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Customers, Segmentation, and Target Marketing

C H A P T E R

Concerned with the individuals, institutions, or groups of individuals or institutions that have similar needs that can be met by a particular product offering

The goal is to identify specific customer needs, then design a marketing program that can satisfy those needs.

The firm must have a comprehensive understanding of its current and potential customers, including their motivations, behaviors, needs, and wants.

Segmentation is critical to the success of most firms and has helped improve our standard of living.

Segmentation and Target Marketing

Often irrational and unpredictable

Can progress through five stages (see next slide)

Does not always follow these stages in sequence

Strong brand loyalty can move consumers directly from need to purchase.

Includes parallel decisions

“What” to buy

“Where” to buy

Buyer Behavior in Consumer Markets

Need Recognition

Information Search

Evaluation of Alternatives

Purchase Decision

Postpurchase Evaluation

The Consumer Buying Process (Exhibit 5.1)

Need

Occurs when the consumer’s existing level of satisfaction does not equal their desired level of satisfaction

Want

A consumer’s desire for a specific product that will satisfy the need

Demand

Occurs when a consumer’s ability and willingness to purchase a specific product backs up their want for the product

The Consumer Buying Process: Need Recognition

Many people criticize marketing as being manipulative based on the argument that marketing activities create needs where none previously existed. Given what you now know about the differences between needs and wants, do you agree with these critics? Explain.

Marketing activities can stimulate a desire for information

Passive information search

Active information search

Sources of information

Internal sources

External sources

The Consumer Buying Process: Information Search

The amount of time, effort, and expense dedicated to information search depends on:

Degree of risk involved in the purchase (financial risk, social risk, emotional risk, personal risk)

Amount of expertise with the product category

Actual cost of the search (time and money)

Evoked set

A narrowed down set of alternatives that the customer is considering

The Consumer Buying Process: Information Search (continued)

Consumers evaluate products as bundles of attributes, each having a different level of importance (e.g., brand attributes, product features, aesthetic attributes, price)

Important considerations

Products must be in the evoked set

Consumers’ choice criteria must be understood

Marketing programs must be designed to:

Change the priority of choice criteria

Change consumers’ opinions about product or brand image

The Consumer Buying Process: Evaluation of Alternatives

The intention to purchase and the act of buying are distinct concepts. Potential intervening factors (car example):

Unforeseen circumstances

Angered by the salesperson or sales manager

Unable to obtain financing

Customer changes mind

Marketers overcome these factors by reducing the risk of purchase, making purchase easy, or finding creative solutions to unexpected problems.

Key issues in the purchase decision stage

Product availability

Possession utility

The Consumer Buying Process: Purchase Decision

The connection between the buying process and developing long-term customer relationships

Four possible outcomes

Delight

Satisfaction

Dissatisfaction

Cognitive dissonance (postpurchase doubt)

Cognitive dissonance is more likely to occur when:

Dollar value of the purchase increases

Opportunity costs of rejected alternatives are high

Purchase decision is emotionally involving

The Consumer Buying Process: Postpurchase Evaluation

Decision-Making Complexity

The primary reason for variations in the buying process

Individual Influences

Demographics, perceptions, motives, interests, attitudes, opinions, lifestyles, etc.

Social Influences

Culture, subculture, social class, reference groups, opinion leaders, etc.

Situational Influences

Affect the amount of time and effort devoted to the purchase task

Factors Affecting the Consumer Buying Process

Physical and Spatial Influences

Social and Interpersonal Influences

Temporal (Time) Influences

Purchase Task or Product Usage Influences

Consumer Dispositional Influences

Common Situational Influences (Exhibit 5.2)

Four Types of Business Markets

Commercial markets

Reseller markets

Government markets

Institutional markets

Unique Characteristics of Business Markets

The Buying Center

Hard and Soft Costs

Reciprocity

Mutual Dependence

Buyer Behavior in Business Markets

Problem Recognition

Develop Product Specifications

Vendor Identification and Qualification

Solicitation of Proposals or Bids

Vendor Selection

Order Processing

Vendor Performance Review

The Business Buying Process

The process of dividing the total market for a particular product or product category into relatively homogeneous segments or groups

Should create groups where members are similar to each other but dissimilar to other groups

Involves the fundamental decision of whether to segment at all

Typically allows firms to be more successful

Market Segmentation

Involves no segmentation whatsoever

Is an undifferentiated approach

Works best when the needs of an entire market are homogeneous

Is efficient from a production standpoint

Results in lower marketing costs

Is inherently risky and vulnerable to competitors

Traditional Segmentation: Mass Marketing

Involves dividing the total market into groups of customers having relatively common or homogenous needs and developing a strategy to pursue one or more of these groups

Multisegment Approach

Attracting buyers in more than one segment by offering a variety of products that appeal to different needs

Market Concentration

Focusing on a single market segment and attempting to gain maximum share in that segment

Traditional Segmentation: Differentiated Marketing

Focuses marketing efforts on one small, well-defined market segment or niche that has a unique, specific set of needs

Requires that firms understand and meet the needs of target customers so completely that the firm’s substantial share of the segment makes it highly profitable

Traditional Segmentation: Niche Marketing

One-to-One Marketing

Involves creating an entirely unique product offering for each customer

Mass Customization

An extension of one-to-one marketing

Refers to providing unique solutions to individual customers on a mass scale

Permission Marketing

Customers choose to become a member of the firm’s target market

Key advantage: Customers are already interested in the product offering

Individualized Segmentation Approaches

Many consumers and consumer advocates are critical of individualized segmentation approaches due to personal privacy concerns. Where do you stand on this issue? What are the benefits and risks associated with individualized segmentation?

Involves selecting the most relevant characteristics to identify and define the target market or market segment

Successful market segments must fulfill five criteria

Identifiable and measurable

Substantial

Accessible

Responsive

Viable and sustainable

Avoid ethically sensitive, but legal, segments

Avoid segments that do not match the firm’s expertise

Identifying Market Segments

Segmenting Consumer Markets (see Exhibit 5.3)

Behavioral segmentation

Demographic segmentation

Psychographic segmentation

Geographic segmentation

Segmenting Business Markets

Type of organization

Organizational characteristics

Benefits sought or buying process

Personal and psychological characteristics

Relationship intensity

Market Segmentation in Consumer and Business Markets

Benefit Segmentation of the Snack Food Market (Exhibit 5.4)

Innovators

Thinkers

Achievers

Experiencers

VALS Consumer Profiles (Exhibit 5.5)

Believers

Strivers

Makers

Survivors

Target Marketing Strategies (Exhibit 5.6)

The key to targeting noncustomers lies in understanding the reasons why they do not buy, and then finding ways to remove these obstacles.

Removing obstacles to purchase, whether they exist in product design, affordability, distribution convenience, or product awareness, is a major strategic issue in developing an effective marketing program.

Targeting Noncustomers

The size of the consuming population over the age of 50 continues to grow. What are some of the current ethical issues involved in targeting this age group? As this group gets older, will these issues become more or less important? Explain.