Roger Best Chapter 5 Market Segmentation and Segmentation Strategies

Market segmentation starts with the benefits customers are seeking in solving a particular customer problem First need to understand the various customer needs for product consideration Then group the customers into needs-based segments Needs-based segmentation: purpose is to offer product benefits that satisfy the needs, including price, of different sets of target customers Multi product segment strategy: various products are designed for the needs of different segments, each of which has target customers who differ in the product benefits they desire and can afford A business with a strong market orientation will divide its served market into segments Market segment: a specific group of customers with similar needs, purchasing behaviors, and identifying characteristics 3 Primary forces shape the needs of customers CONSUMER MARKET CUSTOMER NEEDS 1. Demographic influences: age, income, marital status 2. Lifestyle influences: attitudes (i.e. environmental issues), values, interests, political views 3. Usage behaviors: how it is used, when it is used, how much it is used. Examples: quantity, time of use, frequency BUSINESS-TO-BUSINESS CUSTOMER NEEDS 1. Firm demographics: size of industrial consumer, # of locations, financial stability 2. Business culture: innovativeness, decision making, growth orientation 3. Usage behavior: how much a business buys, how often, who uses it, how it is used Number of segments = (# of categories per variable) ^ (# of variables) Steps for segmentation: 1. Divide a market into needs-based segments 2. Identify segments by applying demographics (i.e. lifestyle influences and usage behavior to make each segment different from another. 3. Index the overall segment attractiveness 4. Estimate segment profit potential 5. Develop value proposition and marketing mix strategy and test using an acid test a storyboard of a value proposition) A value proposition for a segment should capture the key benefits sought by the target customer

Segment attractiveness depends on: 1. Potential for market growth 2. The Competitive intensity 3. Market access - channels Key benefit of market segmentation is identifying which segments should NOT be pursued In assessing segment profitability, a business estimates the net marketing contribution expected at a certain level of segment market penetration Types of strategies: 1. Mass-market strategy: applicable when differences in customer needs are small or demographics are not distinctive a. The strategy presents a generic value proposition built around the core customer needs. It treats all customers roughly the same 2. Large segment strategy: applicable when a market is segmented and marketing resources are limited. a. The strategy addresses one set of core customer needs 3. Adjacent segment strategy: If a single segment focus has reached its full market penetration, a closely related segment is targeted 4. Multi-segment strategy: multiple market-based strategies simultaneous 5. Small segment strategy: if a company only has limited resources and certain capaiblities it may elect to compete only in the smallest segment. a. The smallest segment is often ingored by the big companies who use mass-market or large-market strategies 6. Niche-segment strategy: serve only the needs of a very specific customer 7. Sub-segment strategies: you can always continue to segment markets. What you should ask is: are there meaningful differences in customer needs within segments that are not being met with the current segmentation? Customer relationship marketing: focuses on what happens after a customer is acquired, with the intent of building a long-term relationship Customer relations marketing aims to create additional value through personalized communications, extra services, price offerings etc. Preferably one-on-one communication Customer value = overall perceived benefits cost of obtaining the benefits Customer relationship management: a high-level customer relationship marketing program that attempts to build one-on-one relationship with certain customers when both company and customer value are high enough to warrant this level of marketing effort. Database marketing: creation and use of a database with information about the customer so that all services can be personalized and pro-active. This information can allow mass-personalization programs that rely on personalized communications. Understand Mass personalization (American Express, frequent flyer programs) Vs. Mass Customization (Dell computers)