Customer Analysis

Segmentation, Targeting & Positioning

 What did we learn from BMW?

• The automobile market is divided into a number of “groups” or

“segments.” Sub-Compact; Compact; Full-Size; Luxury, etc.
• These divisions are however, product based, not customer based.
However, customers have, over time, “adopted” this segmentation
scheme
• BMW in the luxury / performance segment. But wants to segment
further based on “usage experience.” The Better Driver. Not product
based, but customer / market based.
• Usage experience + “Value pricing” for the segment key to
differentiating the product offering from Mercedes, Lexus & Infiniti
• Along with appropriate product and price, the promotions
(advertisements) and place (channels) also aligned with strategy
 Segmentation

• What is Segmentation?

• Why do we need Segmentation?

• What do we do once we have “Segmented the Market” ?

 Segmentation

• Market Segmentation is the Process of Identifying

Homogeneous Groups of Buyers Requiring Different Marketing
Strategies to Influence their Consumption
• Organizations have Limited Resources
• Consumers may be too Numerous, Widely Scattered and Varied
in their Needs
• Competing Organizations may be Better able to Attract Certain
Groups of Customers (Segments) in the Market
• Each Organization Should, Therefore Identify the Most
Attractive Parts of the Market That it Could Effectively Serve
(Target Market).
 RJ Reynolds
• Focus on the Chicago market
• Company has several brands - Winston, Salem, etc.
• Question: How should RJR allocate its marketing resources in the
Chicago market ?
• The usage rate of RJR brand cigarettes varies across the city
• This usage rate seems to be related to the socio-economic
characteristics of the smokers
• Higher education level smokers use low tar cigarettes; “Blue collar”
folks smoke Winston, and African-American smokers prefer menthol
(found in Salem)
• Chicago’s North Shore area has high education levels; the South-East
area is a blue-collar neighborhood and the South side has many
African-American residences
• So, RJR allocates its promotion money based on brand & geography
 A Segmentation Model
• In the above example, the usage rates of the different brands of
cigarettes formed the basis for the entire segmentation scheme.
Hence, this variable is referred to as a basis variable.
• In a regression context, think of the basis variable as a “dependent
variable.”
• The basis variable should capture the heterogeneity of interest to the
marketer, i.e., the differences across consumers.
• The geographic and socio-economic characteristics in the RJR
example are referred to as the descriptor variables.
• In a regression context, think of the descriptor variables as the
“independent variables.”
• The descriptor variables help the marketer deliver different 4P levels
to the different segments - different products (cigarette brands);
prices (low / medium / high); promotions (advertising in specific
magazines); place (different kinds of stores)
 Descriptor Variables
Relevant Descriptor Irrelevant Descriptor
Fraction of Customers

Own Do Not Own

Low Education High Education Microwave Microwave

20% 80% 30% 40%

Likelihood of Smoking Low-Tar Likelihood of Smoking Low-Tar

Cigarettes given Smoker Cigarettes given Smoker
 Segmentation Bases & Descriptors
Consumer
Bases: Needs, wants, benefits, solutions to
problems, usage situation, usage rates
Descriptors
• Demographics: Age, income, gender,
family size, marital status, social class
• Psychographics: Lifestyle, values,
personality
• Behavior: Use occasions, usage level,
brand loyalty, complementary and
substitute products used
• Decision making: Individual or group
choice, low or high involvement purchase,
attitudes and knowledge about product
class, price sensitivity, etc.
• Patronage at trade shows, receptivity to sales
Media patterns: Level of use, types of
media used, times of use, etc.
Industrial
Bases: Needs, wants, benefits, solutions to
problems, usage situation, usage rates,
size, industry
Descriptors
Industry, size, location,current suppliers,
technology utilization
Personality characteristics of decision makers
Applications, order size, use occasions, usage
level, brand loyalty, complementary and
substitute products used
Purchase procedures, size and composition of
decision making group, use of outside
consultants, purchasing criteria,
(de)centralized purchasing, price
sensitivity, switching costs, budget cycle,
etc.
people, level of use, types of media used,
times of use
 Criteria for Segmentation

A. IDENTIFIABLE
A good segmentation scheme must
have the following two characteristics

B. ACCESSIBLE

1. MUTUALLY EXCLUSIVE

C. RESPONSIVE

2. COLLECTIVELY EXHAUSTIVE
D. SIGNIFICANT
 Strategic Approach to Segmentation

Identify Segments Describe Segments

Strategic Im pact Bases Levels Dem ographics M edia

Category vs. Brand Use Product / Service? • User

Building • Nonuser

Switching vs. Loyalty Use my brand? • M y brand

• Other brand

Value of Customer Level of Use? • Heavy

• M oderate
• Light

Image vs. Attribute Occasion of use? Varies by product

Timing (Time of day
..)

