Customer Analysis

Segmentation, Targeting & Positioning

What did we learn from BMW?
• The automobile market is divided into a number of “groups” or “segments.” Sub-Compact; Compact; Full-Size; Luxury, etc. • These divisions are however, product based, not customer based. However, customers have, over time, “adopted” this segmentation scheme • BMW in the luxury / performance segment. But wants to segment further based on “usage experience.” The Better Driver. Not product based, but customer / market based. • Usage experience + “Value pricing” for the segment key to differentiating the product offering from Mercedes, Lexus & Infiniti • Along with appropriate product and price, the promotions (advertisements) and place (channels) also aligned with strategy

Segmentation
• What is Segmentation? • Why do we need Segmentation? • What do we do once we have “Segmented the Market” ?

Segmentation
• Market Segmentation is the Process of Identifying Homogeneous Groups of Buyers Requiring Different Marketing Strategies to Influence their Consumption • Organizations have Limited Resources • Consumers may be too Numerous, Widely Scattered and Varied in their Needs • Competing Organizations may be Better able to Attract Certain Groups of Customers (Segments) in the Market • Each Organization Should, Therefore Identify the Most Attractive Parts of the Market That it Could Effectively Serve (Target Market).

Salem.Winston. “Blue collar” folks smoke Winston. etc. RJR allocates its promotion money based on brand & geography . and African-American smokers prefer menthol (found in Salem) • Chicago’s North Shore area has high education levels. the South-East area is a blue-collar neighborhood and the South side has many African-American residences • So. • Question: How should RJR allocate its marketing resources in the Chicago market ? • The usage rate of RJR brand cigarettes varies across the city • This usage rate seems to be related to the socio-economic characteristics of the smokers • Higher education level smokers use low tar cigarettes.RJ Reynolds • Focus on the Chicago market • Company has several brands .

Hence. • In a regression context.” • The descriptor variables help the marketer deliver different 4P levels to the different segments . the usage rates of the different brands of cigarettes formed the basis for the entire segmentation scheme..e. i. promotions (advertising in specific magazines). the differences across consumers. think of the basis variable as a “dependent variable. prices (low / medium / high). this variable is referred to as a basis variable.A Segmentation Model • In the above example.” • The basis variable should capture the heterogeneity of interest to the marketer. • The geographic and socio-economic characteristics in the RJR example are referred to as the descriptor variables. think of the descriptor variables as the “independent variables. place (different kinds of stores) .different products (cigarette brands). • In a regression context.

Descriptor Variables Relevant Descriptor Fraction of Customers Irrelevant Descriptor Low Education High Education Own Do Not Own Microwave Microwave 20% 80% 30% 40% Likelihood of Smoking Low-Tar Cigarettes given Smoker Likelihood of Smoking Low-Tar Cigarettes given Smoker .

purchasing criteria. social class • Psychographics: Lifestyle. personality • Behavior: Use occasions. brand loyalty. income. times of use • Media patterns: Level of use. etc. technology utilization Personality characteristics of decision makers Applications. (de)centralized purchasing. benefits. wants. . usage level. price sensitivity. use occasions. size. gender. solutions to problems. location. wants. industry Descriptors Industry. family size. usage situation. low or high involvement purchase. times of use. types of media used. brand loyalty. usage situation.Segmentation Bases & Descriptors Consumer Bases: Needs. size. values. types of media used. switching costs. budget cycle. complementary and substitute products used • Decision making: Individual or group choice. Patronage at trade shows. price sensitivity. etc. benefits. level of use. solutions to problems. usage rates. attitudes and knowledge about product class. order size. size and composition of decision making group. marital status. etc. complementary and substitute products used Purchase procedures. receptivity to sales people.current suppliers. usage rates Descriptors • Demographics: Age. usage level. use of outside consultants. Industrial Bases: Needs.

MUTUALLY EXCLUSIVE C. ACCESSIBLE 1. SIGNIFICANT . IDENTIFIABLE A good segmentation scheme must have the following two characteristics B. COLLECTIVELY EXHAUSTIVE D.Criteria for Segmentation A. RESPONSIVE 2.

