Marketing Priciples and Concepts

MARKETING PRICIPLES AND CONCEPTS

SEGMENTING, TARGETING, POSITIONING.

Mass marketing.

Segment vs. sector.

Flexible marketing offering.

How to form segments?

I. BROAD vs. NARROW.

1. Preference segments.

Homogeneous, diffused, clustered preferences.

1. Niche marketing. Requires clear and deep understanding of consumer needs and company’s recognition from consumer’s part.

1. Local marketing. (Marketing programs tailored to the needs and wants of local customer groups; e.g. taking demographic characteristics into account).

<pros and cons>

1. Customerization. (One-to-one marketing).

II. DESCRIPTIVE CHARACTERISTICS vs. BEHAVIORAL. (Recognition of consumer preferences).

Major segmentation variables for consumer markets.

Geographic region

Pacific, Mountain, West North Central, West South Central, East North Central,

East South Central, South Atlantic, Middle Atlantic, New England

City or metro size

Under 5,000; 5,001-20,000; 20,001-50,000; 50,001-100,000;

100,001-250,000; 250,001-500,000; 500,001-1,000,000;

1,000,001-4,000,000; 4,000,000+

Density

Urban, suburban, rural

Climate

Northern, southern

Demographic age

Under 6, 6-11,12-19, 20-34, 35-49, 50-64, 65+

Family size

1-2,3-4,5+

Family life cycle

Young, single; young, married, no children; young, married, youngest child under

6; young, married, youngest child 6 or over; older, married, with children; older,

married, no children under 18; older, single; other

Gender

Male, female

Income

Under $10,000; $10,000-$14,999; $15,000-$19,999; $20,000-$29,999;

$30,000-$49,999; $50,000-$99,999; $100,000 and over

Occupation

Professional and technical; managers, officials, and proprietors; clerical sales;

craftspeople; forepersons; operatives; farmers; retired; students; homemakers;

unemployed

Education

Grade school or less; some high school; high school graduate; some college;

college graduate

Religion

Catholic, Protestant, Jewish, Muslim, Hindu, other

Race

White, Black, Asian, Hispanic

Generation

Baby boomers, Generation Xers

Nationality

North American, South American, British, French, German, Italian, Japanese

Social class

Lower lowers, upper lowers, working class, middle class, upper middles, lower

uppers, upper uppers

Psychographic lifestyle

Culture-oriented, sports-oriented, outdoor-oriented

Personality

Compulsive, gregarious, authoritarian, ambitious

Behavioral occasions

Regular occasion, special occasion

Benefits

Quality, service, economy, speed

User status

Nonuser, ex-user, potential user, first-time user, regular user

Usage rate

Light user, medium user, heavy user

Loyalty status

None, medium, strong, absolute

Readiness stage

Unaware, aware, informed, interested, desirous, intending to buy

Attitude toward product

Enthusiastic, positive, indifferent, negative, hostile

Profiles of US society

G.l. generation (16 million people). Born 1901-1924. Shaped by hard times and the Great Depression, financial security is one of their core values. Conservative spenders and civic-minded, they are team-oriented and patriotic.

Silent Generation (35 million people). Born 1925-1945. Trusting conformists who value stability, they are now involved in civic life and extended families.

Baby Boomers (78 million people). Born 1946-1964. Great acquisitors, they are value- and cause-driven despite indulgences and hedonism (pleasure maximization).

Generation X (57 million people). Born 1965-1977. Cynical and media-savvy, they are more alienated and individualistic.

Generation Y (60 million). Born 1978-1994. Edgy, focused on urban style, they are more idealistic than Generation X.

Millennials (42 million people). Born 1995-2002. Multicultural, they will be tech-savvy, educated, grow up in affluent society, and have big spending power.

TYPICAL SEGMENTATIONS

Geographic

Demographic

Age and life-cycle stage

Life stage

Gender

Income

Generation

Social class

Psychographic

(VALS framework. Values, Attitudes and Lifestyles – VALS classifies U.S. adults into eight primary groups based on personality traits and key demographics. The segmentation system is based on responses to a questionnaire featuring 4 demographic and 35 attitudinal questions).

The major tendencies of the four groups with higher resources are:

1. Innovators - Successful, sophisticated, active, "take-charge" people with high self-esteem. Purchases often reflect cultivated tastes for relatively upscale, niche-oriented products and services.

