Ch. 06.doc

CHAPTER SIX SEGMENTATION, TARGETING AND POSITIONING Key Points The purpose of this chapter is to explore the problem marketers have of choosing which audiences to attempt to influence, determine which behaviors they seek the target audience to undertake (or discard), and identify the broad value proposition needed to secure the behavioral goal within the target audience. The basis for segmentation is to identify groups within which a marketer can organize his or her campaigns by group similarities. Three types of decisions require segmentation: quantity decisions, quality decisions, and timing decisions. A segmentation base is optimal or idea if it possesses six key characteristics: (1) Mutual exclusivity, (2) Exhaustiveness, (3) Measurability, (4) Reachability, (5) Substantiality, and (6) Differential responsiveness. Bases for segmentation can be classified as objective or inferred in nature, and then further classified as general or behavior specific in order to create a useful two-by-two decision matrix. Objective-General measures include such things as age and generation, income, gender, ethnic characteristic, place of residence, marital status and social class among others. Objective behavior-specific measures include such things as past behavior, purchase history, brand preference and decision role. In the area of inferred measures, the general psychological measures include specific values and life cycles as measured by social segmentation programs as PRIZM and VALS. The behavior specific inferred measures include numerous hard-to-measure elements such as beliefs, perceptions, BCOS drivers, stage in the decision-making process, etc. Once audiences have been segmented, marketers need to determine which audiences are target audiences, and prioritize those target audiences or markets. There are four broad strategic choices: undifferentiated (mass) marketing, differentiated marketing, concentrated marketing, and mass customization. In addition to the organization’s resources, each strategy should be evaluated in terms of relative attractiveness, the requirements for success within the marketing strategy segment and the organization’s strengths and weaknesses in competing effectively. Positioning differentiates an organizations and its value propositions from the competition’s in the mind of the target audience. Having a position is not a matter of choice, all organizations have a position vis-à-vis a competitor, and one organization may have different positions in the minds of its different target audiences. This aspect of marketing involves: understanding how the organization IS perceived by the various target audiences using such tools as the semantic differential; understanding competitor’s positions and deciding how to differentiate one’s offerings and making this position known to the target audience. Al Reis and Jack Trout, in their book, Positioning: The Battle for Your Mind, argue that differentiation is carried out to achieve one of three strategies: (1) Building on the organization’s present strengths, (2) Searching for a Niche, or (3) Repositioning the competition. Chapter Outline Segmentation Dividing up markets Alternative segmentation bases Demographic segmentation Objective and behavior-specific measures Targeting Undifferentiated marketing Differentiated marketing Concentrated marketing Mass customization Choosing among market segmentation strategies Positioning Measuring the present position Measuring the positioning of behaviors Positioning alternatives Vignette: Positioning “You” Time Magazine author Jeninne Lee-St. John wrote an author about job seekers reorganizing their careers and job searches base d on the principle of “positioning” themselves with their target audiences – their clients, fellow employees and management, or prospective employers. Consultants in this field of “personal branding” tell clients that it is important to understand their strengths and consider ways of positioning their weaknesses as a positive. For instance, a person whose original statement about herself was that she needed to be taught things and was looking for someone with the patience to help her was “positioned” as “learning new things is a passion.” One trick of personal branding consultants is to have clients ask themselves, or have their friends answer — “what kind of a car would you be, if you were a car? “ Then, the client or friends would discuss the characteristics that drove them to that choice. The article concludes that positioning a person cannot step away from their “reality” but seeks to focus on strengths, and minimizing weaknesses. Chapter Summary The purpose of this chapter is to deal with three critical challenges faced by marketers – (1) who should be their target audiences (segmentation); (2) what sort of behavior or behaviors do they want the target audience to take (targeting); and (3) what sort of value proposition should be proposed to secure those behavioral goals (positioning). The basis for segmentation is to identify groups within which a marketer can organize his or her campaigns by group similarities. Three types of decisions require segmentation: quantity decisions, quality decisions, and timing decisions. A segmentation base is optimal or idea if it possesses six key characteristics: (1) Mutual exclusivity, (2) Exhaustiveness, (3) Measurability, (4) Reachability, (5) Substantiality, and (6) Differential responsiveness. The chapter introduces four approaches to segmentation. Bases for segmentation can be classified as objective or inferred in nature, and then further classified as general or behavior specific in order to create a useful two-by-two decision matrix. Objective-General measures include such things as age and generation, income, gender, ethnic characteristic, place of residence, marital status and social class among others. Objective behavior-specific measures include such things as past behavior, purchase history, brand preference