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Chapter 8: Segmentation, Targeting, and Positioning Marketing is about satisfying customers wants and needs Segmentation: dividing the market into groups of customers who have different needs, wants, characteristics, who would appreciate products/services specifically geared towards them The Segmentation-Targeting-Positioning (STP) process includes: o 1. Establish Overall Strategy or Objectives o 2. Profile Segments o 3. Evaluate Segment Attractiveness o 4. Select Target Market o 5. Identify and Develop Positioning Strategy

Step 1: Establish Overall Strategy or Objectives - Planning process - Vision or objectives of the companys marketing strategy - Segmentation strategy must be consistent with firms mission and objectives and with its SWOT Step 2: Profile Segments - Describe different segments with their needs, wants, and characteristics - Helps firms better understand the profile of the customers in each segment, customer similarities within a segment, customer dissimilarities across segments - Benefits consumers derive from the products, break down groups of consumers - Segmentation methods based on: o Geographic o Demographic o Psychographic o Behavioural o Composite 1. Geographic Segmentation - The grouping of consumers on the basis of where they live - Ex. by country, region, province, neighbourhoods, climate, urban, rural - Most useful for companies whose products satisfy needs that vary by region - Can use same product/service just adjust to meet needs of smaller geographic groups - Ex. Loblaws varies by region based on the consumers in that region (asian, Italian) 2. Demographic Segmentation - The grouping of consumers according to easily measured, objective characteristics such as age, gender, income, and education, race, occupation, religion, marital status, family size, home ownership - Most common means to define segments because they are easy to identify and demographically segmented markets are easier to reach - Ex. TV viewing habits of men and women, advertise during shows aimed at companys segmented market - Although demographic should be used, it should be used with a combo of another segmentation to gain better understanding of consumer 3. Psychographic Segmentation - How consumers describe themselves - Allows people to describe themselves using those characteristics that help them choose how they occupy their time (behaviour) and what underlying psychological reasons determine those choices

3 components of Psychographics: o Self-Values Goals for life, not just the goals one wants to accomplish in a day Refers to overriding desires that drive how a person lives his or her life Ex self-respect, self fulfillment, sense of belonging Develop self images of how they want to be and determine a way to help them achieve these ultimate goals Help show the benefits that a target is looking for Desire to fulfill a goal o Self Concept The image a person has of him/herself Can market products to these people by showing images of people that they think they are like o Lifestyles Refers to the way a person lives his or her life to achieve goals VALS o o

Tool to segment people based on psychographics a psychographic tool developed by SRI Consulting Business Intelligence, classifies consumers into eight segments: innovators, thinkers, believers, achievers, strivers, experiencers, makers, survivors

VERTICAL: resources include: income, education, health, energy, degree of innovativeness upper segments have more resources HORIZONTAL: primary motivation, how they see themselves in the world, how self image governs activities o Primary motives include: Ideals (products/services that say knowledge and principals) Achievement (products/services that say success) self expression

Descriptions of VALS Categories Innovators - successful, sophisticated, take charge people - high self esteem, change leaders - establishing and emerging business leaders - active consumers, finer things Survivors - think world is changing to quickly - like familiarity, safety, security - meeting needs, not wants - cautious, loyal, love good deals Thinkers - mature, comfortable, responsible, well-educated, knowledge, authority, conservative, practical, durable, clear value Believers - conservative, concrete beliefs around family, religion, community - deep rooted moral codes, established routines - predictable loyal consumers - familiar products and brands Achievers: - goal oriented - commitment to career - respect for authority - self discovery, active, prestige showing success, efficient products Strivers - trendy, fun loving, money defines success, shopping= status, spend as much as can Experiencers - seek variety and excitement, active in activities, fashion and entertainment, look good with cool stuff Makers - practical people with constructive skills - traditional views of family/work - don t like new ideas, unimpressed with materials, prefer value over luxury

4. Behavioural Segmentation - Group of consumers based on the benefits they derive from products or services, their usage rate, their user status, and their loyalty - Benefit Segmentation o The grouping of consumers based on the benefits they derive from products or services - Loyalty Segmentation o Strategy of investing in loyalty initiatives to retain the firms most profitable customers o Loyal customers buy almost exclusively from the firm o Profitable to have loyal customers, dont have to spend money trying to find new customers - Usage Rate o Heavy, regular, light users, occasional - User Status o Current users, potential, ex users

