3RD ADE COMMERCIAL MANAGEMENT II

COMMERCIAL MANAGEMENT
TOPIC 1. MARKET SEGMENTATION AND PRODUCT
POSITIONING

Markets are heterogeneous, consumers differ in:

- The benefit wanted: preferences. When we segment the market we have to know how
consumers value attributes. The preferences between consumers are different.
- The amount they are able or willing to pay: price sensitivity. The relative importance of
the price is another dimension in which consumers differ. In marketing pricing is another
important characteristic/ attribute. Price is not only related to the budget (poor, rich...).
You can be price sensitive and be rich. It’s about how you differentiate because my
perception is that all products are very similar and they you become more price
sensitivity.
- Demographic. It is a key for macro segmentations. Variables involved: age, gender,
race, education and income. In some products the service and the product is
consumed at the same time. So the family structure (fairly lifestyle)
- Psychographics: religion (beliefs, lifestyles, etc.)
- Behavioural (purchase and consumption: quantities, usage and consumption frequency,
consumption and purchase habits, occasion. Behaviour related to purchases and
consumption. Consumer characteristics where buying or consuming products. If you
live alone and you buy little things, little frequency. The behavioural process is different
for a huge family. Ex. Consumption of cereals (frequent consumers, sporadically
consumers the process is different). E.g. Yogurt market, cookies, coffee, beer, etc.
- Even the media they are exposed to. Social media communication.

Some concepts

Segmentation. It is the process of analysing the market and divide the market by the same
preferences. The process of determining costumer groups within the market that have special
characteristics which are significant for the marketing strategy. Segmentation is synonym of
groups of consumers with similar characteristics. This segmentation is relevant for the firm
strategy. Related with the concept of a target market: when you segment the market you create
a target segment.

Target markets. Selected segments presenting the greatest opportunity to the firm. when you
segment the market in groups of consumers with similar characteristics then it comes an
evaluation process. Those segments in which the firm is interested in provide the products
are the target markets. Evaluating the segments and find out which segments decide what

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segments we’ll select because the firm values it we can provide it with products. Selected
segments presenting the greatest opportunity to the firm criteria for evaluating the segments
are various: size, ...

Positioning strategy. How I want my brand to be perceived in the market in relation to the
competitors. Once the segment is chosen, the firm has to build a differential advantage
(differentiation) which will make its offer preferred to those of competitors.
Example: hotel in Singapur when launched in the market announces as the tallest hotel in the
world. Fue desastroso porque no era valorado y por la sensación de inseguridad. Highlight
the characteristics in a bad way. Bad position strategy. The differential issues have to be
valued.

Segmentation, positioning and planning:

Market segmentation: We do a market

research has to be done. We define
segments of consumers with similar
characteristics. The average of the group is
the representative profile, representative
consumer. It’s the average consumer. It’s an
average.

Target marketing: Then it comes the evaluation of the process. Tell the segment/s
Marketing positioning: This is all the strategic process: segmentation + target + positioning
Tactic decisions: then. After all the previous process. Ex: marketing mix
Marketing planning: tactic marketing: marketing mix, marketing planning+ control

Fundamentals of Market Segmentation

Grouping consumers by valuation of product characteristics / attributes (preferences). Products

are combinations of characteristics or attributes.
“Microeconomic approach in Marketing”. Oranges and apples vs. taste, nutritional facts, etc.
We could ask every consumer to evaluate a set of attributes in terms of X.
- Its ideal level of attributes
- Its importance

E.g.: Ideal levels of attributes

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Let’s assume that the two basic attributes considered by consumers when buying plain yogurts
are:
-Sweetness
-Fat/creaminess. The fatter, the more cream and the tastier.
The could ask the consumers the ideal level of sweetness and creaminess (1-7 semantic
scale):

The information can be included in a

“preference map”. The “ideal product” for
each individual is plotted in a two-
dimensional map.

Discrete variable- We could plot in a perceptual map: graphical representation of the market.
Consumers are plotted. Get an idea of how consumers are distributed in terms of preferences.
We can have homogeneous preferences (In theory). In practice preferences are
heterogeneous.
The possible preference patterns are:

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Clustering method: allow us to group consumers in segments (eg. 3 groups) dividing the
population. It is a statistics methodology that helps us to group similar consumers.

How do you think that the consumers across these three segments differ?

Basic statistical analysis

What variables characterize the segment? (statistical significance) Characterize segments in
explanatory variables (which help us fully understand the segment).
1. Age: example, the age distribution of the group B is higher than C.

2. Gender: higher percentages of females over male in the group C for example.

Kellogg’s: Special K

Do you think that the Light-product market is a feminine one? How dos Nestlé want to be
positioned with this spot?

