Segmentation and Targeting

1. Segmentation and Targeting Professor Chip Besio Cox School of Business Southern Methodist University

2. What Are Markets? • Aggregates of people, • With the ability to buy, • The willingness to buy, • The authority to buy.

3. Two Types of Markets • Consumer Markets • Individuals or households who benefit directly by consumption, rather than to make a profit or to achieve Industrial Markets • Industrial Markets • Companies or organizations who purchase for resale, use in production, or use in operations, including both profit-oriented and not-for-profit organizations.

4. What Is Market Segmentation? Market segmentation is the subdividing of a market into distinct subsets, where any subset may conceivably be selected as a marketing target to be reached with a distinct marketing mix

5. Segmentation Dilemma MASS MARKETING Economies of Scale CUSTOMIZATION Everyone Wants Something Different

6. Segmentation Criteria I. Customer Characteristics II. Benefits Sought III. Customer Behaviors

7. Customer CharacteristicsDEMOGRAPHICS • Consumer Markets: • Gender • Age • Income • Dual income family • Industrial Markets: • SIC code • Size of company

8. Customer Characteristics PSYCHOGRAPHICS • Consumer Markets: • Environmentally-conscious • Value and lifestyles • VALS (1978); VALS 2 (1989) • Distinct patterns based on attitudes and values • Industrial Markets: • Corporate culture • Purchasing orientation

9. Customer Characteristics GEOGRAPHY • Regional Segmentation • Zip Clustering • Distinct marketing strategies created for similar types of neighborhoods stretched across the nation • Examples include PRIZM, Market Metrics

10. Benefit SegmentationWHAT BENEFIT DO YOU WANT? • Rationale - The benefits people are seeking in consuming a given product are the true reasons for the existence of segments • Example - Toothpaste • Cavity prevention (e.g., Crest) • Fresh breath (e.g., Aquafresh) • White teeth (e.g., Rembrandt)

11. Behavior Segmentation USAGE BEHAVIORS • Volume of usage • Heavy users, moderate users, light users and nonusers • 80/20 rule • Brand usage • Increase usage among users • Get users of competing brand to switch • Get nonusers to start • Usage occasion

12. What Is “Targeting” a Market Segment? “You can’t be all things to all people” • Therefore, companies typically focus on one or more segments and orient their marketing activities to those (potential) customers

13. Which Are the “Good” Segments to Target? The most attractive market segments are: • Large • Growing and have: • High purchase volume • High margins • High customer value

14. Which Are the “Good” Segments to Target? • However, the most attractive segments are frequently already well-served and so are highly competitive … so you must also consider: • Number and strength of competitors • Ease of entry into the segment • Company’s current positioning

15. Targeting Dilemma - Segment Attractiveness SEGMENT VALUE More Opportunity COMPETITION More Companies Compete for Valuable Segments

16. Which Are the “Good” Segments to Target? Additional considerations for targeting: • Customers are addressable - you can reach them • The company is capable of building a marketing program to target them

17. Targeting • Examples of successful targeting: • Wal-Mart - Value-conscious shoppers that do not want to worry about short-term sales • Lexus - People with high disposable income who value reliability and service, as well as prestige and luxury • Cray - Price insensitive computer users that require maximum computing power • Dupont - Less price-sensitive innovators in the use of plastics (skim pricing)