Form of the Value M otivation for use? • Function

Equation • Psychic
 Example: Category vs. Brand Building
Basis: Use Product or Service
BCI / CCI Analysis - Segments described by consumption levels

BCI: Brand Consumption Index

CCI: Brand Consumption Index

Number of units of brand X consumed by consumer J

BCI (J,X) =
Average number of units of brand X consumed in the market (per capita)

Number of units of the category consumed by consumer J

CCI (J) = Average number of units of the category consumed per capita
 CCI / BCI Analysis
Combine BCI and CCI to Examine Descriptors of the (e.g.) High CCI / Low BCI cell
CCI
LOW HIGH

LOW 1. 2.

BCI

HIGH 3. 4.

Finding: Consumers in Cell #2, mostly live in the South-Western U.S. The firm
may want to allocate more resources to this geographic region (descriptor)
 Problem
• Oftentimes, one needs to use multiple bases for segmentation. For
example, size of firm, order size and nature of application in an
industrial marketing application. Or in a financial services
application, the bases might be - number of accounts held with the
bank, frequency of ATM visits, volume of transactions, etc.

• Suppose there are N such basis variables. Let each variable have L
levels. Then the number of possible segments are NL.

• Obviously, there may be too many segments to be meaningful

• Hence, we need some procedure that can take the data across
consumers on all the relevant bases variables and then group those
consumers together who have similar values on the bases variables
Grouping consumers using their bases variables
Volume of
Transactions

Group 1

Group 3

Group 5
Group 2
Number of
Accounts

Group 4
 Profiling the Segments

• When there are several bases variables, the statistical procedure that is
used to group consumers is called cluster analysis.
• Once the clusters (or segments) have been identified using the bases
variables, the next step is to describe (or profile) them using the
descriptor variables
• For example, in the financial services case, one can compute the
average income, age, family size, and media habits of the consumers
belonging to each of the 5 groups in the figure
• If the average profile of each group is “sufficiently” different, then we
have “good” descriptors
• Question: How do we decide how many segments to have? For
example, in the figure, one could potentially combine groups 1 and 2
to get a single, larger group. Then we would have only 4 segments
 3 Steps in a Segmentation study

• Survey stage
– Gathering data on a random sample of consumers for
several different bases and descriptor variables

• Analysis stage
– Cluster analysis

• Profiling stage

Later in the course, we will go through a specific application

to a PDA product
 Market Segmentation

Survey Stage
1. Identify Segmentation
Variables and Segment
the Market
Analysis Stage

2. Develop Profiles of Profiling Stage

Resulting Segments
 Targeting

Opportunities for Profit

* Size
* Growth
Potential

TARGET
MARKET
SELECTION
Competitive Intensity • Firm’s Objectives
* Unmet Needs • Firm’s Capabilities
* Entry Barriers • Synergies across

Segments
 The Multi-factor Targeting Model
Segment Attractiveness
• Select factors that drive segment • Market / Customer Factors
attractiveness and the firm’s relative Size, growth, life cycle stage, loyalty,
position price sensitivity, cyclicality in demand
• Economic & technological factors
• Attach a weight to each of the above
Industry capacity, access to raw
factors. The weights reflect the relative materials,
importance of the factors barriers to entry & exit
• Rate each segment on each of the above • Competitive factors
attractiveness and position factors • Environmental factors
Firm’s Position
• Compute the weighted sum to give you •
Market position factors
an index of the attractiveness of each Relative share, change in share, company
segment and an index of the firm’s image, breadth of product line
position in each of the segments. • Economic and technological factors
• Select a mass marketing; multi-segment Cost position, capacity utilization,
or niche marketing strategy techno-
logical position
• Sequential targeting is also possible • Capabilities
Management, sales force, innovation,
financial, channels
The Multi-factor Targeting Model

