MGT 252

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MGT 252

• Lecture 3
• Understanding the Consumer
• Market Segmentation
• Maggie Wenjing Liu

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Todays Agenda

• Understanding Customers
• Case analysis
• Segmentation

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Michael Dells secret

• Its really a pretty data-driven process. We
  have enormous amounts of information on what
  customers like and dont like.

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Buying decision processes
1. Problem recognition Perceiving need
2. Involvement levelDeciding time effort
3. Alternative identification Searching for
information
4. Alternative evaluation Assessing value
5. Purchase decision Buying value
6. Postpurchase behaviour Evaluating consumption
Decision Process
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Variations in the Purchase Process

• the consumer can withdraw at any stage
• some stages may be skipped
• the stages are generally of varying length
• some stages may be performed subconsciously

Decision Process
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Need Recognition

• may be aroused internally or as a result of an
  external stimulus
• Internal stimulus (e.g. hunger)
• External stimulus (e.g. advertising)
• needs exist at a series of levels
• may be driven by the failure or lack of appeal of
  existing products or services
• wants are also considered needs

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Choice of Involvement Level

• Determine how much time, effort, and energy to
  expend in satisfying a need
• High involvement
• go through all six stages
• Low involvement
• more common
• some stages are skipped (e.g., from need
  recognition to purchase)
• Examples?

Decision Process
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Choice of Involvement Level

• Situational factors increasing involvement
• lack of information
• the product is viewed as important
• the risk of making a bad choice is high

Decision Process
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Identification of Alternatives
Brands available Consideration
Set Choice (20 brands)
(7 2 brands) (1 brand)
Bran Flakes
Bran Flakes
Bran Flakes
Bran Flakes
Bran Flakes
Bran Flakes
Bran Flakes
Bran Flakes
Bran Flakes
Bran Flakes
Bran Flakes
Rice cereal
Rice cereal
Bran Flakes
Rice cereal
Bran Flakes
Bran Flakes
Bran Flakes
Bran Flakes
Bran Flakes
Bran Flakes
Bran Flakes
Bran Flakes
Bran Flakes
Bran Flakes
Rice cereal
Decision Process
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Evaluation of Alternatives

• various alternatives identified must then be
  evaluated in varying degrees of depth
• evaluation of alternatives is based on certain
  criteria, which vary in importance across
  consumers -- this is what make for the existence
  of market segments
• criteria come from several sources, including our
  own experience and the opinions of others

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Purchasing and Related Decisions

• decision to buy is only the beginning of a more
  complex decision process
• marketers must make it as easy as possible for
  the customer to make these decisions
• the additional decisions that have to be made
  include where to buy, how to pay for the
  purchase, how to take delivery, whether to buy
  the extended warranty, etc.
• purchase decision is influenced by a series of
  patronage motives

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Consumption Experience

• after buying, the consumer has learned factors
  that affect future purchases
• also may go through a period of anxiety known as
  cognitive dissonance not sure whether he or she
  has made the right decision
• dissonance is greater when price is high, when
  alternatives are similar, and when the purchase
  is perceived to be important
• consumers try to reduce dissonance by seeking
  positive reinforcement

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Figure 3-1 The Consumer Decision Making Process
and Its Environment
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Information and Purchase Decisions

• customer may or may not search for additional
  information -- depends on current knowledge level
  and other factors
• information may come from commercial or
  social/interpersonal sources
• advertising is the most common of commercial
  sources, but also includes sales people, e-mail
  and the Web
• most important form of information comes from
  word-of-mouth

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Cultural Influences on Behaviour

• buying is influenced by social forces and groups
• culture has the most indirect impact we are all
  products of a handed-down culture
• cultural influences change slowly over time
• ethnic subcultures have a profound effect on how
  Canadians lead their lives
• the most obvious subcultural differences are
  between French- and English-Canadians, although
  many other ethnic subcultures exist

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Examples of Cultural Differences

• Different meanings of colors across countries
• White
• death in the Far East purity in USA
• Blue
• female color in Holland male color in Sweden,
  USA
• Red
• unlucky in Germany positive in Denmark, Rumania
  masculine in UK, France
• Changes over time
• It used to be good manners to have ashtrays on
  hand in any home or office.

