Discussion Question - 200 words minimum - What should have United done in response to this crisis to secure their customers’ loyalty and keep them from switching?
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Topic7-IdentifyingMarketSegmentsandTargets.pptxTopic 7: Identifying Market Segments and Targets
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Steps in the Target Marketing Process
Targeting
The first step in market segmentation is identifying profitable segments which can be served effectively. This decision requires careful strategic thinking.
Marketing managers must understand what makes each segment unique and what latent need is being sought.
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Market Segmentation
Market Segmentation- divides consumers into groups that share similar needs and wants. Then they examine whether these segments exhibit different product responses which shapes marketing mix.
Dunkin Donuts caters to the blue collar community with slogan, “America Runs on Dunkin” meaning they place an emphasis on convenience and timeliness (utilitarian convenience). Starbucks caters to white collar, higher income groups who value the experiential value of a cup of coffee (music Cds, ambience, social value, observation of process, etc.)
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Dunkin Donuts ad making fun of Starbucks customer types that seek too much from a cup of coffee.
Analyzing Trends can Create Opportunities
Carrefour is a hypermarket, or “Supercenter” started in France in 1963, which was imitated by Sam Walton (Wal-Mart).
The independent shop system was part of France's national heritage, and shoppers developed personal relationships with multiple shop owners. However, time pressed, dual-parent working families were beginning to have less time to stop at several stores for daily shopping.
Demographics led France to prefer convenience over personal relationships. This pursuit of convenience is becoming a universal objective, especially in the US. Is this positive for the consumer in the long run? What about for businesses?
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Geographic Segmentation
Geographic segmentation divides the market into units based on location.
Although not the norm, Bed Bath and Beyond stores in Manhattan sell paint and home improvement tools since that geographic segment does not have access to Home Depot or Lowes
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Demographic Segmentation
Demographic information is easy to measure and highly effective in predicting consumer behavior. Examples of demographic info:
Age and life cycle
Life stage
Gender
Income
Generation
Social class
Race and Culture
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Segmentation Example—Nielsen Claritas
Nielsen Claritas classifies over half a million U.S. residential neighborhoods into 66 distinct lifestyle segments.
The groupings are based on five broad categories:.
Education and affluence
Family life cycle
Urbanization
Race and ethnicity
Mobility
Inhabitants of each cluster lead similar lives, drive similar cars, have similar jobs, and read similar magazines.
Companies targeting certain clusters can purchase that information from Nielsen.
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Age Segmentation
Children (4-12) more than $130 billion a year market (ethics of targeting children?)
Tweens (8-14) when children reject childlike behaviors and aspire to be more like a teen (gradually becoming lower; 6-12)
Generation Y (1979-1994) have been “wired” almost from birth—sense of entitlement and abundance from growing up during the economic boom. Socially conscious and concerned about environmental issues. Tend to be selective and impatient.
Generation X (1965-1978) self-sufficient generation. Technology is an enabler for them, not a barrier. Unlike the more optimistic, team oriented Gen Yers, Gen Xers are more individualistic.
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Age Segmentation (Continued)
Baby boomers (1946-1964) With many baby boomers moving into their 60s, demand has exploded for products that turn back time. (cosmetics is a $1 billion a year industry in the US alone)
Older consumers- powerful segment with high income levels due to social security and retirement. Targeted with comfort and luxury (insurance, healthcare, financial services)
Some companies simultaneously target different groups. Crest and Colgate offer three main lines of products to target kids, adults, and older consumers
Targeting Life Stages
Life stage defines a person’s major concern, such as going through a divorce, going into a second marriage, taking care of an older parent, deciding to live with another person, deciding to buy a new home, and so on.
Furniture is a product category that varies with life stage. Young married couples purchase a greater number of items, but quality is likely to be relatively low because cost is a concern. As children join the family, parents purchase cribs and later on, twin beds. After the kids have moved out of the house, couples in their prime working years may acquire a second (vacation) home, or upgrade their primary home furnishings to higher-quality items
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Gender and Income
Research has shown that women in the US make 75% of the decisions about buying a home, and purchase 60% of new cars.
Victoria’s Secret studied women and learned that while women need underwear, they want lingerie. This want has defined their business core (utilitarian vs. hedonic)
Income segmentation is a long-standing practice in such categories as automobiles, financial services, and travel.
However, income does not always predict the best customers for a given product (blue-collar workers were among the first purchasers of color TVs since it was cheaper for them to buy these sets than to go to the cinema)
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Segmenting by Income and Population
75% of world GNP is generated in the EU, US, and Japan. But only 13% of the world’s population lives in the triad. This does not mean this 13% is not profitable (emerging markets)
Many services like education and healthcare are free in developing nations so there is more purchasing power.
For products whose price is low enough, population is a more important variable (Procter and Gamble sells and distributes sample size detergent and hygiene products in developing countries to encourage population adoption)
Marketers are increasingly moving toward simple solutions to complex needs. Solar Water Bottle
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Segmenting by Race- Hispanic Americans
Hispanic Americans constitute half of US growth, largest ethnic subculture in US and very proud of cultural heritage. By 2020, 17% of Americans will be of Hispanic origin. They are followed by Asian and African American communities in rate of growth.
