Nottingham University Business School N1DM04 Marketing Session 3 Segmentation, Targeting and...

Nottingham University Business School

N1DM04Marketing

Session 3

Segmentation, Targeting and Positioning

Dr Vicky Story


Objectives

• Explain importance of segmentation and review techniques currently employed in both consumer and business to business contexts

• Consider criticisms of segmentation• Review different targeting

approaches• Explore issues in positioning


What is market segmentation?

“Identification of individuals or organisations with similar characteristics that have significant implications for the determination of marketing strategy” (Jobber, 2007 :275).

“ Through market segmentation, companies divide large, heterogeneous markets into smaller segments that can be reached more efficiently and effectively with products and services that match their unique needs.” (Kotler et al., 2008:410).


The need for market segmentation?

• Marketers understand that they cannot be all things to all people, all of the time.


When discussing Customer Market Segmentation Henderson (1979) wrote:

“Successful market strategies segment

the total market in a way that minimises competitor’s strengths while maximising yours”.


Costs of Segmentation

• Segment identification• Manufacturing costs• Marketing, stock holding and other

associated costs

Need to trade off higher cost versus higher revenue

Segmentation, Targeting & Positioning Process

1. Select customers to serve– Segmentation

• Identify bases for segmenting the market• Develop profiles of segments

– Targeting• Develop measures of segment attractiveness• Select Target segments

2. Decide on a value proposition– Differentiation

• Create superior customer value

– Positioning• Develop marketing mix

3. = Value for Targeted Customers


Source: Kotler, Wong, Saunders & Armstrong (2008), Principles of Marketing, 5 th European Edition, p.410.


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Segmentation, targeting, & positioning process

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The disaggregated market The segmented market The target market

The characteristics of individual customers are understood

Customers are grouped into segments on the basis of having similar characteristics

Segment 3 is judged to be most attractive and a marketing mix strategy is designed for that target market

1 2 3 1 2 3

Marketing mix

targeted at segment 3


Segmentation in Consumer Markets


Consumer Segmentation Bases

Consumer segmentation

Behavioural

Benefits sought

Purchase occasion

Purchase behaviour

Usage

Perceptions and beliefs

Lifestyle

Personality

Demographic

Socio-economic

Geographic

Psychographic Profile

Jobber (2007)

Profile Bases

• Geographic • Country, region, city,

climate, density

– McDonald’s

• Demographic• Age, Gender, lifecycle

etc.

– Lego Toys

• Socio-economic• Social class, income,

terminal education ageNottingham University Business School

Age 2-5 8-14


How important is where the consumer lives? ACORN

Type of neighbourhood and dwelling (ACORN) is a relatively new segmentation base. Its underlying philosophy the fact that the type of dwelling and area a person lives in is a good predictor of likely purchasing behaviour including the types of products and brands which might be purchased. This classification analyses homes, rather than individuals, as a basis for segmentation. It is termed the ACORN system (A Classification of Residential Neighbourhoods).


Life-cycle stages (Wells & Gruber, 1986)

• Bachelor Stage: young single people not living with parents

• Newly married couples without children (DINKIES)• Full Nest I – youngest child under 6 (ORCHIDS)• Full Nest II – youngest child over 6• Full Nest III – older married couple with dependent

children• Empty Nest I – no children living at home, family head

in work (WOOPIES)• Empty Nest II family head retired• Solitary survivor – in work • Solitary survivor – retired (COCOON)


SAGACITY

• Refinement of family life cycle grouping system– System that believes that people have different

behavioural patterns and aspirations as they proceed through life. Four main stages of life cycle are defined as:

– Dependent (mainly under 24 living at home)– Pre-family (under 35s who have established

their own household, but without children)– Family (couples under 65 with one or more

children in the household)– Late (adults whose children have left home or

who are over 35 and childless)

Behavioural bases

• Benefits sought– Sainsbury’s basics– Rachel’s Organic

• Purchase Occasion– Emergency, gift, self-

purchase

• Purchase behaviour– Brand loyalty, organic

• Usage– Heavy vs light– Orange



Behavioural Bases (cont.)

