Targeting Attractive Segments

PPT6Prof. S.Venkat

Discussion Questions

1. What’s a market?2. What’s a market segment?

• What’s a market?• A group of individuals or organizations (i.e., buyers)

having the willingness and ability to buy goods and services to satisfy a class of want or need

• What’s a market segment?• A group of potential customers in a market who

share similar wants and needs that are different from the wants and needs of consumers in other segments

Discussion Questions

3. Why should we segment markets and target certain segments?

Are there benefits in doing so?Are there drawbacks?

Market Segmentation• Segmentation is important because markets

are rarely homogeneous in benefits wanted, purchase rates, and price and promotion elasticities, and their response rates to products and marketing programs differ.

• Variation among market segments in product preferences, size and growth in demand, media habits, and competitive structures further affect the differences and response rates.

Market Segmentation• Market segmentation has become increasingly important

in setting marketing strategies.• Population growth has slowed, and more product-markets

are maturing. This sparks more intense competition as firms seek growth via gains in market share as well as in an increase in brand extensions.

• Such social and economic forces as expanding disposable incomes, higher educational levels, and more awareness of the world have produced customers with more varied and sophisticated needs, tastes, and lifestyles than ever before. This has led to an outpouring of goods and services that compete with one another for the opportunity of satisfying some group of consumers.

Market Segmentation• Market segmentation has become increasingly important

in setting marketing strategies.• There is an increasingly important trend toward

microsegmentation, in which extremely small segments are targeted.

• Many marketing organizations have made it easier to implement sharply focused marketing programs by more sharply targeting their own services.

Market Segmentation• Benefits of market segmentation:• It identifies opportunities for new product development.• It helps in the design of marketing programs that are

most effective for reaching homogeneous groups of customers.

• It improves the strategic allocation of marketing resources.

• Drawbacks of market segmentation:• Potential customers who do not fit into the target

segment are missed.• Marketers may misjudge who their target market is,

which could result in product failure or poor sales.

Objectives of Market Segmentation

• Identify a homogeneous segment that differs from other segments

• Specify criteria that define the segment

• Determine segment size and potential

Discussion Question

4. How should market segments be defined? Three good ways to do it.

• Who the customers are• Where they are• How they behave

Ask, for each approach, “What tools do we have to define segments this way? Can you think of examples of markets typically segmented this way?”Who?•Tools: demographic descriptors (age, income, gender, education, etc.): cereal, clothing, cosmetics, some magazines

Where?•Tools: geographic descriptors: (location) suntan lotion, snow blowers, trade areas for retail stores

How they behave?Tools:•Benefits sought: bicycles of various types, computers of various types•Product usage: key accounts among organizational buyers•Lifestyle/psychographics: health clubs, automobiles/SUVs•Social class: jewelry, automobiles

Discussion Question

5.What are some commonly used demographic, geographic and behavioral descriptors?

Segmentation basis Typical market segments

Geographic:Region New England, Middle Atlantic, and other

census regionsCity or MSA size Under 25,000; 25,001-100,000; 100,001-

500,000; 500,001-1,000,000; etc.Urban-rural Urban, suburban, ruralClimate Hot, cold, sunny, rainy, cloudy

Demographic:Income Under $10,000; $10,001-$25,000; $25,001-

$35,000; $35,001-$50,000; over $50,000Age Under 6, 6-12, 13-19, 20-34, 35-49,

50-64, 65 and overGender Male, femaleFamily life cycle Young, single; young, married, no

children, etc.Social class Upper class, upper middle, lower middle,

upper lower, etc.

Segmentation basis Typical market segments (cont.)

Demographic (cont.):Education Grade school only, high school graduate,

college graduateOccupation Professional, manager, clerical, sales,

student, homemaker, unemployedEthnic background African, Asian, European, Hispanic, Middle

Eastern, etc.

Psychographic:Personality Ambitious, self-confident, aggressive,

introverted, extroverted, sociableLife-style Activities (golf, travel); interests (politics,

modern art); opinions (conservation, capitalism)

Values Values and Life-Styles 2 (VALS2), List of Values (LOV)

Segmentation basis Typical market segments (cont.)

Behavioral:Benefits desired Examples vary widely depending on

product: appliance — cost, quality, operating life; toothpaste — no cavities, plaque control, bright teeth, good taste,low price

Usage rate Nonuser, light user, heavy user

• 1. Fashion Statements—most affluent and educated, use credit cards, expect to be treated well by retail personnel.

• 2. Wanna-buys—similar to Fashion Statements but with less income. Enjoy buying on impulse.

• 3. Family Values—represent large families, often are professionals, buying focuses on children or the home.

• 4. Down to Basics—most likely to have children, not college educated, careful spenders, prefer not to use credit, like coupons.

• 5. Matriarchs—older, often retired, they like department stores but are risk averse and have few purchase plans.

A SEGMENTATION EXAMPLE

Female department store shoppers have been classified into 5 types, based on demographics, values, and attitudes. The groups and their descriptive names are:

Discussion Question

6. Do these same approaches apply to organizational markets?

Examples?

Who?•Demographic descriptors: company age, size, etc. Example: different software versions for small and large businesses.