2. Thinkers - Mature, satisfied, and reflective people who are motivated by ideals and value order, knowledge, and responsibility. Favor durability, functionality, and value in products.

3. Achievers - Successful goal-oriented people who focus on career and family. Favor premium products that demonstrate success to their peers.

4. Experiencers - Young, enthusiastic, impulsive people who seek variety and excitement. Spend a comparatively high proportion of income on fashion, entertainment, and socializing.

The major tendencies of the four groups with lower resources are:

1. Believers - Conservative, conventional, and traditional people with concrete beliefs. Favor familiar, American products and are loyal to established brands.

2. Strivers - Trendy and fun-loving people who are resource-constrained. Favor stylish products that emulate the purchases of those with greater material wealth.

3. Makers - Practical, down-to-earth, self-sufficient people who like to work with their hands. Favor American-made products with a practical or functional purpose.

4. Survivors - Elderly, passive people who are concerned about change. Loyal to their favorite brands.

<visit the VALS web site>

Behavioral. (In behavioral segmentation, buyers are divided into groups on the basis of their knowledge of, attitude toward, use of, or response to a product).

Decision roles

Initiator, Influencer, Decider, Buyer, User.

Behavioral variables

Occasions, Benefits perceived, User status, Usage rate, Buyer-readiness stage, Loyalty status (hardcore, split, shifting, switchers), Attitude (enthusiastic, positive, indifferent, negative, hostile).

Conversion model

(The Conversion Model has been developed to measure the strength of the psychological commitment between brands and consumers and their openness to change).

SEGMENTING BUSINESS MARKETS

Bonoma & Shapiro Model (the extended in 1984 Wind & Cardozo Model, which was based on 2-stage macro- and then micro-segmentation).

5 general criteria, arranged in a nested hierarchy.

Demographic

1. Industry: Which industries should we serve?

2. Company size: What size companies should we serve?

3. Location: What geographical areas should we serve?

Operating Variables

4. Technology: What customer technologies should we focus on?

5. User or nonuser status: Should we serve heavy users, medium users, light users, or nonusers?

6. Customer capabilities: Should we serve customers needing many or few services?

Purchasing Approaches

7. Purchasing-function organization: Should we serve companies with highly centralized or decentralized purchasing organizations?

8. Power structure: Should we serve companies that are engineering dominated, financially dominated, and so on?

9. Nature of existing relationships: Should we serve companies with which we have strong relationships or simply go after the most desirable companies?

10. General purchase policies: Should we serve companies that prefer leasing? Service contracts? Systems purchases? Sealed bidding?

11. Purchasing criteria: Should we serve companies that are seeking quality? Service? Price?

Situational Factors

12. Urgency: Should we serve companies that need quick and sudden delivery or service?

13. Specific application: Should we focus on certain applications of our product rather than all applications?

14. Size of order: Should we focus on large or small orders?

Personal Characteristics

15. Buyer-seller similarity: Should we serve companies whose people and values are similar to ours?

16. Attitudes toward risk: Should we serve risk-taking or risk-avoiding customers?

17. Loyalty: Should we serve companies that show high loyalty to their suppliers?

One of the problems with the nested approach “is that there is no clear-cut distinction between purchasing approaches, situational factors and demographics". Bonoma and Shapiro are aware of these overlaps and argue that the nested approach is intended to be used flexibly with a good deal of managerial judgment” (Webster, 2003).

NEEDS-BASED MARKET SEGMENTATION APPROACH. (A typical process of segmenting, targeting, and positioning, followed by development of a custom marketing mix).

1. Needs-Based Segmentation

Group customers into segments based on similar needs and benefits sought by customer in solving a particular consumption problem.

1. Segment Identification

For each needs-based segment, determine which demographics, lifestyles, and usage behaviors make the segment distinct and identifiable (actionable).

1. Segment Attractiveness

Using predetermined segment attractiveness criteria (market growth, competitive intensity, and market access), determine the overall attractiveness of each segment.

1. Segment Profitability

Determine segment profitability.

1. Segment Positioning

For each segment, create a "value proposition" and product-price positioning strategy based on that segment's unique customer needs and characteristics.