• Perceptions & Beliefs – L’Oreal

• “Because you’re worth it”

– Dove• Unilever – identified a different belief

segment characterised by women who rebel against beauty stereotypes.

– Avoiding direct competition

• ‘Campaign for Real Beauty’


Lifestyle

• Consumers buy brands not only for their functional characteristics but to reflect the lifestyle to which they aspire.

• Seiko Watches


Personality

• The importance of emotion and the relationship between feelings and rationalisations is highlighted in this Sony ad.

• Timberland


VALS™

• Which VALS type are you?

Find out at:

www.sric-bi.com/VALS/presurvey.shtml


Example 1

• Source: Tourism Australia• How Tourism Australia segments the

Chinese market (ie Chinese tourists visiting Australia)– 2 key attributes

• Extent of experience of travel – close to home versus long haul

• Willingness to be challenged when travelling


5 Market Segments – based on emotions, attitudes and behaviours

http://www.tourism.australia.com/content/Research/Market%20Segmentations/China_Segmentation_Study.pdf


Characteristics

• Self challengers– 4.3 million (22% of long haul market)– Are the most likely to be University educated– Those who are single have the highest

personal income– Are the most likely to work for an international

company, – Are more likely to own a car, digital

camera/video camera– Are more likely to have an internationally

recognised credit card– Have the highest competency in the English

language


Ford have used attitudinal segmentation at the onset of any new product development

Responses from consumer surveys to personal attitude statements are plotted into eight semi-quadrant categories using multidimensional scaling to provide an attitudinal map known as a ‘consumerscape’

Example 2


5European Consumer Attitudes Map

Mastery (Active)

Stability(Passive)

Independence

Belonging32% 19%

18% 32%Frustrated Energetic

ConfidentSteady

Am

bitious

Accom

plished

Wit

hdra

wn

Con

serv

ativ

e

Like to feel part of a group

Dislike risky investments

I have accomplished a great deal in my life

I don’t like imitations, I prefer original products

Making living is more importantthan realising your dreams

No matter what myfamily comes first

Like to keep up with the latest trends

I’m happiest if I stay at home with my family

How I spend my time is more important than how much money I make

I buy environmentallyfriendly products

It’s important to passtraditions to the

younger generation

I’m very happy with my life as it is

Prefer quiet/secure life

I seek financial advicefrom many sources

Man and woman are equal partners in a relationship

It’s very important to save for the future

Establishing warmfriendships is all important

My family provides me witha feeling of safety and security

It’s important to be involved in one’s community

Like to play the stock market

Life is full of compromises

Worth the extra moneyfor latest technology

Like to keep up with elect./tech. develops.

I feel I can accomplish any goal

People should be able to do what they want without

interference from others

I like to do unconventional things

I don’t like to standout from the crowd

Life is too complicatedto plan ahead

A person should be able to practice any religion

There’s too much governmentregulation in our lives

Taking risks makes life more enjoyable

I’m an impulsebuyer

I like to behave as I pleasewithout worrying about others

Others look up to me as a model of success

Have more stylish clothesthan my friends

I feel a need to achievethings in life

I’m generally moresuccessful than my peers

I know I ought to save butI love to spend

Willing to sacrifice timewith the family to get ahead

Others get more outof life than I do

Like to change brandsfor the sake of variety

Get as much fun out of life, evenif sometimes neglect more serious things

My spiritual life is the mostimportant part of the way I live

I believe I am capable of more

Changes in routine disturb me

There’s little I can doto change my life

I tend to plan on a daily basis

I generally achieve goals

My career takes priorityover my family


These are then translated into life-stages (characteristics) which are then segmented into attitudinal typologies through clustering techniques. This comprised 9 groups with ‘hot buttons’ that characterise each segment


