chapter 6

p. 176

LECTURE NOTES:

By the end of this chapter, students should be able to:

• Identify the steps in the target marketing process
• Understand the need for market segmentation and the approaches available to do it
• Explain how marketers evaluate segments and choose a targeting strategy
• Understand how marketers develop and implement a positioning strategy
• Explain how marketers increase long-term success and profits by practicing customer relationship management

This slide relates to Learning Objective (hereafter LO) #1 of chapter 6.

This slide relates to LO #1 of chapter 6.

p.176

LECTURE NOTES:

• The marketing concept dictates that firms should make every effort to understand and satisfy customer needs. Unfortunately, understanding needs is an increasingly complex task because of market fragmentation. Technological and cultural changes in our society have increased the diversity of people’s interests and backgrounds, leading to the creation of many consumer groups, each with its own set of needs.
• As a result of market fragmentation, marketers follow a target marketing strategy.

*

This slide relates to LO #1 of chapter 6.

p.177

LECTURE NOTES:

• Market fragmentation, and the reduced effectiveness of mass marketing efforts in turn underscores the importance of developing a true target marketing strategy.
• The target marketing strategy process consists of five separate yet interrelated steps shown in Figure 6.1.

This slide relates to LO #1 of chapter 6.

p.177 - 178

This slide relates to LO #2 of chapter 6.

This slide relates to LO #2 of chapter 6.

p.178 - 179

*

This slide relates to LO #2 of chapter 6.

p.180

LECTURE NOTES:

• Segmentation is word used to describe the process of dividing a larger market into smaller pieces based on one or more meaningful shared characteristics.
• In addition to needs, marketer’s use one or more segmentation variables to segment consumer markets. Segmentation variables can be defined as dimensions that divide the total market into fairly homogeneous groups, each with different needs and preferences.
• Segmentation variables can be broadly classified as demographic, psychographic, or behavioral in nature, as shown in Figure 6.3.

This slide relates to LO #2 of chapter 6.

p.179 – 180

LECTURE NOTES:

• Finally, usage occasions represent a final type of behavioral segmentation. Many products such as Christmas cards and Easter egg coloring kits are associated with holidays. Other products are associated with specific times of the day (orange juice / breakfast), business functions (party platters/catering by restaurants), or casual get togethers.
• The Biltmore Estate, pictured on this slide, increased attendance during its annual Christmas celebration as part of a strategy to segment on the basis of usage occasion. As part of this strategy, heavy users (defined as families who have made the Christmas pilgrimage an annual event) received a different invitation and a customized package design to appeal to them which differed from that sent to the other three segments. By catering to the differences between these segments, visits increased by 300% in a single season.

This slide relates to LO #2 of chapter 6.

p. 180

This slide relates to LO #2 of chapter 6.

p.180 – 181

LECTURE NOTES:

• One way to segment on the basis of behavior is to divide the marketing into users and non-users. While this can be helpful, further segmenting the market according to usage status (heavy, medium, and light users) allows for more effective targeting, as the 80/20 rule dominates the majority of situations.
• The 80/20 rule suggests the 20% of the purchasers (a small portion of the target market) account for 80% (or the majority) of the volume. This underscores the importance of targeting heavy users, as it implies that the majority of purchases are made by a minority of the consumers.
• The long tail concept takes the opposite approach to segmentation. This approach is based on the idea that firms can make money by selling small amounts of items that only a few people want (e.g., targeting small volume segments), provided that they sell enough different items. Examples of firms that have embraced the long tail form of segmentation include Amazon.com (3.7 million titles, many of which will only sell a few hundred or thousand copies) and Netflix (infrequently rented older, foreign, and obscure films are kept in inventory in addition to blockbusters).

This slide relates to LO #2 of chapter 6.

p.181

LECTURE NOTES:

• Usage occasions represent another type of behavioral segmentation. Many products such as Christmas cards and Easter egg coloring kits are associated with holidays. Other products are associated with specific times of the day (orange juice / breakfast), business functions (party platters/catering by restaurants), or casual get togethers.