Firm’s Position

High
GROW BUILD
Attractiveness
Segment

Medium

REINFORCE SUPPORT
Low

MAINTAIN HARVEST DIVEST

Hig Medium Low

h
 Market Targeting

3. Evaluate the
Attractiveness of Multi-factor Model
each Segment

4. Select the Target Firm resources &

Segment(s). Strategy
 Positioning

• Now that we have segmented the market and picked out the segments we
want to target with our offering, the next question is, how can we convince
consumers in the target segment to choose our offering?

• To do this, we have to convince this segment that our product / service / firm:
• Meets (or exceeds) their needs
• Does it better than competitive offerings

• This is the role of Positioning in a firm’s marketing strategy

 Needs
• In evaluating their needs and how different offerings fulfill this needs,
consumers look at the “value equation”
• Firms typically think of the value equation as:
• Value = Performance Quality ÷ Price
• Performance Quality = f (Product Attributes / Features)
• However, consumers are more concerned with the performance quality
relative to what they want
• That is, consumers are more focused on the Benefits from the product,
or Perceived Quality
• Further, their Perceived Price could be different from the actual price of
the product (e.g., costs associated with the down time of photocopy
machine)
• Value equation from consumer perspective is:
• Value = Perceived Quality ÷ Perceived Price
= Benefits ÷ Perceived Price
 Example
Suspension

Turning Radius Sportiness

Engine Capacity

Wheelbase Roominess Quality

Headroom

Miles / Gallon Economy

Maintenance

Attributes Benefits Perceptions

 ABCs of Positioning

• Attributes. Understand the attributes of the product or

service that drive the consumers’ perceived product or
service …..

• Benefits. The next step is to differentiate your product or

service offering from those of your competitors’ via your ….

• Communication of Value. You can change your advertising

message, your channels of distribution, your brand name,
etc...
 Finding the Attributes that Help in Differentiation
Mapping the Consumption Chain - MacMillan & McGrath HBR
• How does consumer become aware if need for your product / service?
• How does consumer find your offering?
• How does consumer make final selection?
• How does consumer order and purchase your product or service?
• How is your product / service delivered?
• How is your product installed?
• How is your product service paid for?
• How is your product stored?
• What is the customer really using the product for? (vinegar and coffee machines)
• What does customer need help with while using the product?
• What about returns and exchanges?
• How is product repaired or serviced?
• What happens when product is disposed of and no longer in use?
 Positioning Analysis
1. The key to positioning is determining the needs of consumers along
(several ?) important benefit dimensions
2. Consumers perceptions of the existing services / products / firms in the
market (including yours ?) along each of these dimensions
3. Inferring opportunities / threats from the way in which consumers
perceive the set of products (in 2.) relative to their needs (in 1.)
• An important tool in Marketing that summarizes all this information is
called the Perceptual Map
• A perceptual map typically focuses on the two most important
attributes or benefits that consumers seek. Hence, it is a 2-D map with
each dimension corresponding to the attributes / benefits
• The perceptual map contains consumers’ Ideal Points (i.e., their needs
from 1. above) along each of the dimensions
• It also contains Brand Locations, i.e., consumers’ perceptions of the
brands in the market along the two dimensions of interest
 A Perceptual Map
Sportiness
Porsche
BMW
Miata
Acura 4
Jaguar 1 NSX
Supra Prelude
Celica
2
VW
Golf 6
Economy

5
Twingo
3 Punto
Corolla
Civic
Volvo
V70
1~6: Clusters of Ideal Points
Radius proportional to # of consumers
 Collecting the Data

Car 1 Car 2 Car 3 Ideal Point

Sporty Economy Sporty Economy Sporty Economy Sporty Economy

(1-7) (1-7) (1-7) (1-7) (1-7) (1-7) (1-7) (1-7)
Consumer 1

Consumer 2

Consumer 3

Consumer 4

Consumer 5

Consumer 6
 Positioning Statement

• For [target segment], the [product] [most important claim]

because [single most important support]

• For business travelers, Avis provides the best customer

service, because it’s #2 and tries harder.
 Questions to ask when Positioning

• What position do we own?

