slides 1-14 precursor to segmentation ( topic 4)

Slides 1-14

Precursor to Segmentation

( Topic 4)

What is a Business Market?What is a Business Market?

• Business Buyer Behaviour Business Buyer Behaviour refers to the buying behaviour of:

• all the organizations that

• buy goods and services

• for use in the production of other products and services

• that are sold, rented, or supplied to others.

• The business market is huge and involves many more dollars and items than consumer markets.

ORGANISATIONAL BUYING BEHAVIOUR

• How does BT’s appeal to business customers differ from its appeal to domestic customers?

Some Examples of Organizational Buying

Paper cups by McDonald's

Computer chips by Toshiba

Concrete by Local Authorities

Oil by Electricity Generators

Fertiliser by Farmers

Accountancy services by Ltd. Companies

TV’s by Comet or Dixons

4-5Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007

Stages of the BusinessBuying ProcessStages of the BusinessBuying Process

Problem RecognitionProblem Recognition

General Need DescriptionGeneral Need Description

Product SpecificationProduct Specification

Supplier SearchSupplier Search

Proposal SolicitationProposal Solicitation

Supplier SelectionSupplier Selection

Order Routine SpecificationOrder Routine Specification

Performance ReviewPerformance Review


B2B and Consumer Markets_1

B2B customers

• Purchase products to meet specific business needs

• Emphasize economic benefits

• Use formal, lengthy purchasing policies and processes

Consumer customers

• Purchase products to meet individual or family needs

• Emphasize psychological benefits

• Buy on impulse or with minimal processes



B2B customers

• Purchase direct from suppliers

• Justify an emphasis on personal selling

Consumer customers

• Purchase from intermediaries

• Justify an emphasis on mass media



B2B customers

• Involve large groups in purchasing decisions

• Buy large quantities infrequently

• Want a customised product package

Consumer customers

• Purchase as individuals or as a family unit

• Buy small quantities frequently

• Are content with standardised product

packages



B2B customers

• Experience major problems if supply fails

• Find switching suppliers difficult

• Negotiate on price

Consumer customers

• Experience minor irritation is supply fails

• Find switching suppliers easy

• Accept stated price



B2B customers

• Purchase direct from suppliers

• Justify an emphasis on personal selling

Consumer customers

• Purchase from intermediaries

• Justify an emphasis on mass media


Types of B2B Customers

• Commercial enterprises

• Government bodies

• Institutions


Figure 3.5 Family as a Decision-Making Unit (See Topic 3)

Initiator

InfluencerUser

Decider

Purchasing Decision

Purchaser

Participants in the Business BuyingProcess: The Buying CentreParticipants in the Business BuyingProcess: The Buying Centre

Buying CenterBuying Center

UsersGatekeepers

Buyers Deciders

Influencers

Decision-making Unit

Buyer

Decider(Decision

Maker)

User

Gatekeeper

Influencer

Decider

Initiator

Decision-making Unit

Buyers

choose suppliers

and negotiate purchase

terms often reducing

the actual purchase

to a clerical task.

Users

actually use the

product. They may

be the one who initiates

the purchase process

and may develop the

product

specification.

Deciders

(Decision Makers)

have the authority

to approve

the purchase.

Deciders

(Decision Makers)

have the authority

to approve

the purchase.

Influencers

supply information

and advice. Outsiders

such as consultants

sometimes perform

the role.

Gatekeepers

control the flow

of information to the

buying centre. Purchasing

department Staff frequently

fill the role but it could be

any member

of the

organization.

Deciders

have the authority

to select the

supplier or model.

Initiators

begin the purchase

Process.

Initiators

begin the purchase

Process.

Choice Criteria

Types.

Economic.

e.g. price, return on investment.

Technical.

e.g. reliability, delivery.

Social (Organizational).

e.g. status, office politics.

Personal.

e.g. personal risk reduction, liking/disliking.

In all cases PERCEPTION is critical.


Buying Criteria: Economic Influences

Appropriate prices

Qualityconsistency

Productspecification

Supply reliabilityand continuity

Customerservice


Buying Criteria: Non-Economic Influences

Prestige

FriendshipCareer security

Other personal needs

Trust

Topic 4

segmenting

markets


learning objectives_1

• Define the concept of Segmentation.

• Explain how both B2B and consumer markets can be broken down into smaller, more manageable groups of similar customers


learning objectives_2

• Understand the effects on the marketing mix of pursuing specific segments

• Understand the potential benefits and risks of segmentation

• Appreciate the role of segmentation in strategic marketing thinking


Segmentation Defined

Segmentation is the art of discerning and defining meaningful

differences between groups of customers to form the foundations of

a more focused marketing effort.


The need for market segmentation

• Marketers understand that they cannot be all things to all people, all of the time. Buyers and markets are too complex and diverse for one simple marketing formula to adequately address the needs of all.


WHAT IS SEGMENTATION ABOUT?

• “The identification of sub-sets of buyers within a market who share similar needs and who have similar buying processes”

• Companies aim to satisfy the needs of specific market segments better than anybody else

Segmentation the Concept

• Customer orientated concept - based on understanding customers.

• Practical - breaking large markets down into manageable parts or groups.

• Proactive part of developing a marketing strategy.

• Consumer markets and B2B markets segmented differently.

Segmentation Process

• Defining the boundaries of the market - what business are we in?, and looking at the world through the customers’ eyes.

• Targeting customers.


eg business and consumer travel markets


The Segmentation Process

Source: Kotler et al, 2003.


