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Chapter 7

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Dave Ashberry

BU352 Chapter 7 – Segmentation, Targeting, and Positioning Week 5 The Segmentation-Targeting-Positioning Process Step 1: Establish Overall Strategy or Objectives -Articulate the mission and the objectives of the company’s marketing strategy clearly -The segmentation strategy must be consistent with and derived from the firm’s mission and objectives, as well as its current situation – it’s strengths, weaknesses, opportunities and threats (SWOT) Step 2: Segmentation Bases -Use a formal approach to segment the market -Marketers use various segmentation bases, including geographic/demographic, psychographic, and behavioural, or a combination of these segmentation approaches Geographic Segmentation -Geographic segmentation- the grouping of consumers on the basis of where they live -Firms can provide the same basic goods or services to all segments even if they market globally or nationally; but, better marketers make adjustments to meet the needs of smaller geographic groups Demographic Segmentation -Demographic segmentation – the grouping of consumers according to easily measured, objective characteristics such as age, gender, income, and education -One demographic variable, gender, plays a very important role in how firms market products and services -Demographics may not be useful for defining the target segments for other companies -Depending on the nature of the product and market, marketers may find is more advantageous to combine demographic segmentation with other segmentation bases Psychographic Segmentation -Psychographics – the segmentation base deles into how consumers describe themselves; allows people to describe themselves by using those characteristics that help them choose how they occupy their time (behaviour) and what underlying psychological reasons determine those choices -Usually marketers determine into which segment an individual consumer falls -Self values – goals for life, not just the goal one wants to accomplish in a day; a component of psychographics that refers to overriding desires that drive how a person lives his or her life -Self-concept- the image a person has of himself or herself -Lifestyles- refers to the way a person lives his or her life to achieve goals -VALS – A psych graphical tool developed by Strategic Business Insights, classifies consumers into eight segments: Innovators, thinkers, believers, achievers, strivers, experiencers, makers, or survivors -VALS enables firms to identify target segments and their underlying motivations -It shows correlations between psychology and lifestyle choices -Firms are finding that psychographics are a very good complement to demographics to produce an in- depth profile and predict consumer behaviour -Psychographics are not as objective as demographics, and it is harder to identify potential customers Behavioural Segmentation -Behavioural segmentation – groups consumers based on the benefits they derive from products or services, their usage rate, their user status, and their loyalty -Dividing the market into degments whose needs and wants are best satisfied by the product benefits canbe powerful -Ex. Amazon making recommendations based on browsing history -It pays to retain loyal customers BU352 Chapter 7 – Segmentation, Targeting, and Positioning Week 5 -Loyal customers are those who feel so strongly that the firm can meet their relevant needs best that any competitors are virtually excluded from their consideration -Loyalty segmentation- strategy of investing in retention and loyalty initiatives to retain the firm’s most profitable customers Using Multiple Segmentation Methods -Geodemographic segmentation – the grouping of consumers on the basis of a combination of geographic, demographic, and lifestyle characteristics -PSYTE clusters- the grouping of all neighbourhoods in Canada into 60 different lifestyle clusters -Retailers can use geodemographic segmentation to tailor each store’s assortment to the preferences of the local community -Knowing what benefits customers are seeking or how the product or service fits a particular lifestyle is important for designing an overall marketing strategy, but such segmentation schemes present a problem for marketers attempting to identify specifically which customers are seeking benefits -Developing a market segmentation strategy over the Internet usually is somewhat easier than developing it for traditional channels Step 3: Evaluate Segment Attractiveness -Marketers must determine whether the segment is worth pursuing by using several descriptive criteria: Is the segment identifiable, reachable, responsive, and substantial and profitable? Identifiable -Firms must determine who is within their market to be able to design products or services to meet their need -It is important to ensure that the segments are distinct from one another because too much overlap between segments means that distinct marketing strategies aren’t necessary to meet segment members’ needs Reachable -Consumers must know the product or service exists, understand what it can do for them, and recognize how to buy it -Firms trying to reach university students have a much more difficult time because students’ media habits are quite diverse, and generally they are cynical about firms that try too hard to sell them Responsive -For a segmentation strategy to be successful, the customers in the segment must react similarly and positively to the firm’s offering Substantial and Profitable -Once the firm has identified is potential target markets, it needs to measure their size and growth potential -If a market is too small or its buying power insignificant, it won’t generate sufficient profits or be able to support the marketing mix activities -Marketers must also focus their assessments on the potential profitability of each segment, both current and future -Key factors to keep in mind: market growth, market competitiveness, and market access Segment profitability = (Segment size x Segment adoption percentage x purchase behaviour x profit margin percentage) – Fixed costs BU352 Chapter 7 – Segmentation, Targeting, and Positioning Week 5 Segment size = number of people in the segment Segment adoption percentage = percentage of customers in the segment who are likely to adopt the product/service Purchase behaviour = Purchase price x 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
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