This slide relates to LO #2 of chapter 6.

p.181 – 182

LECTURE NOTES:

• Psychographic segmentation:
  The use of psychological, sociological, and anthropological factors to construct market segments
• Members of a psychographic segment typically share activities, interests, and opinions, often abbreviated as AOI. For example Harley-Davidson’s customers include thrill-seekers as well as weekend warriors who have an affinity for counterculture. Even doctors and lawyers may be members of the Harley Owners groups (HOGS). Understanding psychographics is important; while the average age of Harley riders has risen to about 46, older than the industry average of 38, Harley-Davidson knows better than to emphasis safety features or conservatism in their advertising. Thrill seekers aren’t that concerned with safety and those who enjoy a counter culture would not be receptive to ads equating Harleys with conservatism.

This slide relates to LO #2 of chapter 6.

p.182 – 183

LECTURE NOTES:

• Psychographic segmentation:
  The use of psychological, sociological, and anthropological factors to construct market segments
• Members of a psychographic segment typically share activities, interests, and opinions, often abbreviated as AOI. For example Harley-Davidson’s customers include thrill-seekers as well as weekend warriors who have an affinity for counterculture. Even doctors and lawyers may be members of the Harley Owners groups (HOGS). Understanding psychographics is important; while the average age of Harley riders has risen to about 46, older than the industry average of 38, Harley-Davidson knows better than to emphasis safety features or conservatism in their advertising. Thrill seekers aren’t that concerned with safety and those who enjoy a counter culture would not be receptive to ads equating Harleys with conservatism.

*

This slide relates to LO #2 of chapter 6.

p.183 – 184

LECTURE NOTES:

• The best known general psychographic segmentation system is named VALS, which stands for values and lifestyles. The VALS system segments the US consumers into eight unique groups based on 1) their primary motivation and 2) their level of resources and innovation.
• Primary motivations include ideals (meaning consumers are motivated by knowledge and principles); achievement (purchases reflect status and achievement to their peers), and self-expression, (purchases reflect a desire for social/physical activity, variety, and risk.
• According to the VALS website, “A person's tendency to consume goods and services extends beyond age, income, and education. Energy, self-confidence, intellectualism, novelty seeking, innovativeness, impulsiveness, leadership, and vanity play a critical role. These psychological traits in conjunction with key demographics determine an individual's resources. Various levels of resources enhance or constrain a person's expression of his or her primary motivation.” http://www.strategicbusinessinsights.com/vals/ustypes.shtml#motivation

WEBSITE NOTES:

• The link shown on the left hand side of Figure 7.3 will open a web page showing an identical figure. To the right of the figure, the instructor may wish to click on each of the links shown, each of which leads to a detailed description of one of the eight VALS segments.
• The link to the right of Figure 7.3 on this slide launches a gateway page from which visitors can take the VALS survey. It might be beneficial to launch the survey, for the purpose of illustrating to students the type of questions which are used to classify students.

This slide relates to LO #2 of chapter 6.

p.184 – 191

LECTURE NOTES:

• Demographics are vital for identifying the best potential customers for a product or service because objective characteristics like a person’s sex or age are usually easy to identify, and demographic information about a consumer market can be easily obtained from government sources like Statistics Canada.

This slide relates to LO #2 of chapter 6.

p.185 - 186

LECTURE NOTES:

• In addition to products that are only sold to one gender or another, many marketers develop parallel products which each appeal to a different sex. Pink and blue diapers, men and women’s razors, and men and women’s Nikes are just a few examples.
• Until recently, purses and many types of grooming products were marketed exclusively to women. However, growing recognition of the “metrosexual” has led many marketers to target this group when selling fashion accessories, personal care items, and “man-bags”.

DISCUSSION NOTE:

• ASK students to identify some products that are specifically targeted to one gender or another. Likely responses may include perfume, cologne, feminine hygiene products, clothing, shoes, wigs, etc.

