Chapter 4 Notes
Chapter 4 Notes APR 221
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Date Created: 09/17/16
Chapter 4: Segmentation, Targeting, and the Marketing Mix The Larger Marketing Context of Advertising A company prospers only if it can attract and keep customers who are willing to pay for the firm’s goods and services A company must be able to: - Locate prospective customers—where they work, live, and play - Understand their needs, wants and desires - Create products and services that satisfy such desires better than the products of competitors - Communicate that information in a powerful, clear, and compelling way The purpose of Marketing is to create exchanges that satisfy the perceived needs and wants of individuals and organizations Utility: the product’s ability to satisfy both functional needs and symbolic (or psychological) wants Companies use market research to discover the needs and wants that exist in the marketplace The goal: to use this information for product shaping—designing products, through manufacturing, packaging, or advertising, to satisfy more fully the customers’ needs and wants Exchange: Any transaction in which a person or organization trades something of value with someone else Buyers do it to acquire more things and better their situation Sellers do it to grow their business and make a profit Marketing facilitates exchanges by: - Developing goods and services we might want - Pricing them attractively - Distributing them to convenient locations - Informing us about them through advertising and other communication tools Satisfaction must occur every time customers use the product, or people won’t think they got a fair exchange Satisfaction leads to more exchanges Advertising reinforces satisfaction by: - Reminding customers why they bought the product - Helping them defend the purchase against skeptical friends and associates - Enabling them to persuade other prospects to buy it Marketing: the process companies use to make a profit by indentifying and satisfying their customers’ needs and desires Check Yourself: 1. What is the value of discovering the needs and wants that exist in the marketplace? 2. In what ways does advertising facilitate exchanges? 3. Why do marketers care if customers are satisfied after they buy products? The Marketing Segmentation Process The process of market segmentation involves: - Identifying groups of people (or organizations) with certain shared needs and characteristics - Aggregating (combining) the groups into larger market segments according to their interest in the product’s utility Should result in market segments large enough to target and reachable through a suitable mix of marketing activities—including advertising Target Market: The market segment or group within the market segment toward which all marketing activities will be directed Two Types: - Consumer Most of the advertising we see daily in the mass media Usually sponsored by the producer (or manufacturer) of the product or service Typically directed at people who buy the product for their own or someone else’s personal use (consumer) - Business Reaches people who buy goods and services for resale, for use in their own business, or for manufacturing other products Tends to appear in specialized business publications or professional journals, in direct-mail pieces sent to businesses, at trade shows, or on company websites Typically invisible to consumers 3 specialized types: Trade Professional Agricultural Marketers can - Locate and define groups of consumers with similar needs and wants - Create messages for them - Know how and where to send those messages Goal: find that particular niche in the market where the advertiser’s product or service will fit Target Audience: The specific group of individuals to whom the advertising message is directed Consumer market segmentation categories: - Behavioristic Segmentation: Method of segmenting consumes based on the benefits being sought Determined by user status, usage rate, purchase occasion, and benefits sought Tells us who our customers are now, when and why they buy, and how much they consume User Status: Six categories into which consumers can be placed, which reflect varying degrees of loyalty to certain brands and products. Sole Users- the most brand loyal and require the least amount of advertising and promotion Semisole Users- typically use brand ‘A’ but have an alternate selection if it is not available or if the alternate is promoted with a discount Discount Users- the semisole users of competing brand ‘B’. They don’t buy brand ‘A’ at full price, but perceive it with a discount Aware Nontriers- use competitive products in the category but haven’t taken a liking to Brand ‘A’. These people rarely offer much potential Trial/Rejectors- bought brand ‘A’s advertising message, but didn’t like the product Repertoire Users- perceives two or more brands to have superior attributes and will buy at full price It’s usually easier to get a heavy user to increase usage than a light user Volume Segmentation: Defining consumers as light, medium, or heavy users of products Usage Rates: The extent to which consumers use a product: light, medium, or heavy Volume segmentation is used by marketer’s to measure people’s usage rates 20% of the population consumes 80% of the product Purchase Occasion: A method of segmenting markets on the basis of when consumers buy and use a good or service Benefits: The particular product attributes offered to customers, such as high quality, low