Multicultural markets also vary in whether they are first and second generation, and whether they are immigrants or born and raised in the US.
Hispanic Americans have lower mortgage and credit card debt, two or more income earners, and more likely to buy products which are advertised in Spanish even when they understand English.
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Behavioral Segmentation Decision Roles
People play five roles in a buying decision:
Initiator
Influencer
Decider
Buyer
User
A wife hints that she needs a new treadmill for her upcoming birthday (initiator). The husband may then seek information online, from his best friend who has a treadmill, etc. (influencers). After presenting the alternative choices to his wife, he purchases her preferred model (wife-decider, husband buyer), which ends up being used by the entire family (users).
From a strategic standpoint, which of these roles is most critical in targeting and why?
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Behavioral Variables
Occasions mark a time of day, week, month, year, or other time when consumers develop a need, purchase a product, or use a product (holidays, weddings, beginning of school year, summer vacation- hotel & travel industries, etc.)
User Status- The key to attracting nonusers is understanding why they are not using. Many times, it has to do with life events. Gerber monitors the status of mothers-to-be who are friends of their Facebook page and they receive promotional offers. (Mothers-to-be are potential users that quickly become heavy users)
Usage Rate- Every product has its nonusers, ex-users, potential users, first-time users, and regular users. There are also light, medium, and heavy product users.
Heavy users are often a small slice but account for a high percentage of total consumption. Heavy beer drinkers account for 87% of beer consumption. Marketers would rather attract one heavy user than several light users (Philip Morris).
**Heavy users are not necessarily loyal customers. Research shows they tend to be extremely loyal to one brand or never loyal to any brand, constantly looking for the lowest price.
**What appears to be brand loyalty may reflect habit, a low price, a high switching cost, or the unavailability of other brands, so don’t assume!!
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Loyalty Status
1. Hard-core loyals —Consumers who buy only one brand all the time are an excellent source for identifying product strengths.
2. Split loyals —Consumers who are loyal to two or three brands are a source for understanding what consumers value about the competition
3. Switchers —Consumers who shift brand loyalty sporadically are great sources for understanding weaknesses of the product (cable companies)
Customers tend to be very loyal to their favorite soda brand, but very disloyal to airline brands (why?)
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Effective Segmentation Criteria
To be useful, market segments must rate favorably on four key criteria:
1) The size, purchasing power, and characteristics of the segments can be measured.
2) A segment should be the largest possible homogeneous group worth pursuing.
3) The segment is conceptually distinguishable and respond differently to marketing-mix programs. If married and unmarried women respond similarly to a sale on perfume, they do not constitute separate segments.
4) The segment can be effectively reached and served.
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Porter’s 5 Forces Model
The five forces which determine the intrinsic long-run attractiveness of a market or segment: industry competitors, potential entrants, substitutes, buyers, and suppliers. The threats these forces pose are as follows:
1. Threat of intense segment rivalry —A segment is unattractive if it already contains numerous or aggressive competitors.
2. Threat of new entrants —The most attractive segment is one in which entry barriers are high and exit barriers are low. (The worst case is when entry barriers are low and exit barriers are high)
3. Threat of substitute products —A segment is unattractive when there are potential substitutes for the product (Air travel has challenged profitability of Greyhound and Amtrak)
4. Threat of buyers’ growing bargaining power —Buyers’ bargaining power grows when buyers join together, when the product is undifferentiated, when switching costs are low, or when buyers are price sensitive
5. Threat of suppliers’ growing bargaining power —The segment becomes more unattractive as the suppliers become more powerful
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Segmentation and Dealing with the Competition
A consultant predicts that two supermarkets will go out of business for every Wal-Mart Super Center that opens in the U.S (Walmart supermarket trend)
As Wal-Mart expands, what repositioning strategies should competitors like Publix consider? How do you compete with the low-price position of Wal-Mart?
Auto, Pharmacy, Groceries, Retail, Appliances, Taxes, Barber, etc.
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Specialization and Segmentation
Firms with a product specialization focus on their products rather than their customers with most emphasis on research and development (overemphasis can lead to marketing myopia), whereas market specialization focuses on serving the needs of particular groups (customer orientation). Should be a healthy balance.
Types of market specializations:
Full market coverage (undifferentiated)- firm attempts to serve all customer groups with all the products they might need (Microsoft-software market, General Motors-automobile market, Coca Cola-non alcoholic beverage market)
Single-segment concentration (niche), the firm markets to only one particular segment (Unlike Hertz, Avis, and National; Enterprise focuses on the low budget, insurance replacement market)
Customized marketing is the ultimate level of segmentation, but not every company can afford to do this (Build a Bear)
Niche market: Tom’s of Maine appeals to consumers who are turned off by big business, but they are owned by Colgate Palmolive.
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One to One Marketing
One-to-one marketing focuses on understanding customers as individuals instead of as part of a group. The goal is to reduce costs through customer retention and increase revenue through customer loyalty (soliciting customer information at purchase)
Most businesses use a mass marketing approach to increase market share by selling their products to the greatest number of people. However, one-to-one marketing is focused on share of customer —percentage of an individual customer’s purchase of a single brand.
Market share has to do with maximizing the number of customers, whereas share of customer maximizes the number of purchases per customer. Which is more effective?
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