CRAVENS PIERCY

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McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

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Chapter Four Strategic Market Segmentation

McGraw-Hill/Irwin

© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

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STRATEGIC MARKET SEGMENTATION
Segmentation and marketdriven strategy Identifying market segments Forming segments Finer segmentation strategies Selecting the segmentation strategy

Segmentation and Market-Driven Strategy
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SEGMENTS VALUE OPPORTUNITIES CAPABILITIES/ SEGMENT MATCH TARGET(S) POSITIONING STRATEGY

From Mass Markets to Micro Markets
OLD CONSUMERS Passively receive whatever TV networks broadcast To keep up with the crowd Three networks plus maybe a PBS station Age of the big glossies: Time, Life, Newsweek Everyone hums the Alka-Seltzer jingle Rise of the big, ubiquitous brands from Coca-Cola to Tide NEW

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Empowered media users control and shape content thanks to TiVo, iPod and Internet To standout from the crowd Hundreds of channels plus video on demand Age of the special interest magazine for every age and affinity group Talking to a group of one, ads go ever narrower Niche brands, product extensions and mass customization mean many product variations

ASPIRATIONS TV CHOICE

MAGAZINES

ADS

BRANDS

Source: Anthony Bianco, “The Vanishing Mass Market”, Business Week, July 12 2004, 58-62

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Identifying the Health and Beauty Supplies Market Segments

Level of Competition Generic

Product Definition Health & Beauty Aids Shaving Equipment

Illustrative Competitors Consumer Product Companies Gillette, Remington, Bic Braun, Norelco, Remington, Panasonic

Need/Want Satisfied
Enhancement

of Health & Beauty Shaving

Product Type

Product Variant

Electric Razors

Electric Shaving

Market Segmentation Activities and Decisions
Market to be Segmented Strategic Analysis of Segments

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Decide How to Segment

Finer Segmentation Strategies

Form Segments

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Product Variant Segmentation Product Type Segmentation Generic Segmentation

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Segmentation Variables

Purchase Behavior
Buyers’ Needs/ Preferences
Characteristics of People/ Organizations

Use Situation

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Illustrative Segmentation Variables
Consumer Markets Characteristics of people/ organizations Age, gender, income, family size, lifecycle stage, geographic location, lifestyle Occasion, importance of purchase, prior experience with product, user status Brand loyalty status, brand preference, benefits sought, quality, proneness to make a deal Size of purchase, frequency of purchase Industrial/ Organizational Markets Type of industry, size, geographic location, corporate culture, stage of development, producer/ intermediary Application, purchasing procedure (new task, modified rebuy, straight rebuy Performance requirements, brand preferences, desired features, service requirements Volume, frequency of purchase

Use situation

Buyers’ needs/ preferences

Purchase behavior

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Requirements for Segmentation
Identifiable segments Response differences Segmentation Requirements Actionable segments

Stability over time

Favorable cost/benefit

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Approaches to Segment Identification
IDENTIFIERS OF CUSTOMER GROUPS CUSTOMER RESPONSE PROFILE

Characteristics of People and Organizations

Use Situation

Buyers Needs and Preferences Purchase Behavior and Loyalty

Segment Dimensions for Hotel Lodging Services

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llustrative Example: Gasoline Buyers
Road Warriors Higher-income, middle-aged men, drive 25-50000 miles a year … buy premium with a credit card … purchase sandwiches and drinks from the convenience store … will sometimes use carwash Men and women with moderate to high incomes, loyal to a brand and sometimes a particular station … frequently buy premium, pay in cash Upwardly mobile men and women half under 25 years of age constantly on the go … drive a lot snack heavily from the convenience store

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16% of buyers

True Blues

16% of buyers

Generation F3 (Fuel, Food & Fast)

27% of buyers

Homebodies

Usually housewives who shuttle 21% of children around during the day and buyers use whatever gas station is based on town or on route of travel Not loyal to brand or station and rarely buy premium … frequently on tight budgets. 20% of buyers

Price Shoppers

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Illustrative Consumer Perception Map
Expensive

• Brand E

GROUP II

• Brand A

• Brand B
Low Quality
GROUP V GROUP I
GROUP III

High Quality

• Brand D

• Brand C

GROUP IV

Inexpensive

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Finer Segmentation Strategies
Logic of finer segments
– – –

customized offerings diverse customer base close customer relationships

Finer segmentation strategies
– – –

microsegmentation mass customization variety-seeking strategy

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SELECTING THE SEGMENTATION STRATEGY
 

Deciding how to segment Strategic analysis of market segments
– – – – – Customer analysis Competitor analysis Positioning analysis Estimating segment attractiveness Segmentation “fit” and implementation

Strategic Analysis of Market Segments Customer Analysis
Financial and Market Attractiveness

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Competitor Analysis

Positioning Analysis

Segment Financial and Market Attractiveness
Segment
Estimated ($ million) Sales* Variable costs* Contribution margin* Market share ~ Total segment sales Segment position: Business strength Attractiveness # High Medium Medium Low

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X
10 4 6 60% 17

Y
16 9 7 30% 53

Z
5 3 2 10% 50

Low High

*For a two-year period. ~Percent of total sales in the segment. #Based upon a five-year projection.

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Segmentation “Fit” for Implementation
Segment Attractiveness and Internal Compatibility
Internal Compatibility
High
Attractive segments that match with company capabilities

Low
Attractive segments but with poor match with company capabilities

High

Market Segment Attractiveness
Low
Unattractive segments Unattractive segments but with match to that do not match with company company capabilities capabilities

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