price, status, speed, sex appeal, good taste, etc. Consumers are also motivated by symbolism—what the brand name means to them, to their friends, or to some social reference group Benefit Segmentation: Method of segmenting consumers based on the benefits being sought The prime objective of many consumer attitude studies and the basis for many successful ad campaigns - Geographic Segmentation: A method of segmenting markets by geographic regions based on the shared characteristics, needs, or wants of people within a region People in on region of the country (or the world) have needs, wants, and purchasing habits that differ from those in other regions Marketers study sales by region, country size, city size, specific locations, and types of stores Critical in developing advertising media schedule because, with limited budgets, marketers want to advertise in areas where their sales potential is best - Demographic Segmentation: Based on a population’s statistical characteristics such as gender, age, ethnicity, education, occupation, income, or other quantifiable factors A way to define groups by their statistical characteristics Geodemographic Segmentation: Combining demographics with geographic segmentation to select target markets in advertising Based on: - People who live in the same neighborhood tend to be demographically similar - Neighborhoods can be categorized in terms of the characteristics of their populations and two or more neighborhoods can be placed in the same category (they contain similar types if people), even though they are geographically separated People’s lives are influenced by their environment as well as by their ethnicity - Psychographic Segmentation: Method of defining consumer markets based on psychological variables including values, attitudes, personality, and lifestyle Psychographics: The grouping of consumers into market segments on the basis of psychological makeup—values, attitudes, personality, and lifestyle Enables marketers to view people as individuals with feelings and inclinations and then classify them according to what they feel, what they believe, the way they live, and the products, services, and media they use VALS assigns consumers to one of eight groups based on two dimensions: (Chart on pg. 101) - Primary Motivation: The pattern of attitudes and activities that help people reinforce, sustain, or modify their social and self-image. An understanding of the primary motivation of individuals helps advertisers promote and sell goods and services Individuals are primarily motivated to buy one of three things: ideals, achievement, or self-expression - Resources: Relating to the range of psychological, physical, demographic, and material capacities that consumers can draw upon. The resource axis includes education, income, self-confidence, health, eagerness to buy, and energy level People process varying levels of resources, which include money, education, or self-confidence Fewest resources: bottom Most resources: top The purpose of VALS: to help marketers identify whom to target, uncover what the target group buys and does, locate where concentrations of the target group live, identify how best to communicate with them, and gain insight into why the target group behaves the way it does Been applied to: new product development and design, target marketing, product positioning, advertising message development, and media planning Gladwell believes that social epidemics are traceable to the actions of: Connectors: people with very wide social circles; have the ability to bridge different social groups that would not ordinarily interact with each other Mavens: People who spend time and energy accumulating knowledge that most people simply cant be bothered to find out for themselves Salesmen: People whom most individuals find credible, trustworthy, and authoritative Suggests that relatively small groups of people are very influential in affecting the consumption habits of much larger segments of society Marketer’s purpose: - To identify people who are likely to be responsive - To develop rich descriptions of them in order to better understand them, create marketing mixes for them, and reach them with meaningful advertising or other communications 1to1 Marketing: potential customers can be segmented so specifically that a different that a different marketing message can be sent to each one based on his or her individual demographic, behavioristic, and psychographic characteristics Business Markets: Organizations that buy natural resources, component products, and services that they resell, use to conduct their business, or use to manufacture another product Employ professional buyers and use systematic purchasing procedures North American Industry Classification System (NAICS): Method used by the U.S. Department of Commerce to classify all businesses. The NAICS codes are based on broad industry groups, subgroups, and detailed groups of firms in smaller lines of business Organizes industries into 20 broad sectors Primary Demand Trend: The projection of future consumer demand for a product category, based on past demand and offer market influences Part of the challenge of market segmentation is estimating the profits the company might realize if: - It aims at the whole market - It caters only to specific segments Check Yourself: 1. What is the marketer’s goal in segmenting markets? 2. What characteristics are used in psychographic segmentation? 