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Chapter 6

Chapter 6.pdf

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Department
Marketing
Course Code
MKTG 2030
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Ben Kelly

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Chapter 6: Sharpen the Focus: Target Marketing Strategies and Customer Relationship Management 6.1 Target Marketing Strategy: Process Overview Market fragmentation means that people’s diverse interests and backgrounds divide them into numerous groups with distinct needs and wants; therefore, the same g/s won’t appeal to everyone - Marketers must balance the efficiency of mass marketing with the effectiveness that come s when they offer each individual exactly what he or she wants - Mass marketing costs much less but consumers want the perfect product just for them (which is unrealistic) Target marketing strategy is dividing the total market into different segments on the basis of consumer characteristics, selecting one or more segments, and developing products to meet the needs of those specific segments Identify and Select Market(s) - Determining what market are you in and what market you should be segmenting - Deciding what ‘market’ you are competing in has significantly implications for the segments you might identify - Consider the geographic scope of the market - Decision about how to define the markets you are competing in is competing in is typically done at the executive level of an org Criteria for Identifying Market Segments - Some segmentations schemes are more useful than others for identifying market opportunities (but there is no ‘right’ or ‘wrong’ way to segment) and being able to position products that uniquely appeal to a well-defined group of consumers or customers (the term used to describe organizational or business-to-business buyers) Members of a segment should be: - Similar enough within the group - Different enough b/w the groups- actionable, real differences - Large enough (now and in the future to warrant targeting) - Measurable market - people in the segment have purchasing power: authority, willingness and ability - Reachable- need to be able to communicate the product offer to them in a cost -effective manner 6.2 Step 1: Segmentation Segmentation is the process of dividing a larger market into smaller pieces based on one or more meaningfully shared characteristics - Taking a different approach to segmentation than your competitors can provide a competitive advantage Segment Consumer Markets Segmentation variables are dimensions that divide the total market into fairly homogenous groups, each with different needs and preferences - The larger consumer ‘pie’ can be sliced into smaller pieces in a number of ways, including geographic, demographic, psychological and behavioral differences - Marketing to some groups is incumbent on markets to not take undue advantage of their circumstances - Ethical marketers are sensitive to the different conditions in which people find themselve s and proactively work to uphold a high level of honesty and trust with all segments of the public - doing so is marketing’s social responsibility Segment by Behavior - People may use the same product for different reasons, on different occasions and in diff erent amounts - If the objective is to create groups that want very different product offers, it makes sense to try to group them by the similarity of their needs, wants and preferences, the benefits that they seek, the features and attributes they desire, or their purchasing or consumption behavior Behavioral segmentation is a technique that divides consumers into segments on the basis of how they act toward, feel about, or use a good service - Divides consumers on the basis of how they act toward, feel about or use a product or service Benefit segmentation (or value segmentation) groups consumers or customers based on the benefits or value they seek in buying and using products - In many industries, consumers seek different types of benefits from products and c an be grouped accordingly - The advantage of segmenting by benefits is that the resulting groups are usually seeking very different product solutions, which makes the segmentation scheme very actionable in terms of designing appropriate marketing programs Usage segmentation groups are identified based on how they use a product or how much they use a product 80/20 rule is a marketing rule of thumb that 20% of purchasers typically account for 80% of the products sales - It makes sense to focus on the smaller number f people who are heavy users of a product rather than the larger number who are just casual users Long tail is a new approach to segmentation based on the idea that companies can make money by selling small amounts of items that only a few people want, provided they sell enough different items - Some marketers find it useful to divide the market into users and nonusers of a g/d so that they can reward current users or try to win over new ones - However, nonusers aren’t clearly identifiable and reachable and users are likely not a homogenous group Usage occasions is an indicator used in one type of market segmentation based on when consumers use a product most - Many products are associated with specific occasions, including time of day and holidays whether for a business function of a casual situation - Being strongly associated with a particular occasion can be a mixed blessing - on one hand, sales can be almost guaranteed at that time, on the other hand, a product can become locked into an occasion Segment by Psychographics Psychographic segmentation groups consumers based on their attitudes, beliefs, values, lifestyles, or other psychological orientations; concerned