6/03/2015 1 Chapter 6 Markets: Segmentation, Targeting and Positioning Presentation prepared by Lucy Miller Macquarie University and Martyn Gosling Victoria University of Wellington Chapter 6: Markets: segmentation, targeting and positioning Learning Objectives: •explain the broad concept of a ‘market’ •understand the target marketing concept •identify market segmentation variables for consumer and business markets, and develop market segment profiles •select specific target markets based on evaluation of potential market segments •understand how to effectively position an offering to a target market in relation to competitors, and develop an appropriate marketing mix. The market • A group of customers with heterogeneous needs and wants. • Consumers and businesses vary considerably in their needs, wants and demands, and it is virtually impossible for an organisation to successfully appeal to every consumer or business. Target marketing Markets can have a variety of characteristics: •Buyers have common wants, needs and demands. •Buyers have unique wants, needs and demands. •The market contains subgroups. Market segments • Subgroups within the total market that are relatively similar in regards to certain characteristics. 6/03/2015 2 Target marketing – An approach to marketing based on identifying, understanding and developing an offering for those segments of the total market that the organisation can best serve. Figure 6.2 Target marketing Figure 6.3 Mass marketing • Buyers have common wants, needs and demands. A single product will meet the needs of most people in the market, with an undifferentiated approach. • Producing large volumes at a low cost per unit (due to ‘economies of scale’) makes it possible to sell at a low price and capture very large markets, ensuring high levels of profitability. One-to-one marketing • Providing a unique, customised offering to meet individual customer needs. • A one-to-one approach often results in higher unit costs and a more restricted market. • One-to-one conditions typically form the basis for a focus or niche strategy. Many small services businesses take a one-to-one marketing approach, for example, hairdressers. 6/03/2015 3 Differentiated targeting strategy • A marketing approach that involves developing a different marketing mix for each target market segment. • Market segmentation forms the basis of target marketing. • A differentiation strategy entails high costs. To achieve high profits requires higher retail prices, high market share and strong customer loyalty. Product and market specialisation • Product specialisation: Marketing efforts are concentrated on offering a single product range to a number of market segments. • Market specialisation: Marketing efforts are focused on meeting a wide range of needs within a particular market segment. • Product–market specialisation: Marketing efforts are concentrated on offering a single product to a single market segment. Target marketing Figure 6.5 Market segmentation • Segmentation variables: Characteristics that buyers have in common and that might be closely related to their purchasing behaviour. Figure 6.6 6/03/2015 4 Segmenting consumer markets • The variables for segmenting consumer markets fall into four broad categories: • Demographic • Geographic • Psychographic • Behavioural. • Effective segmentation involves choosing segmentation variables that are easy to measure and readily available, and linked closely to the purchase of the product in question . Geographic segmentation Geographic segmentation •Market segmentation based on variables related to geography. •Useful geographic variables include: climate, local population, market density, region, topography and urban, suburban, rural footprint. Geo-demographic segmentation •Combines demographic variables and geographic variables to profile very small areas, such as suburbs. Demographic segmentation • Market segmentation based on demographic variables, which are the vital and social characteristics of populations, such as age, education and income. • Demographic variables are the most commonly used variables for market segmentation. Psychographic segmentation • Market segmentation based on the psychographic variables of lifestyle, motives and personality attributes. • Psychographic segmentation is based on the need to understand not who you are, but how you live your life. This is reflected in activities such as hobbies or choice of entertainment. 6/03/2015 5 Roy Morgan Values Segments™ Figure 6.7 Behavioural segmentation • Market segmentation based on actual purchase and/or consumption behaviours. • Behavioural variables include: benefit expectations, brand loyalty, occasion, price sensitivity and volume usage. Business market segmentation • Business markets are often characterised by a small number of buyers who might display a very close relationship with the seller. ‘Customised’ or ‘One-toone’ marketing is a good approach to use. • Business marketers often isolate business customers by using commercial industrial directories that contain detailed information on companies. Effective segmentation criteria Effective segmentation involves ensuring: •measurability – abstract variables can be difficult to measure •accessibility – through distribution and communication channels •substantiality – the segment must be of sufficient size to allow profitability •practicability – segments are only of use if they can be identified and serviced. 6/03/2015 6 Market segment profiling Market segment profile • Often based on significant market research. • Describes the typical potential customer in the segment and how the variables differ from other segments. • Market segments must be sufficiently different from others so a distinctive offer can be created for each segment, without risk of overlapping or sending confusing messages. • The number of possible segments multiplies with each extra variable. Market targeting • Market targeting: The selection of target markets resulting from an evaluation of identified market segments. Figure 6.9 Sales potential • Market potential: The total sales of a product category that all organisations in an industry are expected to sell in a specified period of time, assuming a specific level of marketing activity. • Sales revenue: Total volume of sales multiplied by the average selling price. • Market share: The proportion of the total market held by the organisation. Company potential • Company sales potential: An estimate of the maximum sales revenue and market share that an organisation can expect to achieve for a specific product. • Potential: is influenced by the market potential, the level of marketing activity in the industry and the effectiveness of an organisation’s promotional spending. • Be reasonable – fact-based assumptions – not hopeful guesses! 6/03/2015 7 Video: Niche nuts Positioning • Market positioning: The way in which target market segments perceive an organisation’s offering in relation to competing offerings. • Company positioning: A positioning strategy designed to create a single market perception of the entire organisation in relation to competitors. Brand Positioning • A positioning strategy designed to create a market perception of a particular brand, usually based on product attributes. Positioning steps Figure 6.10 6/03/2015 8 Perceptual map of the Australian surfwear industry Figure 6.11 Summary • Explain the broad concept of a ‘market’ • Understand the target marketing concept • Identify market segmentation variables for consumer and business markets, and develop market segment profiles • Select specific target markets based on evaluation of potential market segments • Understand how to effectively position an offering to a target market in relation to competitors, and develop a marketing mix.