Segmentation Internal control Elvira V Tarasenko Ph D

Segmentation. Internal control Elvira V. Tarasenko, Ph. D Elvira. Tarasenko@yandex. ru

Why segment? • • • Meet consumer needs more precisely Increase profits Segment leadership Retain customers Focus marketing communications

Suggested reading • Doyle, P. , Marketing management and strategy • Maslow, A. H. , Motivation and Personality • Morgan G. , Imaginization, the Art of Creative Management

Customer segmentation

The segmentation process • The consumers in the segment respond in the same way to a particular marketing mix. • The consumers within the segments have to react in a clearly different way from other groups of consumers to the marketing mix on offer. • The group has to be large enough to provide the ROI • The criteria used to identify the segment have to be operational.

Influences on consumer behavior

Examples of social class profiles in different cultures

Reference groups and families • Reference groups – can be formal or informal. • Family – it is the group within each individual purchasing behavior is socialised. • The family of orientation - is where individual is born or raised – vs family of procreation

Psychological influences • Motivation • Freud’s theory of motivation • Maslow’s theory of motivation

Perception • Selective attention - tendency of individuals to screen out the majority of stimulants to which they are exposed • Selective distortion – the tendency to adjust perceptions to conform to their current mindset • Selective retention – information that reinforces attitudes and beliefs is more likely to be retained

Perceptual behaviour • Learning, attitudes and beliefs • Conditioning learning theories – the negative attitude that has been formed to the product could also affect the individuals’ attitude to other products offered by the company linked to the brand • Social learning theories –individuals may remember the slogan associated with a brand name and form an attitude about it without any direct reinforcement • Cognitive learning theory

• Self-image – purchase of a car • Perceived risk – effect on the financial position • • Social factors – an individual level of social acceptance may depend on the right purchasing decision Hedonic factors – link to providing personal pleasure

The buying process

Consumer segmentation criteria • Profile variables • Behavioural variables ( purchase occasion, benefits sought, usage) • Psychographic variables ( lifestyle profile) The air travel market could be segmented according to the benefits sought (value or status), usage occasion (holiday, business), stage in the family life cycle

Innovative combinations of variables from across the range can uncover new market segments even in traditional markets, there is no hierarchy to these variables • Wednesday, 07 November 2012 15: 01 A recent poll of 340 air travellers, conducted b y Which. Budget a n d consumer interest site Budget Airline Watch, suggests that budget airlines are appreciated b y two thirds of customers for providing good value for money but only a third think they offer good customer service. Meanwhile, Ryanair was widely lambasted for providing the worst s e r v i c e i n t h e a i r l i n e i n d u s t r y. • While 62% of respondents agree that "budget airlines offer good value for money", only 32% agree that t h e y "o f f e r g o o d s e r v i c e".

Profile variables • Demographic segmentation ( age, psychological age) • Gender • Life cycle segmentation

A contemporary family life cycle

Jicnars socio-economic segmentation and social grade definitions

Geographic segmentation • Geographic • Geodemographics (demographic and socio-economic data) • What for: • Identifying favorable retail locations for a specific retail format • The specific mix of products delivered in a a particular retail location • Decisions on direct mail campaigns • The boundaries of specific sales territories • Location of poster sites • Selection of media

Euro-consumer segments using geodemographic segmentation

ACORN

ACORN • • A C l a s s i f i c a t i o n O f R e s i d e n t i a l N e i g h b o u r h o o d s) i s a geodemographic information system categorising some United Kingdom postcodes into various types based upon census data and other information such as lifestyle surveys. It was developed by R i c h a r d W e b b e r o f C A C I Limited, w h o a l s o d e v e l o p e d t h e competing MOSAIC system, and is sold to businesses, health and local authorities typically for marketing and planning purposes. T h e population i s divided into five categories f r o m W ealt hy Achievers (25. 1%) to Hard Pressed (22. 4%). They are also broken down into 17 categories from Wealthy Executives (8. 6%) to Inner City Adversity (2. 1%) and into 57 categories from Wealthy Mature Professionals, Large Houses (1. 7%) to Multi-Ethnic, Crowded Flats ( 1. 1 % ).