Details of the codes used in the ‘consumerscape’ are as follows:

FS Frustrated StriversASI Active Self-IndulgentsF FunseekersVA Visible AchieversWBS Well-balanced SociablesSP Social PragmatistsCT Contented TraditionalistsCC Comfortable ConformistsQC Quiet Carefuls


7European Consumer Attitudes Map

Style/ Trends

Experiences

Risks

Success

Indulgence

Personal Choice

Aspiration

Connected

Achievement

Community

Sociable

Authenticity

Family

Financial Security

Environment

Safety

Contented

Risk Averse

Personal Freedom

Envy

Religion

Personal Gain

Fatalism

Disconnected

30% 50%

80%

50%

80%

30%

80%

30%

50%

50%

80%

30%

50%

80%

50%

80%

80%

50%

30%

50%

80%

30%

50%

80%

30%

CC

QC SP

CT

WBS

VA

F

ASIFS

Mastery (Active)

Stability(Passive)

Independence

Belonging32% 19%

18% 32%Frustrated Energetic

ConfidentSteady

Am

bitious

Accom

plished

Wit

hdra

wn

Con

serv

ativ

e


Segmentation in Business to Business Markets


Segmenting Organizational Markets

Organizational segmentation

Micro segmentation

Decision-making process

Buy class

Purchasing organization

Organizational innovativeness

Organizational size

Industry

Geographic location

Macro segmentation

Decision-making unit structure

Choice


Macro and micro segmentation of Organizational Markets

Macro segment 2(medium-sized

companies)

Micro segment 2(prime choice criterion:

convenience)

Macro segment 3(small companies)

Micro segment 3(prime choice

criterion: price)

Macro segment 1(large companies)

Micro segment 1(prime choice

criterion: reliability)

Organizational market

• IBM– Macro

• Industries• Public sector• Chief Information Officers• Developers

• Corus Steel– Macro

• Country• Industry



Survey of b2b in 1998…

• Simkin and Dibb (1998) surveyed The Times 1000

• Segmentation approaches in b2b not very sophisticated

• Profitability, market growth and market size were the three most heavily used criteria.


Requirements for segmentation

• Identifiable– Segments exist

• Differentiable– Similar within, differences between– Able to differentiate meaningfully

• Actionable– Can anticipate positive response from some

segments

• Stable over time– Sustainable


Segment Forming and Profiling

• A priori – have knowledge of groupings and then may simply seek further profile information

• Post-hoc – rely on clustering or other similar techniques

Aggregation versus disaggregation


Criticisms of Segmentation


Criticisms of Segmentation

• Do segments really exist?• Segment overlap• Technique driven• Based on attitudes but attitudes are

not the same as behaviour• Segment stability/existence over

time (cross-sectional versus panel data)


Further Criticisms of Segmentation

• Segment at brand level or for product form

• Too much focus on consumers and not enough focus on competitors

• Relevance in e-commerce environments

• Is segmentation needed in an era of one to one?