Loyalty Use my brand? Value of Customer Level of Use? Image vs..Strategic Approach to Segmentation Identify Segments Strategic Im pact Category vs. Brand Building Bases Use Product / Service? • • • • • • • Levels User Nonuser M y brand Other brand Heavy M oderate Light Describe Segments Dem ographics M edia Switching vs.) • • Function Psychic . Attribute Timing Form of the Value Equation Occasion of use? M otivation for use? Varies by product (Time of day .

Brand Building Basis: Use Product or Service BCI / CCI Analysis .X) = Average number of units of brand X consumed in the market (per capita) Number of units of the category consumed by consumer J CCI (J) = Average number of units of the category consumed per capita .Segments described by consumption levels BCI: Brand Consumption Index CCI: Brand Consumption Index Number of units of brand X consumed by consumer J BCI (J.Example: Category vs.

mostly live in the South-Western U. 2. Finding: Consumers in Cell #2.CCI / BCI Analysis Combine BCI and CCI to Examine Descriptors of the (e. The firm may want to allocate more resources to this geographic region (descriptor) . HIGH 3. 4.) High CCI / Low BCI cell CCI LOW HIGH LOW BCI 1.S.g.

frequency of ATM visits. Then the number of possible segments are NL. For example. order size and nature of application in an industrial marketing application. • Obviously. volume of transactions. one needs to use multiple bases for segmentation. etc.number of accounts held with the bank. Or in a financial services application. there may be too many segments to be meaningful • Hence. we need some procedure that can take the data across consumers on all the relevant bases variables and then group those consumers together who have similar values on the bases variables .Problem • Oftentimes. Let each variable have L levels. size of firm. • Suppose there are N such basis variables. the bases might be .

Grouping consumers using their bases variables Volume of Transactions Group 1 Group 3 Group 5 Group 2 Number of Accounts Group 4 .

family size. one can compute the average income. larger group. in the figure. the statistical procedure that is used to group consumers is called cluster analysis. Then we would have only 4 segments . one could potentially combine groups 1 and 2 to get a single. • Once the clusters (or segments) have been identified using the bases variables. then we have “good” descriptors • Question: How do we decide how many segments to have? For example. in the financial services case.Profiling the Segments • When there are several bases variables. and media habits of the consumers belonging to each of the 5 groups in the figure • If the average profile of each group is “sufficiently” different. age. the next step is to describe (or profile) them using the descriptor variables • For example.

3 Steps in a Segmentation study • Survey stage – Gathering data on a random sample of consumers for several different bases and descriptor variables • Analysis stage – Cluster analysis • Profiling stage Later in the course. we will go through a specific application to a PDA product .

Identify Segmentation Variables and Segment the Market Analysis Stage 2. Develop Profiles of Resulting Segments Profiling Stage .Market Segmentation Survey Stage 1.

Targeting Opportunities for Profit * Size * Growth Potential TARGET MARKET SELECTION Competitive Intensity * Unmet Needs * Entry Barriers • Firm’s Objectives • Firm’s Capabilities • Synergies across Segments .

change in share. loyalty. The weights reflect the relative materials. attractiveness and the firm’s relative price sensitivity. life cycle stage. • Economic and technological factors Cost position. channels • • • • • . innovation. Select a mass marketing. cyclicality in demand position • Economic & technological factors Attach a weight to each of the above Industry capacity.The Multi-factor Targeting Model • Segment Attractiveness Select factors that drive segment • Market / Customer Factors Size. breadth of product line position in each of the segments. access to raw factors. financial. growth. company segment and an index of the firm’s image. multi-segment technoor niche marketing strategy logical position Sequential targeting is also possible • Capabilities Management. importance of the factors barriers to entry & exit Rate each segment on each of the above • Competitive factors • Environmental factors attractiveness and position factors Firm’s Position Compute the weighted sum to give you • Market position factors an index of the attractiveness of each Relative share. capacity utilization. sales force.

