Ch. 7: Segmenting, Targeting, and Positioning

Market Segmentation

“In business-to-business marketing, segments are clusters of firms that are distinct from others in terms of what they need and buy as well as how they buy”

Targeting

“Producing an offering that meets the needs of customers in the segment better than the competitor’s, and reach segment through communication and distribution channels so that customers realize the superior value offered.”

Choosing Segments

Marketers choose segments to target by:

Measurability Accessibility Substantiality Actionability

Effective Segments

“An effective segment has members that homogeneous within the segment and those members as heterogeneous as possible with the members of other segments.”

Positioning

Relationship of product and marketing activities

In comparison to other segment participants must demonstrate superior value to consumers

Positioning is in the mind of consumer

Resources often managed to ensure successful positioning

Strategies for Market Segments

Competitive advantage through low cost position

Competitive advantage through differentiated offering

Competitive advantage through providing an exact product to a niche market

Business to Business Segmentation

Common Basis

Product Offered

Buying Behavior

Geographic Region

Size of Account

Size of Company

Technology Used

Industry of Customer

Segments and The Value Chain – Exhibit 2a

SegmentOffering

abcd

1

2

3

4

Subgroupswith differingneeds

Key elements of value chaincontributing to offering – complicated chain of activities because of complicated offering

Key elements of offering addressing subgroups in the segment –complex offering

Several sub-groups in the market segment due to differing needs

a

bc

d

Value Chain

Value Enabling– Infrastructure– People

Management– Technology

Development & Mgt

– Resource Acquisition

Value Creating– Input

Logistics– Operation

s– Delivery

Logistics– Marketing– Service

Segments and The Value Chain – Exhibit 2b

1

2

Value Chain

Offering Segment

Key elements of value chaincontributing to offering –

simpler chain of activities because of simpler offering

Fewer key elements of offering addressing subgroups in the segment

Fewer sub-groups in the market segment due to more homogeneous needs

ab

a

b

Value Enabling– Infrastructure– People

Management– Technology

Development & Mgt

– Resource Acquisition

Value Creating– Input

Logistics– Operation

s– Delivery

Logistics– Marketing– Service

Analytical Approach to Segmentation

Produces to sets of data: Determine relative size and

growth potential of segments Determine individual segment

needs and buying behavior

North American Industry Classification System (NAICS)

Industry classifications designed and used by the U.S. government, Canada and Mexico.

Visit: http://www.census.gov/naics/ for full description.

North American Industry Classification System (NAICS)

11 Agriculture, Forestry, Fishing and Hunting

53 Real Estate and Rental and Leasing

21 Mining, Quarrying, and Oil and Gas Extraction

54 Professional, Scientific, and Technical Services

22 Utilities 55 Management of Companies and Enterprises

23 Construction 56 Administrative and Support and Waste Management and Remediation Services

31-33

Manufacturing 61 Educational Services

42 Wholesale Trade 62 Health Care and Social Assistance

44-45

Retail Trade 71 Arts, Entertainment, and Recreation

48-49

Transportation and Warehousing

72 Accommodation and Food Services

51 Information 81 Other Services (except Public Administration)

52 Finance and Insurance 92 Public AdministrationSource: www.census.gov/eos/www/naics/index.html

Innovation Translation

Look for new customers Verify existence of segment

o Do so by transferring technology offering of the first customer to other customers

Involves exploratory interaction with current and prospective customers

Factors in Assessing Segment Attractiveness

Size of Segment Growth Rate of

Segment Intensity of Unmet

Need(s) Reach ability of

Segment through Communications Channels

Readiness of Segment to Seek and Adopt a Solution

Likelihood of Competitive Intensity

Sufficiency of Channel Reach

Likely Value Contribution by Channel(s)

Match Between Segment Needs and Supplier’s Strengths

Differentiability of Supplier’s Offering

Opportunity to Achieve Strategic Goal by Addressing Segment

Opportunity to Achieve Learning Goal by Addressing Segment

Logical Analysis of Market Segments

Setting Goalso Achieving sales level, Growing at a

desirable rate, And maybe other tangible goals

Defining Segmentso Measures that reflect differences in

need

Segment Attractiveness for Hypothetical Example

Attributes Segments

Scores on 5-point scale*

Segment 1: Major

Turnaround

Segment 2: Stopping

Deterioration

Segment 3: Competitive

Improvement

Segment 4: Specific Area Improvement

Potential size year 2010 (in $million)

2$195.0

3$390.0

4$585.0

4$975.0

Growth, percent increase by 2012

4100%

4100%

1(50%)

5150%

Need strength5 4 3.5

3.5(High

variance)Competitive strength 3 3 4

3(High

variance)Channel reach 5 5 5 5Communications reach

4 4 4 4

Capability fit 2 5 5 2Price sensitivity 2 3 4 3

Overall attractiveness(sum of attribute scores)

27 31 30.5 29.5

Technology Adoption Life Cycle (TALC)

Also shown as Exhibit 2-6

Technophiles

Visionaries

Laggards

Time

Sales from New Adopters/

period

PragmatistsConservativ

es

Technology Adoption Life Cycle: Adopter Categories

Technophiles—tries out the latest and greatest technology, does not need fully developed offering

Visionaries—See competitive advantage by using technology, standardized buying with custom offering

Pragmatists—want same as visionaries but will not buy if unless technology is easily adopted with minimal difficulty

Conservatives—only buy when doesn’t cost to adopt, need to be convinced offering exact for needs

Laggards—will avoid adoption of technology at all costs

Technology Adoption Life Cycle: Adopter Category Position and

Targeting

Technophiles—needs are curiosity, target early

Visionaries—gain competitive edge and will pay for it, target for support

Pragmatists—keep up with cutting edge, use innovation translation

Conservatives—need new technology to keep up to standards

Laggards—unique needs met by old technology

Positioning of a Product Line

Goal is get members of the different segments to see and value both the differences and similarities

Relate to the overall corporate brand positioning, or at least considered in light of it.

A flagship product may be desired. Position consistent with McKenna’s

idea of market ownership