marketing strategy Customers Segmentation and Target Marketing 6

marketing strategy Customers, Segmentation, and Target Marketing 6 C H A P T E R

Segmentation and Target Marketing • Concerned with the individuals, institutions, or groups of individuals or institutions that have similar needs that can be met by a particular product offering – The goal is to identify specific customer needs, then design a marketing program that can satisfy those needs. – The firm must have a comprehensive understanding of its current and potential customers, including their motivations, behaviors, needs, and wants. • Segmentation is critical to the success of most firms and has helped improve our standard of living. 6 -2

Buyer Behavior in Consumer Markets • Irrational and unpredictable • Can progress through 5 stages – SEE EXHIBIT 6. 1 – – – Need Recognition Information Search Evaluation of Alternatives Purchase Decision Post-purchase Evaluation • Does not always follow these stages in sequence • May be characterized by loyalty to a merchant • Includes “what” to buy and “where” to buy 6 -3

Buyer Behavior in Consumer Markets • Need Recognition – Need • Occurs when the consumer’s current level of satisfaction does not equal their desired level of satisfaction. – Want • A consumer’s desire for a specific product that will satisfy the need. – Understanding basic needs allows the firm to segment markets and create marketing programs that can translate consumer needs into wants for their specific products v Demand – When wants for specific products are backed up by the customer’s ability and willingness to pay for the product. 6 -4

Buyer Behavior in Consumer Markets • Information Search – Marketing activities can stimulate a desire for information: • Passive information search: being attentive and receptive to info • Active information search: self-motivated to seek info – Sources of information: • Internal sources • External sources – Including personal sources 6 -5

Buyer Behavior in Consumer Markets • Information Search – Time, effort, and expense dedicated to information search depends on: • Degree of risk involved in the purchase – – Financial risk Social risk Emotional risk Personal risk • Amount of expertise with the product category • Actual cost of the search in terms of time and money – Evoked set • A narrowed down set of alternatives that the customer is considering to buy 6 -6

Buyer Behavior in Consumer Markets • Evaluation of Alternatives – Customers evaluate products as bundles of attributes • • (Case of automobiles) Brand attributes: reputation, image, reliability Product features: black box, fuel economy, horse power, GPS-support Aesthetic attributes: style, roominess, sportiness Price – Customers place different levels of importance on attributes and different decision rules 6 -7

Buyer Behavior in Consumer Markets • Evaluation of Alternatives – Important considerations in the evaluation stage: • Products must be in the evoked set • Consumers’ choice criteria must be understood – Cutoff level, the most important one, complementary, etc. • Marketing programs must be designed to: – Change the priority of choice criteria – Change consumers’ opinions about product or brand image 6 -8

Buyer Behavior in Consumer Markets • Purchase Decision – Purchase intention and the act of buying are distinct concepts – Potential intervening factors between intention and buying (Case of automobiles) • • Unforeseen circumstances Angered by the salesperson or sales manager Unable to obtain financing Customer mind changes – Key issues in the purchase decision stage: • Product availability • Possession utility: making possession easy like financing 6 -9

Buyer Behavior in Consumer Markets • Postpurchase Evaluation – The connection between the buying process and developing long-term customer relationships – Four possible outcomes in the postpurchase stage: • • Delight: product’s performance >>> buyer’s expectations Satisfaction: product’s performance ≥ buyer’s expectations Dissatisfaction: product’s performance < buyer’s expectations Cognitive dissonance (postpurchase doubt) – Cognitive Dissonance is more likely to occur when: • Dollar value of the purchase increases • Opportunity cost of rejected alternatives is high • Purchase decision is very involving or emotional 6 -10

Buyer Behavior in Consumer Markets • Postpurchase Evaluation – Firm’s ability to manage dissatisfaction and cognitive dissonance: • Is a key to creating customer satisfaction • Have a major influence on word of mouth communication 6 -11

Buyer Behavior in Consumer Markets • Factors Affecting the Consumer Buying Process – Decision-Making Complexity • High/Low Complexity • The primary reason for variations in the buying process – Individual Differences • Demographics, perceptions, motives, interests, attitudes, opinions, lifestyles, etc. – Social Influences • Culture, subculture, social class, reference groups, opinion leaders, etc. – Situational Influences – see [Exhibit 6. 2] 6 -12

Buyer Behavior in Consumer Markets • Common Situational Influences From Exhibit 6. 2 – Physical and Spatial Influences • Retail atmospherics, retail crowding, store layout and design – Social and Interpersonal Influences • Shopping in groups, salespeople, other customers – Temporal (Time) Influences • Lack of time, emergencies, convenience – Purchase Task or Product Usage Influence • Special occasions, buying for others, buying a gift – Consumer Dispositional Influences 6 -13 • Stress, anxiety, fear, fatigue, emotional involvement, good/bad mood

