MK5 9 18 2013 The Segmentation Targeting and Positioning Process 1 Strategy or objectives 2 Segmentation methods 3 Evaluate segment attractiveness 4 Select target market 5 Identify and develop positioning strategy Steps 1 2 are segmentation Steps 3 4 are targeting Step 5 is positioning Step 1 Establish Overall Strategy or Objectives Must be consistent with firm s mission and objectives as well as current situation SWOT Step 2 Segmentation Methods Geographic Demographic Psychographic lifestyle self concept self values o Self values goals for life ideals o Self concept people s self image o Lifestyles how we live our lives Value and Lifestyle Survey VALS classify consumers into 8 segments support psychographic segmentation Vertical dimension of framework indicates level of resources including income education health energy level and degree of innovativeness Upper segments have more resources and are more innovative than those on the bottom Horizontal dimension shows the segments primary psychological motivation for buying ideals knowledge and principles achievement look for products and services that demonstrate success to peers and self expression social or physical activity variety and risk Benefits convenience economy prestige o Groups consumers on basis of benefits they derive from products or services Behavioral occasion loyalty o Grouped on basis of how they use the product or service o Occasion segmentation behavioral segmentation based on when a product or service is purchased or consumed o Loyalty segmentation Investing in retention and loyalty initiatives to retain their most profitable customers Firms must use multiple segmentation methods Geodemographic segmentation uses a combination of geographic demographic and lifestyle characteristics to classify consumers o PRIZM Potential Rating Index by Zip Market Uses demographic data and information about consumption and media habits of people who live in each U S block tract to identify 66 geodemographic segments or neighborhoods Each block group can then be analyzed and sorted by more than 60 characteristics o ESRI s Tapestry Step 3 Evaluate Segment Attractiveness Identifiable Substantial Reachable Responsive Profitable o Identify who is within market o Important to ensure that segments are distinct from one another o Make sure that market isn t too small o Make sure can reach target market o Customers must react positively to firm s offering o Current and future profits o Factors market growth market competitiveness market access o Segment profitability Segment Size X Segment adoption percentage X Purchase Behavior X Profit margin percentage Fixed Costs Segment size number of people in the segment Segment adoption percentage percentage of customers in the segment who are likely to adopt the product service Purchase behavior purchase price X number of times customer would buy the product service in a year Profit margin percentage Selling price variable costs selling price Fixed costs advertising expenditure rent utilities insurance and administrative salaries for managers o Also useful to evaluate profitability of segment over lifetime of one of its typical customers Factors how long customer will remain loyal defection rate percentage of customers who switch on a yearly basis costs of replacing lost customers advertising promotion whether customers will buy more or more expensive merchandise in the future etc Step 4 Select Target Market Key factor is marketer s ability to pursue such an opportunity or target segment Look at SWOT Undifferentiated targeting strategy mass marketing o Everyone might be considered a potential user of product o Used for basic commodities Differentiated targeting strategy o Target several market segments with a different offering for each o Helps obtain bigger share of market o Lowers risk o More costly Concentrated targeting strategy o Single primary target market o Entrepreneurial start up ventures Micromarketing o Firm tailors a product or service to suit an individual customer s wants or needs o Hard to make profit o Through Internet can cater to very small segments efficiently and inexpensively o Cookies small text files a website stores in a visitor s browser provide a unique identification of each potential customer who visits and details how the customer has searched the site Step 5 Develop Positioning Strategy Involves a process of defining the marketing mix variables so that target customers have a clear distinctive desirable understanding of what the product does or represents in comparison with competing products Helps communicate firm s or product s value proposition which communicates the customer benefits to be received from a product or service and thereby provides reasons for wanting to purchase it Components of value proposition o Target market o Offering name or brand o Product category or concept o Unique point of difference benefits Positioning Methods Position products and services according to value and salient attributes Value relationship of price to quality Well known symbol mascot also effective positioning tool Positioning Using Perceptual Mapping Perceptual map displays in 2 or more dimensions the position of products or brands in the consumer s mind Small circles denote brands Numbered circles denote consumers ideal points where a particular market segment s ideal product would like on the map the larger the numbered circle the larger the market size 1 Determine consumers perceptions and evaluations of the product or service in relation to competitors Identify the market s idea points and size Identify competitors positions 2 3 4 Determine consumer preferences 5 Select the position a New product or reposition 6 Monitor positioning strategy