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Session 5 Segmentation and Targeting

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Segmentation and Targeting
Marketing and business development are based on gaining and retaining the best customers. It is important to understand fully: • who these best customers could be/are • what are their specific needs and preferences. It is not enough to have only a general idea of what customers want

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A ‘market’ can be defined as a group of customers who exhibit broadly similar needs and have the ability to satisfy those needs.

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Benefits of Segmentation • a more precise definition of market needs • more effective tailoring of programs • closer investigation of all competitors • better allocation of marketing resources (economies of scale) • niche marketing opportunities 4 Marketing In Black and White .

Identifying Markets Because few. products can satisfy the needs of all consumers. if any. companies often develop different marketing strategies to satisfy different consumer needs. The process by which marketers do this is referred to as target marketing and involves four basic steps Marketing In Black and White 5 .

each yielding a different description . Marketing In Black and White 6 .some narrow in focus.Segmentation and Targeting The market can also be defined in terms of the benefits sought by the customer. Defining the market may be approached from a number of ways. others broad. not in terms of particular products or technical specifications.

Marketing In Black and White 7 . A market segment comprises a relatively homogenous group of potential customers who share some similar characteristic of value to the organisation.The defining of the market will determine who are the organisation’s best potential competitors and customers and their key buying criteria (KBC).

Segmentation Analysis Buyer Characteristics Product Characteristics Situation Characteristics The Bases of Segmentation .

and •Positioning one's product through marketing strategies. Marketing In Black and White 9 . •Targeting specific segments.Four Basic Steps •Identifying markets with unfulfilled needs •Segmenting the market.

More than one segmen can be targeted 2. Identify Market Needs and Profile 3. Create Marketing Mixes for each target .The Process of Segmentation 1. Target Segments Which segments can the firm best service and which best meet their needs. Divide Market into Segments 4.

• Buying category • Distribution channel • Demand and growth-related attractiveness • Size segments • Competition-related attractiveness • Resource-related attractiveness • Accessibility Marketing In Black and White 11 .Bases for Segmentation There are many ways to segment markets.

The more clearly you define the target segments. Marketing In Black and White 12 .Market Segmentation Market segmentation is dividing up a market into distinct groups that: (1) have common needs. and (2) will respond similarly to a marketing action. the better you can reach them and encourage them to support your organisation.

The move away from mass marketing Marketing theory today accepts that undifferentiated marketing (also called commodity marketing) will be less successful than targeted marketing.Segmentation Alternatives There are three basic market coverage alternatives. 1. Marketing In Black and White 13 . Differentiated marketing 3. Concentrated marketing. Undifferentiated marketing 2.

How far can we continue to segment a market? The more marketers segment the market. the fewer consumers there are in each segment. the more precise is their understanding of it. But the more the market becomes divided. a key decision is: How far should one go in the segmentation process? Where does the process stop? Marketing In Black and White 14 . Thus.

the more effective they will be in addressing these requirements Marketing In Black and White 15 .Targeting Segments Target market identification isolates buyers with similar segmentation profiles (lifestyles. benefits sought. The more marketers can establish this common ground with buyers. and the like) and increases the quality of our knowledge of their requirements.

Price sensitivity of each segment? Marketing In Black and White 16 . How different are the needs of each segment 3. How similar are marketing actions to each segment likely to be? 2. Purchasing power of each segment? 5.Targeting Strategies .Key Issues 1. Size of each segment and growth prospects? 4.

The ease of entry into each segment? Marketing In Black and White 17 . The degree of certainty of success? 10. Potential for increased profit? 7.Targeting Strategies .Key Issues 6. Potential for sales volume or market share? 8. Complexity of satisfying each segment? 9.

How Targeting Works Once targets are identified and profiled. the next step is to prioritise the segments based on a combination of business and marketing objectives. and profit potential. Marketing In Black and White 18 . Marketers often use 20 or 30 variables to establish segments.

4.The Segmentation and Targeting Process Involves Six Steps 1. Finding ways to group the marketing actions available to the organisation. Identifying the general category (such as the soft-drink market). 3. Targeting specific segments (the markets where you can create a better value offering than your competitors) Marketing In Black and White 19 . Segmenting the general category (identifying different types of preferences in soft drinks). 2.

