Summary Marketing Book Chapter 4 (STP) PDF

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MARKET SEGMENTATION, TARGETING AND POSITIONING INTRODUCTION Marketers are interested in satisfying the wants and needs of customers and consumers but not everybody wants the same things. This poses a problem for marketers. Marketing the same goods or services to everybody is unlikely to be successful but providing something unique for each individual will be too expensive. There has to be a compromise, and fortunately there is. Marketers can take advantage of the fact that some people share similar wants and needs. These people can be grouped according to their similarities. Market segmentation is about breaking up a market into sections (segments) so that marketing effort can be focused better towards particular segments. This is efficient and effective marketing. Segmenting a market requires accurate information on customers and potential customers and this information is found through market research. It is important to understand which buyer characteristics are significant in the purchase of the product in question. For example, it is quite common to split markets into male and female, but this is not likely to be the best way to do it if you are selling print cartridges or butter. Breaking a market into segments is just the beginning of the segmentation, targeting and positioning (STP) process; having identified different groups (segments), decisions have to be made about which groups to target – and how many. This is referred to as target marketing (or simply targeting). These decisions lie at the very heart of marketing decision-making as they affect the full range of marketing activities. In choosing targets, marketers have to consider competing brands and present their own brands in such a way as to reduce unnecessary direct competition. This is called brand, or competitive, positioning.

MARKET ATTRACTIVENESS Some markets will be more attractive to a company than others: perhaps more profitable, easier to sell to or less competitive. One of the most fundamental aspects of marketing is choosing which markets to focus on. The decision is based on an assessment of: • market opportunity – to identify what is possible • competitive advantage – to determine the degree of challenge • the objectives of the organisation – can this market help deliver what the organisation wants to achieve? It is more profitable to target one or more segments of a market: usually those segments that seem to offer the best chance of high profits. Not-for-profit organisations also use segmentation and targeting techniques in order to make more effective use of their resources and increase their chances of achieving their objectives (e.g. fundraising or client/patient service).

WHAT ARE MARKETS? Markets are people. Or, more accurately, a market consists of individuals or organisations that have a willingness and ability to purchase products. A market can consist of a single segment or multiple segments. Even though markets are often described in terms of products, such as the ‘drinks market’, ‘car market’ or ‘market for nuclear power stations’, it is important that marketers never forget that markets are really composed of people. Markets comprise customers (more commonly called ‘buyers’ in a b2b market) and consumers (or ‘users’) but will also include other groups as well, such as sellers and competitors. Industrial goods and services are almost never bought by the people who will actually use them. Organisations have buying departments to make the purchases that the business needs. Members of a supply chain, such as agents, wholesalers and retailers, buy things to sell on. They may be the first link in a chain of buyers but they are not usually the eventual consumers. So yes, customers are important, but so are the final consumers or users of the products. Marketers need to address the needs of them all.

WHY SEGMENT AND TARGET MARKETS? Mass marketing, i.e. selling the same thing in the same way to everyone, is primarily a twentieth-century idea. It relies on large numbers of customers/consumers sharing sufficiently similar needs and wants. This is not the approach in the vast majority of today’s markets any more than it was in the distant past. In contrast to mass marketing, some now talk of mass customisation to refer to the way in which, even in very large markets, organisations are being challenged to tailor their product offerings almost to meet individual needs. Once again, technology is being harnessed to provide solutions. Market segmentation is the splitting of a market into smaller groups (segments) so that marketers can better direct or focus their efforts. Segmentation can be defined as: ‘the process of dividing a total market into subgroups (segments) such that each segment consists of buyers and users who share similar characteristics but are different from those in other segments’. In business-to-business (b2b) marketing, organisations may be segmented according to their location, industry grouping, etc. These segmentation approaches, or segmentation variables, are an indication of similarities between customers.

CRITERIA FOR DETERMINING GOOD MARKET SEGMENTS It is important to make sure that the segments chosen are the best ones, not just the easiest ones to use. Usable market segments should be: • Measurable: If it is not measurable, a segment cannot be assessed for its size and profit potential. • Homogeneous (similar) within the segment: the customers/consumers in a market segment should be as similar as possible in their likely responses to marketing mix variables. • Heterogeneous (different) between segments: the customers/consumers in different segments should be as different as possible in their likely responses to marketing mix variables. The less overlap there is between segments, the better. • Substantial: the segment should be big enough to be profitable (or of meeting the objectives of the organisation if they are something other than profit. • Accessible: segments need to be reached and served effectively, not only in terms of delivery of product but also in terms of communication with the members of the segment • Operational: the segmentation approach adopted should be useful in designing specific marketing mixes for each segment. If the same approach is used for multiple segments, what was the point? The stability of the segment in the short, medium or long term is also important.

SEGMENTATION APPROACHES There are many ways to segment a market. Segmentation variables can be used singly, but it is often more useful to use them in combination. Exhibit 4.2 is a summary of the different approaches to segmentation in consumer markets. Each approach is described in greater detail in the sections below.