To take advantage of the advantages of all segmentation methods, companies use a combination of the methods o Geodemographic segmentation: the grouping of consumers on the basis of a combination of geographic, demographic, and lifestyle characteristics Helpful for retailers, which kind of people will visit their stores, tailor stores to preferences of the local community o Tools for geodemographic segmentation include: PSYTE cluster profiles: the grouping of all neighbourhoods in Canada into 60 different lifestyles clusters

Step 3: Evaluate Segment Attractiveness - Evaluate the attractiveness of various segments - Determine if segment is worth pursuing based on, is segment attractive, is segment: o Identifiable o Reachable o Responsive o Substantial and Profitable When Evaluating Segment Attractiveness, look at: Identifiable - Firms must determine who is in the market to design products to meet their needs - Are the markets distinct from eachother, can you see who is in your target market - Are the segments distinctly identifiable Reachable - The market must be accessible through persuasive communications and product distribution - Consumer must be reachable - Customer must know that product/service exists, understand what it does, know how to buy it Responsive - Customers in the segment must react similarly and positively to the firms message - If a firm cannot provide products to a segment where it will respond well, it should not target it - Will the target market be responsive, will they like it? - If not responsive, dont target Substantial and Profitable - Measure potential target markets size and growth potential - If market is too small or has very little buying power, it wont generate enough profits - Market must be large enough to support the product and be profitable - Includes both current and future potential profitability of each segment - Profitability analysis depends on: o Market Growth (current size and expected growth rate) o Market Competitiveness (number of competitors, entry barriers, product substitutes) o Market access (developing or accessing distribution channels and brand familiarity)

2 formulas to address segment profitability: 1. Segment Profitability = Segment Size * Segment Adoption % * Purchase Behaviour* Profit margin % - Fixed Costs Segment Size= number of people in the segment Segment adoption %= percentage of customers in the segment who are likely to adopt the product Purchase Behaviour= purchase price * number of times the customer would buy the product or service during a given time period Profit Margin Percentage= ((Selling Price variable costs) / selling price) Fixed costs = fixed costs (ex. advertising expenditures) 2. - Can also evaluate profitability according to the lifetime of one of its typical customers - Customer Lifetime Value (CLV): the total value of purchases of the customer over a lifetime of patronage o CLV= Dollars spent/week * weeks shopped/year* number of years of patronage Factors in CLV are: How long will customer remain loyal to the firm Defection rate (% of customers who switch yearly) Costs of replacing lost customers (advertising, promotion) Will customers buy more expensively in the future

Step 4: Select Target Market - Select a target market based on the marketers ability to pursue the opportunity or target segment - Based on opportunity (SWOT) and the companys own competencies - How should you segment the market, which segments should you aim at, how to market at segments - The Segmentation Strategies are: o Mass or Undifferentiated o Differentiated o Concentrated o Micromarketing One to One 1. Undifferentiated Segmentation Strategy or Mass Marketing - A marketing strategy a firm can use if the product/service is perceived to provide the same benefits to everyone, with no need to develop separate strategies for different groups - Everyone is considered a potential user of this product - Market to everyone the same way - Common for: o basic items (ex. salt, sugar, flour) o smaller firms that offer indistinguishable products (small bakeries) - in the complex marketing environment of today, everyone is trying to differentiate and add value for the customer 2. Differentiated Segmentation Strategy - A strategy through which a firm targets several market segments with a different offering for each

Ex.Toyota Motor Corp has Scion, Toyota, Lexus.....La Senza, La Senza Girl.....Montanas, Keg, Harveys, Kelseys, Milestones PROS of differentiated Segmentation: o Obtain bigger share of market and increase market for their products overall, more people in general buying their product o Appeal to more segments, reach more consumers o Diversify the business, lowering overall risk, if line for one segment does poorly the other segments can make up for it in revenues CONS: o Expensive o Must develop, manufacture, transport, store, promote separately for each of its lines

3. Concentrated Segmentation (Niche) Strategy - A marketing strategy of selecting a single, primary target market and focusing all energies on providing a product to fit that markets needs - Good strategy for new ventures o Can employ limited resources more efficiently - Ex. Scion 4. Micromarketing (One to One Marketing) - An extreme form of segmentation that tailors a product or service to suit an individual customers wants or needs - Easier for small companies to cater their products and tailor them for individuals - Ex. Dell Computers - Mass Customization: the practice of interacting on a one to one basis with many people to create custom made products or services; providing one to one marketing to the masses - Internet makes micromarketing easier - Ex. Nike allows buyers to customize their own shoes