This slide relates to LO #2 of chapter 6.

p.185 – 188

LECTURE NOTES:

• Age is a popular demographic segmentation base because different age groups have different needs and wants; specifically, members of a generation tend to share the same outlook and priority. For this reason, many marketers engage in generational marketing.
• When advertising to children, marketers use cartoons and shows such as Hannah Montana, American Idol, and others.
• Teens: Teens are defined as people falling within the 13-19 year old age group. Marketers are particularly interested in teens because this group is growing nearly twice as fast as the general population. Furthermore, this group (as well as the “tweens”, kids 9-12 years old), spend nearly $3000 of their own money on cosmetics, fast foods, and other feel good products.
• Apple has had exceptional success marketing to teens, particularly via products such as the iPod which allows teens to create their own content and control every aspect of their music consumption. Teens have a strong need for individuality, which Apple caters to. Teens don’t particularly like to be marketed to, which is a great fit for Apple’s approach of letting fans and the media do their marketing for them. The iPod and iPhone are iconic symbols of modern youth— stylish, nonconforming, and an expression of a clear difference from the past.
• Generation Y is also called “Millennials” or the “Baby Boomlet” by some. This free-spending group is highly attractive, as they represent approximately 26% of the population. They are the first generation to grow up in a wired world, and are ethnically diverse. Unfortunately, Gen Y is somewhat difficult to reach because they resist reading (meaning newspapers and magazines can’t reach them easily) and don’t watch a lot of TV. When they do, they gravitate towards alternative fare such as the late-night lineup on Adult Swim. Better methods of reaching this group include social networking, email, online chat rooms, and other digital and social networking methods.
• Generation X: Some members of Gen X have historically been negatively portrayed in the media as slackers, based on the fact that a small portion of this group moved back in with their parents after graduating from college, rather than getting a job and leaving the nest. The slacker subgroup within Gen X was actually relatively small, so this gross generalization is unfair. However, it is true that many Gen Xers are skeptical of marketing claims and maintain a cynical outlook towards marketing.
• Over time, Gen X has changed in many ways. On a positive note, Gen Xers are highly entrepreneurial and are responsible for a great number of start-up businesses.
• Gen X seems determined in many ways to do things differently – while many Gen Xers were “latch key children” growing up, meaning that they let themselves in the house after school, got their own snacks, etc., because either both parents worked or they lived in single parent homes, Gen Xers seem determined to have stable families. More than half are involved in home improvement, and homes express their individuality, rather than serve as symbols of material success.
• Baby Boomers are an important market for many businesses because this group is in its prime earning years. For example, many leisure destinations rely heavily on business provided by baby boomers – not only does this group have a high disposable income, but working members of this generation typically have a lot of vacation time available, and few worries about what to do with the kids (since most have graduated college and have moved out on their own).
• Baby boomers are also a fantastic market for any product or service that disguises or compensates for the fact that are aging. Cosmetics, wrinkle creams, clothing, cars, plastic surgery . . . You name it!
• Older Consumers: Currently there are more than 40 million Americans ages 65 or older, and this group will only get larger as the baby boomers continue to age. Often called “mature consumers”, this group

This slide relates to LO #2 of chapter 6.

p.185 – 188

WEB SITE NOTE:

• Ford Fiesta has been targeting Gen Y since 2009 “where they live” via the Ford Fiesta Movement campaign. Generation Y “Agents” complete missions in their respective cities, as assigned by Ford, and chronicle their experiences through social networks and the web site linked above.
• The goal of the campaign is to build excitement and spread the word about the Ford Fiesta to the next generation of customers – Gen Y – who as of 2010 accounted for 28% of the country’s driving population.
• According to the website as of March, 2011, “For the next chapter of the Fiesta Movement – and in anticipation of Fiesta arriving in the U.S. – we’re letting its fans take a crack at the advertising. They’ll use their creativity to promote the new 2011 Fiesta. And you get to be the judge. Agents who participate will get to use a Ford Fiesta over the program period. We’ll pay for the gas. Team members will compete for prizes (of varying dollar amounts) and will have an equal chance to win a Ford Fiesta.”

