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Markets: Segmentation, Targeting and Positioning (Chapter 6) Case study: Target  Australian retailers have struggled in the present time due to a challenging global economic environment, as well as increased online shopping  Supermarket chains such as Coles and Woolworths are immune from the ‘macroenvironmental’ threats  Traditional stores such as David Jones and Myer suffer most has they have high-cost structures which mean they can’t afford to compete  Dick smith attempting to compete lead to bankruptcy= too much expansion too soon  Keeping stock prices low = ‘big box’ retailers = Kmart, Big W, Bing Lee  Big W was stung by discount in home entertainment department  Target is ‘viewed neither as a value proposition nor an upmarket brand-centric department store’  Consumers are benefitting from competition, but traditional stores are suffering Introduction:  Targets difficulties may be due to a highly crowded and competitive market, in which consumers are spoiled for choice  Fundamental for market success: identifying potential consumers, and understanding the needs of those potential buyers  Businesses need to identify those parts of the total market to which can offer most value, as it is impossible to appeal to the whole market  Market segmentation enables a business to form a strategy for a group/ segment, that has common features, rather than aiming at everyone  Once the group is established, the business must use its knowledge to develop the most effective marketing mix -> this is known as the target marketing concept  Once the market has been segmented, the business can assess the potential of each segment to decide which segments to target

6.1 Knowing the Market   o  

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To determine the market mix, it is required to understand the organisations micro environment, which is almost always draw on market research and existing market info It also requires a deep understanding of how consumers make their purchasing decisions Solar Panel Case Study 15% growth in solar panels in last decade 1.52 million small-scale panels across Australia, accounting for 16.2% of Australia’s clean green energy entrepreneur Elon Musk saw this opportunity, and in 2016 approved plans to acquire solar energy from firm SolarCity, whilst also launching a new solar roof product

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However, now more and more businesses are competing, with few seeing positive results Both the world’s largest supplier of solar products, SunEdison, and energy supplier Abengoa both went into bankruptcy protection The solar power industry is going through development, so in order to stay afloat, businesses must pick up on the new technologies

6.2 Understand the target marketing concept Various ways to view the market, and the particular perspective an organisation takes has a pervasive influence on all its marketing activities. Consider the following 3 different perspective: 1. Buyers have common wants, needs and demands 2. Buyers have unique wants, needs and demands 3. The market contains subgroups- known as market segments- who share common or similar needs in regards to certain characteristics   

Similar characteristics in potential buyers = undifferentiated approach in marketing mix = organisation makes the same offer to everyone Unique buyer needs = organisation must differentiate its product to meet individual needs in order to succeed Buyers differ but have some shared needs and characteristics = should be possible to use an undifferentiated marketing mix for any one group, while differentiating the offering between groups

What is target marketing?  Target marketing: an approach to marketing based on identifying, understanding, and developing an offering for those segments of the total market that the organisation can best serve  Target marketing is based on 3 premises: 1. Individual buyers or groups of buyers can be identified 2. Sellers understand the needs of buyers 3. Sellers will seek to shape their offer to meet the needs of target buyers  Product-oriented organisations: see everyone as similar and practise mass marketing  Market-oriented organisations: see everyone as different and practise target marketing

Key differences in mass marketing, one to one marketing and target marketing based on segments (the 3 marketing strategies):

Mass marketing:  A mass marketer sees buyers as having common wants, needs and demands  This means they communicate and deliver a single product which meets the needs of most people in the market = undifferentiated approach  Undifferentiated = large volumes at low costs = economies of scale  Low cost per unit = lower sale price = high levels of profitability = further expansion  E.g. stationery, band aids etc.  Market for government services also displays high level of service and benefits e.g. transport  As long as consumers have homogenous (alike) needs, this model can be very successful and profitable  E.g. market leading consumer products such as Coca-Cola = can also charge premium prices  It is also common that the consumer needs become diverse = one version of the product no longer satisfies consumer needs = failure One-to-one Marketing  Seeks to appeal to each customer by providing a unique, customised product, meeting their individual needs  To meet these needs, the seller forms a close relationship with the consumer, in hope that the consumer will reward them with loyalty and repeat purchasing, as well as word of mouth referrals  Many small businesses take this approach  Usually results in higher unit costs and a more restricted market  There is usually a niche market Target marketing based on segments  heterogeneous= markets made up of buyers with diverse needs  Even heterogeneous can be grouped into segments of similar needs

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Market segmentation = most logical and common choice for many businesses that want to meet the needs of large number of customers more closely, but lack resources to address each individual customer Market research needs to be done to determine the segments When choosing target markets, the business will generally consider 3 factors: 1. Its own resources: does the business have the financial, marketing and other resources required to cover the entire market? 2. Market demand: do all customers look for the same attributes and benefits in the product? 3. Competition: have competitors already segmented the market or are they selling to all buyers as a group?