Where?•Geographic descriptors: Example: B2B Websites in different languages to reach different geographical markets.

How they behave?•Benefits sought by different industries: Example: software tailored to different vertical markets.•Product usage: Example: treating key accounts among organizational buyers differently•Lifestyle/psychographics: Example: marketing corporate wellness programs/corporate health club memberships to different kinds of firms•Social class: Example: company vehicles differ for different job levels

BUSINESS MARKETS ARE OFTEN SEGMENTED ON THE BASIS OF:

• Customer location.• Type of business customer, including:

– Size– Industry– Purchase organization– Purchase criteria

• Transaction conditions, including:– Type of buying situation

• Straight rebuy• Modified rebuy• New buy

– Usage rate—heavy, light, nonusers.– Purchase procedure.

Segmentation basis Typical market segments

Customer location:Region Southeast Asia, Central America, Upper

Midwest, Atlantic SeaboardLocations Single buying site, multiple buying sites

Customer type:Size Sales volume, number of employeesIndustry SIC code, NAICS codeOrganization structure Centralized or decentralized; group or

individual decisionPurchase criteria Quality, price, durability, lead timeType of use Resale, component part, ornamental

Transaction conditions:Buying situation Straight rebuy, modified rebuy, new buyUsage rate Nonuser, light user, heavy userPurchasing procedure Competitive bidding, lease, svc. contractsOrder size Small, medium, largeService requirements Light, moderate, heavy

How should we Decide Which Segments to Target? - Steps in Constructing a

Market-Attractiveness/Competitive-Position Matrix (Exhibit 6.7)1. Choose criteria to measure market

attractiveness and competitive position.

2. Weigh market attractiveness and competitive position factors to reflect their relative importance.

3. Assess the current position of each potential target market on each factor.

4. Project the future position of each market based on expected environmental, customer, and competitive trends

5. Evaluate implications of possible future changes for business strategies and resources requirements.

A Useful Tool for Assessing Market Segments: Segment Rating Chart

WEIGHT RATING (0-10)

TOTAL

Market attractiveness factors

Customer needs and behavior .5 10 5.0

Segment size and growth rate .3 7 2.1

Macro trends .2 8 1.6

Total: Market attractiveness 1.0 8.7

Competitive position factors

Opportunity for competitive advantage

.6 7 4.2

Capabilities and resources .2 5 1.0

Industry attractiveness .2 7 1.4

Total: Competitive position 1.0 6.6

The Market Attractiveness/ Competitive Position Matrix Exhibit 6.10

l

MarketAttractiveness

High(8-10)

Moderate(4-7)

Low(0-3)

High(8-10)

Moderate(4-7)

Low(0-3)Company’s Competitive Position

l = Market attractiveness and competitive position of distance runners segment

Implications of Alternative Positions Within the Market-Attractiveness/

Competitive-Position Matrix Exhibit 6.11

High

Low

Med.

Mar

ket A

ttra

ctive

ness

Competitive Position

StrongMediumWeakDesirable Potential TargetProtect position:• Invest to grow at max.

digestible rate• Concentrate on maintaining

strength

Desirable Potential TargetInvest to build:• Challenge for leadership• Build selectively on strengths• Reinforce vulnerable areas

Build selectively:• Spec. in limited strengths• Seek to overcome weak.• Withdraw if indications of

sustainable growth are lacking

Desirable Potential TargetBuild selectively:• Emphasize profitability by

increasing productivity• Build up ability to counter

competition

Manage for earnings:• Protect existing strengths• Invest to improve position only

in areas where risk is low

Limited expansion or harvest:

• Look for ways to expand w/out high risk; otherwise min. invest. and focus operations

Protect and refocus:• Defend strengths• Seek ways to increase current

earnings without speeding market’s decline

Manage for earnings:• Protect position• Minimize investment

Divest:• Sell when possible to maximize

cash value• Meantime, cut fixed costs &

avoid further investment

Sources: Adapted from George S. Day, Analysis for Strategic Market Decisions (St. Paul: West, 1986), p. 204; D. F. Abell and J. S. Hammond, Strategic Market Planning Problems and Analytical Approaches (Englewood Cliffs, NJ: Prentice Hall, 1979); and S. J. Robinson, R. E. Hitchens, and D. P. Wade, “The Directional Policy Matrix: Tool for Strategic Planning,” Long Range Planning 11 (1978), pp. 8-15.

Discussion Questions

7. What targeting strategies are available?

When should each be used?

Niche-market strategy•One or more segments with substantial number of customers seeking somewhat specialized benefits from a product or service

•Strategy is designed to avoid direct competition with larger firms that are pursuing bigger segments

Mass-market strategy•Ignore any segment differences and design a single product-and-marketing program that will appeal to the largest number of consumers (undifferentiated marketing)

•Objective of strategy is to capture sufficient volume to gain economies of scale and a cost advantage

•Favored by larger business units or by those whose parent corporation provides substantial support

•A second approach to the mass market is to design separate products and marketing programs for the differing segments (differentiated marketing)

Growth-market strategy•Often target one or more fast-growth segments

•A strategy often favored by smaller competitors to avoid direct confrontations with larger firms while building volume and share