• Nintendo has developed a line of video games (wii and Nintendo DS formats) that are designed to appeal to people of all generations, which they have labeled “Touch Generations.” Their premise is that “gaming doesn’t have an age” and the games promoted are those which allegedly can be enjoyed by the young and old alike. It might be interesting to discuss this concept with students to get their take. Are the games promoted on the Web site likely to appeal to people of different ages, or is this simply wishful thinking on Nintendo’s part? Is the Touch Generations premise contrary to the essence of segmentation and targeting?

This slide relates to LO #2 of chapter 6.

DISCUSSION NOTES:

• Answers will vary. Some general considerations that might be pointed out as students consider this question include:
• As people age, their eye sight becomes poorer and taste buds lose their ability to distinguish subtle taste differences. Restaurants who choose to continue to target the boomers may need to redesign their menu (larger type), their lighting and decor (higher light levels, more comfortable seating, more room for wheelchairs, scooters, and/or walkers), and their cuisine (more defined flavors).
• As people age, they lose mobility in their joints; arthritis becomes more common. Certainly there are implications for clothing and shoe manufacturers. Baby boomers, like many segments of the population, are fond of wearing comfortable walking shoes. Yet manipulating laces through tiny holes can be chore for people with stiff fingers. Some shoe manufacturers may choose to abandon laces in favor of Velcro. Similarly, small button holes can be difficult for more mature consumers. Larger button holes, or zippered fastenings may be more attractive to people of this age group.
• As people age, health-related problems increase. Clearly the aging of the baby boomers is an opportunity for pharmaceutical marketers, as well as marketers of retirement villages, assisted living facilities, physical therapy, in-home care, physician’s services, etc.

This slide relates to LO #2 of chapter 6.

p.188 – 189

LECTURE NOTES:

• Family Life Cycle: Family needs change dramatically for many products over time, creating the opportunity to segment by family life cycle.
• Furniture is product category that varies with the family life cycle. Singles living away from home for the first time may purchase very small refrigerators to serve as beverage coolers in their dorm room, or inexpensive press wood furniture for an apartment. 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, baby changing tables, and later on, twin beds or bunk beds. As family income rises, families may move to larger homes in more affluent neighborhoods, and purchase higher-quality furniture. 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 even higher-quality items (Ethan Allen; leather sofas, etc.).
• As families age and move through the cycle, some product categories gain in importance while others decline in importance. (Singles 21+ year old would be more likely to consumer alcohol and go out to bars than would a young married couple with a newborn.)
• Income: The importance of income is self-evident. The more discretionary money available, the more likely it is that certain types of products and services will be consumed. {Ask students to NAME some products that are targeted to higher-income classes.} It should be noted though that the recent economic turmoil has resulted in some important changes – many individuals who were comfortable before the financial meltdown now find that they can’t retire, while others are spending more cautiously and in some cases, “downshopping”, meaning that higher income consumers are more likely to shop at stores like K-Mart and Walmart.
• On the other end of the spectrum, some businesses such as WalMart, pawn shops, and payday loan places actively target individuals at the lower end of the income spectrum.
• Social Class: While historically some marketers have chosen to segment by social class (such as upper class, middle class, and lower class), fewer do so today because research has shown that consumers are more likely to buy according to the image they wish to portray rather than where they actually fall within the social class framework. Of course in doing so, many of these consumers got themselves into trouble by buying on readily available credit; it will be interesting to see whether this trend reverses itself now that lending guidelines have tightened somewhat.

This slide relates to LO #2 of chapter 6.

p.189 – 190

This slide relates to LO #2 of chapter 6.

p.191

LECTURE NOTES:

• Recognizing that consumer preferences often vary depending on where they live, many marketers tailor their offers to geographic areas. Census data can be helpful in learning about the demographics of different state, cities or zip codes, but most marketers prefer geodemographic segmentation systems that offer more precise methods of reaching target consumers.