B2B Segmentation Bases

Macro

• Size

• Location

• Usage rate

Micro

• Product

• Applications

• Technology

• Purchasing and decision-making processes

• Buyer-seller relationships


Consumer Segmentation

• Similar to B2B segmentation, except

– Consumer segments tend to be larger

– More difficult to get close to buyer

– More emphasis on lifestyle and context


Segmenting Consumer Markets

Bases for Segmentation

• Geographic

• Demographic

• Psychographic

• Behavioral

• Age, race, gender

• Income, education

• Family size

• Family life cycle

• Occupation

• Religion, nationality

• Generation

• Social class

DEMOGRAPHIC SEGMENTATION

• Age

• Family life cycle

• Gender

• Ethnicity

• Household composition


Segmenting Consumer Markets

Bases for Segmentation

• Geographic

• Demographic

• Psychographic

• Behavioral

• Occasions

• Benefits

• User status

• Usage rate

• Loyalty status

• Buyer-readiness

• Attitude


Behaviour Segmentation

• End use

• Benefits sought

• Usage rate

• Loyalty

• Attitude

• Buyer readiness

eg usage segmentation in the soup market

•Dinner party starter

•Warming snack

•Meal replacement

•Recipe ingredient

•Easy office lunch


Loyalty Segments

• Current loyal user, continuing purchase

• Current customer, switching possible

• Occasional user, could become loyal

• Occasional user, switching possible

• Non-user, could become user

• Non-user, unlikely to become user

Source: Kotler et al, 2003

Benefit Segmentation The Toothpaste Market

Source: Kotler et al, 2003.


eg Cadbury’s Market Segments

• Immediate eat

• Home stock

• Kids

• Seasonal

• Gift


Psychographic Segmentation

• Lifestyle segmentation

• Categories

– Activities

– Interests

– Opinions

– Demographics Quorn targets vegetarianswith meat substitutes

Source: © Quorn http://www.quorn.co.uk

http://www.quorn.co.uk/

http://www.quorn.co.uk/


BASES FOR SEGMENTATION

• Main approaches:

– Demographic

– Socio-economic

– Psychographic

• Approaches overlap

• Need to trade off measurability and usefulness

COMPREHENSIVE APPROACHES TO SEGMENTATION

• In reality, multiple bases for segmentation are used simultaneously

• Combine subjective and objective approaches

EVALUATION OF MARKET SEGMENTS

• Market segments need to be evaluated and ranked for possible targeting

• Evaluation is typically based on:

– Size of segment

– Growth prospects

– Profitability

– Competitive pressure

– Fit with company objectives


Segmentation Targeting Strategies

Undifferentiated Differentiated Concentrated


Undifferentiated Strategy

Marketing mix The market


Differentiated Strategy

Marketing mix 1 Segment 1

Marketing mix 2

Marketing mix 3

Segment 2

Segment 3

Utilitarian

Customer

Trendy-Casual

Price shopper

Mainstream

Tradition-alist

LEVI’s

Marketing Mix 1

Marketing Mix 2

Marketing Mix 3

Marketing Mix 4

Marketing Mix 5

Example of Differentiated Strategy


Concentrated Strategy

Marketing mix 2 Segment 2

The Concentrated Targeting Strategy

• The concentrated approach is the most focused and involves specialising on serving one specific segment.

• Can lead to very detailed knowledge of the target segment’s needs and wants.

• This strategy can help keep costs down as there is only one marketing mix to manage.

• Helps to develop a niche market.

The Differentiated Targeting Strategy

• Involves the development of a number of different marketing mixes for different segments.

• Allows a business to tailor its offerings to suit different segments.

• Spreads risk across market segments.

• Requires a detailed overview of the market and its development potential.

• Can dilute a company’s efforts.

The Undifferentiated Targeting Strategy

• Least demanding targeting strategy.

• Assumes that the market is one homogeneous unit with no significant differences.

• One single marketing mix serving all needs.

• Relatively inexpensive.

Segmentation – the Benefits

• Customers can find products/services that fit more closely to what they want.

• Customers can feel more responsive and loyal to organisations that speak directly to them and tailor their products accordingly.

• Enables organisations to target its marketing mix more closely on potential customers thus matching their needs more accurately.

Segmentation – the Benefits

• Enables organisations to define shopping habits.

• Places the customer at the core of all decisions.

• Enables the organisation to achieve a better understanding of itself and its environment.

Segmentation - the Dangers

• Risk of poor definition and implementation of psychographic segmentation.

• Knowing where to stop.

• Fragmentation of the market.

• Customer confusion.


Criteria for Successful Segmentation

Distinctiveness

Accessibility

Defendability

Tangibility

Bang & Olufsen

Bang & Olufsen targets upmarket consumers.

Segmentation and positioning

• Target marketing

– Identifies market segments that are bite sized chunks that organisations can manage.

• Market segmentation

– Identifies markets with common traits.

• Market targeting

– Process of evaluation of the selected segments and then deciding which market segments to operate within.

• Market positioning

– Process whereby marketers position the product to occupy a clear and distinctive position relative to other competing products.

Positioning strategies• Product attributes

– Nokia’s 6600 ‘Zoom in’.

• Technical items

– BMW breathable fresh air filters.

• Benefits offered

– Crest toothpaste reduces cavities.

• Usage occasions

– Kit Kat, ‘have a break’.

• Users

– Johnson & Johnson changing focus to incorporate adults as frequent users of their gentle Baby Shampoo.

• Activities

– Omega, the ‘first and only watch on the moon’.

• Personalities

– Tiger Woods for Nike


Positioning strategies

• Origin

– Perrier ‘bottled at source’.

• Positioned against competitors

– Dell and Compaq versus IBM

• Positioned away from competitors

– 7-Up the number 1 ‘Un-cola’.

• Product class membership

– ‘I can’t believe it’s not butter’, the vegetable fat spread, is clearly positioned against butter.

slides 1-14 precursor to segmentation ( topic 4)

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