Buyer Behavior in Business Markets • Four Types of Business Markets: – Producer markets (a. k. a. commercial markets) • Buy raw materials for use in producing finished goods, and facilitating goods and services used in the production of finished goods. – Reseller markets • Consist of channel intermediaries such as wholesalers, retailers, or brokers that buy finished goods from the producer market and resell them at a profit. – Government market – Institutional markets • Consist of a diverse group of non-commercial organizations such as churches, charities, schools, hospitals, or professional organizations. 6 -14

Buyer Behavior in Business Markets • Unique Characteristics of Business Markets: – The Buying Center • The group of people responsible for making purchase decisions • Can be complex and difficult to identify, in part because it may include three distinct groups of people – Economic buyers: senior executives – Technical buyers: purchasing agents and materials managers – Users – Hard and Soft Costs • Hard cost: monetary price, shipping, installation • Soft cost: downtime, opportunity costs, and human resource costs associated with the compatibility of systems in the buying decision 6 -15

Buyer Behavior in Business Markets – Reciprocity • Business buyers and sellers tends to purchase products from each other – Mutual Dependence • The buyer and seller are more likely to be dependent on one another, especially in situations of sole-source or limited-source buying. 6 -16

Buyer Behavior in Business Markets • The Business Buying Process 1. 2. 3. 4. 5. 6. 7. Problem Recognition Develop Product Specifications Vendor Identification and Qualification Solicitation of Proposals or Bids Vendor Selection Order Processing Vendor Performance Review 6 -17

Buyer Behavior in Business Markets • Factors That Affect the Business Buying Process – Environmental conditions: economic trends, technology changes. . . – Organizational factors: resources, strategies, policies, objectives, relationships with supply chain partners – Interpersonal relationships and individual factors • • Power struggles Manager’s personal preferences 6 -18

Market Segmentation • The process of dividing the total market for a particular product or product category into relatively homogeneous segments or groups • The goal of segmentation is to create groups where the members within the group have similar likes, tastes, needs, wants, or preferences – But where the groups themselves are dissimilar from each other. – Involves the fundamental decision of whether to segment at all • Typically allows firms to be more successful 6 -19

Market Segmentation • Traditional Market Segmentation – Mass Marketing • • • Used successfully for decades by many successful firms Are not out-of-date Are sometimes used in combination with newer approaches Involves no segmentation whatsoever; an undifferentiated approach Works best when the needs of an entire market are homogeneous Is efficient from a production standpoint, resulting in lower marketing costs • Is inherently risky and vulnerable to competitors 6 -20

Market Segmentation – Differentiated Marketing • Most firms use some form of market segmentation by: – 1) dividing the total market into groups of customers having relatively common or homogeneous needs, and – 2) attempting to develop a marketing program that appeals to one or more of these groups. • Involves two options: – Multisegment approach • Seek to attract buyers in more than one market segments by offering a variety of products that appeal to different needs – Market concentration approach • Focus on a single market segment and attempt to gain maximum share in that segment. 6 -21

Market Segmentation – Niche Marketing • Focuses marketing efforts on one small, well-defined market segment or niche that has a unique, specific set of needs • Customers in niche markets will typically pay higher prices for products that match their specialized needs. • Requires that firms understand meet the needs of target customers so completely that the firm’s substantial share of the segment makes it highly profitable 6 -22

Market Segmentation • Individualized Segmentation Approaches – Are viable due to advances in technology – Allow firms to combine demographic data with behavioral data to precisely match customer preferences – Will become more important in the future – Can be prohibitively expensive to deliver – Depend on: • Automated delivery • Personalization 6 -23

Market Segmentation – One-to-one marketing • Occurs when a company creates an entirely unique product or marketing program for each customer in the target segment. • Used less often in consumer markets but common in luxury and custommade products, as well as in services. • Has grown rapidly in electronic commerce where customers can be targeted very precisely. – Mass customization • An extension of one-to-one marketing • Refers to providing unique solutions to individual customers on a mass scale 6 -24

Market Segmentation – Permission marketing • Occurs when customers choose to become part of a firm's market segment by giving companies permission to specifically target them in their marketing efforts. • Are viable due to advances in technology • Allow firms to combine demographic data with behavioral data to precisely match customer preferences • Will become more important in the future • Can be prohibitively expensive to deliver • Depend on automated delivery and personalization • The most common tool – Opt-in e-mail list, where customers permit a firm to send periodic e -mail or SMS about goods and services. 6 -25 • A major advantage: Customers are already interested in the product