Step 5: Identify and Develop Positioning Strategy Positioning: the mental picture perception that people have about a company and its products or services relative to competitors - The thoughts, feelings, impressions about a company - Mental picture is formed through: o Friends, family, reference groups, magazines, newspapers, radio, tv, Internet, customers own experience - Consumers will always form their own ideas and feelings about a product/brand - The ideas formed will drive people to the product or away from it - Positioning determines consumers preference for a companys brand/product - If you have preference, you have more consumers, aka more market share - Difficult to position because it is hard to shape consumers perceptions in the way that marketers want - Hard to change consumers perceptions once they are created - In market positioning o Defining the marketing mix variables so that target customers have a clear, distinctive, desirable understanding of the product in comparison with competitors o Showing companys unique value proposition o How the brand provides the value that the consumers want better than the competitors

Positioning Statement: expresses how a company wants to be perceived by consumers The Positioning Strategies (to show how company is better and create perception about it) include: o Value o Product Attributes o Benefits and Symbolism o Competition, Market Leadership Value - The relationship of price to quality o Lower price o Best product/service for a premium price to cover the additional cost of quality Ex. Balmshell introduced at Holts for a high price for lip gloss o Offering a comparable product to a competitor but at a lower price o Consumers may be getting a lot less, but get to pay a lot less o High price positioning strategy (class, luxury, status, quality) o Low Price positioning strategy - Positioning strategy around price....high quality for high cost, lower quality for cheaper price - Do the benefits outweigh the cost Product Attributes - Strategy that focuses on the attributes of the product that are most important to the target market - Product leadership - Emphasizing innovation, quality, performance, design, reliability Benefits and Symbolism - Emphasises the benefits of the brand - Psychological meaning of brand to consumers - Meanings of the brand is one of the reason that consumers buy the product - Well-known symbol appeals to loyal customers (Mercedes benz) - Distinguishes from competitor with its branding, the feeling around the brand makes the product more appealing to the consumer Competition - Head to head: o Directly in competition against a specific competitor on similar attributes within the target market o Ex. Coke vs Pepsi, Mac vs PC, Rogers vs Bell o Often leads to price wars o Shouldnt be too close to competition because could confuse customers, legality - Differentiation o Going after a less competitive smaller market niche o 7Up as the uncola Market Leadership - Market leaders will emphasize their leadership position within their industry - Ex. RBC, Loblaws - Leaders in industry so consumers perceive them as setting standards in the industry

Positioning Stages - Stages to actually develop a brands position Perceptual Map: displays in two or more dimensions, the position of products or brands in the consumers mind - Have different measures on the 2 axis and plot the products relative to where they stand (pg 227) - Ex. sophisticated vs sporty and expensive vs affordable Ideal Point: the position at which a particular market segments ideal product would lie on a perceptual map The Positioning Stages/How to Get the Perceptual Map: 1. Determine consumers perceptions and evaluations of the product or service in relation to competitors. o Determine brand position by asking consumers about own and competitors products o Ex. how consumer uses product, alternatives, likes, dislikes, why choose other brand 2. Identify Competitors Positions o how consumers view its brand relative to competitors 3. Determine Consumer Preferences o What the consumer really wants, ideal product for each market 4. Select the Position o To select the desired position to meet your consumer needs, there are 3 options: Develop new product to meet needs of consumer Adjust or reposition its marketing approach (product, promotion) Ignore Target markets wants and hope it likes the original product 5. Monitor the Positioning Strategy o Markets are always evolving, consumers tastes change o Must monitor, control, and adjust to fit with the consumers needs Repositioning - When firms try to change their positioning.... ex. junk food places trying to seem healthier - Companies should reposition their brand to: o keep up with the changing marketplace o Fresh spin on an old, stale brand o To be successful, must reposition and be proactive to protect their positioning - Repositioning is hard because: o Consumers perceptions do not change easily - Disadvantages of Repositioning: o If it is not done well, company can alienate its core customers while failing to attract new customers - Advantages of Successful Repositioning o Strengthens the brand in the marketplace o Keeps core customers, attracts new customers Brand Repositioning: (rebranding) Marketers change a brands focus to target new markets or realign the brands core emphasis with changing market preferences - Ex. changing to focus on older teenagers instead of tweens - Change quality image of the brand, breathes life into old brands, beware if market doesnt catch on