Why segments markets? How can segmentation be done effectively. What are the benefits of segmentation?

1. Markets: Segmentation,
Targeting and Positioning
Lecture 4
Chapter 6
© 2009 John Wiley and Sons Australia

2. Chapter 6: Markets: segmentation, targeting and
positioning
Learning Objectives:
•explain the broad concept of a ‘market’
•understand the target marketing concept
•identify market segmentation variables for
consumer and business markets, and develop
market segment profiles
•select specific target markets based on evaluation
of potential market segments
•understand how to effectively position an offering
to a target market in relation to competitors, and
develop an appropriate marketing mix.
© 2009 John Wiley and Sons Australia

3. The market
Market
• A group of customers with heterogeneous needs
and wants.
• Consumers and businesses vary considerably in
their needs, wants and demands, and it is
virtually impossible for an organisation to
successfully appeal to every consumer or
business.
© 2009 John Wiley and Sons Australia

4. Target marketing
Markets can have a variety of characteristics:
1.Buyers have common wants, needs and
demands.
2.Buyers have unique wants, needs and demands.
3.The market contains subgroups.
Market segments
• Subgroups within the total market that are
relatively similar in regards to certain
characteristics.
© 2009 John Wiley and Sons Australia

5. Target marketing
Target marketing
• An approach to marketing based on identifying,
understanding and developing an offering for
those segments of the total market that the
organisation can best serve.
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6. Target marketing
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7. R n R White Water Rafting – Target Market
Tully River Rafting
Dial-up Broadband
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8. Target marketing
Mass marketing
• Buyers have common wants, needs and
demands. A single product will meet the needs
of most people in the market, with an
undifferentiated approach.
• Producing large volumes at a low cost per unit
(due to ‘economies of scale’) makes it possible
to sell at a low price and capture very large
markets, ensuring high levels of profitability.
© 2009 John Wiley and Sons Australia

9. Target marketing
One-to-one marketing
• Providing a unique, customised offering to meet
individual customer needs.
• A one-to-one approach often results in higher
unit costs and a more restricted market.
• One-to-one conditions typically form the basis
for a focus or niche strategy. Many small services
businesses take a one-to-one marketing
approach, for example, hairdressers.
© 2009 John Wiley and Sons Australia

10. Target marketing
Differentiated targeting strategy
• A marketing approach that involves developing a
different marketing mix for each target market
segment.
• Market segmentation forms the basis of target
marketing.
• A differentiation strategy entails high costs. To
achieve high profits requires higher retail prices,
high market share and strong customer loyalty.
© 2009 John Wiley and Sons Australia

11. Target marketing
• Product specialisation: Marketing efforts are
concentrated on offering a single product range
to a number of market segments.
• Market specialisation: Marketing efforts are
focused on meeting a wide range of needs within
a particular market segment.
• Product–market specialisation: Marketing
efforts are concentrated on offering a single
product to a single market segment.
© 2009 John Wiley and Sons Australia

12. Target marketing
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13. Market segmentation
Segmentation variables: Characteristics that
buyers have in common and that might be closely
related to their purchasing behaviour.
© 2009 John Wiley and Sons Australia

14. Market segmentation at Virgin Australia
Dial-up Broadband
© 2009 John Wiley and Sons Australia

15. Market segmentation
Segmenting consumer markets
• The variables for segmenting consumer markets
fall into four broad categories: demographic,
geographic, psychographic and behavioural
variables.
• Effective segmentation involves choosing
segmentation variables that are easy to measure
and readily available, and linked closely to the
purchase of the product in question .
© 2009 John Wiley and Sons Australia

16. Market segmentation by gender
Fernwood Women’s Health Club
Dial-up Broadband
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17. Market segmentation links market needs to an
organization’s marketing program through marketing
mix actions
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18. Reasons for segmenting markets
Market segmentation links market needs to an
organization’s marketing program through
marketing mix actions
Efficiency
Effectiveness
© 2009 John Wiley and Sons Australia

19. One Product and Multiple Market
SegmentsWhen
A firm produces only a single product or service, it:
Attempts to sell it to two or more market segments.
Avoids the extra costs of developing and producing
additional versions of the product.
© 2009 John Wiley and Sons Australia

20. Multiple Products and Multiple Market
Segments
Marketing different products is more expensive than
producing just one but is justified if it:
• Serves customers’ needs better.
•Doesn’t reduce quality or increase price.
• Adds to sales and profits.
© 2009 John Wiley and Sons Australia

21. Differentiated Strategy
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22. Segments of One: Mass Customization
Made mass-produced goods affordable.
Encouraged customers to compromise their individual tastes
and settle for standardized products.
© 2009 John Wiley and Sons Australia

