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While marketing is a philosophy-putting customer first, it is also about customers being a source of profit this requires planning and decision making. Through segmentation marketers study characteristics, buyer behaviour and decision making of customers. Customer segmentation is the sub division of a market into discrete customer groups with similar characteristics, which are significant for a marketing strategy. By understanding customers in this way firms are than in a position to develop uniquely appealing products and services,
Hilda Burton 2012
Slowing population growth in many developed countries, and maturing product-markets. Social and economic forces have produced customers with more varied and sophisticated needs, tastes, and lifestyles than ever before. Trend toward micro segmentation. Ease of implementing sharply focused marketing programs
Better matching of customer needs: i.e airlines clear groups of travellers with different needs. If you provide the same to all then few are satisfied. Enhance profitget some to pay more. Customers differ in price sensitivity. It is difficult to raise price to all customers but can raise to some. Enhance growth opportunitiesget customers to trade up to a higher margin product i.e. Tesco online & delivery/ Mobile phones. Retention of customerslifecyclecater for all stages i.e. banking. Targeted communicationseasier to develop clearer message if group homogeneous Stimulation of innovationif market undifferentiated less scope for new ideas on how to meet customer needs. Market segment sharemay need to focuscannot compete with bigger brands straight off
Prioritize NPD efforts. Develop customised marketing program Choose specific product features. Establish appropriate service options Design optimal distribution strategies Determine appropriate product pricing
Effective---homogeneous needs within segments Identifiablesome profilers harder to identifyi.e. aiming at extroverts. ProfitableNarrower segmentation costs more but may pay off in long run. AccessibleCustomers in segments can be reached. Actionablei.e. larger petrol station has more facilities to differentiate and meet needs of several segments and add value
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Common profilers:
Geographiclocation,
urban rural. DemographicAge, sex, family size, income , occupation education, race. Psychographicsocial class, lifestyle, personality. Behavioural, Product usage: light medium heavy. Brand loyalty: none medium high, Type of user: Special occasions, with meals etc.
Methodology of Segmentation
1. Divide market into meaningful and measurable segments according to key profilers. 2. Determine profit potential of each segments. 3. Invest resources to tailor products and services, marketing and distribution needs of each segment. 4. Measure performance of each segment and adjust to the market conditions
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Market-attractiveness factors Competitive-position factors A numerical weight is assigned to each factor to indicate its relative importance in the overall assessment
This step requires that evidence be collected to objectively assess each of the criteria identified in Step 1. Once assessments have been made, the weighted results can be plotted on a marketattractiveness/competitive-position matrix
Market-Attractiveness/Competitive-Position Matrix
Determine how the markets attractiveness is likely to change over the next three to five years. For this assessment, start by considering:
Possible shifts in customer needs and behavior. The entry or exit of competitors and changes in their strategies.
Possible changes in product or process technology. Shifts in the economic climate. The impact of social or political trends. Shifts in the bargaining power or vertical integration of customers.
Managers should consider a market segment to be a desirable target only if it is strongly positive on at least one of the two dimensions of market attractiveness and potential competitive position and at least moderately positive on the other.
Implications of Alternative Positions within the Market-Attractiveness/ Competitive-Position Matrix for Target Market Selection, Strategic Objectives, and Resource Allocation
Niche-market strategy
Involves serving one or more segments that, while not the largest, consist of a sufficient number of customers seeking somewhatspecialized benefits from a good or service. Designed to avoid direct competition with larger firms that pursue bigger segments.
Mass-market strategy
Ignore any segment differences and design a single product-and-marketing program that will appeal to the largest number of consumers. Design separate products and marketing programs for the differing segments (differentiated marketing).
Growth-market strategy
Businesses often target one or more fastgrowth segments, even though these segments may not currently be very large. Usually requires strong R&D and marketing capabilities, plus the resources to finance rapid growth.
Segmentation Process
Mc Donald and Dunbar (1995) suggest a 10 point process: 1. Market mapping what does market look like? 2. Who buys? 3. What is bought, where, when and how? 4. Micro-segments? 5. Reasons for purchase
6. Bring together similar micro-segments 7. Test segments against company capability 8. Segment Attractiveness criteria 9. Criteria parameters 10. Company competitiveness
Evaluating Segments
Nutri-science operate in the Nutraceutical industry: Providing food supplements for animal and human markets. Nutri-Science operates in three distinct market segments;
Veterinary ( Small animals)pet food, supplements, supplies, veterinary services, boarding and grooming. Equine Size is based on the number of competition horses in each market.--joint supplements is a niche market within thisArthri Aid Equine. Human: Food Supplements
Now see trend towards one to one marketingbut actually within this have groupings i.e. Eircom Bundles. Dell have five segments according to potential profitabilityhigher importance gets greater support and customization 80/20 rule. Now we see Dell segmenting on the basis of customer emotions rather that usage of computers.
Table 3.3
Source: Adapted from Russell I. Haley, Benefit segmentation: a decisionoriented research tool, Journal of Marketing, July 1963, pp. 305
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Marketers must continually analyse segments to identify any ways they can be innovative. i.e. Airlines typically have Economy,
Business class and First class. Virgin Atlantic noticed that within economy there was in fact differenceslast minute standby paying $150 while full fare economy paid $750 but all got the same service and seats. Decided to subsegment in to Premium economy class with separate cabin, better Hilda food, separate Burton 2012 check in.
Opportunities for segmentation increase as a market evolves i.e. Consider mobile phone market. Computers growth by addition of segments: scientific customers-larger businesses- small businesseshouseholds- students Companies must shift resources out of maturing market segments and into emerging oneslearn about new customers, develop new products and develop new channels, But also get existing customers to trade up find new ways to add value for them.Total Fitness gym Hilda Burton 2012
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POSITIONING
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Positioning Decisions
Success tends to depend on positioning The perceived fit between the product offering and the market needs How can a business position its offering so that customers in the target market perceive it as providing the desired benefits, thereby giving it an advantage over current and potential competitors?
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3.
4.
Identify relevant set of competitive products Identify the product attributes that define the product space in which positions of current offerings are located Research consumers perception of each product on each attribute Analyse the intensity of the products position in the mind of the consumer
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5. Determine products current location in the product space (product positioning) using perceptual mapping 6. Determine consumers most preferred combination of determinant attributes 7. Examine fit between preferences of market segments and current position of product (market positioning) 8. Select positioning or repositioning strategy