Chapter 3 MCS 3500.docx

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Marketing and Consumer Studies
MCS 3500
Towhidul Islam

Chapter 3 Marketing Analysis & Planning Segmentation & Targeting Introduction  Markets are heterogeneous: customers differ in their values, needs, wants, beliefs & incentives to act  Products compete to satisfy needs & wants of customers  Through segmentation, a firm aims for a happy middle ground where it doesn't rely rely on a common marketing program for all customers or incur the high costs of developing a unique program for each customer Market Segment: A group of actual potential customers who can be expected to respond in a similar way Market Segmentation: A business process of finding groups of customers who are similar on some specific criteria of relevance t firm’s strategic context such as needs, age, sex etc. The Segmentation, Targeting & Positioning Approach  Segmentation is viewed as the 1 step in the 3-step process of segmentation, targeting & positioning Segmenting: Identifying Targeting: Selecting Positioning: Creating Segments competitive Advantage Segments  STP marketing offers the promise of a better fit between a company’s offering to a customer and what the customer really values  STP process is used to address a wide variety of strategic & tactile challenges (eg. loss of market share, poor customer resstnse to a product etc.)  Firms must 1 understand what the potential responses of each market segment to proposed strategies (price changes, promotional plans etc.) & apply them to each segment Segmentation Analysis  A Marketing Engineering segmentation model can identify market segments.  The market segments identified by the model ideally satisfy the 3 conditions: homogeneity/heterogeneity, parsimony & accessibility Parsimony: A measure of the degree to which the segmentation would make every potential customer a unique target Homogeneity: A measure of the degree to which the potential; customers in a segment have similar responses to come marketing variable of interest and differ from other groups of customers Accessibility: The degree to which marketers can reach segments separately using observable characteristics of segments  No segmentation is perfect and members of different segments frequently show considerable overlap in their responses to marketing variables  Segmentation analysis will rarely result in a unique solution  For segmentation study to be useful it should result in a manageable # of target segments (between 3-8), each of a substantial size  Descriptor variables characterize segments  Eg. for online customers: Pages viewed, files downloaded, screen resolution etc.  A segmentation model requires a dependent variable (Segmentation basis) and independent variables (Segment descriptors)  The basis should describe why customers respond differently whereas descriptors help marketers deliver different offering to various customer segments  The main problem w/ segmentation schemes based on demographics is that they are based on the needs of the company, and not on needs of customers so therefore unlikely to result in marketing programs and products that best appeal to customers  Firms should identify segments using basis variables, particularly the observed or likely actions of customers The STP Approach Segmentation consists of 2 phases… Phase 1: Segment the market using basis variables (needs, wants, values, preferences etc.) Phase 2: Describe the market segments identified using variables that help firm understand how to serve those customers (eg. shopping patterns, geographic location, family size etc.), how to communicate w/ customers, and buyer switching costs Targeting consists of 3 phases… Phase 3: Evaluate attractiveness of each segment using variables that quantify the demand levels & opportunities associated w/ each segment using variables that quantify the demand kevels & opportunities associated w/ each segment (e.g distribution costs), costs of producing the offering customers want, & fit b/t firm’s core competencies & the target market opportunity Phase 4: Select 1 or more target segments & determine the level of resources ti allocate to these segments Phase 5: Find & reach targeted customers in a variety of ways including direct mail, media ads etc. * After these phases a firm must identify a positioning concept for its products/services (next chapter) Segmenting Markets (Phase 1)  Many different ways to segment markets A Priori Segmentation  Using either industry knowledge or marketing research, firms can directly segment customers according to their observable characterizes, assuming each criteria are related to differences in their underlying needs  Many technology driven B2B firms that first develop offerings & then seek to find markets for them use this reactive form of segmentation > When possible though firms should be proactive instead of reactive Traditional Segmentation Methods  Most widely used approach  Employ analytic methods to segment customers on the basis of a single composite measure developed from a set of observable characteristics  E.g “Thrill seekers” and “value seekers” for buying cars (might differ in age, income etc.)  Recommended approach Latent Class Segmentation  More technically sophisticated  Approach is that customers belong to groups that differ in ways that cant be described just in terms of observable mean differences between segments  Typically requires much larger sample sizes The recommended 5-step approach Step 1: Firm outlines the role of market segmentation in its strategy  What objective does segmenting the market meet  How will it help the firm establish a competitive advantage  What resources & constraints apply to the segmentation program  How would segmentation improve the firm’s ability to deploy its scarce resources Step 2: Select a set of segmentation variables based on some aspect of potential customers needs or wants and reflect differences b/t customers  Firm needs good knowledge of the factors that drive demand for its products/services  Geodemographic segmentation, psychographics & socioeconomic characterizes  In B2B markets, the benefits the customers seek focuses more on the use of the product in the buying firm’s operations and the profitability the product generates Step 3: Company chooses the mathematical & statistical procedures to aggregate individual customers into homogeneous groups or segments  Should customer segments be discrete, overlapping or fuzzy?  Overlapping or fuzzy (Each customer is assigned proportional membership in each segment) are intuitively more appealing, realistic and accurate but also more complex Step 4 & 5: Firm must decide 1. Specify the max # of segments to construct according to the segmentation variables 2. Search across those segments to determine how many targets  Firms must decided using statistical criteria and managerial judgements how many segments to have Describing Market Segments (Phase 2)  Firms need effective descriptors of their chosen segments in a market  Eg. price sensitivity & size & how they can serve these segments Evaluating Segment Attractiveness (Phase 3)  Firms choose 1 or more markets to serve  Determine the att
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