Developing a value-offer market grid to relate the needs of the target segment(s) to the firm’s offer (products and actions). Strategically positioning your offer (creating an image or concept for the consumer of your product bundle that best matches their idea of best value). Marketing In Black and White 20 . 6. Taking optimal marketing actions to reach the target segments.The Segmentation and Targeting Process Involves Six Steps 5.

Developing Target Segment Profiles Segmentation and targeting require the development of segment profiles. Marketing In Black and White 21 . A segment profile is the description of who your targeted customers (current and future) are and what they want.

Behavioural segmentation 4.Bases For Creating Segmentation Profiles The bases: 1. Descriptive (demographic) segmentation Marketing In Black and White 22 . Lifestyle (psychographic) segmentation 5. Benefit (value sought) segmentation 3. Situation or context segmentation 2.

1. A buyer’s behaviour and the value(s) they seek will change according to the specific purchase situation. Marketing In Black and White 23 . Situation or Context Segmentation All behaviour and decisions occur within a specific set of circumstances or a particular context.

Marketing In Black and White 24 .Differing buying responses You can segment your market based on the differing (buyer) responses to your marketing communication offers.

you should ask about the amount of demand and growth-related factors: • Amount of demand and growth related factors. • Is the segment exhibiting increasing demand for the offer type ? • Is the segment easy to reach geographically ? • Are overall market sales trending upwards ? • What is your specific sales forecast in each market segment? • What is the expected cost of sales to each segment? Marketing In Black and White 25 .To find these responses.

There is always more than one benefit sought. Benefit (value sought) egmentation In purchasing products.2. The grouping of buyers and users on the basis of attributes sought in a value offering is known as benefit or value-sought segmentation and is widely used. although they will have different levels of importance. They are looking for offers that will provide specific benefits to satisfy these needs. buyers are generally trying to satisfy specific desires (needs and/or wants). Marketing In Black and White 26 .

Behavioural Segmentation Behavioural segmentation is the method of dividing buyers into groups according to their usage. For example. product or brand usage. benefits sought and psychographic factors) to develop profiles of market segments. Marketing In Black and White 27 . loyalties or buying responses to a product.3. degree of use (heavy versus light) and/or brand loyalty are combined with other criteria (eg.

The determination of lifestyles is usually based on an analysis of the activities.4. Marketing In Black and White 28 . interests and opinions (AIOs) of buyers and consumers. brand and/or media usage. These lifestyles are then correlated with the buyers’ product. Lifestyle (psychographic) Segmentation Dividing the market on the basis of personality and/or lifestyle preferences.

1 A continuum of variants in a profile Figure 13.Rationalist (Stages Between) Idealist Figure 13.1 A continuum of variants in a profile .

health. selfconfidence and degree of consumerism). energy level. Marketing In Black and White 30 . VALS (and VALS 2).The VALS Program The VALS program . SRI believes that when combined with an estimate of the resources the consumer can draw on (education. the VALS system is an excellent predictor of consumer behaviours.Lifestyle segmentation has been increasingly accepted with the advent of the values and lifestyles program (VALS) Developed by the Stanford Research Institute (SRI). income.

Marketing In Black and White 31 .for are a number of other methods of developing lifestyle profiles . Neilsen Marketing Research’s PALS profile ( and the Roy Morgan Research Centre’s Roy Morgan Values Segments (http://Roymorgan.

5. The most common form of this is demographic descriptions. Descriptive Segmentation Descriptive segmentation gives us illustrative information about people in the market. organisations sometimes discover that they need to focus more attention on specific insightful information. Although market segmentation on the basis of demographics is very popular and may seem obvious. Marketing In Black and White 32 .

How Useful Are Demographics? In most instances demographics do little more than label or define basic boundaries. “Age 28 Male” Gives little insights for a marketer to work with Marketing In Black and White 33 .

