Analyzing Customers and Markets 1

Marketing Session 1

Term I 2008

Analyzing Markets and Customers I

Segmentation, Targeting and Positioning

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Session Overview

• Course Objectives / Administrative Details

• What is Marketing?

• Analyzing Markets and Customers Part I

• Segmentation

• Targeting

• Positioning

• Takeaways

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Course Objectives

• The course will help you …

• Build a disciplined approach to the analysis of

marketing situations

• Expand your decision-making skills by requiring

you to make and defend marketing decisions in

the context of realistic problem situations

• Make connections between marketing and other

areas of business

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• Analyzing Customers and Markets I

• Application: Kodak and Ford Ka

• Analyzing Customers and Markets

• Application: Gillette / LTVC

• Marketing Communications

Outline of Sessions

What is Marketing?

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• A business function• Directing and carrying out (mutually beneficial) exchanges of

goods and services aimed at satisfying the needs and wants of buyers (and sellers)

• A business philosophy (a.k.a. “Market Orientation”)

• Outside-in rather than inside-out

• Businesses should not try to get rid of what they can make, but learn to make what there is demand for

Why this is part of the MBA core

Independent of the industry or the functional area you plan to

work in, you should learn and appreciate the tools, techniques,

and conceptual frameworks available to understand your

customers and to profitably satisfy their needs

What is Marketing?

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The Marketing Planning Process

Evaluating Target Markets

and Positioning Options

Consumers Company Competitors Collaborators

needs resources vulnerabilities common goals

5 C’sContext

Situation Analysis

Possible Strategic Options

Implementation

Product

Price

Promotion

Place

The Marketing Mix

4 P’s

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Who in the firm is responsible?

―Marketing is far too important to leave to the

marketing department‖

David Packard

Common reasons for business failure are:

lack of market understanding and poor execution

The marketing team should have deep expertise in

• developing and sharing market insights

• advocating the customer perspective in business decisions

• implementing market actions plans

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Three Stories

• The Bad: Oldsmobile• ―This is not your father’s Oldsmobile‖

[poor understanding]

• The Ugly: Hoover• What is missing in England?

• Buy a vacuum, free trip to Miami [poor execution]

• The Good (that started bad and ugly): P&G

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Procter & Gamble: A Potato Chip Story

• Market size $1.5bn in 1950s

• Fragile product, spoils quickly

• Fragmented industry

• P&G recognizes possible mass opportunity

• Develop product to overcome problems of fragility and short shelf life

• Use national advertising and distribution system to beat up smaller and ―less sophisticated‖ competitors

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Product Development and Launch

• Began R&D in 1950s

• Developed Pringles in 1968• Will not break in transit (great!)

• Shelf life of one year (great! / yikes!)

• Product Testing• Judged as good as competition

• Regional roll-out in 1968 with heavy advertising

• Priced at 10% premium

• Goal of obtaining 25% of the market

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Results and Post Launch Diagnosis

• Heavy trial leads to 25% share at first, but …

• Low repeat, share drops to 7%

• Consumer Research: Pringles tasted ―artificial‖ • Consumers inferred artificial taste from physical

characteristics (uniformity, packaging)

• In developing a product that embodied attributes important to retailers and vendors, P&G neglected to develop a product that embodies attributes important to consumers

Customer Analysis I:

Segmentation, Targeting, Positioning

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• Segmentation

• Are there relevant differences between consumers?

• Targeting

• Who is our customer?

• Positioning

• What is our value proposition?

In a nutshell …

S = Analysis, T & P = Strategy

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• Apple Mac offers ….

the best personal computing experience to students, educators, creative professionals and consumers around the world through its innovative hardware, software and Internet offerings.

• IBM is …

the company that businesses can trust for all their information management needs.

• The Chrysler PT Cruiser is an …

inexpensive, small car, that is versatile, fun to drive, and appealing to active singles and young couples with children who otherwise would have bought an SUV or a minivan.

Examples

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• Three elements

• Target Segment

• Point of Difference (or key benefit)

• Frame of Reference

• Example

• The Chrysler PT Cruiser is an [inexpensive, small

car, that is versatile, fun to drive], and appealing

to [active singles and young couples with

children] who otherwise would have bought an

[SUV or a minivan]

Elements of a Positioning Statement

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Pringles Potato Chips:

Initial Positioning Strategy

• Target Segment

• Heavy users of potato chips

• Point of Difference

• Less greasy

• Not broken

• Healthier

• Frame of Reference

• Other potato chips, all sold in bags

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Pringles Potato Chips:

Eventual Positioning Strategy

• Target Segment

• Kids and early teens

• Point of Difference

• Easy to carry b/c packaging

• Frame of Reference

• Other snacks in the lunch box (candy, cookies, …)

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There is actually more to it, but

in essence …..

STP can be thought of as

―choosing the right pond‖

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STP Process

Segmentation Targeting Positioning

Identify variables

that allow one to

segment the market

Evaluate the

attractiveness of

each segment and

choose target

segment(s)

Identify positioning

concepts for each

target segment,

select the best, and

communicate it.