and decision role. In the area of inferred measures, the general psychological measures include specific values and life cycles as measured by social segmentation programs as PRIZM and VALS. The behavior specific inferred measures include numerous hard-to-measure elements such as beliefs, perceptions, BCOS drivers, stage in the decision-making process, etc. The chapter then discusses each segmentation approach in some detail: (1) Objective – General measures can be used to segment a market according to demographic characteristics like age, generation, gender and sexual orientation, income, race and ethnicity, and geographic location. For example, the PRIZM system developed by Claritas® uses geo-clustering which combines geographical location with lifestyle information. This segmentation technique is based on the proven idea that people who live close to one another are more likely to have similar interests and behaviors. (2) Objective — Behavior-specific measures are used to segment a market according to a specific consumption experience or context such as an occasion (when buyers make purchases); doer status (non-doer, ex-doers, potential doers, first-time doers, regular doer, etc.); usage rate (light, medium or heavy); or loyalty status. (3) Complex — General Objective Measures combine one or more of the objective measures into indices, which provide greater insights. Two such combined measures, social class and family life cycle, have been used extensively in target audience marketing analysis. Social scientists have identified six social classes: (1) upper-uppers, (2) lower-uppers, (3) upper-middles, (4) lower-middles, (5) upper-lowers, and (6) lower-lowers. Family life cycle is typically specified as the model family life cycle pattern: (1) young single, (2) newly married, (3) full nest I (young, married, children under 6), (4) full nest II (young, married, children 6 – 13), (5) full nest III (older married, children 14 or older), (6) Empty nest I (older, married, no children at home, working), (7) Empty nest II (older, married, no children at home, retired), (8) Solitary survivor (older, single – working or retired). These complex measures can be further analyzed by status change caused by life-circumstance (divorce, moves, death in the family, etc.) In addition, lifestyle segmentation has blossomed based on measures of audience activities, interests and opinions (AIO’s) and further analysis of geographic location intervention called geoclustering. (4) Inferred — General measures segment target audiences according to psychological measures such as personality and values. Although there are personality measures, they are difficult to measure and group. Values are often reflective of both behavior and intent, and - as such would be useful, but they are also difficult to measure, related to attitudes and predispositions, and subject to change by life status change. (5) Finally, in the two-by-two matrix, Inferred — Behavior specific measures are also difficult to measure and more amorphous, however, they are particularly beneficial in attempting to segment for high-involvement situations. The Stages of Change as indicated in chapter 4 is one such measure. Benefit segmentation based on the dominant benefit of a particular offering to a particular target audience is another way to attempt to find measures of value to nonprofit managers. Particularly in the nonprofit sector, sacrifice segmentation (based on the costs to the target audience) and knowledge, attitudes and practices analysis can aid in developing audiences to target. Once target audiences are segmented out, the marketing manager can begin the process of targeting. There are four broad strategic options for deciding which segments to target: Undifferentiated (mass) marketing creates economies of scale but often results in low target audience responsiveness because certain needs are not being met. Differentiated marketing involves designing separate offerings or programs for each o multiple segments of the market, which can increase responsiveness but also costs. Concentrated marketing which is often referred to as niche marketing, involves focusing on only one or two of the segments in the market and is risky if those segments decline in value. Finally, mass customization involves designing unique offerings for each person, usually with the aid of technology and only on demand. Choose which strategy to use for targeting depends on the factors facing the organization, including whether there are limits on its resources, whether the market is homogenous, or whether competitors have already established dominance. Each market segment should be evaluated in terms of its relative attractiveness, the requirements for success to serve it, and the organization’s strengths and weaknesses in competing effectively in the selected segment. An organization should then focus on the market segments that have intrinsic attractiveness and that it has a differential advantage in serving. Positioning differentiates an organizations and its value propositions from the competition’s in the mind of the target audience. Having a position is not a matter of choice, all organizations have a position vis-à-vis a competitor, and one organization may have different positions in the minds of its different target audiences. This aspect of marketing involves: understanding how the organization IS perceived by the various target audiences using such tools as the semantic differential; understanding competitor’s positions and deciding how to differentiate one’s offerings and making this position known to the target audience. It is not uncommon, in the nonprofit sector, for target audiences to have misconceptions from commonly head stereotypes. Such stereotypes make marketing difficult and are likely to keep a target audience in the pre-contemplation stage of decision making for very long time. One common method of positioning research is to use the semantic