Consumer (b2c) markets

Examples of variables

• Geographic segmentation

Country, region, city, urban–rural

• Demographic segmentation

Age, gender, family size, life stage e.g. family life cycle (FLC),religion, race, nationality, education, ethnic group, income, socio-economic grouping: A, B, C1, C2, D, E

• Geo-demographic segmentation

House type and house location (e.g. ACORN, MOSAIC)

• Psychographic segmentation

Lifestyles, values, motives, personalities, e.g. VALS

• Mediagraphic segmentation

Media habits (i.e. TV viewing, papers read, social media sites, etc.)

• Behavioural segmentation bases: purchase occasion

Day-to-day purchase, special occasion

benefits sought

Value for money, service, status, quality, brand image

usage rate

Heavy, medium, light user

user status

None, ex, potential, first time, regular user

readiness stage

Unaware, aware, informed, interested, desirous, intending to buy, bought, used

attitude to product

Enthusiastic, uninterested, positive, negative

Involvement

Low involvement, high involvement (see Chapter 3 for more details)

adopter type

Innovator, early adopter, early majority, late majority, laggard

loyalty status

Total, strong, medium, light, none

SEGMENTATION IN CONSUMER MARKETS GEOGRAPHIC AND DEMOGRAPHIC SEGMENTATION Geographic segmentation and demographic segmentation are probably the most popular forms of segmentation. Geographic segmentation groups customers according to their location, e.g. their neighbourhood, town, country or continent Demographic segmentation uses population characteristics such as gender, occupation, income, age, etc. For a manufacturer or retailer of shoes, size of feet would be relevant; or size of waist for a clothing manufacturer.

GEO-DEMOGRAPHIC SEGMENTATION Geo-demographic segmentation is a popular method for segmenting consumer markets. It combines aspects of both geographic and demographic data (hence its name). The assumption is that the area and the sort of house people live in say something about the sort of people they are and, importantly for the marketer, the sorts of things they do, buy and use. In contrast, social grading attempts to relate the type of person and the things they do with their occupations (and income).

FAMILY/HOUSEHOLD LIFE CYCLE SEGMENTATION Family life cycle segmentation is based on the recognition that a person passes through a series of quite distinct phases in their life, each typified by a different set of circumstances, and within each they display some very different behaviour. Each stage is associated with different needs, social behaviour and purchasing patterns; a family with young children, for example, has very different needs from those of an older couple with no children.

Stages in the family life cycle (adapted from the overview of the life cycle in Wells and Gubar (1996)) Bachelor New partners Full Nest I

Young, single Young couple, no children Young couple with dependent children

Full Nest II Full Nest III

Older couple with dependent children Older couple with dependent children, financial position improving

Empty Nest I

Older couple, no children at home

Empty Nest II Solitary Survivor I

Older couple, no children at home, retired Still working, income good but likely to sell home

Solitary Survivor II

Older single people

SOCIAL GRADING Groups of occupations (usually of the chief income earner in the household) can be used to segment markets according to social grading. In the UK, the best-known groupings are: A, B, C1, C2, D and E. Social grading is used widely in market research and in the collection of government statistics. This data relates social grades to buying behaviour, disposable and discretionary income, media habits, hobbies and interests – all the sorts of things that marketers need to know. Unfortunately, social grading is not very good at determining discrete segments that are homogeneous within the group and heterogeneous between the groups, which is an important aspect of market segmentation. The information may be fairly easy to find, but it is limited in its usefulness.

PSYCHOGRAPHIC SEGMENTATION Demographic segmentation can help identify markets which have the means and opportunity to buy – psychographic segmentation provides a more detailed understanding of buyers and users, e.g. in terms of motivations, lifestyles, values. It can be used alongside other approaches, such as demographic segmentation.

CONSUMER SEGMENT DESCRIPTIONS • Innovators are confident enough to experiment; to try, fail, and try again. • Thinkers are the old guard, with “ought” and “should” benchmarks for social conduct. • Believers adhere to right and wrong for a good life. • Achievers have a me-first, my-family-first attitude. • Strivers are the centre of street culture; they live in the moment. • Experiencers want to stand out. They are first in, first out of trend adoption. • Makers protect what they think they own; they may be perceived as anti-intellectual. • Survivors are the quiet rank and file. Risk averse they take comfort in the familiar.

PRIMARY MOTIVATION The concept of primary motivation represents the underlying drivers of consumer attitudes and behaviours. Consumers who are primarily motivated by ideals are guided by knowledge and principles. Consumers who are primarily motivated by achievement look for products and services of personal benefit that convey success. Consumers who are primarily motivated by self-expression desire social or physical activity to make an impact.

RESOURCES Energy, self-confidence, intellectualism, novelty seeking, innovativeness, impulsiveness, leadership and vanity among others, play a critical role in people’s tendency to consume goods and services. These psychological traits, in conjunction with key demographics such as income and education, determine an individual’s resources. The level of their resources determines a person’s ability to act on their primary motivation.

