Customer Analysis Segmentation, Targeting & Positioning
What did we learn from BMW?:
What did we learn from BMW? The automobile market is divided into a number of “groups” or “segments.” Sub-Compact; Compact; Full-Size; Luxury, etc. These divisions are however, product based, not customer based. However, customers have, over time, “adopted” this segmentation scheme BMW in the luxury / performance segment. But wants to segment further based on “usage experience.” The Better Driver. Not product based, but customer / market based. Usage experience + “Value pricing” for the segment key to differentiating the product offering from Mercedes, Lexus & Infiniti Along with appropriate product and price, the promotions (advertisements) and place (channels) also aligned with strategy
Segmentation What is Segmentation? Why do we need Segmentation? What do we do once we have “Segmented the Market” ?
Market Segmentation is the Process of Identifying Homogeneous Groups of Buyers Requiring Different Marketing Strategies to Influence their Consumption Organizations have Limited Resources Consumers may be too Numerous, Widely Scattered and Varied in their Needs Competing Organizations may be Better able to Attract Certain Groups of Customers (Segments) in the Market Each Organization Should, Therefore Identify the Most Attractive Parts of the Market That it Could Effectively Serve (Target Market). Segmentation
RJ Reynolds Focus on the Chicago market Company has several brands - Winston, Salem, etc. Question: How should RJR allocate its marketing resources in the Chicago market ? The usage rate of RJR brand cigarettes varies across the city This usage rate seems to be related to the socio-economic characteristics of the smokers Higher education level smokers use low tar cigarettes; “Blue collar” folks smoke Winston, and African-American smokers prefer menthol (found in Salem) Chicago’s North Shore area has high education levels; the South-East area is a blue-collar neighborhood and the South side has many African-American residences So, RJR allocates its promotion money based on brand & geography
A Segmentation Model:
A Segmentation Model In the above example, the usage rates of the different brands of cigarettes formed the basis for the entire segmentation scheme. Hence, this variable is referred to as a basis variable. In a regression context, think of the basis variable as a “dependent variable.” The basis variable should capture the heterogeneity of interest to the marketer, i.e., the differences across consumers. The geographic and socio-economic characteristics in the RJR example are referred to as the descriptor variables. In a regression context, think of the descriptor variables as the “independent variables.” The descriptor variables help the marketer deliver different 4P levels to the different segments - different products (cigarette brands); prices (low / medium / high); promotions (advertising in specific magazines); place (different kinds of stores)
Descriptor Variables Low Education High Education Likelihood of Smoking Low-Tar Cigarettes given Smoker 20% 80% Fraction of Customers Likelihood of Smoking Low-Tar Cigarettes given Smoker 30% 40% Own Microwave Do Not Own Microwave Relevant Descriptor Irrelevant Descriptor
Segmentation Bases & Descriptors:
Segmentation Bases & Descriptors Bases: Needs, wants, benefits, solutions to problems, usage situation, usage rates Descriptors Demographics: Age, income, gender, family size, marital status, social class Psychographics: Lifestyle, values, personality Behavior: Use occasions, usage level, brand loyalty, complementary and substitute products used Decision making: Individual or group choice, low or high involvement purchase, attitudes and knowledge about product class, price sensitivity, etc. Media patterns: Level of use, types of media used,...
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