23. Market segmentation
• Geographic segmentation
 Market segmentation based on variables
related to geography.
• Useful geographic variables include: climate,
local population, market density, region,
topography and urban, suburban, rural footprint.
• Geo-demographic segmentation
 Combines demographic variables and
geographic variables to profile very small
areas, such as suburbs.
© 2009 John Wiley and Sons Australia

24. Market segmentation
Demographic segmentation
• Market segmentation based on demographic
variables, which are the vital and social
characteristics of populations, such as age,
education and income.
• Demographic variables are the most commonly
used variables for market segmentation.
© 2009 John Wiley and Sons Australia

25. Market segmentation
Psychographic segmentation
• Market segmentation based on the
psychographic variables of lifestyle, motives and
personality attributes.
• Psychographic segmentation is based on the
need to understand not who you are, but how
you live your life. This is reflected in activities
such as hobbies or choice of entertainment.
© 2009 John Wiley and Sons Australia

26. Roy Morgan Values Segments™
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27. Market segmentation
Behavioural segmentation
• Market segmentation based on actual purchase
and/or consumption behaviours.
• Behavioural variables include: benefit
expectations, brand loyalty, occasion, price
sensitivity and volume usage.
© 2009 John Wiley and Sons Australia

28. © 2009 John Wiley and Sons Australia

29. Market segmentation
Segmenting business markets
• As business markets are often characterised by a
small number of buyers who might display a very
close relationship with the seller, ‘customised’ or
‘one-to-one’ marketing is a good approach to
use.
• Business marketers isolate business customers
by using commercial industrial directories that
contain detailed information on companies.
© 2009 John Wiley and Sons Australia

30. Market segmentation
Effective segmentation involves ensuring:
• measurability – abstract variables can be difficult
to measure
• accessibility – through distribution and
communication channels
• substantiality – the segment must be of
sufficient size to allow profitability
• practicability – segments are only of use if they
can be identified and serviced.
© 2009 John Wiley and Sons Australia

31. Market segmentation
• Market segment profile
 A description of the typical potential
customer in the market segment (i.e.. the
common variables shared by members of
market segments and how the variables differ
between segments).
• Market segments must be sufficiently different
from each other for a distinctive offer to be
created for each segment, without risk of
overlapping segments or sending confusing
images and messages.
© 2009 John Wiley and Sons Australia

32. Demographic Segmentation
Demographic segmentation is about dividing the
market into various groups based on different
variables such as:
age,
gender,
race,
religion,
nationality,
marital status,
income,
family size
© 2009 John Wiley and Sons Australia

33. Psychographics
Based on individual psychological characteristics,
rather than demographic or other factors
These include people's lifestyles and behaviors:
where they like to vacation,
the kinds of interests they have,
the values they hold, and
how they behave.
© 2009 John Wiley and Sons Australia

34. VALS Psychographic Segments
• VALS (by SRI Consulting) provides examples of
how psychographic segmentation has been
successful used in such areas as product
introduction, product repositioning and targeted
direct mail campaigns.
• According to the VALS Framework, groups of
people are arranged in a rectangle and are
based on two dimensions.
© 2009 John Wiley and Sons Australia

35. © 2009 John Wiley and Sons Australia

36. VALS™ identifies eight consumer
segments
INNOVATORS
Sophisticated,
Change Leading,
Active, Take Charge
ACHIEVERS
Successful, Career &
Family Oriented,
Moderate
THINKERS EXPERIENCERS
Information Seeking, Risk Seeking,
Satisfied, Enthusiastic,
Reflective Impulsive
BELIEVERS MAKERS
Conservative, Homegrown, Self
Conventional, Sufficient, Macho,
Traditional Family Oriented
STRIVERS
Trendy, Approval,
Seeking,
Disenfranchised
SURVIVORS
Passive,
Risk Averse,
Constrained
Copyright © 2010 by Strategic Business Insights. All rights reserved. © 2009 John Wiley and Sons Australia

37. Global Market Segmentation
• More and more companies are approaching global
market segmentation by attempting to identify
consumers with similar needs and wants reflected
in their behavior in the marketplace in a range of
countries.
© 2009 John Wiley and Sons Australia

38. Market targeting
Market targeting: The selection of target markets
resulting from an evaluation of identified market
segments.
© 2009 John Wiley and Sons Australia

39. Market targeting
• Market potential: The total sales of a product
category that all organisations in an industry are
expected to sell in a specified period of time,
assuming a specific level of marketing activity.
• Sales revenue: Total volume of sales multiplied
by the average selling price.
• Market share: The proportion of the total
market held by the organisation.
© 2009 John Wiley and Sons Australia