Target: female doing diet. The taste is good enough as a full fat product. 0% strongly
associated with “bona figura”. Advertising campaigns of low-calories brands are focused on
females. The more I target on the segment, the more effective will be the advertising.

Direct marketing action: any communication action in which the advertiser or manufacturer
request for a measurable response. Ex. Advertising through the web page. Every time you
open or sign in an advertiser page, this is a direct marketing action.
Do the consumer profiles vary for the different segments?

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Market research studies include consumer characteristics that may be relevant to determine
the consumer’s representative profile for each segment.

Segmentation criteria:
- Geographic (location, climate...) e.g. clothes, tourism (hotels: urban hotels or rural
ones...). Campbell soups (the firm at some point decided reduce the line, but they
found out that in several states eat soups were influenced by Mexican food and other
for the cold of the north, so the last decision was that they classify in geographical
segments).
- Demographic (age, gender, family life cycle, education, income,) e.g. cloths, holidays
destination, toys...

Example of segmentation by gender. Diet Pepsi low fat (no calories) female segment vs. Max
Pepsi (masculine) it has no calories, maximum taste, no sugar. Pepsi found that diet Pepsi
because it was always advertised for female they can attract male consumers. They had two
options: launch a “diet Pepsi” for male or create diet Pepsi as a more neutral product.

Max Pepsi slogan: Men can take anything except of diet coke, until now. Men wanted a
stronger taste.

Diet coke- Cocacola light was a neutral product. vs. coca cola
cero. It is not about a topic of gender. The taste is different.
Everyday younger consumers moved from red cola to light cola
and the taste was different. When they moved they perceived
that there was a difference. It was a big opportunity to create a
diet coke with the same taste as red coke “with no sugar”.

Example of segmentation by age. Playskool, colacao cereals. Targeting children who influence
purchase of parents.

Banks: La Caixa. Banks started targeting young students, who weren’t a traditional target of
banks because they aren’t profitable now. At some point, banks started to use young students
as target. Why? CRM: consumer relationship management. It consists on the philosophy of
treating his/her consumer in a long term relationship in order to promote preferences and

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loyalty. CLV: customer lifetime value. Banks value his/her consumer in a long term profitability;
that’s my bank stats focusing in young people, not now, but getting profits in the long term.

Example of segmentation by family life cycle: Family children segment. It is for all family and
children, for example Disneyland Paris. We have to understand family life cycle as a group of
people. Portaventura is for teenagers and young people (group of friends) amusement parks.

Hotels are also an example of segmentation by family life cycle. The valuation is the gold key
(based on several attitudes) and also the hotel can segment. Web pages offer the possibility
to do a full evaluation of the hotels.

- Physiographic (lifestyle, personality, Social class...) e.g. cars, 4x4, fast food, alcoholic
drinks. Land rover experience lifestyle. Kellogg’s: they talk about doing exercise,
concern about having a healthy life and weight.

Also an example of physiographic segmentation is alcoholic drinks such as Martini. Slogan:

no martini no party. It is a very good example. Martini repositioned his product using a strategy
that modifies the perception of the brand in consumer’s mind. The truth is that Martini is a
cocktail, but it was used as vermouth and traditionally the use was very limited. Because of
the flavour is vermouth. They wanted to reposition in order to promote consumption in every
moment of the day. And as a consequence, of course the demand grew up. Chico Martini is
in the advertising campaign and he appears in many situations drinking Martini.

Income is a demographic variable but exclusivity (high class social class) is a psychographic
one. The first spot was related to this. The second one they wanted to link with the
Mediterranean way of life, people enjoying the life. “viva la vita”. Lifestyle physiographic
variable, whereas the third one his slogan was No martini, no party.

- Behavioural (usage and consumption of the category, consumption frequency,

consumption habits, purchasing habits, consumption occasion).

Eg of consumer occasion. Even the same consumer in different occasions can evaluate a
product very different, for example chocolate. 3 different occasions: 1 for cooking, 2 as gift, 3
for snack (for me). The same with the wine, chocolate, travels, hotels...

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Eg of behavioral depending on usage. Holidays vs business. The truth is that these two
segments are very different. Easyjet is focused on holiday segment. They were growing
planning holidays packets. Complementary activities for holiday people; whereas an opposite
example is nH hotels (1st European chain for business segments) Focusing on business. Easy
access to the airport and Juan Carlos I business fair grounds.

Segmentation based on the user category

There are markets where all the people are users of the product, for example, WC paper.

Non-users - potential à mobile phones market is not like the toilet paper market. The market
of mobile phone lines in Spain is quite mature, there’s more than one line per citizen. We
tend to think that the mobile phone is a mature market, but there’s still a segment of old
people that is not really into this kind of market. The mobile phones for senior old people are
simple

Users – Ex. users à Many people have given up in smoking. These people are ex-smokers.
Spot of Cola-cao à growing segment of ex. Users of old people who gave up drinking cola-
cao and then start to drink it again.

