck!