Analyzing Markets and Customers I

Segmentation, Targeting and Positioning

Marketing Session 1
Term I 2008
 Session Overview

• Course Objectives / Administrative Details

• What is Marketing?
• Analyzing Markets and Customers Part I
• Segmentation
• Targeting
• Positioning

• Takeaways

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 Course Objectives

• The course will help you …

• Build a disciplined approach to the analysis of
marketing situations
• Expand your decision-making skills by requiring
you to make and defend marketing decisions in
the context of realistic problem situations
• Make connections between marketing and other
areas of business

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 Outline of Sessions

• Analyzing Customers and Markets I

• Application: Kodak and Ford Ka

• Analyzing Customers and Markets

• Application: Gillette / LTVC

• Marketing Communications

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What is Marketing?
 What is Marketing?

• A business function
• Directing and carrying out (mutually beneficial) exchanges of
goods and services aimed at satisfying the needs and wants
of buyers (and sellers)

• A business philosophy (a.k.a. “Market Orientation”)

• Outside-in rather than inside-out
• Businesses should not try to get rid of what they can make,
but learn to make what there is demand for

Why this is part of the MBA core

Independent of the industry or the functional area you plan to
work in, you should learn and appreciate the tools, techniques,
and conceptual frameworks available to understand your
customers and to profitably satisfy their needs
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 The Marketing Planning Process

needs resources vulnerabilities common goals

Situation Analysis Consumers Company Competitors Collaborators

Context 5 C’s

Possible Strategic Options Evaluating Target Markets

and Positioning Options

Product
Price The Marketing Mix
Implementation Promotion 4 P’s
Place
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 Who in the firm is responsible?

―Marketing is far too important to leave to the

marketing department‖
David Packard

The marketing team should have deep expertise in

• developing and sharing market insights
• advocating the customer perspective in business decisions
• implementing market actions plans

Common reasons for business failure are:

lack of market understanding and poor execution
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 Three Stories

• The Bad: Oldsmobile

• ―This is not your father’s Oldsmobile‖
[poor understanding]

• The Ugly: Hoover

• What is missing in England?
• Buy a vacuum, free trip to Miami
[poor execution]

• The Good (that started bad and ugly): P&G

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Procter & Gamble: A Potato Chip Story

• Market size $1.5bn in 1950s

• Fragile product, spoils quickly

• Fragmented industry

• P&G recognizes possible mass opportunity

• Develop product to overcome problems of fragility
and short shelf life
• Use national advertising and distribution system to
beat up smaller and ―less sophisticated‖ competitors

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 Product Development and Launch

• Began R&D in 1950s

• Developed Pringles in 1968
• Will not break in transit (great!)
• Shelf life of one year (great! / yikes!)

• Product Testing
• Judged as good as competition

• Regional roll-out in 1968 with heavy advertising

• Priced at 10% premium
• Goal of obtaining 25% of the market
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 Results and Post Launch Diagnosis
• Heavy trial leads to 25% share at first, but …

• Low repeat, share drops to 7%

• Consumer Research: Pringles tasted ―artificial‖

• Consumers inferred artificial taste from physical
characteristics (uniformity, packaging)

• In developing a product that embodied attributes

important to retailers and vendors, P&G
neglected to develop a product that embodies
attributes important to consumers
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 Customer Analysis I:
Segmentation, Targeting, Positioning
 In a nutshell …

• Segmentation
• Are there relevant differences between consumers?

• Targeting
• Who is our customer?

• Positioning
• What is our value proposition?

S = Analysis, T & P = Strategy

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 Examples
• Apple Mac offers ….
the best personal computing experience to
students, educators, creative professionals
and consumers around the world through
its innovative hardware, software and
Internet offerings.

• IBM is …
the company that businesses can trust for
all their information management needs.

• The Chrysler PT Cruiser is an …

inexpensive, small car, that is versatile, fun
to drive, and appealing to active singles and
young couples with children who otherwise
would have bought an SUV or a minivan.
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 Elements of a Positioning Statement
• Three elements
• Target Segment
• Point of Difference (or key benefit)
• Frame of Reference

• Example
• The Chrysler PT Cruiser is an [inexpensive, small
car, that is versatile, fun to drive], and appealing
to [active singles and young couples with
children] who otherwise would have bought an
[SUV or a minivan]

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 Pringles Potato Chips:
Initial Positioning Strategy
• Target Segment
• Heavy users of potato chips

• Point of Difference
• Less greasy
• Not broken
• Healthier

• Frame of Reference
• Other potato chips, all sold in bags
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 Pringles Potato Chips:
Eventual Positioning Strategy
• Target Segment
• Kids and early teens

• Point of Difference
• Easy to carry b/c packaging

• Frame of Reference
• Other snacks in the lunch box (candy, cookies, …)

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There is actually more to it, but
in essence …..
STP can be thought of as
―choosing the right pond‖
 STP Process

Segmentation Targeting Positioning

Evaluate the Identify positioning

Identify variables
attractiveness of concepts for each
that allow one to
each segment and target segment,
segment the market
choose target select the best, and
segment(s) communicate it.

Iterative Process….

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 What is Segmentation?

• Part of market analysis

• The process by which a firm

• partitions its market into sub-markets (―segments‖)
• in such a way that the response to the marketing
mix variables varies greatly among segments but
little within segments

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 Why Segment?

• Because some consumers may differ in ways

that affect your odds of success
• Differences in preferences
Consumers prefer to have things that exactly meet their
needs, as opposed to things that are OK but do not precisely
meet their needs
Consumers will often pay more for things that exactly meet
their needs and be more responsive to communication that
talks to them in specific ways
• Differences in shopping habits, media habits, …
• Differences in ability/willingness to pay

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 Downsides of Segmentation

• Focusing on single segment limits potential sales

• Focusing on multiple segments with a tailored
marketing mix increases costs
• R&D
• Production and logistics
• Marketing

• Therefore, a segment-based strategy should

offer at least one of two benefits:
• Increased sales (primary or secondary demand)
• Higher prices

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 Popular Segmentation Approaches
Consumer Business
Region Region
Geographic SMSA Market
Climate HQ, branch
Age, gender, income, Industry (SIC code),
Demographic Family size/stage Assets, Sales
Education # of employees
Personality Corporate culture
Psychographic Lifestyle (VALS) Power structure
Media habits
Benefits Applications
Usage occasion Urgency
Behavioral
Usage rate Size of order
Brand loyalty Existing relationships

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 Benefit segmentation
• = Segmentation based on why people buy the
product, rather than based on their observable
characteristics
• Effective segmentation analysis involves
discovering sets of observable variables or
descriptors that correlate well with benefits sought

Illustration: PC Software

Segment 1 Segment x

Segment 2
Years of
Experience Segment 3

Segment 4

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Ease of Use
 Textbook requirements for a useful
segmentation scheme
1. Relevant
• Do segments actually respond differently? Relevant for decision at hand?

2. Measurable
• Can you describe and quantify segment membership in general?

3. Sizable
• Is there sufficient potential to warrant special attention?

4. Identifiable, Reachable, Accessible

• Can you identify and address segment members in a targeted way?

5. Compatible with resources

• Is the segmentation scheme useful for you, given your resources (financial,
marketing expertise, …) ?

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 Selecting a Target Segment

• An attractive segment has sufficient …

• Size,
• Growth,
• Profitability

• But to be attractive to you specifically, it

must also allow you to capitalize on your
strengths rather than weaknesses

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 Selecting a Target Segment
Attractiveness of
Market Segment

High Medium Low

High

Business Medium
Capabilities

Low

―GE/McKinsey matrix‖ 29
Actual vs. Intended Segment Buying

GRADUATED COLLEGE
Tylenol Extra Strength = 94
Store Brand = 152

HOUSEHOLD INCOME OF $75,000 OR

MORE
Tylenol Extra Strength = 95
Store Brand = 113
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 Positioning: Some Do’s
• Use a positioning statement to clarify your value
proposition and guide your strategy
• Target Market [For Whom]
• Point of Difference [Reason to Buy]
• Frame of Reference [As opposed to these other products]

• Focus on a few key benefits [―unique selling proposition‖]

• Use all elements of the marketing mix—product, price,
promotion, place—to realize your position
• Select a position that is defensible
• Warning: Positioning requires making tough choices!
―The essence of positioning is sacrifice‖

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 Takeaways
• Positioning: 3 elements … (i) Choice of Target Segment, (ii) Point
of Difference, and (iii) Frame of Reference
• Segmentation: 5 criteria for a useful scheme
• Targeting: keep in mind market attractiveness as well as capability
to serve
• Positioning statement: is the foundation to your market strategy a
summary statement of what how your value offering relates to both
customers and competitors
• Marketing mix: all 4Ps are used to realize the value offering
• Marketing = Outside-in Look at your consumers again and again
from different angles; think of how we can re-segment the market
and uncover new business opportunities

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 Next Session: Ford Ka Case
• Prepare the case
• You are encouraged to work in groups, but in
class you are responsible for your own views
• Questions (also in syllabus)
• What are the pros and cons of the segmentation
approach that Ford taken prior to the developments in
this case?
• Should the same segmentation approach be used for
the Ford Ka? Why (not)?
• Who should Ford target?

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 Takeaways
1. Market segmentation  Product categorization
– Products can always be categorized based on physical
attributes, but that categorization need not ―line up‖ with actual
market segments

2. As markets change, so should your segmentation

– Changes in what drives customer needs and preferences
– Changes in competitive offerings / targeting

3. ―Benefit segmentation‖
– Needs are often the most insightful basis for segmentation
– But needs do not always correspond to observable
characteristics
– Problem: implementation !
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 Takeaways

4. Segmentation and implementation are linked

– Success requires clear understanding of what consumers want,
who they are, and how they can be marketed to [also where
they are going]
• cf. Relevant, Measurable/sizable, Identifiable, Compatible
– Segmentation will be implicit in execution even if it was not
done up front (as in the case of Ford Ka)

5. Front line must understand and accept who the target is

– Sales force, customer service, …
– Independent dealers, resellers, …

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