1. Segment "Acid Test"

Create "segment storyboards" to test the attractiveness of each segment's positioning strategy.

1. Marketing-Mix Strategy

Expand segment positioning strategy to include all aspects of the marketing mix: product, price, promotion, and place.

SEGMENT IDENTIFICATION

1. Grouping customers according to descriptive characteristics and then comparing response differences across the groups.
2. Forming groups based on response differences (e.g. frequency of purchase) and determining whether the groups can be identified based on differences in their characteristics.

A and B are used interchangeably.

EFFECTIVE SEGMENTING CRITERIA

Measurable. The size, purchasing power, and characteristics of the segments can be measured.

Substantial. The segments are large and profitable enough to serve.

Accessible. The segments can be effectively reached and served.

Differentiable. The segments are conceptually distinguishable and respond differently to different marketing-mix elements and programs. (If married and unmarried women respond similarly to a sale on perfume, they do not constitute separate segments).

Actionable. Effective programs can be formulated for attracting and serving the segments.

TARGETING APPROCHES

Single segment <pros and cons>

Selective specialization (different products for different segments).

Product specialization (same product for every segment).

Market specialization (serving many needs of a particular customer group).

Full market coverage (e.g. Este Lauder: Este Lauder, Clinique, M.A.C., Aveda, Origins).

Differentiated marketing creates more sales, but also generates more costs.

Product modification costs

Manufacturing costs

Administrative costs

Inventory costs

Promotion costs

SEGMENTING/TARGETING/POSITIONING TOOLS

Empirical/Qualitative

Cluster analysis

MDS

Perceptual maps

Regression

Factor analysis

(other)
(PRE-POSITIONING)

BRANDING

A brand is "a name, term, sign, symbol, or design, or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors."

Brand equity is the added value endowed to products and services besides the nominal functions. (Can be both positive and negative). <Discuss>.

The power of a brand lies in the minds of existing or potential customers and what they have experienced directly and indirectly about the brand.

Branding can be applied virtually anywhere a consumer has a choice. It is possible to brand a physical good (Campbell's soup, Pantene shampoo, or Ford Mustang automobiles), a service (Singapore Airlines, Bank of America, or BlueCross/BlueShield medical insurance), a store (Nordstrom department store, Foot Locker specialty store, or Safeway supermarket), a person (Tom Clancy, Britney Spears, or Andre Agassi), a place (the city of Sydney, state of Texas, or country of Spain), an organization (UNICEF, American Automobile Association, or The Rolling Stones), or an idea (abortion rights, free trade, or freedom of speech).

Brands must create strong, favorable, and unique brand associations with customers, as has been the case with Volvo (safety), Hallmark (caring), and Harley-Davidson (adventure).

- Michelob, Miller Lite, and 7Up saw sales decline in the 1990s despite sizable marketing support, arguably because of poorly targeted and delivered marketing campaigns.

- New products such as Crystal Pepsi, Levi's Tailored Classic suits, Fruit of the Loom laundry detergent, and Cracker lack cereal failed because consumers found them inappropriate.

Brand equity models <contact other sources>.

1. Brand Asset Valuator (Differentiation-Relevance vs. Esteem-Knowledge).
2. Aaker model. ((1) Brand loyalty, (2) brand awareness, (3) perceived quality, (4) brand associations, and (5) other proprietary assets such as patents, trademarks, and channel relationships either add or subtract from brand equity).
3. BRANDZ. (5 sequential steps in building a brand: presence, relevance, performance, advantage, bonding).
4. Brand resonance.

BRAND EQUITY DRIVERS.

1. The initial choices for the brand elements or identities making up the brand (e.g., brand names, URLs, logos, symbols, characters, spokespeople, slogans, jingles, packages, and signage). Old Spice uses bright-red packaging and its familiar ocean schooner to reinforce its nautical theme while also launching deodorant and antiperspirant extensions adding the High Endurance and Red Zone brand names.

2. The product and service and all accompanying marketing activities and supporting marketing programs. Joe Boxer made its name selling colorful underwear with its signature yellow smiley face, Mr. Licky, in a hip, fun way. The company spent almost zero on advertising; clever stunts and events garnered publicity and word of mouth. An exclusive deal with Kmart has generated strong retail support.