Market Segmentation • Criteria for Successful Segmentation – Requires that market segments fulfill 5 criteria: • Identifiable and Measurable - the characteristics of the segment's members must be easily identifiable. • Substantial - the segment must be large and profitable enough • Accessible - in terms of communication and distribution. • Responsive - the segment must respond to the firm's marketing efforts, including changes to the marketing program over time. • Viable and Sustainable – The segment must meet the basic criteria for exchange, including being ready, willing, and able to conduct business with the firm. – Avoid ethically sensitive, but legal, segments 6 -26 – Avoid segments that do not match the firm’s expertise

Identifying Market Segments • Involves selecting the most relevant variables to identify and define the target market • The target market and the marketing program are interdependent, and changes in one typically require changes in the other • Involves the isolation of individual characteristics that distinguish one or more segments 6 -27

Identifying Market Segments • Segmenting Consumer Markets – SEE EXHIBIT 6. 3 – Behavioral Segmentation • The most powerful approach because it uses actual consumer behavior or product usage to make distinctions among market segments. • Behavioral segmentation, unlike other types of consumer segmentation, is most closely associated with consumer needs. [EXHIBIT 6. 4] • The key to successful behavioral segmentation is to clearly understand the basic needs and benefits sought by different consumer groups. – Demographic Segmentation – Psychographic Segmentation – Geographic Segmentation 6 -28

Benefit Segmentation of the Snack Food Market Exhibit 6. 4 6 -29

Identifying Market Segments • Segmenting Consumer Markets – Behavioral Segmentation – Demographic Segmentation • Divides markets into segments using demographic factors such as gender, age, income, and education. • Tends to be the most widely used basis for segmenting consumer markets because demographic information is widely available and relatively easy to measure. • Becomes less useful when the firm has a strong interest in understanding the motives or values that drive buying behavior. – Psychographic Segmentation – Geographic Segmentation 6 -30

Identifying Market Segments • Segmenting Consumer Markets – Behavioral Segmentation – Demographic Segmentation – Psychographic Segmentation • Deals with state-of-mind issues such as motives, attitudes, opinions, values, lifestyles, interests, and personality. • Useful because it transcends purely descriptive characteristics to help explain personal motives, attitudes, emotions, and lifestyles. – VALS™ divides adult U. S. consumers into one of eight profiles. [Exhibit 6. 5] • Are usually combined with demographic, geographic, or behavioral segmentation to create fully developed consumer profiles. – Geographic Segmentation 6 -31

VALS Consumer Profiles See Exhibit 6. 5 for Explanation 6 -32

Identifying Market Segments • Segmenting Consumer Markets – – Behavioral Segmentation Demographic Segmentation Psychographic Segmentation Geographic Segmentation • Geographic characteristics often play a large part in developing market segments, especially when retailers use geography to develop trade areas. • Is often most useful when combined with other segmentation variables. One of the best examples is geodemographic segmentation, or geoclustering. • How is your product segmented? 6 -33

Identifying Market Segments • Segmenting Business Markets – The most basic method is to divide the market into producer markets, reseller markets, government markets, and institutional markets. – Business buyers can also be segmented on: • • • Type of Organizational Characteristics Benefits Sought or Buying Process Personal and Psychological Characteristics Relationship Intensity 6 -34

Identifying Market Segments – Business buyers can also be segmented on: • Type of Organization – Require different and specific marketing programs, such as product modifications, different distribution and delivery structures • Organizational Characteristics – Their size, geographic location, or product usage • Benefits Sought or Buying Process • Personal and Psychological Characteristics • Relationship Intensity – The strength and longevity of the relationship with the firm 6 -35

Target Marketing Strategies – Once the firm has completed segmenting a market, it must then evaluate each segment to determine its attractiveness and whether it offers opportunities that match the firm's capabilities and resources. • A firm might consider five basic strategies for target market selection: – – – Single Segment Targeting Selective Targeting Mass Market Targeting Product Specialization Market Specialization 6 -36

Target Marketing Strategies • Basic Strategies for Target Market Selection 6 -37

Target Marketing Strategies • A firm might consider five basic strategies: – Single Segment Targeting • When their capabilities are intrinsically tied to the needs of a specific market segment. – Selective Targeting • When firms have multiple capabilities in many different product categories. • Advantages - diversification of the firm's risk and the ability to cherry pick only the most attractive market segments. – Mass Market Targeting • The development of multiple marketing programs to serve all customer segments simultaneously 6 -38

Target Marketing Strategies • A firm might consider five basic strategies: – Product Specialization • When their expertise in a product category can be leveraged across many different market segments. – Market Specialization • When their intimate knowledge and expertise in one market allows them to offer customized marketing programs that deliver needed products, and solutions to customers' problems 6 -39

Target Marketing Strategies • A firm might also take steps to target noncustomers. – The key to targeting noncustomers lies in understanding the reasons that they do not buy, and then finding ways to remove these obstacles. – Removing obstacles to purchase is a major strategic issue in developing an effective marketing program. 6 -40