The Pareto effect or 80/20 rule

Questions posed in lifestyle studies Activities Work Hobbies Social events Vacation Entertainment Club membership Community Shopping Sports Interests Family Home Job Community Recreation Fashion Food Media Achievements Opinions Themselves Social issues Politics Business Economics Education Products Future Culture Demographics Age Education Income Occupation Family size Dwelling Geography City size Stage in the life cycle

Acronyms • Yuppies – Young upwardly mobile professionals • Dinks – Dual income no kids • Bumps –upwardly mobile young professional shows off • Silks – Single income lots of kids • Glams – Greying leisured affluent middle aged. • Jollies – Jet-setting oldies with lots of loot

The Webster-Wind framework • Environmental (political, economic, cultural, legal, technological and physical environment). • Organizational – (company’s goals and objectives, structure and resources) • Interpersonal (the relationship between the individuals in the buying center) • Individual (personal goals, past experience, training, style of problem solving)

The Webster-Wind framework

The Sheth framework • 4 factors that influence organizational buyer behavior: • The expectations of the members of the DMU • The factors influencing the buying process • The character of the decision-making process • Situational factors

A Sheth model of organizational buyer behaviour

The factors influencing the buying process, Sheth model • • Perceived risk (capital expenditure) Time pressure Type of purchase *routine or not The organization’s orientation Size of the organization Degree of centralisation/decentalisation Character of the decisions-making process *autonomous and joint

Four approaches to making decisions • Problem solving • Persuasion • Bargaining • Politicking Situational factors: • A strike at a key supplier • A supplier is taken by a competitor • Financial problems • Production breakdown • Changes in corporate taxation

Organizational macro- and micro segmentation Variables Macro segmentation • Size of organization • Geographic location • Industrial sector • End market served Micro segmentation • Choice criteria • Structures of DMU • Decision-making process • Buy class • Importance of purchasing • Type of purchasing organization • Innovation level of organization • Purchasing strategy • Personal attributes Examples • Large, medium, or small • Local, National, European Union, Worldwide • Retail, engineering, financial services • Defined by product or service • Quality, delivery, value in use, supplier reputation, price • Complexity, hierarchical, effectiveness • Long, short, low or high conflict • New task, straight or modified re-buy • High or low importance • Matrix, centralised, decentralised • Innovative, follower, laggard • Optimiser, satisfier • Age, educational background, risk taker/adverse, confidence level

The major factors for segmenting organizational markets (a nested approach)

Matching organizational capabilities to market needs through competitive positioning

Organizational assets • • Financial assets Physical assets Operational assets People assets Legally enforceable assets Systems Marketing assets

Marketing assets Customer-based assets: • Image and reputation • Brand franchises • Market leadership • Country of origin • Unique products and services (price, quality, design or level of innovation)

Historical area development of industries, branding of countries and territories

Marketing assets. Distributionbased assets • The size and quality of the distribution network (intensity of coverage, lead times) • Level of control over distribution channels

• Rock & Republic was recently acquired by VF corporation who now owns the rights to the brand. VF corporation recently announced an exclusive agreement which will bring Rock & Republic to Kohl’s department stores. The deal is thought to be part of Kohl’s plan to establish more exclusive brands and labels for their stores. Kohl’s President Kevin Mansell stated, “We’re really excited about it. We think it’s something we needed. ” • While, in the past, Rock & Republic jeans have sold for upwards of $200, the line at Kohl’s will have a much lower price point, anticipated to sell in the range of $39 -49, which is typical for the department store. They will also be produced and supplied by VF corporation’s factories in North Carolina. The line will appear in Spring 2012 and feature men’s and women’s styles in footwear, denim and shirts and may eventually expand to kid’s wear and home accessories.

Organizational competences • Strategic competences (management skills, strategic direction) • Functional competences (finance, marketing, operations, ie. product management, new development, customer relationship) • Operational competences ( special offers, labelling, sales force activities) • Individual competences • Team competences • Corporate-level competences

Hierarchy of assets and competences for a consumer goods company supplying major retail outlets

The internal marketing audit • • Marketing strategy audit Marketing structures audit Marketing systems audit Productivity audit (profitability, cost effectiveness) • Marketing functions audit (marketing mix) • Innovation activities

The innovation/value matrix by Kim and Mauborgne

The GE multifactor portfolio matrix Industry/ market attractiveness is assessed on a range of weighted criteria • Market size • Market growth rate • Strength of competition • Profit potential • Social, political, legal factors • Competitive strength: • Market share • Potential to develop differential advantage Competitive strength • Market share • Potential to develop differential advantage • Opportunities to develop cost advantages • Channel relationships • Brand image and reputation

The General Electric multifactor matrix

Drawbacks of portfolio models • The are based on an analysis of current areas of business and are therefore an inappropriate tool to employ in tackling the issue of new business development • They place too much emphasis on growth either through entering high growth markets or through gaining high market share instead of entering stable markets with lower growth rates • These models can require information that can be difficult to obtain and are complex and time consuming to execute