Marketing In Black and White 34 .Other Segmentation Methods Segmentation by self-selection Customers identify themselves as being interested in what your brand has to offer and self-selecting themselves into a segment. Showing interest is often the result of responding to a marketing communication message or offer.

state. Marketing In Black and White 35 . climate and urban/suburban/rural descriptions. city.Other Segmentation Methods Geo-demographic segments (geo-demographic cluster) Information that combines geographic. region. demo-graphic and some lifestyle data to identify residents of a particular area with certain demographic traits is called geo-demographical information and considers such factors as nation.

Marketing In Black and White 36 . short.cultural segmentation .you may segment based on a physical factor. such as left-handedness.Some brands are designed specifically for an ethnic group. large/tall etc.Other Segmentation Methods The socio-demographic segment combines social factors (societal trends. or marketing communication campaigns for mainstream brands are tailored towards specific ethnic cultures or brands. Temporal (time) segmentation is done on the basis of time usage: time of the day/week/month/year night/day seasonality. Ethnic/national . bearded. hair colour. fashions) with demographics. Physiological segmentation .

Segmenting Existing Customers Who are your best or most profitable clients ? Which group of customers makes up the bulk of your business ? What do all these customers have in common? Marketing In Black and White 37 .

Profitability-based Segmentation and Targeting The extent that current customers versus new customers are targeted will differ for every brand. A primary deciding factor is how much it costs to generate a sale from current customers versus the cost per sale for new customers. Marketing In Black and White 38 .

The next phase in the target marketing process involves two steps: 1. 2. Marketing In Black and White 39 .Selecting a Market The outcome of the segmentation analysis will reveal the market opportunities available. Determining how many segments to enter. Determining which segments offer the most potential.

Just right . the available limited resources will be spread more thinly and may become ineffective overall.Determining How Many Segments To Enter The organisation needs to select as many segments as are necessary to achieve its own objectives (say. profitability). Marketing In Black and White 40 . If it selects too many markets. Optimisation is the key.not too many.

Full Coverage 2. Selective Targeting 5. Market Specialisation 4. Product Specialisation Marketing In Black and White 41 . Concentration 3.Targeting Options 1.

the opportunities for growth. Then it must decide whether it can market to this group.Determining Which Segments Offer Potential The second step in selecting a market involves determining the most attractive segment. the competition. and its own ability to compete. Segment selection often includes how similar the segment is to existing target segments (segment inter-relationship). Marketing In Black and White 42 . The firm must examine the sales potential of the segment.

a customer has purchased the brand. frequency. value (RFV) segmentation/targeting Information about past purchase behaviour can be used in segmenting.Segment Selection Recency. Recency is how recently a customer has purchased from the organisation. Frequency is how often. Marketing In Black and White 43 . within a given period of time.

2 – Ranking Segments for Targeting .1. Target 3 Target 3 Figure 13. Natural Target Target 2.

S1 S2 P1 P2 P3 S3 P1 P2 P3 S1 S2 S3 P1 P2 P3 S1 S2 S3 Single-segment concentration S1 S2 P1 P2 P3 Market specialisation S3 Selective specialisation S1 S2 P1 P2 P3 Full market coverage S3 Product specialisation S = Segment P = Product Figure 13.3 Patterns of Target Segment Selection .

Segmenting and Targeting Organisational Customers Organisational markets (business-to-business (B2B) and business-to- institutions (B2I)) include organisations that acquire goods and services to create their own value offers to a market. Marketing In Black and White 46 . Segmenting and targeting are very important in organisational marketing (B2B and B2I) because the average organisational customer spends more and costs more to acquire.

demographics. psychographics. Remember that organisations are run by people and not computers. Marketing In Black and White 47 . benefits sought. so personal factors or organisational personalities are important. and loyalty or relationship levels.Organisational Customers Organisational segments may be based on characteristics similar to those used in consumer marketing: purchase behaviour. geography.

Organisational Customers
Organisational markets have several characteristics that differ from consumer markets (see Table 13.1). These include:
• Derived demand. Fewer, generally larger quantity, buyers. • Closer, longer-term relationships. • More professional buying. • Better-informed buying. • Buying centres. • Buying alliances.

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Buying Centres
Six roles are identified: • Initiator • Buyer • User • Influencer • Decider • Gatekeeper
All roles can be handled by one person or a limited number of people.
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Organisational Targeting Factors
•profitability •long-term benefits •degree of compatibility with the organisation •degree of competitiveness required to win and maintain a customer.