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Reference Group Influences

• reference groups are those with whom we interact
  and who influence our attitudes, values and
  behavior
• small reference groups establish norms that
  influence purchase decisions, and their
  word-of-mouth is considered to be more powerful
  than advertising and other commercial forces
• innovators and opinion leaders
• the family
• Membership Group
• Inspiration Group

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Psychological Factors

• a stimulated need is a motive consumers are
  motivated to act by a variety of motives
• consumers process information from their
  environment through perception the result of
  stored experiences and references
• messages are perceived and retained selectively,
  and may be distorted through rationalization
• consumers learn from past experience and from
  information received, and are conditioned to
  respond in a certain way

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Figure 3-2 Maslows Hierarchy of Needs
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Personality and Attitudes

• personality is a pattern of traits that influence
  behaviour but it is not always clear how
  personality affects consumption behaviour
• a consumer tends to act in a way that is
  consistent with his or her self-concept
• Actual Self and Ideal Self
• Question which self influence purchase more?
• attitude is a learned disposition to act in a
  certain way toward objects. Formed over time,
  slow to change, and excellent predictors of
  behavior.

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Situational Influences

• purchase situations often influence consumer
  behaviors.
• how time affects the decision to buy
• physical surroundings often influence purchases
• the terms and conditions surrounding the actual
  purchase will influence the buying decision
• the final buying decision is often influenced by
  the consumers physical and emotional condition
  and mood

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CASE 2-1 S. C. JOHNSON - Bug Off

• 1.Can SCJ retain its reputation as a family
  company with quirky and edgy ads?
• Should be little difficulty
• It has a reliable quality reputation among end
  consumers for a long time.
• It is likely that consumers are less familiar
  with SCJ than with its various brands.
• Ads for a single brand like Off! are unlikely to
  affect the image of the company itself.
• This is a good example of a branding strategy
  that features the brand of the product rather
  than name of company.

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2. Who is target market and how to reach out?

• The target segment for Off! is outdoors people
  and family who spend a lot of time camping,
  hiking, etc.
• In that sense it is a functional product that
  stresses its effectiveness.
• SCJ is trying to advertise unconventional
  messages in unconventional media shopping
  carts, billboards, etc.
• It is also doing a very effective job of reaching
  people at two critical decision points (1) in
  the store and (2) on the way to the outdoors.

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3. Whats SCJs strategy for differentiating Off ?

• The differentiation strategy is reflected in the
  message. They are no longer making only product
  claims.
• They are trying to imprint the brand in the
  consumers mind by standing out from the crowd.
• It isnt a product-based differentiation, backed
  by claims of product effectiveness.
• It is a strategy based on communications through
  messages in terms of their quirkiness and where
  they appear.

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Market Segmentation and Other Strategies

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Recall Marketers tasks
TODAY
Look for Opportunities Consumer Competition Com
pany (Uncontrollable 3Cs)
Implement Positioning Product Price Promotion
Place (Controllable 4Ps)
Segmenting Targeting Positioning (STP)
What is Segmentation?
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Procter Gamble
11 brands of laundry detergent Tide, Cheer, Bold,
Gain, Era, Dash, Oxydol, Solo, Dreft, Ivory,
Snow, Ariel
8 brands of hand soap Zest, Coast, Ivory,
Safeguard, Camay, Oil of Olay, Kirks, Lava
4 brands of dishwashing detergent and
toothpaste Joy, Ivory, Dawn, Liquid Cascade
Crest, Gleam, Complete, Denquel
2 brands of diapers and deodorant Pampers, Luvs
Secret, Sure
What is Segmentation?
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Kodak disposable cameras
What is Segmentation?
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WHY???