Targeting Segments


Targeting marketing

• The choice of which market segment(s) to serve with a tailored marketing mix


Segment attractiveness

Segment Attractiveness

Market Growth Competitive Intensity Market access

• Number of companies• Ease of entry/exit• Substitutes/alternatives

• Customer familiarity• Channel access• Company fit

• Market size• Growth rate• Market potential

Best, R.J., (2009), p180

•Need to consider ability to serve

•Match to resources/capabilities

•Net marketing contribution


Weak Strong Attractive

Avoid or

invest Attack

Unattractive

Ignore Selectively invest

Segment Choice

Competitive position

Segment


Target marketing strategies

Undifferentiated marketing

Marketing mix Whole market

Wal-Mart?•Product•Price•Promotion•Distribution

Everybody

ORGANISATION MARKETING MIX TARGET MARKET



Differentiated marketing

Marketing mix 1 Segment 1

Segment 2

Segment 3

Marketing mix 2

Marketing mix 3


Utilitarian

Customer

Trendy-Casual

Price shopper

Mainstream

Tradition-alist

LEVI’s

Marketing Mix 1

Marketing Mix 2

Marketing Mix 3

Marketing Mix 4

Marketing Mix 5

Example of Differentiated Strategy

Jobber, 2007



Focused/Concentrated marketing

Segment 1

Segment 2

Segment 3

Marketing mix


Example of Focused Strategy

•Product•Price•Promotion•Distribution

CementManufacturer

BuildersMerchants

Independent

DIYShops

NationalDIY

Chains

Unserved

Unserved

ORGANISATION MARKETINGMIX

Jobber, 2007


Single segment (niche)

• Focus on largest segment• Defend smaller segment• Build a growing segment• Reconfigure



Customized marketing

Marketing mix 1 Customer 1

Customer 2

Customer 3

Marketing mix 2

Marketing mix 3


Example of Customized Strategy

Marketing

Mix 1

MarketingMix 2

MarketingMix 3

MarketingMix 4

Nissan

Birdseye

Heinz

Levis

IndustrialElectronicSystems Supplier

INDIVIDUALMIXES

ORGANISATION INDIVIDUAL CUSTOMERS


Deciding on a Value Proposition


How to differentiate

• Product Specific Differentiation– Form; Quality (performance, conformance

durability etc.); Style; Design.

• Non-product Specific Differentiation– Personnel (skills, service delivery, attitude);

Channel (extent of coverage, type, innovation); Image (build confidence, emotional significance); Support (repair, installation, advice etc.).

• In relation to competition


Good differentiation

• Important (of value)• Unique (distinctive, superior)• Sustainable (can be protected)• Viable (price/profit)


Positioning

"Positioning starts with a product. A piece of merchandise, a service, a company, an institution or even a person. Perhaps yourself. But positioning is not what you do to a product. Positioning is what you do to the mind of the prospect. That is you position the product in the mind of the prospect.”

Ries and Trout (1981)


Positioning and CA

Skills and resources

Position

Performance

Customers

Competitors

Positioning

• End result is the creation of a customer focused value proposition


Company and Product

Target customers

Benefits Price Value Proposition

Volvo(station wagon)

Safety-conscious “upscale” families

Durability and safety

20% premium

The safest, most durable wagon in which your family can ride

Domino’s (pizza)

Convenience-minded takeaway pizza lovers

Delivery speed and quality

15% premium

A good, hot pizza, delivered to door within 30 mins of ordering at an affordable price

Value Positioning

Price

Less Same More

More More for less (Skoda, Ikea, Asda/Wal-Mart)

More for same (Lexus, Nokia, Subway)

More for more (Starbucks, Merc Benz)

Benefits Same Same for less (Dell, Amazon.com)

Me too

Less Less for less (low cost airlines, Formula 1 hotels)



Perceptual mapping

• Provide comparison of what consumers want with what is currently offered and what is ‘ideal’

• Basis for comparing brands• Opportunity to spot gaps in the

market


A perceptual map of supermarkets

High price

Low price

Narrow product range

Broad product range

Waitrose

Sainsbury’s

Tesco

M & S

Aldi

Co-op

LidlMorrisons

ASDA


Choosing a Position

• Fit with strengths• Understand what chosen segment

values• Consider competition• How many USPs – single, double triple

benefit?– Singapore Airlines (Service)– Aquafresh (healthy gums, strong teeth

and fresh breath)

Successful positioning

• Clarity

• Consistency

• Credibility

• Competitiveness



Summary

• Segmentation concerned with identifying customer groups

• Targeting is concerned with identifying most appropriate segment(s)– Understanding customers and competition– Need to match with organisational capabilities

• Positioning reflects competitive advantage– Identify and communicate what makes the

organisation different

Nottingham University Business School N1DM04 Marketing Session 3 Segmentation, Targeting and...

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