• Find the answer in the marketplace
• What position do we want?
• Select one that does not become obsolete
• Who must we out-gun?
• Do we have enough money?
• Spend enough to accomplish objective
• Can we stick it out?
• Expect internal pressures for change
• Do ads match our position?
• Don’t let creativity get in the way
 Creating Value Through Positioning:
Super Premium Vodka

• Defined by Federal regulations as “neutral spirits so

distilled or so treated after distillation with charcoal or
other materials as to be without distinctive character,
aroma, taste or color”
• Stolichnaya (Russia); Absolut (Sweden); Finlandia
(Finland); Denaka (Denmark); Elduris (Iceland);
Tanqueray Sterling (UK)
• Average price around $15 versus $8.50 for a 750 ml. bottle
• “Ultra Premium” Stolichnaya Cristall priced at more than
$20 per 750 ml.
 Creating Value Through Positioning:
Jaguar Automobiles

• For years Jaguar was a “much admired, much ogled hunk

of hardware that didn’t run very well or very often, but it
reeked of prestige, status and the luxury image.”

• Bought by Ford for $2.5-3.0 billion

• Average buyer of XJ-6 is 48 years old, male, and makes

more than $100000 per year
 Positioning in the Cosmetics Industry
• Why haven’t Japanese soap and cosmetic firms been as successful as Japanese
automobile and electronics firms?
• Unilever (Anglo-Dutch); P&G (American); L’Oreal (French) are international giants
• Kao (Soaps) and Shiseido (Cosmetics) big Japanese firms
• R&D:
• Shiseido 3% of sales
• Kao 4.5% of sales
• 4 scientists on Board of Directors
• P&G / Unilever 2.5% of sales
• Image & Advertising
• Mike Perry, Personal Products Director Unilever describes his job as “selling
dreams in a bottle”
• Sam Sugiyama, Manager of the London Office of Shiseido says that he
spends almost nothing on advertising: “Technology and service mean
success. Advertising is not a short cut.”
 Example of Positioning: Beers as People
Beer Brand At a Party As his hobbies As his occupation

Budweiser Older guy Watch ball games, Businessman

rake leaves

Heineken Three piece Polo Rich guy

Michelob Smoke a pipe Philately Professional

Schlitz Flex muscles Busting kids Factory, service

station worker

Pabst Drunk Square dancing, guns Jockey with 50 to 1

odds

Miller Good guy, friendly Golf, tennis Junior executive

Carling Fishes butt out of Horse shoes Laborer

beer and drinks it
 Positioning totally new products
• First Automobile: “Horseless Carriage”

• Similarly: “off-track” betting; “lead-free” gasoline; “tubeless” tire

• “AGAINST” Position: Avis is only No. 2 in rent-a-cars, so why go to

us? We try harder

• “UGLY” Position: The 1970 VW will stay ugly longer

• “UN” Position: 7Up: the Un-Cola

• Reposition Competitor: You have tasted the German beer that is most
popular in America (Lowenbrau). Now taste the German beer that is
most popular in Germany (Beck's)
 Positioning

5. Identify Possible
Positioning Concepts Perceptual Map
for each Target
Segment

6. Select, Develop and

Signal the Chosen Positioning
Positioning Concept Statement
 Summary

• Segmentation is the concept that recognizes diversity in the

marketplace. The process of segmenting the market
produces clusters of people who are similar
• Targeting a segment involves the identification of
segments to which marketing effort will be directed.
Marketers must select targets for which their product will
meet a need.
• Positioning requires designing a company and product
image and developing a marketing mix to promote the
image to the target segment(s)
 S-T-P process

Market Segmentation Market Targeting Product/Service Positioning

5. Identify Possible
1. Identify 3. Evaluate the Positioning Concepts
Segmentation Attractiveness of each for each Target
Variables and Segment Segment Segment
the Market

6. Select, Develop
2. Develop Profiles of 4. Select the Target and
Resulting Segments Segment(s). Signal the Chosen
Positioning Concept
 Competitive Leverage Analysis

Bells & Hot

Whistles Buttons

Entry Tickets
Discriminating

Penny
Savers Unmet Needs
Power

Importance