Segmentation, Targeting and Positioning

1. Segmentation, Targeting and Positioning Audhesh Paswan, Ph.D. University of North Texas

2. T34 Market Segmentation, Targeting,and Positioning Market Segmentation Market Targeting Market Positioning 1. Identify segmentation variables and segment the market 2. Develop profiles of resulting segments 3. Evaluate attractiveness of each segment 4. Select the target segment(s) 5. Identify possible positioning concepts for each target segment 6. Select, develop, and communicate the chosen positioning concept

3. Segments Group of people who are supposed to respond in similar manner. Homogeneity/heterogeneity Parsimony Accessibility

4. Segmentation Segmentation Basis (dependent)- their needs and wants. Segment descriptors (independent)- age, income, etc.

5. Segmentation - STP Approach • Segment using demand variables (customer needs, wants, benefits, problem solution desired, usage situation etc.). • Describe segments using variables that help firm target (shopping pattern, demographic, etc.). • Evaluate attractiveness of each segment (growth rate, distribution cost etc.). • Select one or more segment for targeting. • Identify and implement position for firm’s offer.

6. Segmentation - Method • Use factor Analysis to reduce data dimensions. • Form segments by cluster analysis. • Similarity or distance (Euclidean distance, city block metric). • Clustering methods: • Hierarchical method (build up or break down data row by row), e.g., Ward’s. • Partitioning method (break data into arbitrary group and iterate to get the best desired result), e.g., K-Means.

7. Segmentation - Method • Predictive Validity: • Hit rate; use hold-out sample; variance explained by each discriminant function.

8. Segmentation - Other Method • Behavior based segmentation: • cross classification. • Regression. • Choice models.

9. T33 Strategic Groups in the Major Appliance Industry • Group A • Narrow line • Lower mfg. cost • Very high service • High price High • Group C • Moderate line • Medium mfg. cost • Medium service • Medium price Quality • Group B • Full line • Low mfg. cost • Good service • Medium price • Group D • Broad line • Medium mrg. cost • Low service • Low price Low High Low Vertical Integration

10. T32 Product / Market Battlefield for Toothpaste Customer segmentation Children / Teens Age 19-35 Age 36+ Plain toothpaste Colgate-Palmolive Procter & Gamble Colgate-Palmolive Procter & Gamble Colgate-Palmolive Procter & Gamble Toothpaste with fluoride Colgate-Palmolive Procter & Gamble Colgate-Palmolive Procter & Gamble Colgate-Palmolive Procter & Gamble Gel Colgate-Palmolive Procter & Gamble Lever Bros. Colgate-Palmolive Procter & Gamble Lever Bros. Colgate-Palmolive Procter & Gamble Lever Bros. Product segmentation Striped Beecham Beecham Smoker’s toothpaste Topol Topol

11. T35 Basic Market-Preference Patterns (a) Homogeneous preferences (b) Diffused preferences (c) Clustered preferences Creaminess Creaminess Creaminess Sweetness Sweetness Sweetness

12. T36 PRODUCT (% USERS) HEAVY HALF LIGHT HALF Soups and detergents (94%) Toilet tissue (95%) Shampoo (94%) Paper towels (90%) Cake mix (74%) Cola (67%) Beer (41%) Dog food (30%) Bourbon (20%) Heavy and Light Users of Common Consumer Products 75% 25% 71% 29% 79% 21% 75% 25% 83% 17% 83% 17% 87% 13% 81% 19% 95% 5%

13. Targeting and Positioning It is a managerial decision based on: • Strengths and Weaknesses - • always internal, actual or perceived, • Threats and Opportunities - • Normally external, actual or perceived

14. T37 Five Patterns of Target Market Selection Single-segment concentration Selective specialization Product specialization M1 M2 M3 M1 M2 M3 M1 M2 M3 P1 P2 P3 P1 P2 P3 P1 P2 P3 Market specialization Full market coverage M1 M2 M3 M1 M2 M3 P1 P2 P3 P1 P2 P3 P = Product M = Market

15. Customer Groups Airlines Railroads Truckers Large computers Mid-size computers Product Varieties Personal computers Company A Company B Company C T38 Segment-by-SegmentInvasion Plan

16. T39 BCG Competitive Advantage Matrix Number of Approaches to Achieve Advantage Few Many Volume Specialized Large Size of the Advantage Stalemated Fragmented Small

17. Targeting and Positioning Use of Perceptual map: • Helps in new product decision. • Reality check for competitive structure and positioning. • Identification of who to compete against. • Image or reputation studies.

18. T40 Perceptual Map Live shows 1.0 0.8 0.6 0.4 0.2 Easy to reach Little waiting Good food Fantasy Educational, animals Exercise Marineland of the Pacific Fun rides Knott’s Berry Farm Japanese Deer Park Disneyland -1.6 -1.4 -1.2 -1.0 -0.8 -0.6 -0.4 -0.2 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 -0.2 -0.4 -0.6 -0.8 Magic Mountain Lion Country Safari Busch Gardens Economical

19. T41 Perceptual Map High Quality A G D E C B Low Price High Price F Low Quality

20. T44a Product and BrandPositioning Product-positioning map (breakfast market) Expensive Bacon and eggs Cold cereal Slow Quick Pancakes Hot cereal Instant breakfast Inexpensive

21. T44b Product and BrandPositioning Brand-positioning map (instant breakfast market) High price per ounce Brand C Low in calories High in calories Brand B Brand A Low price per ounce

22. Perceptual Mapping Methods • Perceptual maps (product space maps): • Similarity based methods • Attribute based methods • Preference maps: • Ideal point model • Vector model • Joint space maps: • External analysis • Simple “joint space” using modifies perceptual mapping methods

23. Attribute based models • Identify set of products and attributes for evaluation. • Obtain perceptual data. • Select a perceptual mapping method. A suggested technique for attribute analysis - Factor analysis

24. Similarity based methods • Identify alternatives (products or services). • Develop a matrix of similarities (proximity matrix). • Develop a perceptual map. • Determine the number of dimensions for the map • Stress as a measure of good fit, • stress value of 0 is perfect fit, I.e., similar to 1-R*R.

25. Joint Space Maps • Combines a perceptual map with the desired or ideal position for a target segment. Preference Attributes>

26. T45 Utility Functions Basedon Conjoint Analysis Package design Brand name Retail Price -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 1.0 1.0 1.0 Utility Utility Utility | | | A B C | | | K2RGlory Bissell | | | $1.19 $1.39 $1.59 0 0 00 Good Housekeeping Seal? Money-Back Guarantee? -- -- -- -- -- -- -- -- -- -- 1.0 1.0 Utility Utility 0 | | No Yes | | No Yes 0

27. T47 Adopter Categorization of the Basis of Relative Time of Adoption of Innovations 34% Early majority 34% Late majority 13.5% 2.5% Innovators 16% Laggards Early adopters Time of adoption of innovations