with consumers’ motivation to buy products - Results in a useful segmentation scheme that meets the criteria- since differences in these psychological considerations usually reflect differences in needs and wants and are precursors to purchase and consumption behavior - Lifestyles are a powerful segmentation variable b/c they capture a number of behav ioral, psychographic, and demographic characteristics that reflect how different groups of people live, what they care about, and how they behave - Products are communicated to people in these segments by showing how the brand supports or is consistent with a particular lifestyle VALS (values and lifestyles) a psychographic system that divides people into 8 segments; divides the US population into 8 groups according to what drives them psychologically as well as by their economic resources; - Three primary consumer motivations are key to the system: ideals, achievement and self - expression Consumers who are motivated primarily: - By ideals are guided by knowledge and principles - By achievement look for g/s that demonstrate success to peers - By Self-expression desire social or physical activity, variety and risk - VALS is one of the most comprehensive psychographic systems available – b/c its conclusions are based on US residents, CDN firms like to use CDN psychographic systems - i.e. Environics Research Group - Environics segments based on attitudes, values and lifestyles - Identifies 12 tribes that range from the Rational Traditionalists (motivated by financial independence, security, stability, key values include respect for authority, duty, delayed gratification) to the social hedonists (motivated by experience seeking, value hedonism, immediate gratification, and sexual permissiveness) - Rational Traditionalists- good target for insurance and financial services ; social hedonists would be good targets for leisure activit ies like snowboarding - Goldfarb segments identify six groups of Canadian adults: structured, discontented, fearful, resentful, assured, and caring Segment by Demographics Demographics variables that describe objective characteristics of a population or gro up - Easy to identify, demographic info is easily obtained from gov’t sources - Demographics are very useful in the development of profiles or descriptions of market segments since demographic variables help identify people in segments so that they can be reac hed with a marketer’s communication strategy - Demographic variables provide a goods starting point or main basis for segmentation, makes more sense to segment by psychographic variables such as values, attitudes, interests, opinions, or lifestyles, and then use age and other demographic variables to describe each of the psychographic groups created - Demographics are extremely useful for describing market segments and for directing communication messages but are generally limited as the primary basis for segm entation Segment by Demographics: Sex - Men and women may also seek different benefits, features, or attributes, so, in many cases, starting with benefit segmentation would result in a similar segmentation scheme as if starting with sex - Socialization by sex starts at a very early age, markets need to be responsive to consumer preferences- i.e. most parents refuse to put male infants in pink diapers Segment by Demographics: Age - Members of a generation tend to share the same outlook and spending priorities, and these outlooks and priorities change as people age Tweens are boys and girls age 9 -12 who are ‘in-between’ stages in their development, when they are considered “too old for toys” but “ too young for dating” - Member of the baby boom, the baby bust, the baby boom echo and the millennium busters - One key characteristic of boomers - they invest a lot of money, time and energy to maintain a youthful image - Boomers will become the most important demographic segment – companies seeking growth will want to consider boomers b/c of their wealth, time available and the fact most boomers had fewer children than their own parents - marketers tailor products ot meet the needs of older consumers Generation X the group of consumers born between 1965 and 1978 - Labeled busters or lost generation - Cynical attitude towards marketing - Don’t have the spending power of Gen Y or boomers Baby Boomers the segment of people born between 1946 and 1964 - Taken and held the top jobs in the countries (so gen x was more entrepreneurial) Generation Y the children of baby boomer parents it’s the second largest demographic segment in Canada; echo boom; now late teens and young adults and rep. a lucrative group of consumers and the second-fastest growing segment in Canada; first generation to grow u p online; ethnically diverse and more socially and environmentally aware; hard to reach out to b/c they resist reading; spend hours daily online; they watch TV late at night; need to use online marketing techniques and guerilla marketing techniques - Starting to make major purchases on their own - Teens are also an attractive segment - Marketers often are attracted to this group, hoping to groom them into lifelong customers Segment by Demographics: Family life cycle - People in different stages of family life cycle are likely to need to the same products/ same quantities Segments by Demographics: Income and Social Class - Distribution of wealth determines which groups have the greatest buying power - High-income consumers are a good target market for such luxury product s and financial services or brokers and investment products - Lower-income consumers – the majority - Many consumers don’t buy according to where they actually fall in that framework - rather according to the image they wish to portray - b/c of