40. Market targeting
• Company sales potential: An estimate of the
maximum sales revenue and market share that
an organisation can expect to achieve for a
specific product.
• Potential: is influenced by the market potential,
the level of marketing activity in the industry and
the effectiveness of an organisation’s
promotional spending.
© 2009 John Wiley and Sons Australia

41. Market targeting
Bark Busters – Corporate Video
Dial-up Broadband
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42. Positioning
Market positioning
• The way in which target market segments
perceive an organisation’s offering in relation to
competing offerings.
Company positioning
• A positioning strategy designed to create a single
market perception of the entire organisation in
relation to competitors.
© 2009 John Wiley and Sons Australia

43. Positioning
Brand positioning
• A positioning strategy designed to create a
market perception of a particular brand, usually
based on product attributes.
© 2009 John Wiley and Sons Australia

44. TOOTHPASTE
PRODUCT
POSITIONS
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45. The target marketing process stage
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46. Perceptual map of the Australian surfwear
industry
© 2009 John Wiley and Sons Australia

47. HYPOTHETICAL PERCEPTUAL MAP FOR PAIN
RELIEVERS
© 2009 John Wiley and Sons Australia

48. Chapter 6: Markets: segmentation, targeting and
positioning
Summary:
• Explain the broad concept of a ‘market’
• Understand the target marketing concept
• Identify market segmentation variables for
consumer and business markets, and develop
market segment profiles
• Select specific target markets based on
evaluation of potential market segments
• Understand how to effectively position an
offering to a target market in relation to
competitors, and develop a marketing mix.
© 2009 John Wiley and Sons Australia

49. EXAMPLE:
GMH
Sellers look for broad classes of buyers who differ in
their product needs or buying responses
• GMH has found that high and low-income groups
differ in their car-buying needs and wants
• Young consumers’ needs and wants differ from those
of older consumers
• Hence GMH has designed specific models for
different income and age groups
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© 2009 John Wiley and Sons Australia

50. EXAMPLE:
GEOGRAPHIC SEGMENTATION
• Dividing the market into different zones -
• Regions, States, Cities
• ICI’s fertiliser arm segments by geography -
emphasising the right product in the right areas
• Can localise products, advertising, promotion and
sales efforts to fit needs of individual areas
• People in different areas have different need and
wants
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© 2009 John Wiley and Sons Australia

51. EXAMPLE:STRATEGIC POSITIONING
Shampoo Market
• Shampoo market is highly fragmented - overflowing with
brands that promise: - body and control
- renewed life for dull hair
- elimination of split ends
- avoidance of dandruff.
• Effective marketers understand the value of establishing a
solid position in the minds of consumers.
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© 2009 John Wiley and Sons Australia

52. EXAMPLE:
FORD MOTOR COMPANY
• A company that has evolved from a mass-marketer
to a market-targeter.
• Ford originally made one car for the entire — didn’t
even have a choice of colours.
• “You can have any colour car you want so long as it’s
black” Henry Ford
• Over time, Ford added other cars to its line
(product-variety marketing), and eventually
developed cars for nearly every market segment
(target marketing).
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© 2009 John Wiley and Sons Australia

53. EXAMPLE:
PROCTER & GAMBLE
• Most companies that have been around for a long time have
shown a similar evolution.
• Procter & Gamble, had been in existence more than 80 years
when it introduced Ivory Flakes to supplement Ivory Soap
(product variety)
• Was almost 90 years old when it first developed a product
(Camay) to compete with an existing P&G product (Ivory)
(“150 Years of P&G”, Advertising Age, August 20, 1987, p. 10).
• Today, P&G is one of the pre-eminent market targeting
companies in the world.
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© 2009 John Wiley and Sons Australia

54. EXAMPLE:
SEGMENTS IN THE BEER MARKET
• The beer market is segmented in many ways:
• region (through regional brewers and brands),
• income and social class (premium beers and imports versus
budget beers),
• life style (“The original party animal”),
• purchase occasion (“Here’s to good friends”), and
• usage rate (“The one beer to have when you’re having more
than one”).
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© 2009 John Wiley and Sons Australia

55. EXAMPLE:
BENEFIT SEGMENTATION IN INDUSTRIAL MARKETS
• Service, selection, and reliability can all be used in benefit
segmentation of industrial markets.
• Suppliers who want to emphasise these characteristics must
identify firms that need these benefits.
• By better satisfying these firms’ needs, the supplier is able to
charge higher prices than competitors who offer fewer
services or less selection.
• Other suppliers can find market segments that do not need
these benefits, and sacrifice service, selection, and reliability
to reduce costs and be able to sell at a lower price.
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© 2009 John Wiley and Sons Australia