• Segmentation
• Different Customers and different Occasions
• want different things
• are able to pay different prices
• have different information sources
• buy at different places

These are the 4 Ps.
What is Segmentation?
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But

• Developing a different marketing program for each
  customer is extremely expensive.
• Segmentation allows a marketer to target people
  that behave similarly.
• Marketers can then position their products to fit
  their target market segment.

What is Segmentation?
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A Definition

• Segmentation is the process of dividing the total
  heterogeneous market for a product or service
  into several segments, each of which tends to be
  homogeneous in some significant aspects.

What is Segmentation?
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Example One company serving many segments

• Air Travel
• Business/Executive Inflexible price
  insensitive. Small number of people, but travel
  often.
• Leisure Traveler/Student Flexible very price
  sensitive (other methods of travel--e.g., bus,
  car, train--are feasible travel may not be
  essential). Very large segment.
• Comfort Travelers Comfort (e.g., space, food)
  important willing to pay. Small segment.

What is Segmentation?
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Example 2 Different companies serve different
segments

• Canoe (located in the 54th floor of TD tower)
  serves customers who are well-off, care about
  quality, atmosphere, and services.
• McDonald (everywhere) serves customers who care
  about convenience.

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Requirements for effective segmentation

• Profitable
• and sustainable over time
• Measurable
• with accessible data
• Accessible
• through existing distribution, advertising, etc.
• Good segments are also
• Homogenous
• similar needs and desires within segments
• Mutually exclusive
• Different needs and desires among segments

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Mass Marketing Same product to all consumers (no
segmentation)
Differentiated (Segmented) Marketing Different
products to one or more segments (some
segmentation)
Levels of segmentation
Niche Marketing Different products to subgroups
within segments (more segmentation)
Micro-marketing Products to suit the tastes of
individuals or locations (complete segmentation)
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Bases for market segmentation
Common bases for segmentation

• Geographic
• e.g., region, city size, density, climate
• Demographic
• e.g., age, gender, family size, income,
  occupation, religion, ethnic group
• Psychographic
• e.g., personality, lifestyle
• Behaviour
• e.g., usage rate, benefit desired

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Geographic Segmentation

• Regional distribution people within a given
  region tend to share values and attitudes.
• Urban, suburban, and rural distribution.
• Census Metropolitan Areas (CMAs).
• Suburban growth and back to the city.
• Geodemographic Clustering using postal codes to
  cluster segments.

Bases of Segmentation
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Geographic Segmentation Example

• Canwest/Global Newspapers

Bases of Segmentation
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Segmentation by Demographics

• identifying the target segment involves
  developing a detailed profile of its members
• demographic differences are easiest to observe
  but are very simplistic
• consider differences across segments based upon
  age, gender, stage of life cycle, education,
  ethnic background, or occupation

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Demographic Segmentation Example

• Age Segmentation Cruises
• Colour discrimination Older people have
  difficulty distinguishing the green-blue-violet
  part of the colour spectrum. The marketer should
  use significant colour contrast to enhance the
  older consumers ability to see packaging,
  brochures, and displays.

Bases of Segmentation
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Segmentation by Psychographics

• Some types of psychographic segmentation
• Personality
• Generally not practical to measure or to reach
• Lifestyle
• Consumers tend to buy products and services that
  are consistent with their lifestyle
• Lifestyle f(activities, interests, opinions)
• Social Class
• Different from income Upper, upper middle

Bases of Segmentation
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VALS survey http//www.sric-bi.com/VALS/presurvey.
shtml
Bases of Segmentation
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Segmentation by Behaviour

• Relationship
• Frequency of Contact Do they visit often?
• Loyalty Do they only visit you?
• Benefits Desired (e.g. Clothing)
• Sensories Comfortable fabric
• Sociables Stylish look
• Worriers Hypo-allergenic
• Independents Lowest price
• Usage Rate
• How much and how often?