This slide relates to LO #2 of chapter 6.

p.191 - 193

LECTURE NOTES:

• Segmentation helps B2B firms understand the needs and characteristics of potential customers. The underlying logic to segmentation in the B2B market is the same as with consumers, but the variables used to form segments typically differ.
• For example, firms can be segmented by behavioral characteristics such as whether a given business firm is user or nonuser of the selling firm’s product.
• Firms can also be segmented by the type of industrial psychographics they have.
• In addition, another way to segment the firms is by organizational demographics. Organizational demographics include the size of the firm (in sales or number of employees); number of facilities, whether they are a domestic or international firm, among others.

This slide relates to LO #3 of chapter 6.

*

This slide relates to LO #3 of chapter 6.

p. 193

LECTURE NOTES:

• Targeting is characterized by three phases in which marketers evaluate the attractiveness of each potential segment, profile each segment, and decide in which of these groups they will invest resources in order to turn them into customers.
• The customer group(s) selected are referred to as the target market.

This slide relates to LO #3 of chapter 6.

p. 193

LECTURE NOTES:

• The first phase in targeting is to evaluate the potential of each market segments. The purpose is to weed out non-viable alternatives at the beginning of this process. To be useful, a segmentation scheme must yield at least one viable segment.
• Marketer must determine if the characteristics of the segment are actionable and if it is worth the time and effort to purse the segment.
• It goes without saying that the marketer must be able to satisfy the needs of the segment by means of superior resources or expertise, compared to the competition.

This slide relates to LO #3 of chapter 6.

p. 193 – 194

LECTURE NOTES:

• Segments that “pass” each step of the viability test progress to the second phase of targeting, in which segment profiles are developed. Segment profiles provide a detailed description of the typical customer in terms of key demographic, lifestyle, geographic, and product-usage behaviors.

This slide relates to LO #3 of chapter 6.

p. 195

*

This slide relates to LO #3 of chapter 6.

p. 194

This slide relates to LO #3 of chapter 6.

p. 196 - 197

This slide relates to LO #3 of chapter 6.

p. 197 - 199

*

This slide relates to LO #3 of chapter 6.

p. 198

LECTURE NOTES:

• The final phase in targeting is to choose a target strategy to follow. A fundamental decision must be made as to whether the firm will pursue a single large segment or focus on meeting the needs of multiple, smaller markets.
• In an undifferentiated targeting strategy, the marketer assumes that people have similar needs, and an attempt is made to appeal to a broad spectrum of people. An example of a firm that follows a somewhat undifferentiated targeting strategy is Walmart. Efficiency occurs because of enhanced economies of scale. But in today’s day and age, following a purely undifferentiated strategy is risky; markets are fragmenting and for most products, needs are not similar enough to justify this technique.
• Instead, the more common practice is to follow a differentiated targeting strategy in which the firm develops one or more products (and marketing strategies) for each of several customer groups. A differentiated strategy might also involve marketing a single product differently to different segments, by changing marketing communications to appeal to each targeted group.
• Firms that focus their efforts on a single segment use to follow a concentrated targeting strategy. One or more products may be promoted to the segment.
• Finally, a firm may choose to follow a custom marketing strategy which is explained in more detail on the following slide. : Tailoring specific products to individual customers
• Common in personal and professional services, and in industrial marketing

This slide relates to LO #4 of chapter 6.

This slide relates to LO #4 of chapter 6.

p. 199

This slide relates to LO #4 of chapter 6.

p. 199 - 201

This slide relates to LO #4 of chapter 6.

p. 201 - 203

This slide relates to LO #4 of chapter 6.

p. 203

LECTURE NOTES:

• Perceptual maps, such as the one shown in Figure 6.10, are often used to visually describe where products/brands are “located” in consumers’ minds relative to competing brands.
• The perceptual map can sometimes help marketers understand where to position a new brand. The marketer might decide to compete directly with the upscale fashion magazines, shown in the upper right hand quadrant, or locate an underserved area, such as upscale service magazines (or downscale fashion magazines).

This slide relates to LO #4 of chapter 6.

p. 203 - 204

This slide relates to LO #4 of chapter 6.

p. 205

LECTURE NOTES:

• Brands are often described in terms of personality traits as if they were people. People may use adjectives such as “cool” or “elegant” to describe certain brands. In fact, market research has identified five specific personality dimensions* that may be associated with brands to a greater or lesser extent.