Product and market specialisation  Small organisations with limited financial resources frequently adopt one of the following specialised approaches to target marketing: o Product specialisation: A target marketing strategy in which all marketing efforts are concentrated on offering a single product range to a number of market segments o Market specialisation: A target marketing strategy in which all marketing efforts are focused on meeting a wide range of needs within a particular market segment e.g. Apia (a Suncorp brand) targets seniors (over 50) and retired community o Product-market specialisation: A target marketing strategy in which marketing efforts are concentrated on offering a single product to a single market segment

 Specialisation approaches usually only succeed if the following 5 conditions are met: 1. The market is characterised by a wide range of needs and product preferences 2. Clear market segments, or product categories, are identifiable, each with its own distinctive preferences or characteristics 3. The market is clearly divisible into segments so that each can be evaluated and compared 4. Individual market segments, or product categories, are sufficiently large to represent profitable sales volume 5. The organisation is able to reach individual market segments with a particular marketing offer and mix

Specialisation strategies:  Businesses that pursue a specialisation strategy seek to establish a dominant position in their chosen market niche  ‘Eggs all in one basket’= if successful = establish strong, deep and long-lasting position  The approach enables a business to concentrate all its limited financial and other resources while achieving a strong market reputation and a secure position among loyal customers  But this also limits a business’s potential growth in the longer term  E.g. Porsche expanding from sports cars to 4WD’s The target marketing process  Involves 3 main stages, illustrated in figure 6.5

6.3 Market Segmentation  

First stage in target market process There are two steps in the market segmentation stage: 1. Identifying variables- that can be used to define meaningful market segments 2. Profiling the market segments- so they can be assessed in the second stage of the target marketing process

Identify segmentation variables  Segmentation variables: Characteristics that buyers (individuals, groups, businesses) have in common and that might be closely related to their purchasing behaviour e.g. age, gender, income and occupation = can be linked to the purchase or consumption for particular products  Key to effective segmentation is to choose segmentation variables that are: o Easy to measure and readily available e.g. demographic data from national census o Linked closely to the purchase of the product in question e.g. ethnicity predicts food choice Segmenting consumer markets Segmenting consumer markets is almost limitless. However, they can fall into 4 broad categories:  Geographic  Demographic  Psychographic  Behavioural Geographic segmentation  Market segmentation based on variables related to geography, which may predict consumer needs and purchasing behaviours  Geographic variables include: climate, region, population, topography, urban, suburban and rural location  Climate - E.g. builders= cold weather build with bricks/ concrete, hotter weather lighter timber  Geological terrain/ topography - E.g. Toyota land cruiser more popular in rugged inland and remote areas, as were Subaru is more for snow country  Number of buyers or potential buyers in a geological area is an important measure of market potential

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Targeting geographical areas with more potential customers also creates efficiency in advertising and distribution Emerging trend= geo-demographics = combines demographic variables and geographic variables to profile a very small geographical location (suburb) o This enables specific targeting of small groups o E.g. large supermarket chains supply specialty foods to meet ethnicities in specific suburbs

Demographic segmentation  Market segmentation based on demographic variables, which are the vital and social characteristics of populations, such as age, education and income  Most commonly used variable in market segmentation  ABS provide up to date and comprehensive information on demographics  Age is most commonly used segmentation variable and can be linked to generational segments; Gen Y, X and grey nomads  Most common generation groupings are: o Baby boomer: born after WW2 (1946-64) and now are retiring from work force. Overall, they are most powerful generation, relatively wealthy and in positions of power in both society and workplace. They are able to stay active as prominent members of society in older years o Gen X: characterised as self-indulgent slackers, born between 1965 and 1980. Their formative years in Australia were during high unemployment, high inflation and high interest rates. The generation is characterised by a strong work ethic, loyalty and quite a lot of frustration with baby boomers. o Gen Y: born from 1980 to 2001, as known as ‘Nintendo Generation’. Characterised by comfort of technology, strong, almost tribal, friendship and loyalties, and high expectations in every aspect of life o Gen Z: born after 2001, and born digital. The internet, social media, and ‘friends’ they never met are second nature

Ethnicity:  Useful segmentation variable for some products e.g. food and travel Household composition:  Umbrella variable which is influenced by other demographic variables such as age, income, marital status and members of household  Segmentation is complicated by changes occurring in household composition e.g. divorce rates, increased single-parent households, house sharing  This is because it differentiates how people spend their money, so a single parent would spend differently to a married couple which is childless  Household composition is useful in marketing financial services products such as personal loans and credit cards, as they are closely linked to stages in people’s lives Income:  Determines what people can buy, so what products are preferred  Look at what offers more value Gender:  Shows which gender goes for what products