Users – Regular à There are some products that the frequency is the same for everyone, for
example, toothpaste. If we take a look in another product, for example, ice-cream, the
frequency is completely different between consumers. The same with going to the cinema or
eating cereals or drinking coffee.

Spot of airline: Find out the consumers that fly frequently and then the company may try to
build loyalty, etc. This is an example of segmentation by frequency. I target the frequent flyers.

Spot QB house HK: this is a case related to one of the seminars. This chain has succeeded
so fast, they find out the opportunity to offer a basic service, it is like a low-cost airline. They
found a market opportunity just providing a fast, cheap hair-cut. Cut your hair twice a month
to keep its shape. They are playing with the consumption frequency.

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Another variable of segmentation is loyalty. Loyal consumers of a certain brand.

Spot Nordic Mist: The story is a fun commercial, it’s a parallelism to be loyal/faithful to your
wife and to the beverage. The message of Nordic Mist to the market is targeting to the loyal
consumers of Schweppes. This message goes to traditional drinkers of Schweppes.

Graphical Techniques

Maps:
1.- Perceptual Maps (for segments and brand positioning). Graphical representation of the
market in which the directions related to the attributes based on attributes valuation.
Profiles
2.- Segment profiles (for segments). Consumers preferences
3.- Product Profiles (for brand positioning)

1. Perceptual Maps:

1.1. Ideal Products

Consumers evaluate the ideal levels or relative importance of attributes (Preference maps).
The different segments are located according to the preferred combination of attributes.
We can ask the consumers the ideal levels of X variable of the product.

1.1.1. Ideal levels is not the best way to evaluate activities, it is a very limited method.
Exam question. Example: plain-yogurt market which depends on the level of
sweetness and the level of creaminess. Graphics** or the American beer market
which depends on the level of alcohol and the taste of the beer. Graphics** The
biggest segment is the non-strong flavour, mild.

Example 2: The American beer

The two most important characteristics of the beer are the level of alcohol and the taste. The
percentage of alcohol in a beer is between 4-6 degrees of alcohol. Some consumers like
beers with lots of alcohol and other consumers like beers of a low degree of alcohol. When
making beers, there’s an ingredient that gives a strong flavour to the beer.

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This is the result of the research in the US. These segments are based on preferences about
the level of alcohol and the taste.
What can we say about this market? This market has changed a lot. We should focus on the
mild taste. The segment that like bitter taste are smaller. Maybe in Germany the bitter segments
are bigger.
How do you think are consumers of segment 1? What variables do you think we should include
in the research to fully characterize the segments?
Maybe the majority of this segment are men, maybe in the segment 2 there are a major
proportion of women. Another question we could make is where and when the people of the
segment drink the beer. Is very different if I drink the beer at home of I go outside and I have
beer with my friends. Another variable is the lifestyle. All of these variables are important to
understand the consumption. Also, there’s a growing trend of social responsibility, etc.
Focus on ideal levels are important but not enough. For example, the glass bottle may be
important but it’s not enough to establish a segment. If you are price sensitive, the important
question is how important is the price to you.

1.1.2. Evaluation of the relative importance of attributes. How important it is. Limitation: the
weight of scaling. Non comparative scales. This is not the best method. The best
method is the constant sum scale. This method shows us the relative importance
you attract to each attribute comparing. Clustering techniques to group similar
consumers.

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We can list any characteristic and find out how important it is. This is the most common way
to get information from consumers about preferences. But, this technique has a limitation. We
don’t force consumers to trade off. A way to improve this technique is to force consumers to
trade off.

This is a way to explain consumers how to evaluate based on the relative. It makes consumers
think about what is more important for them and they have to redistributed 100 point across
eight characteristics. This is the best way to get information about the preferences of the
consumers.
Once we have all the information, the problem is that we have eight attributes and it is difficult
to make a map, we have to make a multidimensional map. The previous example of the Ideal
Yogurt we were using only two attributes. Now, we have eight attributes, this is an eight-
dimensional map.

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The first segment is really sensitive to price. The second segment is focused on a high level
of alcohol, probably is a masculine segment. They are very concern about the country where
brewed. It can exist correlation among strong beers and importation. The third segment is
more complex, people demand in terms of taste, (organoleptic characteristics), fragrance, in
fact, the enjoyment of drinking beer, people demanding in taste. It is not price sensitive.

2.- Segment Profiles: graphical techniques to interpret the information

This is a profile, it shows the most important and valuable characteristics for each consumer.

Perceptual maps with more than two attributes

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The idea is make a picture that allows us to preserve the most important information in it. Two
methodologies: principal component analysis and factorial analysis.

How can we plot eight-dimensional map? Techniques of the reduction of dimensionality.

