MARKETING Real People, Real Choices Fourth Edition CHAPTER

MARKETING Real People, Real Choices Fourth Edition CHAPTER 7 Sharpening the Focus: Target Marketing Strategies and Customer Relationship Management

Step 1: Segmentation Segmentation is the process of dividing a larger market into smaller pieces based on one or more meaningful, shared characteristics Segmentation variables are used to divide the market into smaller slices Identifying homogeneity in a sea of heterogeneity 7-2

STP Marketing Constant trade-off between efficiencies of mass marketing and productivity of customized marketing Consumer – Distinctive wants – Increasingly demand customization – E.g. selling cars then and now Why do marketers segment markets? 7-3

Why do we segment markets Maximize the probability of sale Focus our energies and resources Meet segment needs more completely At the extreme – segment of one 7-4

Segmenting Consumer Markets Consider the market for athletic shoes. How many different ways can you identify for segmenting this market? Demographics Psychographics Behavior 7-5

Demographic Dimensions Age Gender Family structure Income and social class Race and ethnicity Geography 7-6

Age Children – Ages 4 to 12 – influence 130 billion worth of purchases annually Teens – Ages 13 – 17 spend 3000 annually on ‘feel good’ products (cosmetics, fast food, music, etc.) – E.g. Avon targets young teen girls Generation Y – Born between 1977 and 1994, young adults – 26% of the population – Spend 200 billion dollars annually 7-7

Age Generation X – Born between 1965 and 1976 – 46 million – Cynical attitude to marketing – Responsible for 70% of startup businesses – Save regularly, want stability and settle down 7-8

Age Baby Boomers – Born between 1946 and 1964 – Wealthiest segment – “they never age” Elderly – 35 million age 65 and older – Active lifestyles, good health and plenty of free time. 7-9

Gender Intrinsic appeal to one or the other group Marketers choose one group over the other (e.g. “The best a man can get”) The Metrosexual 7-10

Income Important variable as it determines who has the buying power Easy credit has weakened its effect somewhat Brands aimed at high net worth individuals? Mass market? 7-11

Ethnicity National origin strongly influences preferences for products, magazines, TV shows, food etc. By 2050 – Caucasians will make up 50% of the US population (74% in 1995) African Americans – 12% of population – “Rasheed & the Bacon Whopper” Asian Americans – 20 million by 2020 7-12

The Hispanic Market Segment Largest minority segment Brand loyalty Highly concentrated by national origin Youthful (median age is 23.6) 3.5 people in average household Receptive to relationship building “Got Milk” to “And you, have you given them enough milk today?” 7-13

Geography Location in the country Consumers like to patronize local / regional products Heileman Distilleries sells Lone Star beer in Texas and Samuel Adams beer in Boston Geodemographics – combine location with other demographic variables “Birds of a feather flock together” 7-14

PRIZM clusters Widely used geodemographic system developed by Claritas Divides all US zip codes into one of 62 clusters based on demographic and lifestyle variables E.g. Urban Gold Coast are elite urban singles, 45-64 yrs, average incomes 73500 dollars. Live in Marina Del Ray, CA, Lincoln Park, IL and Upper east side, NY, etc. 7-15

Psychographics Segments markets in terms of shared attitudes, interests, and opinions (e.g. HOGs are thrill seekers and counter cultural) Segments include demographic information such as age and income, but also includes richer descriptions – E.g. do you prefer a perfume because it makes you feel sexy or athletic? Proprietary segments National systems (VALS) 7-16

VALS by SRI Consulting Business Intelligence Values, Attitudes and Lifestyles Find your VALS type on their website Three primary motivators – ideals motivated are guided by knowledge and principles – Achievement motivated want products which exhibit their success – Self-expression motivated want products which facilitate self-expression 12% of American adults are experiencers and tend to be thrill seekers What should marketers do to sell successfully to specific VALS types? 7-17

4 Taxonomy of Porsche Buyers 7-18

Segmenting by Behavior Behavioral segmentation slices consumers on the basis of how they act toward, feel about, or use a product – Users versus nonusers – Heavy, moderate, light users – Usage occasions E.g. Cereal Bars eaten at breakfast, anytime snack, alternative to a meal, midnight snack, etc. 7-19

4 Benefit Segmentation of the Snack-Food Market 7-20

Segmenting Industrial Markets Organizational demographics – firm size – number of facilities – domestic or multinational – type of business – production technology utilized NAICS characteristics 7-21

Step 2: Targeting Evaluating Market Segments Developing Segment Profiles Choosing a Targeting Strategy 7-22