BEHAVIOURAL SEGMENTATION Behavioural segmentation groups customers and consumers according to how they buy, use and feel about products. Behavioural segmentation can be based on very different variables some of which are market specific, some more generally applicable, for example, the chocolate market could be segmented into individual consumption, sharing and gift purchases – this would not be a good way to segment the market for medicines. Typical behavioural segmentation variables include: • loyalty status • frequency of purchase • rate of consumption • user status • attitudes towards the product • benefits sought • purchase occasion: what the customer is buying the product for – general use or a special occasion such as a party Clearly companies target non-users in order to get them to buy their brands; however, sometimes they target occasional users in an effort to make them buy the product more regularly, or heavy users in the hope that they will buy even more – or persuade friends to buy. Marketers pay attention to both the loyalty and user/usage status of their customers. As the importance of longer-term customer relationships has become more widely recognised, the concept of customer lifetime value has gained more attention. Attitudes towards the product and benefits sought: how consumers feel about a product and the benefits they seek from its ownership and use are also useful ways of distinguishing between them. The key benefit for some might simply be a low price, for others, ease of use. Most toothpaste brands have developed sub-brands to appeal to users seeking different benefits: tartar and plaque control, fresh breath, reduced cavities, whiter teeth, etc. Each relevant benefit describes a substantial market segment and provides a great market opportunity.

Purchase occasion is an important factor that often influences buyers’ attitudes towards products and their perceptions of value. Wedding cakes, dress and hairdressing services for example are often priced at a premium but customers may well expect (and demand) higher quality and service levels for once-in-a-lifetime purchases.

SEGMENTATION IN BUSINESS MARKETS Segmentation principles apply in just the same way to business markets, i.e. when businesses are selling to other organisations rather than to consumers. Although marketing is most commonly associated with consumer markets (b2c) and even more particularly with fast-moving consumer goods (FMCG) markets, a great deal of marketing is b2b. B2b markets underpin consumer markets as manufacturers rarely sell direct to consumers; instead they sell to wholesalers or retailers or other supply chain intermediaries. Take Coca-Cola or Unilever, for example: they rarely, if ever, have dealings with consumers; their goods are instead sold in shops. They do, however, invest a lot of money in advertising to consumers of course, and so are still interested in consumer market segmentation and targeting. B2b market segmentation often uses similar approaches to those for consumer markets, but there are some additional ones – for example, the type of business or industry they are in, and size of business. 1 Demographic variables are used to give a broad description of the business segments based on such variables as location (which Shapiro and Bonoma included as a demographic, rather than geographic, variable), size of business, type of business and business sector (e.g. SIC code; for details see below). 2 Operating variables enable a more precise identification of existing and potential customers within demographic categories. User status and technologies applied might be considered here. 3 Purchasing approach looks at customers’ purchasing practices (e.g. centralised or decentralised purchasing). It also includes purchasing policies and buying criteria, and the nature of the buyer/seller relationship. 4 Situational factors consider the tactical role of the purchasing situation, requiring a more detailed knowledge of the individual buyer, others involved and the specific buying situation. This might include potential order size, urgency of order and any particular requirements. 5 Personal characteristics relate to the people who make the purchasing decisions. Different customers may display different attitudes to risk and different levels of loyalty to suppliers.

TARGET MARKETING Target marketing involves making decisions about which part of the market an organisation wishes to focus on. It follows on from market segmentation.

EVALUATING A SEGMENT FOR TARGETING Before selecting a market to target, the organisation must undertake a full environmental analysis using a suitable framework such as PRESTCOM and a situation analysis (usually a SWOT). The analysis will take account of its own resources and capabilities, its objectives, its strengths and weaknesses – and also those of its competitors. Armed with all this information, the organisation is well placed to make a sound targeting decision. A segment may make an attractive target if it exhibits some, or preferably all, of the following characteristics: • has sufficient current and potential sales and profits • has the potential for sufficient future growth • is not over-competitive • does not have excessive barriers or costs to entry or exit • has some relatively unsatisfied needs that the company can serve particularly well.

TARGETING STRATEGIES Once the chosen market has been analysed and the attractiveness of the various segments in that market determined, the organisation has to decide which segments to target.

UNDIFFERENTIATED MARKETING If the market is believed to be composed of customers/consumers whose needs and wants from the product being offered are fundamentally the same, i.e. there is no basic difference between them, an undifferentiated marketing strategy may be employed. This is really mass marketing: one marketing programme for all customers. Although this may result in lower costs, it is very difficult to satisfy all customers/consumers with the same product or marketing mix. Products such as the original Coca-Cola and Pepsi are reasonable examples of undifferentiated marketing, although it should be recognised that some modifications are made to the marketing mix, and even the product’s recipe, in different countries. Both companies have also recognised the potential of segmenting their markets by benefits sought within the market and so, by selling Diet Coke in the USA and the UK (Coca-Cola Light in most other countries), Coke Zero, Diet Pepsi, Pepsi Max, caffeine-free, etc., they become differentiated marketers instead. They cite three instances, in general, when a mass, or undifferentiated, marketing strategy is most appropriate: 1 When the market is so small that it is unprofitable to market to just a portion of it. 2 When heavy users are the only relevant target because they make up a large proportion of the market.

3 When the brand dominates the market and appeals to all segments of that market, thus making segmen...