The idea is that if you have information of eight dimension how to make a picture of two-
dimension map maintaining the variability.

Some examples of Perceptual Maps

The Amusement Parks

4 Attributes:
- Price
- Fantasy
- Fun rides
- Educational activities – animals

This is a preference map. If we go down,

the consumers are very price sensitive.
Those consumers that bring high
importance to fantasy also give high
importance to fun rides. When attributes
are highly correlated they will both go to
the same direction.
There are three segments.

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We want to analyse how important these attributes (price, fantasy, fun rides, etc.) are. When
we use more than two attributes we cannot build the two-dimensional map. All the attributes
depart from the centre of the map. The four directions depart from the centre and each arrow
depends on each attributes. In the first picture above, there are three segments.

E.g. Educational activities

The centre is the average of the map. The best way to interpret that is to think perpendicularly.
The more you go to the right the more important, the more you go to the left, the less important
the educational activities.

E.g. Price
The more you go down-right the more important the price is. The more you go up-left the
less important. The segment price is not price sensitive. The segment two and three both are
price sensitive. We always move perpendicularly.
The biggest segment (segment 1) is based on the preferences. In the negative side of
educational, animals, the parents consider that the park is not for education, is for fun. They
don’t consider important educational activities.
The second segment are sensitive to price. They look for something cheap and economical.
Segment three is also price sensitive, but they are located to the left part of the map, so, they
also consider the educational activities. The more far away is located the segment, the most
important is the attribute of where they are located and the less important is the opposite
attribute.

1.-Perceptual Maps:

1.- Ideal Products

Consumers evaluate the ideal levels or relative importance of attributes (preference maps).
The different segments are located according to the preferred combination of attributes.
Perceptual maps allow us to plot attributes/products. We complement the information of the
products with evaluation of existing products. So, consumers can also evaluate existing
products. This allow us to make decisions.

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2.-Existing “product positioning”

Consumers evaluate the perceived levels of attributes for the established brands. Each product
is positioned in the map, according to the average perceived levels. Consumers evaluate the
perceived levels of attributes with the
brand. We can determine market
opportunities.

Blue circles are groups of

consumers.
If this research was conducted
by Hamm, the target is Mild
beer. Hamm should reposition
the taste for segment two.
Should make it milder, less
bitter, etc.

In this map, we can find market opportunities. In the fourth segment there’s a market
opportunity. With this information we can analyse possible holes in the market. There’s
also an opportunity between segment eight and five. The closer we move, the better.
Hamm is not very well positioned. We have to take into account that this information is
based about consumers’ perception, based on the taste.
It is not a good idea to launch a new brand between segment 1 and segment 2 because
there are some brands established nearer the segment 1 (Schlitz or Budweiser).
We can repositionate a brand without changing so much the characteristics of the product.

3.- New product evaluation

We can even show consumers the new product to make them to evaluate it.

Consumers in segment three

also give importance in
educational activities and little
waiting. Segment one give
importance to run rides,
exercise, good food, fantasy,
easy to reach and live shows.
And segment two gives
importance to economical.

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3.- Brand profile (Brand positioning)

When evaluating brands, we can

use scales. The scale we see in
the scale there are two points: not
reliable and very reliable. The
Likert Scales is based in how
much I agree with the scale. They
are really commonly used for
evaluating brands. For example,
brand Coca-Cola, we agree or
disagree with an affirmation.
Coca-Cola is sweet, completely
agree or completely disagree.

In this plot there’s the representation of the

Likert Scale. Differences between both
brands? There’s highlighted in blue the
characteristics/attributes of Pritt. Is more
for children, is something for experts.
Otherwise, Uhu is high quality, glues
realiably, etc.
The problem here is that there are more
characteristics because Uhu is better
valued. Pritt is for special uses only, is only
for sticking paper, is more for children and
is more from the office. Uhu has a more
complete line. Pritt has repositioned the
line of the brand with new office products. Creating a line not only including stick products,
also another office product. With the Likert scale we can define really good the characteristics
of the products. What’s the problem with Pritt? Weak in awareness. Strong advertising
campaign. Completeness à Pritt is for children and Paper distribution is limited due to its use.
They moved to adhesive, they started to producing office products.

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The red part is the strategy part.

We have identified customer needs
and segmented the market by asking
questions to the costumers. We used
geographic, demographic and
psychographic characteristics of the
consumers. So, with this information
we have a full description of the
segments.

The second step is the targeting

process, that’s the evaluation of the
process. Evaluate how attractive the
different segments are based on size, growth, etc. so, we take into account different attributes
to evaluate attractiveness. Then, we have to decide which segments we target.

Then, it comes the position strategy. The positioning strategy. Identify differential advantage for
each group. My product is the cheapest or my product is the newest.

The green part is the tactic part.

Then, it comes the marketing mix or marketing planning. This is the tactic plan.

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