How can market segmentation be described?
It is the process of grouping customers who behave differently in response to a given marketing strategy.
What is the objective of market segmentation?
To identify and define alternative customers groups for a firm.
What is driving the increasing importance of segmentation?
- The need to explore new product concepts.
- The need to exploit existing product concepts.
Which variables are typically used to segment a market?
Mainly demographics and psychographics for both customer and industrial markets.
However, the manifestations are different.
Consumer demographics include such things as marital status or income while industrial demographics include such things as firm size or technology structure.
Which variables do world-class organisations use to segment their markets?
- Behavioral variables: reflected in benefits required by customers
- Descriptor variables: the demographics and psychographics.
The benefits required by customers are the most useful behavioral variables because they determine the customer needs to be satisfied.
Why favor the behavior-first approach?
There is less risk of obtaining irrelevant or artificial segments. With behavior-first approaches one is guaranteed divergent behaviours among segments.
Are there situations when the descriptor-first approach is appropriate?
Yes, when a firm has a strong position with a segment of customers defined by a set of descriptor variables.
What methods are there for identifying benefits needed?
The uncovering of the sources of benefits needed.
There are two main sources:
- Manifest or latent problems with current products
- Changes in the environment that incur changes in consumption habits.
How can manifest or latent problems with current products be identified?
By examining:
- How customers evaluate existing alternatives
- The problems customers experience during the actual buying transaction
- The difficulties customers experience while disposing of the products
- How well satisfied customers are with the focal products performance
What are the steps involved to choose valuable business opportunities?
- Determine the value potential of customers
- Determine the competitive potential of competitors
- Determine the dynamic potential of the external environment.
What are the four criteria that the value potential of customers rests on?
Customers should be:
- strategic
- significant
- profitable
- loyal
What are the two steps involved in determining the competitive potential of competitor?
- Identification of competitors
- Analysis of competitors
Regarding the identification of competitors, how can the competition be identified?
- Competition is a matter of degree, not a matter of yes or no
- Competition is determined by the customer, not the firm.
How can the degree of competition be categorized?
- Direct competition: taken into immediate consideration and available
- Indirect competition: not considered an alternative at first, but available
- Potential competitor: considered, but not available in the market
- Incipient competition: not considered an alternative and not available.
The categorizations of competition can be inserted in what?
Segment characterisation matrix.
What are the two factors that the four categories of competition are governed by?
- Technological viability
- Marketing intermediaries
How does technological viability govern the four categories?
As technological developments occur, products previously not considered become viable alternatives.
How do marketing intermediaries govern the four categories?
Marketing intermediaries shift products from not being available to being available.
How can competitors be analyzed?
- Identification of competitor strategy
- Prediction of competitor strategy
How can a competitor’s strategy be identified?
There are two types of competitive strategy:
- Cost leadership
- Differentiation
Often, cost-leadership and differentiation strategies are not fully apparent.
In that case, we have to understand what to look for in terms of surrogates in order to identify them.
What are the surrogates of a cost-leadership strategy?
Experience curve tells us that lower costs are related to cumulative business experiences which itself is related to market share. Further, lower costs tend to lead to lower prices. Therefore, there are at least two surrogates for a cost-leadership strategy:
- Market share
- Low prices
What are the surrogates of a differentiation strategy?
Highly differentiated products usually must be advertised heavily in order to communicate the relevant differences. Thus, there is at least one surrogate for a differentiation strategy:
- The ratio of advertising sales.
If the surrogates do not provide insight into which strategy the competition is using, then how else can competitive behavior be predicted?
- Let the competitor tell you by reading their publications or hiring their managers
- Infer from the competitors past behaviours
- Role-play by putting yourself in the competition’s position
- Analyse competitors strengths and weaknesses and derive their strategy from there.
Are there other ways to analyse competitors?
- Rank the segments under consideration in terms of strong or weak competitors
- Rank the segments under consideration in terms of good or bad competitor.