Others:  Level of education, Occupation Psychographic segmentation:  Psychographic segmentation is based on differences in: o Psychological traits (personality attributes and motives) o Key demographics o Lifestyles  Unlike the other elements which see who consumers are, psychological segmentation seeks to understand consumers by their mindsets and how they are expressed in their lifestyle  Psychographics combines demographics and psychology to give a more precise information on the consumers  People who share demographics may have a very different lifestyle  Psychographics brings out the information which demographics alone misses  2 psychographic segmentation models are: o Roy Morgan Values Segments o VALS- owned by Strategic Business Insights in California  See figures 6.7 and 6.8 (VALS consumer segments)

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The Ray Morgan Values Segments (RMVS) framework was used to discover grey nomads, who emerged in response to combined influences of ageing of the Baby Boomer generation, and their transition to retirement In turn, products such as recreational vehicles and internet-based communication has boomed, as they suit an active but nomadic lifestyle Both VALS and RMVS are appealing to marketers as they have been developed and proven across wide range of product categories in many countries VALS approach provides distinct insights into consumer behaviours, preferences and attitudes on basis on two-year research and development effort

Behavioural Segmentation:  Behavioural segmentation is different to the others as it doesn’t concentrate on ‘consumer characteristics’  Rather it is based on actual purchase and/or consumption behaviour, typically towards a particular product  Better indicator of market segments and their purchasing behaviour than segmentation based on generalised consumer characteristics  Behavioural variables include: o Benefit expectations o Brand loyalty o Occasion o Price sensitivity o Volume usage  Segmentation based on expected benefits is a means to better understand why consumers purchase particular products and brands – underlying purchase and consumption motivations  Occasion is the assumption that the occasion dictates the decision to purchase and the final choice of product  Segmentation based on volume usage seeks to identify heavy, medium and light users of a product to help identify and target the percent of buyers who make up a percent of profits, for example, the 20% of buyers which make up 80% of profits Segmenting business markets  ‘customised’ or ‘one-to-one’ marketing = most logical when very close relationship between buyer and seller  segmenting based on factors such as size of the business customer is similar to the demographic segmentation approach as it relates to industry  geography is used to determine what location provides what goods to whom Effective segmentation criteria  Such criteria must be meet in order to have effective segmentation:  Measurability: variables used to define the market segment must be accurate and measurable. Demographic variables are highly measurable, for example through the ABS.  Accessibility: segments must be able to be clearly identified and reached through distribution and communication channels  Sustainability: market segments must be of sufficient size and purchasing power to make them profitable. Hence, segments should be as large as possible, but still similar in their purchase preferences and behaviour  Practicability: segments only used if marketing programs can be formulated to identify, communicate with and service those chosen market segments. Segmentation based on personality or psychological variables might be incapable of easy or successful implementation especially if there is no relevant or recent data available. The chosen target markers should be large enough, clearly identifiable and able to be communicated with, and distributed tom in order to be viable. Profile market segments  After identifying the range of ways which a market segment can be described, the next task is to develop a market segment profile

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Market segment profile: a description of the typical potential customer in the market segment; that is, a description of the common variables shared by members of market segments and how the variables differ between market segments

6.4 Market Targeting 

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This stage involves a systematic examination of the range of possible market segments, their potential sales volume and revenues, and the relative ability of the organisation to satisfy the expectations of members of these market segments This step also requires a close understanding of competitors and how their offerings are seen by potential target market segments

Each stage of undifferentiated, differentiated and specialised marketing offers advantages and disadvantages which make the choice of target market crucial for long-term survival and profitability The choice of appropriate targeting strategy depends on: o understanding the size and attractiveness of the market segments o assessing the organisation’s ability to service and compete for the chosen market

Evaluate potential segments  Involves detailed analysis of sales potential, the competitive situation and cost structures Sales Potential  Market potential: total volume of sales of a product category that all businesses in the industry are expected to sell in a specified period of time, assuming a specific level of marketing activity  Total volume of sales is determined by business’s market share  A company sales potential is an estimate of the maximum sales revenue and market share that an organisation can expect to achieve for a specific product  Several factors influence a business’s ability to achieve its sales potential in a given market segment: o The market potential o The business’s ‘served market’ (i.e. those segments of the market for which the organisation chooses to compete) o The level of industry marketing activity, which directly influences the market potential

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The effectiveness of an organisation’s promotional spending, which depends on the business’s ‘share of voice’ and the use of effective ‘tactical’ promotional spending designed to maximise impact

Competitive situation  An estimate of sales potential must be conducted in the context of a thorough assessment of the organisation’s competitive situation- the activities of competitors already in the marketplace and their relative market shares- usually done as a part of a situation analysis  Without a competitive assessment, sales estimates can be misleading  To increase market share it may be necessary to allocate a large than normal promotional budget Cost structure  Costs involved in creating, communicating and delivering an offering to meet the needs of each potential market segment  Cost directly affect the price the organisation will need to charge for its products, its price competiveness and its profitability given any particular sales volume  A cost structure includes: o Promotional costs o Administrative overheads o All promotional and distribution costs  Knowledge of sales potential, competitive situation and cost structure combine to give a good indication of expected profits  It is importa...