The Multi-factor Targeting Model Firm’s Position High GROW BUILD Segment Attractiveness Medium Low REINFORCE SUPPORT MAINTAIN HARVEST DIVEST Hig h Medium Low .

Multi-factor Model Firm resources & Strategy . Select the Target Segment(s). Evaluate the Attractiveness of each Segment 4.Market Targeting 3.

the next question is.Positioning • Now that we have segmented the market and picked out the segments we want to target with our offering. how can we convince consumers in the target segment to choose our offering? • To do this. we have to convince this segment that our product / service / firm: • Meets (or exceeds) their needs • Does it better than competitive offerings • This is the role of Positioning in a firm’s marketing strategy .

consumers look at the “value equation” • Firms typically think of the value equation as: • Value = Performance Quality ÷ Price • Performance Quality = f (Product Attributes / Features) • However.g. consumers are more focused on the Benefits from the product. costs associated with the down time of photocopy machine) • Value equation from consumer perspective is: • Value = Perceived Quality ÷ Perceived Price = Benefits ÷ Perceived Price . consumers are more concerned with the performance quality relative to what they want • That is.Needs • In evaluating their needs and how different offerings fulfill this needs. their Perceived Price could be different from the actual price of the product (e. or Perceived Quality • Further..

Suspension Turning Radius Engine Capacity Wheelbase Headroom Miles / Gallon Maintenance Attributes Example Sportiness Roominess Quality Economy Benefits Perceptions .

• Communication of Value. your channels of distribution.. . • Benefits. The next step is to differentiate your product or service offering from those of your competitors’ via your …... etc. Understand the attributes of the product or service that drive the consumers’ perceived product or service ….ABCs of Positioning • Attributes. your brand name. You can change your advertising message.

MacMillan & McGrath HBR • • • • • • • • • • • • • How does consumer become aware if need for your product / service? How does consumer find your offering? How does consumer make final selection? How does consumer order and purchase your product or service? How is your product / service delivered? How is your product installed? How is your product service paid for? How is your product stored? What is the customer really using the product for? (vinegar and coffee machines) What does customer need help with while using the product? What about returns and exchanges? How is product repaired or serviced? What happens when product is disposed of and no longer in use? .Finding the Attributes that Help in Differentiation Mapping the Consumption Chain .

above) along each of the dimensions • It also contains Brand Locations. Inferring opportunities / threats from the way in which consumers perceive the set of products (in 2.. Consumers perceptions of the existing services / products / firms in the market (including yours ?) along each of these dimensions 3. i.) relative to their needs (in 1.. consumers’ perceptions of the brands in the market along the two dimensions of interest .e. Hence.Positioning Analysis 1. The key to positioning is determining the needs of consumers along (several ?) important benefit dimensions 2.e. it is a 2-D map with each dimension corresponding to the attributes / benefits • The perceptual map contains consumers’ Ideal Points (i. their needs from 1.) • An important tool in Marketing that summarizes all this information is called the Perceptual Map • A perceptual map typically focuses on the two most important attributes or benefits that consumers seek.

A Perceptual Map Sportiness Porsche BMW Jaguar 1 Acura NSX Supra 2 6 4 Prelude Celica Miata Economy VW Golf 5 3 Volvo V70 Corolla Civic Twingo Punto 1~6: Clusters of Ideal Points Radius proportional to # of consumers .

Collecting the Data Car 1 Sporty (1-7) Consumer 1 Consumer 2 Consumer 3 Consumer 4 Consumer 5 Consumer 6 Economy (1-7) Car 2 Sporty (1-7) Economy (1-7) Car 3 Sporty (1-7) Economy (1-7) Ideal Point Sporty (1-7) Economy (1-7) .

the [product] [most important claim] because [single most important support] • For business travelers.Positioning Statement • For [target segment]. because it’s #2 and tries harder. Avis provides the best customer service. .