Iterative Process….

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• Part of market analysis

• The process by which a firm

• partitions its market into sub-markets (―segments‖)

• in such a way that the response to the marketing

mix variables varies greatly among segments but

little within segments

What is Segmentation?

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Why Segment?

• Because some consumers may differ in ways

that affect your odds of success

• Differences in preferences

Consumers prefer to have things that exactly meet their

needs, as opposed to things that are OK but do not precisely

meet their needs

Consumers will often pay more for things that exactly meet

their needs and be more responsive to communication that

talks to them in specific ways

• Differences in shopping habits, media habits, …

• Differences in ability/willingness to pay

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• Focusing on single segment limits potential sales

• Focusing on multiple segments with a tailored marketing mix increases costs

• R&D

• Production and logistics

• Marketing

• Therefore, a segment-based strategy should

offer at least one of two benefits:• Increased sales (primary or secondary demand)

• Higher prices

Downsides of Segmentation

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Popular Segmentation Approaches

Consumer Business

Geographic

Region

SMSA

Climate

Region

Market

HQ, branch

Demographic

Age, gender, income,

Family size/stage

Education

Industry (SIC code),

Assets, Sales

# of employees

Psychographic

Personality

Lifestyle (VALS)

Media habits

Corporate culture

Power structure

Behavioral

Benefits

Usage occasion

Usage rate

Brand loyalty

Applications

Urgency

Size of order

Existing relationships

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• = Segmentation based on why people buy the product, rather than based on their observable characteristics

• Effective segmentation analysis involves discovering sets of observable variables or descriptors that correlate well with benefits sought

Ease of Use

Years of

Experience

Segment 1

Illustration: PC Software

Segment 2

Segment 3

Segment 4

Benefit segmentation

Segment x

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1. Relevant

• Do segments actually respond differently? Relevant for decision at hand?

2. Measurable

• Can you describe and quantify segment membership in general?

3. Sizable

• Is there sufficient potential to warrant special attention?

4. Identifiable, Reachable, Accessible

• Can you identify and address segment members in a targeted way?

5. Compatible with resources

• Is the segmentation scheme useful for you, given your resources (financial, marketing expertise, …) ?

Textbook requirements for a useful

segmentation scheme

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• An attractive segment has sufficient …

• Size,

• Growth,

• Profitability

• But to be attractive to you specifically, it must also allow you to capitalize on your strengths rather than weaknesses

Selecting a Target Segment

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Selecting a Target Segment

High

Medium

Low

High Medium Low

Attractiveness of

Market Segment

Business

Capabilities

―GE/McKinsey matrix‖

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HOUSEHOLD INCOME OF $75,000 OR

MORE

Tylenol Extra Strength = 95

Store Brand = 113

GRADUATED COLLEGE

Tylenol Extra Strength = 94

Store Brand = 152

Actual vs. Intended Segment Buying

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Positioning: Some Do’s

• Use a positioning statement to clarify your value proposition and guide your strategy• Target Market [For Whom]

• Point of Difference [Reason to Buy]

• Frame of Reference [As opposed to these other products]

• Focus on a few key benefits [―unique selling proposition‖]

• Use all elements of the marketing mix—product, price, promotion, place—to realize your position

• Select a position that is defensible

• Warning: Positioning requires making tough choices!

―The essence of positioning is sacrifice‖

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Takeaways

• Positioning: 3 elements … (i) Choice of Target Segment, (ii) Point

of Difference, and (iii) Frame of Reference

• Segmentation: 5 criteria for a useful scheme

• Targeting: keep in mind market attractiveness as well as capability

to serve

• Positioning statement: is the foundation to your market strategy a

summary statement of what how your value offering relates to both

customers and competitors

• Marketing mix: all 4Ps are used to realize the value offering

• Marketing = Outside-in Look at your consumers again and again

from different angles; think of how we can re-segment the market

and uncover new business opportunities

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• Prepare the case

• You are encouraged to work in groups, but in class you are responsible for your own views

• Questions (also in syllabus)• What are the pros and cons of the segmentation

approach that Ford taken prior to the developments in this case?

• Should the same segmentation approach be used for the Ford Ka? Why (not)?

• Who should Ford target?

Next Session: Ford Ka Case

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1. Market segmentation Product categorization

– Products can always be categorized based on physical attributes, but that categorization need not ―line up‖ with actual market segments

2. As markets change, so should your segmentation

– Changes in what drives customer needs and preferences

– Changes in competitive offerings / targeting

3. ―Benefit segmentation‖

– Needs are often the most insightful basis for segmentation

– But needs do not always correspond to observable characteristics

– Problem: implementation !

Takeaways

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4. Segmentation and implementation are linked

– Success requires clear understanding of what consumers want, who they are, and how they can be marketed to [also wherethey are going]

• cf. Relevant, Measurable/sizable, Identifiable, Compatible

– Segmentation will be implicit in execution even if it was not done up front (as in the case of Ford Ka)

5. Front line must understand and accept who the target is

– Sales force, customer service, …

– Independent dealers, resellers, …

Takeaways