This slide relates to LO #4 of chapter 6.

p. 206

This slide relates to LO #5 of chapter 6.

This slide relates to LO #5 of chapter 6.

p. 208

LECTURE NOTES:

• Customer relationship management has been embraced by many successful firms. Customer relationship management, or CRM as it usually called in conversation, is defined on this slide. Marketers know that one way to more finely segment consumers is to allow them to personalize products. They develop a system to keep track of consumers’ preferences and behaviors over time in order to tailor the value proposition as closely as possible to each individual’s unique wants and needs.

CRM facilitates one-to-one marketing. The steps involved in one-to-one marketing are explained in the next slide.

*

This slide relates to LO #5 of chapter 6.

p. 209

LECTURE NOTES:

• CRM facilitates one-to-one marketing, a process which is composed of four interrelated steps:
• Step 1: Identify customers and get to know them in as much detail as possible.
• Step 2: Differentiate customers by their needs and value to the company.
• Step 3: Interact with customers; find ways to improve cost efficiency and the effectiveness of the interaction.
• Step 4: Customize some aspect of the products you offer each customer.

This slide relates to LO #5 of chapter 6.

p. 208 - 209

LECTURE NOTES:

• CRM systems use computers, software, databases, and the Internet to capture information at each touchpoint.
• Touchpoints are any direct interface between customers and a company (online, by phone, in person, etc.)
• Several examples of CRM systems are discussed in the textbook, including web sites that let you check the status of orders, pay or manage your bills online, track FedEx or UPS package deliveries, and even call center systems used by direct marketers who phone you at home or your place of business.
• Automatic reminder systems that leave recorded messages about appointments, voting locations, utility outages, or upcoming sales at stores (such as Catherines’s clothing store) are also part of some organization’s CRM.
• Sales contact management software makes it easy for B2B or B2C sales people to keep in contact with their client base on a variety of issues.

DISCUSSION NOTE:

• Ask students to describe other examples of activities or contacts that they believe may stem from CRM systems. (Example: Banking – notifications of direct deposit, ability to transfer money between accounts or pay bills online, etc.)

*

LECTURE NOTES:

• Firms that successfully make use of CRM have a different mind-set, different goals, different measures of success, and generally look at customers in a different way when compared to firms that don’t use CRM. Four critical characteristics of CRM are shown in Figure 6.11.
• Share of customer: Unlike many businesses that focus on increasing a brand’s marketing share, firms that embrace CRM recognize that it is less costly to keep current customers happy then it is to get a new one to take their place. For this reason, CRM focuses on increasing a brand’s share of customer. Share of customer can be defined as the percentage of an individual customer’s purchase of a product (e.g., fast food) that belongs to a particular brand (e.g., Taco Bell). This is where CRM’s ability to customize and personalize marketing promotions to individual consumers can be helpful. For example, if Amazon’s database records indicate that a given patron has purchased three books by a certain author, the CRM aspect of this system would try to increase share of customer by automatically sending an email to that individual offering him or her the opportunity to preorder a new book which has been written by the author, but not yet released.
• Lifetime value of the customer: Lifetime value is the potential profit a single customer’s purchase of a firm’s products generates over the customer’s lifetime. Estimating LVC requires that the firm first estimate future sales across all products for the next 20 or 30 years, and then that the firm attempt to figure out what profit the company could make from this customer in the future.
• CRM firms view customers differently – as assets. Customer equity is defined as the financial (net) value of a customer throughout the lifetime of the relationship.
• The final characteristic that makes CRM unique is the fact that organizations focus on high-value customers. This means the firm prioritizes its customers and customizes communications accordingly. For example, those who patronize casinos frequently will receive more direct mail offers from the casino, and higher value perks or incentives in an attempt to entice them to stay, compared to the that which would be sent to casual or infrequent gamblers. Remember that 80 /20 rule . . .in a CRM world, 80% of the profits often come from 20% of the customers.