3. Why do marketers aggregate market segments? The Target Marketing Process Once the market segmentation is complete, a company can proceed to the Target Marketing Process: The process by which an advertiser focuses its marketing efforts on a target market Will determine the content, look, and feel of its advertising 1 step: assess which of the newly created segments offer the greatest profit potential and which can be most successfully penetrated The company designates one or more segments as a target market (those consumers the company wishes to appeal to, design products for, and tailor its marketing activities toward It may designate another set of segments as a secondary target market and aim some of its resources at it Product Concept: The consumer’s perception of a product as a “bundle” of utilitarian and symbolic values that satisfy functional, social, psychological, and other wants and needs Strategic Options to enhance this concept: Product Price Distribution Communication The way the marketer mixes and blends these elements creates the marketing mix: 4Ps (product, price, place, promotion) that every company has the option of adding, subtracting, or modifying in order to create a desired marketing strategy Check Yourself: 1. What is the relationship between the target market and the 4Ps? Advertising and The Product Element Product Element: The most important element of the marketing mix: the good or service being offered and the values associated with it—including the way the product is designed and classified, positioned, branded, and packaged Product Life Cycle: Progressive stages in the life of a product—including introduction, growth, maturity, and decline—that affect the way a product is marketed and advertised (Chart pg. 109) Early Adopters: Prospects who are most willing to try new products and services The idea is to stimulate Primary Demand: Consumer demand for a whole product category Introductory Phase: The initial phase of the product life cycle (also called the pioneering phase) when a new product is introduced, costs are highest, and profits are lowest Must advertise heavily in this stage to establish a position as a market leader and to gain a large share of market before the growth stage begins Pull Strategy: Marketing, advertising, and sales promotion activities aimed at inducing trial purchase and repurchase by consumers Push Strategy: Marketing, advertising, and sales promotion activities aimed at getting products into the dealer pipeline and accelerating sales by offering inducements to dealers, retailers, and salespeople Growth Stage: The period in a product life cycle that is marked by market expansion as more and more customers make their first purchases while others are already making their second and third purchases Maturity Stage: That point in the product life cycle when the market has become saturated with products, the number of new customers has dwindled, and competition is most intense Competition intensifies and profits diminish Selective demand: Consumer demand for the particular advantages of one brand over another Companies increase their promotional efforts but emphasize selective demand to impress customers with the subtle advantages of their particular brand Late in the stage companies may have to scramble to extend the product’s life cycle Decline Stage: The stage in the product life cycle when sales begin to decline due to obsolescence, new technology, or changing consumer tastes Ways to classify tangible goods: By Markets By the purchasing habits of buyers By the consumption rate or degree of tangibility By physical attributes Position: The way in which a product is ranked in the consumer’s mind by the benefits it offers, by the way it is classified or differentiated from the competition, or by its relationship to certain target markets The goal: to own a word that establishes the product in the prospect’s mind By developing a unique position for the brand in the consumer’s mind, the marketer helps the consumer remember the brand and what it stands for Product differentiation creates a product difference that appeals to the preferences of a distinct market segment Perceptible Differences: Differences between products that are visibly apparent to the consumer Hidden Differences: Imperceptible but existing differences that may affect the desirability of a product Induced Differences: Distinguishing characteristics of products effected through unique branding, packaging, distribution, merchandising, and advertising Branding: A marketing function that identifies products and their source and differentiates them from all other products Created through the accumulation of consistent advertising campaigns, favorable publicity, special-event sponsorship, and good word of mouth Brand: That combination of name, words, symbols, or design that identifies the product and its source and distinguishes it from competing products—the fundamental differentiating device for all products Without brands, consumers couldn’t tell one product from another, and advertising them would be nearly impossible Individual Brand: Assigning a unique name to each product a manufacturer produces Family Brand: The marketing of various products under the same umbrella name National Brands: Product brands that are marketed in several regions of the country Too expensive, so companies use… Private Labels: Personalized brands applied by distributors or dealers to products supplied by manufacturers. Private brands are typically sold at lower prices in large retail chain stores (Great Value) Licensed Brands: Brand names