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Ch. 7 Target Marketing Strategy: Selecting and Entering a Market

Market fragmentation: – The creation of many consumer groups due to

the diversity of their needs and wants Target marketing strategy:

– Dividing the total market into different segments based on customer characteristics, selecting one or more segments, and developing products to meet those segments’ needs

– Also known as STP (segmentation, targeting, and positioning)

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Steps in the Target Marketing Process: STP

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Goals of Segmentation

Why? – Effectiveness – Efficiency – Better meets consumer needs

What makes a good segmentation outcome?– p. 213, “Without real differences in consumer needs,

firms might as well use a mass-marketing strategy.”– Differentiate groups based on what and why they buy

Exercise: Bicycles

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Steps in the Target Marketing ProcessStep 1: Segmentation

Segmentation:– The process of dividing a larger market into smaller

pieces based on one or more meaningful shared characteristics

Segmentation variables (“bases”): – Dimensions that divide the total market into fairly

homogeneous groups, each with different needs and preferences

– Segmentation variables include:• Demographics—size, age, gender, ethnic group, income,

education, occupation, family structure• Psychographics—psychological, values and lifestyles, and AIO

factors• Behavior-based variables – usage rate, usage occasion, product

benefits

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Demographic Dimensions

Age Gender Occupation Family structure Income and social class Race and ethnicity Geography

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Segmenting by Demographics: Age: Generational Marketing

Children Tweens Teens Generation Y: born between 1977 – ?

(also referred to as Millennials) Generation X: born between 1965 - 1976 Baby Boomers: born between 1946 - 1964 Older consumers

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Segmenting by Demographics: Gender & Other

Many products appeal solely or more to one gender than the other

Family Structure Income Social Class Race and Ethnicity

– African Americans

– Asian Americans

– Hispanic Americans

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Segmenting by Geography

Geodemography: – combines Geography with demographics

(*and psychographics*)– Claritas, PRIZM, etc.– Example: Children’s World prospect targeting

Geocoding: – Customizes web advertising so people who

log on in different places see ad banners for local businesses

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Missoula, MT 59802's

Most common PRIZM NE Segments are: 47 City Startups 56 Crossroads Villagers 53 Mobility Blues 44 New Beginnings 60 Park Bench Seniors Potential Issues: Mistargeting

– Karen’s experience in Denver

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Segmenting by Psychographics

Psychographics: – Segments formed on the basis of values and

lifestyles (VALs) and shared activities, interests, and opinions (AIOs).

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Segmenting by Behavior

Segments consumers based on how they act toward, feel about, or use a specific product category– 80/20 rule: 20 percent of purchasers account for

80 percent of a product’s sales• Heavy, medium, light users & nonusers of a product

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Segmenting by Behavior (Cont.)

User status:– Heavy, medium, and light users and nonusers of a

product Usage occasions

– Segments on the basis of different occasions when customers buy or use various products

• Shoes, watches

Benefit segmentation (not explicit in text)– Segments on the basis of the specific benefits different

customers desire when purchasing in a product category: • OJ example p. 211: added vitamins/calcium vs. pulp vs. no sugar

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Segmenting Business-to- Business Markets

North American Industry Classification System (NAICS)– Issues with accuracy– Inaccuracy example: candles categorized as part of

petroleum, oil, and gas industry

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Steps in the Target Marketing Process Step 2: Targeting

Targeting:– Marketers evaluate the attractiveness of each

potential segment and decide in which segment(s) they will invest resources toward om attempt to convert them into customers

– The customer group(s) selected are referred to as the target market

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Developing Segment Profiles

A profile is a description of the “typical” customer in a segment.– Might include information on demographics,

location, lifestyle, and product-usage frequency Some creatives (creative team in ad agency

or internal agency) create a “person” that represents the target market and write ads as if writing to that person specifically

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Evaluation of Market Segments

A viable target segment should:– Have members with similar product needs

and wants – Be measurable in size and purchasing power– Be large enough to be profitable – Be reachable by marketing communications– Be one that the marketer’s company has the

strengths and capabilities to adequately serve well

Also consider:* growth rates by segment * competition by segment

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Select a Target Marketing Strategy

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Choosing a Targeting Strategy

Undifferentiated targeting strategy – Appealing to the total market without regard to specific

segments– “Mass marketing”– Commodities, often non-profit / “social” marketing causes,

limited marketing budget, lack or knowledge Differentiated targeting strategy

– Developing one or more products for each of several customer groups

• Example: Honda (or any major automaker)– Developing different advertising strategies

(message/media) for different customer groups (but offering the same product)

• Example: Johnson’s Baby Shampoo

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Choosing a Targeting Strategy

Concentrated (“niche) target marketing strategy – Offering one or more products to a single segment

• Example: niche automaker like Rolls Royce or Ferrari

Custom marketing strategy – Tailoring specific products to individual customers

• Example: custom tailored suits

– Common in personal and professional services• Example: dentistry, website design

– Mass customization • Modifying a basic good or service that is “mass produced” to

meet the specific needs of an individual

Example: Vistaprint

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Step 3: Positioning What is positioning?

– Developing the (a) image of the product (b) in the mind of the customer (c) relative to competition on (d) important attributes (either objective or subjective)

Brand personality– A distinctive image that captures the brand’s character

and benefits

Repositioning – Create a new position to respond to market changes

• Example: Revitaling 40 year old brand, Old Spice, with the “Smell Like a Man” campaign

• http://www.dandad.org/en/old-spice-response-campaign/

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Steps in Developing a Positioning Strategy

Analyze competitors’ positions Offer a good or service with a competitive

advantage (also called point of differentiation) Finalize the marketing mix by matching mix

elements to the selected segment Evaluate target market’s responses and

modify strategies as needed

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Positioning Tool: Perceptual Map* A research technique marketers use to identify

where products/brands are “located” in consumers’ minds (i.e. how they are perceived)

Statistical method: – multi-dimensional scaling – pair-wise similarity judgments

A 2-dimensional “product” space – the dimensions are attributes of the product

• objective or subjective – products are the evoked set

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Example of Perceptual Map - 1

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Example of Perceptual Map - 2

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Four Steps in One-to-One Marketing

Identify customers and get to know them in as much detail as possible

Differentiate customers by their needs and value to the company

Interact with customers; find ways to improve cost efficiency and the effectiveness of the interaction

Customize some aspect of the products you offer each customer

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CRM: A New Perspective on an Old Problem

CRM systems use computers, software, databases, and the Internet to capture information at each touchpoint– Touchpoints are any direct interface between

customers and a company (online, by phone, in person, etc.)

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Characteristics of CRM

Share of customer (vs. share of market): focus on retention and loyalty (vs. acquisition of new customers)– 7 to 10 times more expensive to acquire a new customer and

retain an existing one

Lifetime value of the customer – aka customer equity

Focus on high-value customers– tiers/categories

Personalize/customize – one-to-one marketing