differential to isolate and understand desirable behaviors and attitudes. Using the semantic differential uses five key steps: (1) develop a set of relevant dimensions, (2) reduce the set of relevant dimensions, (3) administer the instrument to a sample of respondents in the contemplation stage of decision making, (4) average the results, and (4) check on the variance in perceptions. Al Reis and Jack Trout, in their book, Positioning: The Battle for Your Mind, argue that differentiation is carried out to achieve one of three strategies: (1) Building on the organization’s present strengths, (2) Searching for a Niche, or (3) Repositioning the competition. If the organization does not like its present position, it needs to decide whether the problem is a matter of reality or of the perception of reality. In recent years, the entire nonprofit sector has begun to suffer from a perception problem where its increasing use of revenue generating activities has blurred the difference people formerly perceived it to have from the business sector. Teaching Suggestions Teaching Suggestions While traditional “lecture” and reading assignments take up to 80% of academic coursework in most universities, many schools are attempting to drive student retention up by pushing teaching methods toward the base of the learning pyramid. Practicing with the subject matter of this chapter and “targeting” different learning methods at segments of your class, though difficult, will enhance use of the learning pyramid. Suggest to “better” students that they pair up with some of the students who are not doing as well in the course as study partners. Have those who are poorer students write chapter summaries for “extra credit” to enhance their reading retention, and find ways to reward behaviors of students who show they have read and understand the material. Continue to try to find new ways to incorporate visual and audio elements into the class. Sometimes working with other disciplines in cooperative activities will enhance participation and interest. If the school has a video production class, see if the professor of that class would like to have some of his students video different groups of students on campus and then invite them in to show the video and challenge your students to “segment” the groups of students into different segments based on the class learnings. To demonstrate segmentation, marketing segmentation company, Claritas® has a section of its Web site, _http://www.claritas.com/claritas/segmentation.jsp_ which allows visitors to look at the PRIZM clusters within specific zip codes. Have students look up their own zip codes (if in a computer lab or a wireless environment where everyone has a laptop – in class, if not as a class assignment.) SRI-Consulting Business Intelligence® uses the proprietary VALS® positioning and segmentation system. Visit their Web site at _http://www.sric-bi.com/VALS/_ and take advantage of the opportunity the company offers site visitors to learn their VALS® type by taking a survey (_http://www.sric-bi.com/VALS/presurvey.shtml_) The ACXIOM® Web site has a “when they grew up” demo for each of its Personicx® lifestyle geocoded segmentations. (text – p 6-14) Have students visit all three sites, require short homework assignments asking students to contrast and compare or use as a springboard to discussion of segmentation. Frequent discussion helps to illustrate key points – discussion of text points can lead to the next text point or key learning. Possible discussion points for this chapter include: Discuss the different stages of market segmentation and target marketing, illustrating them with examples from actual nonprofit organizations. Discuss the logic behind the two-by-two grid developed by Frank, Massey, and Wind to characterize the bases for market segmentation. Fore an in-class small group exercise, give an example of a nonprofit organization and have each group discuss how the grid can be applied to it. Ask them to create practical examples of what bases in each cell apply to the organization, and which ones are most feasible to use. What more would they need to know in order to come to a final decision, and how would they research it? Using the semantic differential chart (fig. 6.6) get the students to discuss how the positions of the three hospitals shown in the semantic differential analysis differ from each other. How well is each doing in terms of differentiating itself in the market? What options does each have if it wants to change its position? What else needs to be known in order to determine how successful each of the positions show is or whether a proposed repositioning would be successful? (e.g. (1) need to know whether there is a market segment that would want the bundle of benefits the position offers — i.e. hospital C may be the public sector one that offers free or low cost services. (2) need to know what the relative importance of each characteristic is for that segment — i.e.. segment(s) served by hospital B may not care as much about quality of medical care as about the other characteristics. (3) unfilled needs may exist for characteristics not listed — i.e. people may want a hospital in their geographical area where none currently exists. ) Discuss inferred behavior-specific measures. Students can be asked how to use the model (shown in fig. 6.1) to analyze how segments could be based on attitudes toward an attitudinally sensitive issue such as family planning or abortion clinics vary. Review the concept of significant others and its effect on behavioral intentions, noting that each such measure in the process contains segmentation possibilities. Discuss Trout and Reis’s Positioning: the battle for your mind, and discuss how various organizations and industries have used positioning. Short Answer Questions Describe the steps in market segmentation, targeting and positioning Identify bases for segmenting the market Develop profiles of resulting segments