Chap 004

CRAVENS PIERCY

8/e McGraw-Hill/Irwin

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

4-2

Chapter Four Strategic Market Segmentation

McGraw-Hill/Irwin

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

4-3

STRATEGIC MARKET SEGMENTATION Segmentation and marketdriven strategy Identifying market segments Forming segments Finer segmentation strategies Selecting the segmentation strategy

Segmentation and Market-Driven Strategy 4-4

SEGMENTS VALUE OPPORTUNITIES CAPABILITIES/ SEGMENT MATCH TARGET(S) POSITIONING STRATEGY

From Mass Markets to Micro Markets

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OLD

NEW

CONSUMERS

Passively receive whatever TV networks broadcast

Empowered media users control and shape content thanks to TiVo, iPod and Internet

ASPIRATIONS

To keep up with the crowd

To standout from the crowd

TV CHOICE

Three networks plus maybe a PBS station

Hundreds of channels plus video on demand

MAGAZINES

Age of the big glossies: Time, Life, Newsweek

Age of the special interest magazine for every age and affinity group

ADS

Everyone hums the Alka-Seltzer jingle

Talking to a group of one, ads go ever narrower

BRANDS

Rise of the big, ubiquitous brands from Coca-Cola to Tide

Niche brands, product extensions and mass customization mean many product variations

Source: Anthony Bianco, “The Vanishing Mass Market”, Business Week, July 12 2004, 58-62

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Identifying the Health and Beauty Supplies Market Segments

Level of Competition

Product Definition

Illustrative Competitors

Need/Want Satisfied

Generic

Health & Beauty Aids

Consumer Product Companies

Enhancement

Product Type

Shaving Equipment

Gillette, Remington, Bic

Shaving

Product Variant

Electric Razors

Braun, Norelco, Remington, Panasonic

Electric Shaving

of Health & Beauty

Market Segmentation Activities and Decisions

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Market to be Segmented Strategic Analysis of Segments

Finer Segmentation Strategies

Decide How to Segment

Form Segments

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Product Variant Segmentation Product Type Segmentation Generic Segmentation

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Segmentation Variables

Purchase Behavior Buyers’ Needs/ Preferences

Characteristics of People/ Organizations

Use Situation

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Illustrative Segmentation Variables Consumer Markets Characteristics of people/ organizations

Age, gender, income, family size, lifecycle stage, geographic location, lifestyle

Use situation

Occasion, importance of purchase, prior experience with product, user status Brand loyalty status, brand preference, benefits sought, quality, proneness to make a deal Size of purchase, frequency of purchase

Buyers’ needs/ preferences

Purchase behavior

Industrial/ Organizational Markets Type of industry, size, geographic location, corporate culture, stage of development, producer/ intermediary Application, purchasing procedure (new task, modified rebuy, straight rebuy Performance requirements, brand preferences, desired features, service requirements Volume, frequency of purchase

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Requirements for Segmentation Identifiable segments Response differences

Actionable segments Segmentation Requirements

Stability over time

Favorable cost/benefit

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Approaches to Segment Identification IDENTIFIERS OF CUSTOMER GROUPS

Characteristics of People and Organizations

CUSTOMER RESPONSE PROFILE

Use Situation

Buyers Needs and Preferences Purchase Behavior and Loyalty

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Segment Dimensions for Hotel Lodging Services

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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 21% of children around during the day and buyers use whatever gas station is based on town or on route of travel

Price Shoppers

Not loyal to brand or station and rarely buy premium … frequently on tight budgets.

20% of buyers

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Illustrative Consumer Perception Map Expensive

• Brand E

GROUP II

• Brand A

• Brand B Low Quality

GROUP V GROUP I

• Brand D

GROUP III

GROUP IV

Inexpensive

High Quality

• Brand C

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Finer Segmentation Strategies Logic of finer segments – – –

customized offerings diverse customer base close customer relationships

Finer segmentation strategies – – –

microsegmentation mass customization variety-seeking strategy

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SELECTING THE SEGMENTATION STRATEGY  

Deciding how to segment Strategic analysis of market segments – – – – –

Customer analysis Competitor analysis Positioning analysis Estimating segment attractiveness Segmentation “fit” and implementation

Strategic Analysis of Market Segments

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Customer Analysis Financial and Market Attractiveness

Competitor Analysis

Positioning Analysis

Segment Financial and Market Attractiveness

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Segment

X

Y

10

16

5

Variable costs*

4

9

3

Contribution margin*

6

7

2

Estimated ($ million) Sales*

Z

Market share ~

60%

30%

10%

Total segment sales

17

53

50

Segment position: Business strength Attractiveness #

High

Medium

Low

Medium

Low

High

*For a two-year period. ~Percent of total sales in the segment. #Based upon a five-year projection.

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Segmentation “Fit” for Implementation Segment Attractiveness and Internal Compatibility Internal Compatibility

High

High

Low

Attractive segments that match with company capabilities

Attractive segments but with poor match with company capabilities

Market Segment Attractiveness Low

Unattractive segments Unattractive segments but with match to that do not match with company company capabilities capabilities