Decision-making pyramid

Forecasting techniques used by large industrial organizations, 1983 Technique % of companies reporting use of this technique Expert opinion Trend extrapolation Alternate scenarios Single scenarios Simulation models Brainstorming Casual models Delphi projections 86 83 68 55 55 45 32 29

Key factors that affect the way ingroups work and the level of groupthink that develops 1. High cohesiveness (harmony, mutual self -support) => no dissent during group meetings 2. Strong leadership => solidarity with the leader 3. Lack of objective search and evaluation (lack of trust) 4. Insulation of the group

6 different problems for jury forecasting • • • Illusions of invulnerability Collective rationalisation Belief in the inherent morality of the group Pressure on dissenters The illusion of unanimity Self-appointed mind guards

• A member of the group can be assigned the role of the Devil’s advocate. • The group leader is not allowed at the early stages • The group can invite outside independent individuals to attend group discussions when critical decisions are being made.

Delphi forecasting • Phase 1 A letter is sent to each of the experts…. • Phase 2. Each Expert is sent the list and asked to judge for each item the probability of when each potential delivery will take place. The time scale is broken into 5 - year bands

5 -year bands Yea r Pro babi lity By 2005 0. 5 200610 0. 15 201115 0. 25 201620 0. 35 202125 0. 25 Never 0. 00 Yea r Pro babi lity By 2005 0. 5 200610 0. 10 201115 0. 15 201620 0. 25 202125 0. 45 Never 0. 00

Scenario planning

4 reasons by Royal Dutch Shell • • Confronting assumptions Recognizing degrees of uncertainty Widening perspectives Addressing dillemas and conflicts

Simple scenarios • Identify the critical variables • Develop possible strings of events • Refine the scenarios • Identify the issues arising • The key but helping to understand the factors that could have a major impact on their business

The importance/uncertainty matrix

http: //www. cifs. dk/en/

Why do products fail? • 1. Under investment • 2. The product fails to deliver any customer benefit. • 3. Forecasting is difficult, especially if you are forecasting the future… • 4. Internal politics, trade-offs and compromise… • 5. Industry response is vital

“Marlboro Friday” 2 April 1993 • • • On April 2, 1993, cigarette behemoth Philip Morris, now a unit of Altria made a stunning announcement. As a result of increasing competition from bargain-brand cigarettes, Phillip Morris would need to cut prices by 20%. It was an absolutely frightening revelation. Since 1954, the Marlboro Man had been strategically advertised to consumers; he was considered the iconic symbol of American marketing. If his name-brand allure was faltering, many market pundits felt that other high-end companies could no longer justify premium prices, and would soon be dominated by whomever could crank out product at the cheapest price. Leggo my logo Investors didn't take it lightly. Philip Morris stock tanked 26% that day, along with smaller reactionary declines from Coca-Cola, Procter & Gamble, Disney, and nearly every other company that relied heavily on advertising their products. Brands, many thought, were dead; Marlboro Friday, as the day became known, marked the birth of a new consumer, one motivated only by price. Or did it?

The formulation of strategy

Competitive advantage

Common sources of differentiation • Product performance • Product perception ( the product must have an enduring emotional appeal generating brand loyalty) • Product augmentation (high level of service, after sales support)

Focus • Geographical area • End-user focus • Product/product line specialist

Adapted from Davidson, 1997 Source of competitive advantage Examples 1. 2. 3. 4. 5. 6. 7. 8. Actual product performance Robust, economic, easy to use Perception of product Brand image, product positioning Low cost operations Location, buying power Legal advantage Patents, contracts, copyright Alliances and relationships Networking procurement Superior skills Database management, design Flexibility Developing customized solutions Attitude Aggressive selling, tough negotiation

The value chain by Porter, 1985

Market followers, duplication of products

Attacking strategies by Kotler, 1999

Encirclement attack

Guerilla Marketing

Defensive strategies

Strategic wear-out • • • 1. Changes in customer requirements 2. Changes in distribution systems 3. Innovation by competitors 4. poor control of company’s costs 5. Lack of consistent investment 6. Ill-advised changes in successful strategy

Strategic options for declining/and or hostile markets by Aaker (1995) • Generate growth (encouraging existing users to increase users, developing new markets) • Survival (costs, focus on more profitable customers, takeovers etc) • Exit strategy (exiting a market might have repercussions for other actives and products, as it affects good will and customer confidence)

Perceptual map of the sherry market

Repositioning

Factors as the indicators of a brand’s value • • • 1. Market type 2. Market share 3. Global presence 4. Durability 5. Extendibility 6. Protection

Extendibility

Brand-product matrix

Brand hierarchy