3. Other associations indirectly transferred to the brand by linking it to some other entity (e.g., a person, place, or thing). Subaru used the rugged Australian Outback and actor Paul Hogan of Crocodile Dundee movie fame in ads to help craft the brand image of the Subaru Outback line of sports utility wagons.

1. Developing brand elements. <A separate area of marketing research>.

1.1.Memorable.

1.2.Meaningful.

1.3.Likable.

1.4.Transferable (i.e. used across geographic boundaries and different products).

1.5.Adaptable (and updatable).

1.6.Protectible.

2. Holistic marketing approach to building brands. (“Holistic” means “everything matters”).

2.1.Personalization (mass-market practices are being abandoned).

2.2.Integrated marketing (all communications, 4P, management, activities, etc. work coherently).

2.3.Internalization (employees must understand the brand).

1. Leveraging secondary associations. (“Borrowing” equity from other sources).

The brand may be linked to certain source factors, such as:

-the company (through branding strategies),

-countries or other geographical regions (through identification of product origin),

-and channels of distribution (through channel strategy);

-as well as to other brands (through ingredient or co-branding),

-characters (through licensing),

-spokespeople (through endorsements),

-sporting or cultural events (through sponsorship),

-or some other third-party sources (through awards or reviews).

Measuring brand equity.

Brand audit is a consumer-focused exercise that involves a series of procedures to assess the health of the brand, uncover its sources of brand equity, and suggest ways to improve and leverage its equity. (Usually, performed once a year).

Brand tracking studies are a means of understanding where, how much, and in what ways brand value is being created. (Continuous program).

Brand valuation is the total financial value of the brand. Brand equity, sometimes, is more than a half of a brand’s capitalization. (U.S. companies do not list brand equity on their balance sheets because of the arbitrariness of the estimate. However, brand equity is given a value by some companies in the United Kingdom, Hong Kong, and Australia).

Managing brand equity.

Brand reinforcement. Brand equity is reinforced by marketing actions that consistently convey the meaning of the brand to consumers in terms of: (1) What products the brand represents; what core benefits it supplies; and what needs it satisfies; as well as (2) how the brand makes those products superior and which strong, favorable, and unique brand associations should exist in the minds of consumers.

Brand Revitalization. To refresh old sources of brand equity or create new sources, two main approaches are possible:

1. Expand the depth and/or breadth of brand awareness by improving consumer recall and recognition of the brand during purchase or consumption settings.

2. Improve the strength, favorability, and uniqueness of brand associations making up the brand image. This approach may involve programs directed at existing or new brand associations.

Brand crisis. General rule – to respond as quick as possible, while being “sincere”.

Devising a Branding Strategy (i.e. deciding the nature of new and existing brand elements to be applied to new and existing products).

(Either old or new, there are plentiful of approach to develop, extend, mix, license, etc. brands to realize corporate goals <contact other sources>).

-Individual brand names (even for similar products; e.g., Delta Airlines and its low-cost Song subsidiary).

-Blanket family names (GE products, Campbell’s soups).

-Separate family names for all products (almost like individual names, but the produced product categories are different; e.g. Sears [Kenmore for appliances, Craftsman for tools, and Homart for major home installations]).

-Corporate name combined with individual product names (Kellogg's Rice Krispies, Kellogg's Raisin Bran, and Kellogg's Corn Flakes).

Two key components of virtually any branding strategy are brand extensions and brand portfolios.

POSITIONING

A company discovers different needs and groups in the marketplace, targets those needs and groups that it can satisfy in a superior way, and then positions its offering so that the target market recognizes the company's distinctive offering and image.

Positioning is the act of designing the company's offering and image to occupy a distinctive place in the mind of the target market.

The goal is to locate the brand in the minds of consumers to maximize the potential benefit to the firm.

Competitive Frame of Reference.

A starting point in defining a competitive frame of reference for a brand positioning is to determine category membership — the products or sets of products with which a brand competes and which function as close substitutes.

Points-of-Parity and Points-of-Difference.

Points-of-difference (PODs) are attributes or benefits consumers strongly associate with a brand, positively evaluate, and believe that they could not find to the same extent with a competitive brand (e.g., FedEx - guaranteed overnight delivery, Nike - performance), Lexus - quality).

Points-of-parity (POPs), on the other hand, are associations that are not necessarily unique to the brand but may in fact be shared with other brands.