Develop measures of segment attractiveness Select the target market(s) Develop the positioning for each target market Develop the marketing mix for each target market Identify and explain the six characteristics market segments should possess Mutually exclusive —Each segment is conceptually separate from all the others Exhaustive — Every potential target market member is included in some segment Measurable — The size and relevant characteristics of the segments can be measured. Reachable — Each of the segments can be effectively reached and served Substantial — Each segment is large enough to be worth pursuing Differentially Responsive — A segment’s members must have different needs, wants and response to marketing stimuli from those of other segments in order for it to be worthwhile to offer it a unique marketing mix. Identify the four basic types of bases (measures) for market segmentation developed by Frank, Massy, and Wind and briefly give examples of each General —Objective Measures — Age, income, gender, place of residence, family life cycle, Social class Behavior-Specific — Objective Measures — Past behavior, purchase quantity, brand preference, loyalty, decision role General  Inferred Measures — personality, psychographic profiles (PRIZM® Clusters) Values (VALS® categories) Behavior Specific – Inferred Measures — Beliefs, perceptions, BCOS drivers, Stage in decision Describe the four strategic choices for how to target segments Undifferentiated (mass) marketing — going after the whole market with one offer and a single marketing mix Differential marketing— going after several segments with an offer and marketing mix for each Concentrated marketing — going after only one segment with a targeted offer and mix Mass Customization — reaching everyone in the market with a targeted offer customized to each individual What criteria should be used against which, to evaluate a segment for targeting Its relative attractiveness The requirements for success within it The organization’s strengths and weaknesses in completing effectively within the segment What are the steps in using the semantic differential to measure people’s perceptions of an organization and the behaviors of a particular group with respect tot he organization? Develop a set of relevant dimensions Reduce the set to a smaller number of dimensions Administer the instrument to a sample of respondents Average the results and plot the pattern Check on the perception variance What does effective positioning involve? Understanding your present position Understanding the position of your principal competitors Deciding on how to differentiate your offerings from those of the competitors Making this positioning known to others Multiple Choice Questions Selecting one or more market segments and developing a strategy for each is called a. mass marketing b. target marketing (Easy p. 140 ) c. differentiated marketing d. core marketing e. psychographic profile marketing An optimal segmentation bases has segmentation base has segments which address which of the following types of decisions? a. Quality, Quantity and Timing decisions (Easy p. 141) (AACSB – Reflective Thinking) b. Quality, Quantity and Market decisions c. Financial, Asset, and Human Resource decisions d. Market segment, target and positioning decisions e. Measurable, Specific and Time-based decisions Which of the following is an inferred measure for segmenting a market? a. Age and gender b. Family life cycle c. Psychographic/lifestyle (Moderate p 141) (AACSB – Reflective Thinking) d. Decision role e. Social Class Which of the following is NOT a complex General Objective Measure for segmenting a market? a. Demographic profiling (Moderate p. 142) (AACSB – Reflective Thinking) b. Family life cycle c. Status Change d. Personicz® Lifestyle Geoclusters e. Social Class A popular method to measure lifestyles and tie them to geography is called? a. Instrumental and terminal value analysis b. Family life cycle geocoding c. PRIZM Clusters d. Personicz® Lifestyle Geoclusters e. C and D above (Moderate p 148) (AACSB — Reflective Thinking) Segmentation of a museum audience segmented into family memberships, members, frequent and infrequent attendees is based on: a. loyalty status b. usage rate (Moderate, p 146) (AACSB — Reflective Thinking) c. Status Change d. Complex General Objective measures e. Lifestyles analysis The method of target marketing which focuses on the target audience as an aggregate, focusing on what is common among segments instead of what is different is called: a. Undifferentiated Marketing (Moderate, p 153) (AACSB — Reflective Thinking) b. Differentiated marketing c. Concentrated marketing d. Segmentation concentration marketing e. Mass customization Sometimes mass marketing is used in favor of segment marketing is because: a. Costs per individual are higher but more people are reached b. Costs per individual are lower and neglected market segments are reached (Moderate, p. 153) (AACSB — Reflective Thinking) c. market niches are reached more easily d. Risks are higher, but the payoff is also higher e. Mass customization doesn’t work for nonprofits Concentrated marketing is used because a. risks are lower than normal b. Operating economies can be achieved through specialization in production, distribution and promotion. (Moderate, p. 156) (AACSB — Reflective Thinking) c. markets are fairly homogenous d. its audience falls into several identifiable segments e. It allows production of the offering “on demand” Positioning is sometimes difficult because: a. Alternatives are in the minds of the target audience, and anticipating all the possible alternatives is difficult (Moderate; p 158) b. Organizations don’t want to spend the money to figure out what position they should be in c. Market niches don’t respond to positioning d. Doing nothing is easier, and a company can avoid being positioned if it does nothing e. Nonprofits are really all alike and can’t be differentiated 61