Questions to ask when Positioning • What position do we own? • Find the answer in the marketplace • What position do we want? • Select one that does not become obsolete • Who must we out-gun? • Do we have enough money? • Spend enough to accomplish objective • Can we stick it out? • Expect internal pressures for change • Do ads match our position? • Don’t let creativity get in the way .

. Elduris (Iceland).Creating Value Through Positioning: Super Premium Vodka • Defined by Federal regulations as “neutral spirits so distilled or so treated after distillation with charcoal or other materials as to be without distinctive character. Tanqueray Sterling (UK) • Average price around $15 versus $8. taste or color” • Stolichnaya (Russia). Absolut (Sweden). Denaka (Denmark). bottle • “Ultra Premium” Stolichnaya Cristall priced at more than $20 per 750 ml. aroma. Finlandia (Finland).50 for a 750 ml.

0 billion • Average buyer of XJ-6 is 48 years old. and makes more than $100000 per year . but it reeked of prestige. status and the luxury image.5-3.Creating Value Through Positioning: Jaguar Automobiles • For years Jaguar was a “much admired. male.” • Bought by Ford for $2. much ogled hunk of hardware that didn’t run very well or very often.

P&G (American).5% of sales • 4 scientists on Board of Directors • P&G / Unilever 2. Manager of the London Office of Shiseido says that he spends almost nothing on advertising: “Technology and service mean success. Advertising is not a short cut.” . L’Oreal (French) are international giants • Kao (Soaps) and Shiseido (Cosmetics) big Japanese firms • R&D: • Shiseido 3% of sales • Kao 4.5% of sales • Image & Advertising • Mike Perry.Positioning in the Cosmetics Industry • Why haven’t Japanese soap and cosmetic firms been as successful as Japanese automobile and electronics firms? • Unilever (Anglo-Dutch). Personal Products Director Unilever describes his job as “selling dreams in a bottle” • Sam Sugiyama.

Example of Positioning: Beers as People Beer Brand Budweiser Heineken Michelob Schlitz Pabst Miller Carling At a Party Older guy Three piece Smoke a pipe Flex muscles Drunk Good guy. friendly Fishes butt out of beer and drinks it As his hobbies Watch ball games. guns Golf. tennis Horse shoes As his occupation Businessman Rich guy Professional Factory. rake leaves Polo Philately Busting kids Square dancing. service station worker Jockey with 50 to 1 odds Junior executive Laborer .

Now taste the German beer that is most popular in Germany (Beck's) . 2 in rent-a-cars. “lead-free” gasoline. “tubeless” tire • “AGAINST” Position: Avis is only No. so why go to us? We try harder • “UGLY” Position: The 1970 VW will stay ugly longer • “UN” Position: 7Up: the Un-Cola • Reposition Competitor: You have tasted the German beer that is most popular in America (Lowenbrau).Positioning totally new products • First Automobile: “Horseless Carriage” • Similarly: “off-track” betting.

Select.Positioning 5. Identify Possible Positioning Concepts for each Target Segment 6. Develop and Signal the Chosen Positioning Concept Perceptual Map Positioning Statement .

• Positioning requires designing a company and product image and developing a marketing mix to promote the image to the target segment(s) . The process of segmenting the market produces clusters of people who are similar • Targeting a segment involves the identification of segments to which marketing effort will be directed.Summary • Segmentation is the concept that recognizes diversity in the marketplace. Marketers must select targets for which their product will meet a need.

Develop and Signal the Chosen Positioning Concept 4. Select the Target Segment(s). Evaluate the Attractiveness of each Segment 5. Select. Identify Segmentation Variables and Segment the Market 2. . Develop Profiles of Resulting Segments 3. Identify Possible Positioning Concepts for each Target Segment 6.S-T-P process Market Segmentation Market Targeting Product/Service Positioning 1.

Competitive Leverage Analysis Bells & Whistles Hot Buttons Entry Tickets Discriminating Power Penny Savers Unmet Needs Importance .

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