106 - lecture 3 - students

8/3/2019 106 - Lecture 3 - Students

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UGBA 106: Marketing

Segmentation and Targeting

Professor Ming Hsu

Haas School of Business

University of California, Berkeley


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Segmentation: A Popular Managerial Tool

3.5

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4

4.1

0% 20% 40% 60% 80%

Satisfact

ion

Usage

Strategic Planning

Downsizing

CRM

Voice of the

Customer

Innovation

Customer

Segmentation

Bain & Company. Management Tools and Trends 2009.


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Segmentation: process ofdividing the market into groups based upon important

consumer characteristics

Goal: Reduce complexityacross consumers, help formulate strategy

Targeting: process of evaluatingattractiveness of segment and selecting one or

more segments to enter

Goal: Maximize effectiveness of marketing dollars

Segmentation and Targeting


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Segments are collections of consumers

Customers within a segment should be as similaras possible

Customers between segments should be as differentas possible

What are Segments?


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Example: Harley-Davidson


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Levels of Market Segmentation

Mass Marketing (Shotgun Approach) Model T

Increasing Competition,

Fragmentation of markets

Segment Marketing

Information revolution

Flex and JIT Manufacturing

Credit-technology (Internet marketing)

Individual Marketing

Segments ofone throughthe Internet Information technologyand addressability


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In the 30s and 40s P&G successfully used a mass marketing approach for its

soaps, toothpaste.why?

Consumers had utilitarian preferences for household products. (One soap or toothpaste

for the entire family)

Consumers were convinced of P&G product quality.

In the 60s consumer needs fragmented

Competitors chipped away at P&G by offering differentiated products.

Colgate toothpaste bad breath, sparkling teeth segment, Levers in detergent

P&G today

Follows product proliferation to cater to every major segment

Regular Tide, Liquid Tide, Tide redi-packs, Ultra Tide with bleach.

Proctor & Gamble: Painful Transitions


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Demographics

Easiest, sometimesuseful

Often a poorpredictor ofbehaviors andattitudes

Attitudes

Attitudinalinformation

optimists v.pessimists

leaders v. followers

Benefits

Benefits soughtfrom

product/service

Behavior

Similar behavior

heavy users, lightusers

Segmentation Information


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Demographics: What consumers are?

Age

Lego, Vicks child formula, chewable 4-12, adult formula.

J&J baby shampoo vs. Gatorade for children...moving a company up or down the age

ladder can be an effective growth strategy.

Gender

AMEX interesting lives campaign

Clairol hair care for men, Lancome skin care take what you have and make it better.

Demographics


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Income

Holiday Inn

Geodemographic

Possible due to advances in information databasesDe Claritas uses census demographic information and groups the zip-codes into similar

neighborhoods (chain expansion).

Demographics

Affluent, businessCrowne Plaza

Middle incomeHoliday Inn

Budget conscious...Holiday Inn express


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Psychographics: Why do consumers buy?

Lifestyle

Goods consumed by people reflect their lifestyles.a composite of activities, opinions and

attitude to life variables

Levis 501

Personality

Endowing products with brand personalities (pillsbury, taco bell)

Psychographics


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Use, loyalty or response to a product

Usage occasions: e.g., camera (underwater, indoor parties, outdoor photography)

Usage Rates: 80-20 rule, eg., beer drinkers.

Should you always focus on the heavy users?

Loyalty Status

Hard-core Loyals: A A A A A A; Split Loyals: A B A B A B

Shifting Loyals: A A A B B B; Switchers: A B E A D B

How are demographics and psychographics and behavioral segmentation

related?

Behavioral


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Segments of ONE

One-to-one consumer addressability

Personalized promotions based upon loyalty status (e.g., credit cards)

Customized recommendations and prices (e.g., Amazon.com, Google)

Impact of the Internet and Information Technology


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Measurability

Accessibility

Profitable

Requirements For Effective Segmentation


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Segmenting Customer Base: Customer Pyramid

UGBA106 SP12 Haas School of Business

The Rest ofthe World

Suspects

Prospects

Inactive Customers

Top

Medium

Small

15%of Customers

5% of Customers

30% of Customers

Big

50% of Customers


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Year 1 Revenue: $20/month = $240 year

Year 1 Costs

$14/month = $168year

Free phone = $150

Year 1 Profit = 240 (168 + 150) = $78

Year 2 Profit = $240 $168 = $72

Two Year Profit = $78 + $72 = $6

Three Year Profit = -$6 + $72 = $66

Customer Value and Retention: Cellular Service

We need to keep the customer for3 years to make a positive profit.

What is an average customerworth to the firm?

We need the probability ofretention.


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Lets say probability of retention is 70%

Expected Value to the firm is .....

$78 + (.7 $72) + (.7 .7 $72) + ....

$78 + (.7 $72) + (.72

$72) + .... $78 + .7 ($72 + .7 $72 + .72 $72+ ....)

$78 + .7 $72 (1 + .7 + .72 + ....)

$78 + $50.4 [1/(1-.7)] =$90

If probability of retention = 80% then CLV is $210 = $78 + $57.6 (1/(1-.8))

Add Retention


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Example: Harley-Davidson


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Example: Wine Segments



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The top 20% of the active customers deliver 60%-80%of the revenues

The top 20% of the active customers deliver more than 80%of the profits

The majority of the marketing budgets is often spent on non-customers

3 Facts about Economics of Customers


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Customer basebehavior

Customer basebehavior

LoyalistsLoyalists

EmotiveEmotive

InertialInertial

DeliberativeDeliberative

Downwardmigrators

Downwardmigrators

LifestyleLifestyle

DeliberativeDeliberative

DissastifiedDissastified

Customer Retention Management: Segments

Rarely reassess purchase decisions

Strongly feel chosen brand is best for them

Infrequently reassess purchase decisions

Uninvolved; change not worth effort

Frequently reassess purchase decisions

Reaffirm chosen brand through rational criteria

Reassess purchase decisions because of

change in needs

Frequently reassess purchase decisions

Choose new brand through rational criteria

Actively dissatisfied

May be prompted to reevaluate


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Segmentation is both widely-used and valued by managers

Critical for understanding consumers and customer base

Ideal targets are identifiable segments that are accessible and profitable

Companies often do not know their most profitable customers!

Takeaways: Segmentation and Targeting



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What factors determine demand for blades? How can demand be increased?

How to determine product line mix and allocation of marketing expenditures?

Lifetime value of different segments?

Gillette Indonesia


106 - lecture 3 - students

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