Bases of Segmentation
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Behaviour segmentation

• Benefit Desired
• Highly related to purchase behavior
• Haleys (1968) toothpaste example

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Selecting Target Markets

• target segments should be compatible with the
  organizations goals and image
• the market opportunity represented by the segment
  must match the companys resources
• the segment must represent an opportunity to
  generate enough sales to generate a profit
• the company should select target segments where
  it can enjoy a competitive advantage

Target Markets
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Target Market Strategies

• market aggregation target the product or service
  to a mass market with little differentiation
• single-segment segmentation selecting a single
  segment to target if the segment is small, this
  may be considered a niche strategy
• multiple-segment segmentation identifying two or
  more segments as target markets involves
  developing a different marketing approach for each

Target Markets
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Positioning

• Positioning arranging for a product to occupy a
  clear, distinctive, and desirable place relative
  to competing products in the minds of target
  consumers (via the use of various marketing
  techniques and marketing-mix variables).
• Product position the way the product is defined
  by consumers on important attributes the place
  the product occupies in consumers minds relative
  to competing products.

Positioning
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Perceptual map of beer brands
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- and one for automobiles
Stylish, prestigious, distinctive
TM2
TM3
Staid, conservative, older
Fun, sporty, fast
TM1
Practical, common, economical
Positioning
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Choosing a Positioning Strategy

• Identifying a set of possible competitive
  advantages.
• Choosing the right competitive advantages.
• Selecting an overall positioning strategy.

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Positioning Strategies

• Against Competition Were as good or better
  Cola Wars, MAC vs. PC
• Market Gap Find spot others missed. Niche
  markets.
• Set Brand Apart Stress your differences and
  avoid head-to-head competition. Nothing runs
  like a Deere.
• Leadership Be the one others follow. Used by
  Presidents Choice, Sony.
• Lifestyle Segment Appeals Use lifestyle to
  define. Some buy fancy cameras to take creative
  photography, others to impress.

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Positioning strategies

• How do you differentiate yourself?
• Positioning by
• attributes
• benefit
• usage situation
• users
• competitors

Positioning
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Positioning by attributes
Volvo Safety
Positioning
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Positioning by benefit

• Examples
• Crest cavity prevention
• Aim good taste

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Positioning by usage situation

• Examples
• NyQuil Nighttime cold medicine
• J J baby shampoo

Positioning
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Positioning with competitors
Margarine (against competitors) I cant believe
its not butter Butter (away from competitors)
Only butter is butter
Positioning
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Potential positioning problems

• Positioning against something consumers already
  know
• usually the market leader
• Avis rental cars
• Were Number 2. We try harder.
• Tylenol
• For the millions who cant take aspirin.
• What is the potential problem here?

Positioning
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Potential positioning problems

• Positioning in a too-crowded marketplace
• overpositioning - narrow image
• If you like Kung Fu movies, dont miss
  Fearless
• Positioning on an unimportant attribute
• Tallest hotel in the world
• Crystal Pepsi
• Unwanted product modification
• New Coke

Positioning
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Key points for STP
Effective marketing is customer driven.

• Step 1 What kinds of customers are there
  (segmentation)?
• Step 2 Target the segment that can deliver most
  value in as unique a way as possible.
• Step 3 Choose a position that communicates
  your unique and differentiable position.
• Step 4 Evaluate market response and reposition.

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Summary

• Segmentation is the process of dividing a large
  market into smaller markets
• Four Main Types of Segmentation
• Geographic
• Demographic
• Psychographic
• Behavioural
• Selecting a Target Market
• Positioning Strategies

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Next Class

• Getting the Marketing Information
• Marketing Research
• Study Guide SECTION 6.8.2 p121
• Sample Mid-term questions in website
• Beginning to think about your term project topic.