that other companies can buy the right to use The role of branding: for consumers, brands offer instant recognition and identification; also promote consistent, reliable standards of quality, taste, size, or even psychological satisfaction, which adds value to the product for both the consumer and the manufacturer Brands must be built on differences in images, meanings, and associations Brand equity: The totality of what consumers, distributors, dealers, and competitors feel and think about a brand over an extended period of time; in short, it is the value of the brand’s capital Offers: customer loyalty, price inelasticity, long-term profits Product packaging is a component of the product element that can determine the outcome of retail shelf competition It’s the marketer’s last chance to communicate with at the point of sale Four considerations in package design: Identification- containment, protection, and convenience Consumer Appeal Economy These may become Copy Points: Copywriting themes in a product’s advertising Advertising and The Price Element Price element: In the marketing mix, the amount charged for the good or service— including deals, discounts, terms, warranties, and so on. The factors affecting price are market demand, cost of production and distribution, competition, and corporate objectives Key factors influencing price: Market demand for the product Costs of production and distribution Competition Corporate objectives Marketers believe that consumers are often less concerned with a product’s actual price than with its perceived price relative to competitors Psychological Pricing: Using price as a means of influencing a consumer’s behavior or perceptions; for example, using high prices to reinforce a quality image, or selling at $2.99 instead of $3.00 to make a product appear less expensive Advertising and The Distribution (Place) Element Place Element: How and where customers will buy a company’s product; either direct or indirect distribution The method of distribution, like price, must be consistent with the brand’s image Two basic methods of distribution: - Direct Distribution: The method of marketing in which the manufacturer sells directly to the customers without the use of retailers Network Marketing: (Multilevel Marketing) A method of direct distribution in which individuals act as independent distributors for a manufacturer or private-label marketer - Indirect Distribution Reseller: Businesses that buy products from manufacturers or wholesalers and then resell the merchandise to consumers or other buyers; also called middlemen. The most common examples of resellers are retail stores and catalog retailers Distribution Channel: The network of all the firms and individuals that take title, or assist in taking title, to the product as it moves from the producer to the consumer Distribution Strategies: Intensive Distribution: A distribution strategy based on making the product available to consumers at every possible location so that the consumers can buy with a minimum effort Selective Distribution: Strategy of limiting the distribution of a product to select outlets in order to reduce distribution and promotion costs Cooperative (co-op) Advertising: The sharing of advertising costs by the manufacturer and the distributor or retailer. The manufacturer may repay 50 or 100 percent of the dealer’s advertising costs or some other amount based on sales Exclusive Distribution: The strategy of limiting the number of wholesalers or retailers who can sell a product in order to gain a prestige image, maintain premium prices, or protect other dealers in a geographic region Vertical Marketing System (VMS): A system in which the main members of a distribution channel—producer, wholesaler, and retailer—work together as a cooperative group to meet consumer needs Three types of VMS: Corporate: one company owns multiple levels of the distribution or production channel Administered: one member of the production and distribution chain is dominant and calls the shots Contractual: involves a formal agreement between the various levels of the distribution or production channel to coordinate the overall process Types of contractual VMS: Retail Cooperative: A group of independent retailers who establish a central buying organization (a wholesaler) to acquire discounts from manufacturers and gain economies from joint advertising and promotion efforts Franchising: A type of vertical marketing system in which dealers pay a fee to operate under the guidelines and direction of the parent company or manufacturer Advertising and The Promotion (Communication) Element Promotion (communication) Element: Includes all market-related communications between the seller and the buyer Marketing Communications: The various efforts and tools companies use to initiate and maintain communication with customers and prospects, including advertising, personal selling, sales promotion, direct marketing, public relations, and social media Important for advertising success: - Strong primary demand trend - Potential for significant product differentiation - Hidden qualities highly important to consumers - Opportunity to use strong emotional appeals - Substantial funds available to support advertising Check Yourself: 1. How does a product’s stage in the product life cycle affect the way the product is advertised? 2. What are the benefits of a strong brand name? 3. Who do advertisers need to be concerned with a product’s price?
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