McGraw-Hill/Irwin

1. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

2. Chapter FourStrategic MarketSegmentation McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

3. STRATEGIC MARKET SEGMENTATION • Segmentation and market-driven strategy • Identifying market segments • Forming segments • Finer segmentation strategies • Selecting the segmentation strategy

4. Segmentation and Market-Driven Strategy SEGMENTS VALUE OPPORTUNITIES CAPABILITIES/ SEGMENT MATCH TARGET(S) POSITIONING STRATEGY

5. From Mass Markets to Micro Markets OLD NEW CONSUMERS Passively receive Empowered media users whatever TV control and shape content networks thanks to TiVo, iPod and broadcast Internet ASPIRATIONS To keep up with To standout from the the crowd crowd TV CHOICE Three networks Hundreds of channels plus maybe a plus video on demand PBS station MAGAZINES Age of the big Age of the special interest glossies: Time, magazine for every age Life, Newsweek and affinity group ADS Everyone hums Talking to a group of the Alka-Seltzer one, ads go ever jingle narrower BRANDS Rise of the big, Niche brands, product ubiquitous brands extensions and mass from Coca-Cola customization mean many to Tide product variations Source: Anthony Bianco, “The Vanishing Mass Market”, Business Week, July 12 2004, 58-62

6. Level of Competition Generic Product Type Product Variant Product Definition Health & Beauty Aids Shaving Equipment Electric Razors Identifying the Health and Beauty Supplies Market Segments Illustrative Competitors Consumer Product Companies Gillette, Remington, Bic Braun, Norelco, Remington, Panasonic Need/Want Satisfied Enhancement of Health & Beauty Shaving Electric Shaving

7. Exhibit 4-3Market Segmentation Activities and Decisions Market to be Segmented Strategic Analysis of Segments Decide How to Segment Finer Segmentation Strategies Form Segments

8. Product Variant Segmentation Product Type Segmentation Generic Segmentation

9. Segmentation Variables Purchase Behavior Characteristics of People/ Organizations Buyers’ Needs/ Preferences Use Situation

10. Illustrative Segmentation Variables Consumer Markets Industrial/ Organizational Markets Characteristics of people/ organizations Age, gender, income, family size, lifecycle stage, geographic location, lifestyle Type of industry, size, geographic location, corporate culture, stage of development, producer/ intermediary Occasion, importance of purchase, prior experience with product, user status Use situation Application, purchasing procedure (new task, modified rebuy, straight rebuy Buyers’ needs/ preferences Brand loyalty status, brand preference, benefits sought, quality, proneness to make a deal Performance requirements, brand preferences, desired features, service requirements Purchase behavior Size of purchase, frequency of purchase Volume, frequency of purchase

11. Requirements for Segmentation Identifiable segments Response differences Actionable segments Segmentation Requirements Stability over time Favorable cost/benefit

12. Approaches to Segment Identification IDENTIFIERS OF CUSTOMER GROUPS CUSTOMER RESPONSE PROFILE • Characteristics • of People and • Organizations • Use Situation • Buyers Needs • and Preferences • Purchase • Behavior and • Loyalty

13. Segment Dimensions for Hotel Lodging Services

14. llustrative Example: Gasoline Buyers Road Warriors Higher-income, middle-aged men, drive 25-50000 miles a year … buy premium with a credit card … purchase sandwiches and drinks from the convenience store … will sometimes use carwash 16% of buyers True Blues Men and women with moderate to high incomes, loyal to a brand and sometimes a particular station … frequently buy premium, pay in cash 16% of buyers Generation F3 (Fuel, Food & Fast) Upwardly mobile men and women - half under 25 years of age - constantly on the go … drive a lot snack heavily from the convenience store 27% of buyers Homebodies Usually housewives who shuttle children around during the day and use whatever gas station is based on town or on route of travel 21% of buyers Price Shoppers Not loyal to brand or station and rarely buy premium … frequently on tight budgets. 20% of buyers

15. Illustrative Consumer Perception Map Expensive GROUP II • Brand A • Brand E • Brand B GROUP V High Quality Low Quality GROUP I GROUP III • Brand C • Brand D GROUP IV Inexpensive

16. Finer Segmentation Strategies • Logic of finer segments • customized offerings • diverse customer base • close customer relationships • Finer segmentation strategies • microsegmentation • mass customization • variety-seeking strategy

17. Deciding how to segment Strategic analysis of market segments Customer analysis Competitor analysis Positioning analysis Estimating segment attractiveness Segmentation “fit” and implementation SELECTING THE SEGMENTATION STRATEGY

18. Strategic Analysis of Market Segments Customer Analysis Financial and Market Attractiveness Competitor Analysis Positioning Analysis

19. Exhibit 4-11Segment Financial and Market Attractiveness Segment XY Z Estimated ($ million) Sales* 1016 5 Variable costs* 4 9 3 Contribution margin* 6 7 2 Market share ~ 60%30%10% Total segment sales 17 53 50 Segment position: Business strength HighMediumLow Attractiveness # MediumLow High *For a two-year period. ~Percent of total sales in the segment. #Based upon a five-year projection.

20. Segmentation “Fit” for Implementation Unattractive segments but with match to company capabilities Unattractive segments that do not match with company capabilities Segment Attractiveness and Internal Compatibility Internal Compatibility High Low Attractive segments that match with company capabilities Attractive segments but with poor match with company capabilities High Market Segment Attractiveness Low