readily available credit Segments by Demographics: Ethnicity - Ethnicity can have a strong impact on a consumer’s preference for g/s - French Canadians can be targeted through the development of different products to suit the needs of this group and the use of French-language advertising - Aboriginals are growing 4x as fast as other segments with half the aboriginals in Canada under the age of 25, and their income rising faster than that of other Canadians – good group to target; this segment has been misunderstood and under-researched, it’s particularly important to conduct research - Other ethnic groups include German, Italian and Chinese (fastest growing, to target avoid using #4 b/c it symbolizes death) - South Asian community, black community, Jewish (offering kosher products) Segment by Demographics: Geography - Preferences depend on which region they live - Recognition of these regional differences can lead marketers to focus efforts on one or more regions or have different marketing strategies in different regions Geodemography is a segmentation technique that combines geography with demographics; people who live near each other share similar characteristics; same preferences for household items, mags and other products; allows marketers to construct segments consisting of households with a common pattern of preferences so that a company can home in on those customers who are most likely to be interested in its specific offerings - PSYTE- large database developed by Compusearch Micromarketing Data and Systems - classifies Canadian consumers into 60 clusters based on postal code and demographic info - clusters include boomers and teens, conservative homebodies, young city singles, brie and Chablis and suburban nesters; Canada post uses GeoPost Plus which allows marketers to target direct mail to clusters of consumers that m atch their target segment Segment Business -to-Business Markets B2B Marketers who work in Business -to-business markets Segment by Organizational Behavior - Organizations act and behave in ways that are both similar and different from consumers and that the way they behave and operate is influenced by the types of g/s they both sell & need - Org buying and consumption behavior is influenced by the production technology used; type of purchase made; business customer’s degree of technical, financial, or operations expertise; how they make purchase decisions and who is involved in those decisions; whether the prospect is a current user or nonuser of the product; and the frequency or size of the transactions - Operating variables are all useful bases of segmentation - Business marketers also must consider how different customers will use their products or services Segment by Industrial Psychographics - Psychographics relates only indirectly to orgs, but it does relate to the people who run and work in those orgs Industrial psychographics is the application of psychographics to the business-to-business context - Fruitful to segment business markets by the mission, goals, and values of an org and its management team Segment by Organizational Demographics - Demographic data help business marketers understand the needs and characteristics of their potential customers - Industries use the North American Industry Classification System (NAICS) to obtain info about the size and number of companies operating in a particular industry - Other gov’t info sources (like stats Canada) provide valuable business demographic info 6.3 Step 2: Targeting - Marketers evaluate the attractiveness of each potential segment and decide in which of these groups they’ll invest resources to try to turn them i nto customers - Customer group or groups they select are the firm’s target market Evaluate Market Segments Two other key requirements: 1. Is the segment actionable- marketers must know the following characteristics of the customers in each segment: their number (segment size), purchasing power, buying behavior, and consumption behavior- before they decide if it’s worth it to target them, and these characteristics need to be actionable in the sense that they allow the marketer to create an offer that uniquely appeals to a particular segments and that differences b/w the groups are meaningful enough to warrant a separate marketing strategy 2. Can the marketer adequately serve the needs of the segment? Does the firm have the expertise and resources to satisfy the seg ment better than the competition? Develop Segment Profiles Segment profile is the description of each segment, with sufficient depth to be able to understand the segment so that it can be evaluated and either be targeted or rejected - To make this ‘typical’ customer more tangible or real, put a name to the customer and then describe him or her in as much detail as possible Framework for Creating Rich Segment Profiles Who are they? - What are their demographic characteristics? - What are their psychographic char acteristics? - What are their geodemographic characteristics? - How price sensitive are they? What do they want and why? - What are the benefits, features, attributes, or characteristics sought by consumers in this segment? - What do they need and want? - What motivates the purchase and consumption decision? Wen do they buy and use it? - What triggers the purchase decision? - What is the context in which they buy the product? - How often do they buy the product? - What time of day, part of the week, or month, or year is it purchased? - What time of day, part of the week, or month, or year is it used or consumed? Where do they buy and use it? - What stores or other distribution channels do they use? - Where are they when they use the product? How do they buy a
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