Evaluating Market Segments A viable target segment should satisfy these requirements: – Are members of the segment similar to each other but different from other segments? – Can marketers measure the segment? – Is the segment large enough to be profitable? – Can marketing communications reach the segment? – Can the marketer serve the segment’s needs? 7-23

Developing Segment Profiles A profile is a description of the typical customer in that segment – RJ Reynolds’ Dakota Profile of the “Virile Female”: Her favorite pastimes are cruising, partying, going to hot-rod shows and tractor pulls with her boyfriend, and watching evening soap operas. Her chief aspiration is to get married in her early twenties.” 7-24

Segment profiles Profile of the Marlboro smoker – Loves the outdoors, likes to be mobile, is a bit of a loner, strong, silent type, wears jeans, not used to taking orders, aggressive when provoked, considers women need to be protected and looked after, does not easily accept women as an equal partner. 7-25

Choosing a Targeting Strategy Undifferentiated Marketing Differentiated Marketing Concentrated Marketing Customized Marketing 7-26

Undifferentiated Marketing Appeals to a broad spectrum of people Efficient due to economies of scale Effective when most consumers have similar needs Example: Wal-Mart 7-27

Differentiated Marketing Develops one or more products for each of several customer groups with different product needs Appropriate when consumers are choosing among well-known brands with distinctive images and it is possible to identify one or more segments with distinct needs for different types of products E.g. Nike shoes 7-28

Concentrated Marketing Entails focusing efforts on offering one or more products to a single segment Useful for smaller firms that do not have the resources to serve all markets Example: Hard Candy sells its funky nail polishes and other cosmetics to only 20 something women. 7-29

Customized Marketing Segments are so precisely defined that products are offered to exactly meet the needs of each individual Mass customization is a related approach in which a company modifies a basic good to meet the needs of an individual E.g. Dell computers 7-30

Developing a Positioning Strategy Analyze the competitors’ positions in the marketplace. How do you do it? – Perceptual Mapping Look for gaps in the perceptual map Position your product in the best gap available – Your product must have the feature the dimensions suggest Evaluate the target market’s response so modifications to the positioning strategy can be made (repositioning) 7-31

Perceptual Mapping A representation of the consumers’ mind space along at least two dimensions and the position of brands along these dimensions. When considering more than two dimensions – Multi-Dimensional Scaling – a statistical procedure for determining clusters of similar brands. 7-32

The Perceptual Map – Cars – functional benefit based safety volvo mercedes savings ferrari Ford festiva prestige Corolla Civic Camry Accord mercedes Rolls Riding comfort 7-33

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Information from the map Which brands compete with each other (Tylenol & Motrin; Anacin & Excedrin) – Positioned close to each other – Greater brand switching between them Strategy implications – Differentiate better 7-35

Information from the map How is every brand perceived on each attribute – the current positioning Tylenol – most ‘gentle’ Excedrin – most ‘effective’ Strategy implications – Reinforce positioning 7-36

Information from the map Length of attribute line – how well does the attribute differentiate between brands ‘Gentle’ and ‘Effective’ differentiate the brands best Consumers have a harder time differentiating the brands on other attributes. Strategy implications – Explore repositioning on best differentiators 7-37

Information from the map Angle between lines Smaller angles – attributes are closely related Larger angles – attributes are unrelated ‘Long lasting’ and ‘Effective’ are seen to be closely related Strategy implications – Exploit small angle relationships 7-38

Information from the map Brand located close to the center (origin) e.g. Panadol No real positioning – seen to be mediocre 7-39

Perceptual mapping worked for Chrysler first spotted the dimension where a car can comfortably move a larger family and carry stuff – the minivan Liz Claiborne – the dimension of comfortable yet formal clothing for working women ICICI in India – the dimension of customers and bankers as being partners in business 7-40

Brand Personality The attempt to give the brand a human dimension Often achieved through the use of endorsers e.g. Jason Alexander & KFC; Cindy Crawford and Pepsi Also achieved through the use of animated or fictional characters (e.g. Pillsbury doughboy, Betty Crocker, Keebler elves, Mr. Clean, Mr. Peanut, California Raisins, etc.) 7-41

Exercise What is the brand personality of – Polo – Levis – Pepsi – Apple – Toyota 7-42

Customer Relationship Management A CRM strategy allows a company to identify its best customers, stay on top of their needs, and increase their satisfaction CRM is about communicating with customers one on one CRM views customers as partners 7-43

Characteristics of CRM Share of Customer not share of market – Focus on supplying different products to the same customer Lifetime Value of the Customer – The amount the customer would spend buying from the firm over his/her lifetime Customer Equity – The lifetime value of the customer A Greater Focus on High-Value Customers 7-44