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Vertical and Horizontal Markets A vertical market is a particular industry in which similar products are developed and marketed using similar methods (and to whom goods and services can be sold). A horizontal market crosses all industry boundaries. Marketing In Black and White 51 . customers are from all industries in the marketplace that use the same product type.

Positioning and Imaging Marketing In Black and White 52 .

so occupying a position of trust and loyalty for the brand concerned. Marketing In Black and White 53 .Market Positioning Positioning can be defined as: 1. 2. The position of the value offering (marketing mix) that comes to mind and the attributes buyers perceive as related to it. 3. The process of fitting the brand to the perception of the target segment in such a way as to set it meaningfully apart from the competition. The Marketing style devoted to owning a part of the consumers’ mind.

Marketing In Black and White 54 . conception of a product in the marketplace.what we are similar to. brand image. Positioning is not something we do to the product. (b) communicating how we are different from existing brands in that category. It is something we do to the mind (of the prospect) in two steps: (a) communicating what the product category is .Positioning & Image Image: Composite mental picture formed by people about an organisation or its product eg.

The Positioning Statement To successfully position a value offer you need: 1 . A well-developed positioning statement defines a firm’s direction Marketing In Black and White 55 . A differentiated product and 2. A clear target market.

Do we have the guts to stick with one consistent positioning strategy ? 6. do we already have in the prospect’s mind? 2. Does our creative approach match our positioning strategy ? Marketing In Black and White 56 . What position do we want to own? 3.Developing a Positioning Strategy Six basic questions: 1. Do we have enough marketing money to occupy and hold the position? 5. What position. What organisations must be outgunned if we are to establish that position? 4. if any.

the following should be considered: • positioning relative to key competitors • positioning by use or application • positioning on value perception (price/quality) • positioning by cultural rituals and/or symbols. Marketing In Black and White 57 .Developing a Positioning Strategy Additionally.

Assessing buyers’ perceptions of competitors 5. Adopting a positioning strategy Marketing In Black and White 58 . Assessing buyers’ perceptions of your value offering 3.Determining the Positioning Strategy 1. Identifying competitors 4. Analysing the buyers’ preferences 2. Determining competitors’ positions 6.

Marketing In Black and White 59 . Marketers use positioning maps as part of their strategy development.Perceptual (or positioning) Maps A position (or perceptual) map is a diagrammatic representation of the consumer’s perception of the offer relative to other offers in the market.

it uses scaling techniques designed to represent consumers’ product perceptions and preferences as visual representations or points on a map or graph.Perceptual Mapping Perceptual mapping is a quantitative market research tool used by marketers to depict buyer/user perceptions and prioritising of brands and their perceived attributes as compared to other brands. Also called MAPPing (Mathematical Analysis of Perception and Preference). Marketing In Black and White 60 .

Family High Prestige Requirement 9 9 F1 F3 F2 C1 7 VB 7 Lots of Family 5 facilities C1 No Spa Facility 5 VB Individual Tailored Facilities 3 F1 F3 Spa Facility R/W 3 R/W 1 1 F2 1 3 5 7 9 1 3 5 7 9 Individuals/Couples Family Prestige not a high requirement Pampered VB 9 F1 F2 7 F3 9 7 C1 Short 5 Holiday Longer Holiday Limited Room Luxuries 5 F1 3 F2 R/W Extensive Room Luxuries 3 VB C1 F3 1 R/W 1 3 5 7 9 F1 1 1 3 5 7 9 Couple Family .Long Holiday Figure 13.5 Perceptual or Positioning Mapping .Short Holiday Want to be Left alone R/W Romantic Weekend VB Very Busy Segment F2 Family -Medium Term Holiday C1 Conference Market F3 Family .

Repositioning a Brand A repositioning strategy involves altering or changing a product’s or brand’s current positioning. Marketing In Black and White 62 . Repositioning a value offer usually occurs because of declining or stagnant sales or because of anticipated opportunities in other market positions. It is often difficult to accomplish because of entrenched perceptions about and attitudes towards the product or brand.