Unit 3 Market Segmentation and Personality Discussion Response External scholarly sources required: 3 Word count requirement for initial discussion board p

Unit 3 Market Segmentation and Personality Discussion Response External scholarly sources required: 3 Word count requirement for initial discussion board post: 250 Word count requirement for each response to classmate: 100 As discussed in Chapter 5, VALS is a very popular proprietary market segmentation tool. Go to the Strategic Business Insights website at http://www.strategicbusinessinsights.com/vals/presurvey.shtml Click on “Take the VALS survey” and complete all of the questions. Then, click “Submit” to view your results. Share your results. Were the results surprising to you? Do you agree or disagree? Why or why not? Discuss products or companies where it might be appropriate to utilize market segmentation according to personality traits. Support your post with scholarly RESEARCH on market segmentation and personality. Your VALS™ Type Primary Type: Strivers Secondary Type: Thinkers Your primary VALS type means that you are most like the Strivers consumer group. Your secondary type—the group you are next most like—is Thinkers. Your primary VALS type represents your dominant approach to life. The secondary type represents a particular emphasis on the dominant approach. I slightly disagree because I also consider myself to be an achiever and a believer. Simply I am a Christian achiever as well because when I set a goal I normally achieve or accomplish that goal whether it be making a major purchase or earning my masters degree. Customers,
Segmentation, and
Target Marketing
CHAPTER
5
G
A
INTRODUCTION
T
In this chapter, we begin our discussion of marketing strategy by examining customers, segments, and target markets. In Chapter 1, weE
referred to a market as a collection of buyers and sellers. Now, we focus our S
attention on the buyers who
collectively make up the major portion of most markets. From this perspective, we
,
concern ourselves with markets as individuals, institutions, or groups of individuals
or institutions that have similar needs that can be met by a particular product offering. As we shall see, firms can attempt to reach all buyers in a market, smaller groups
D
or segments of the market, or even specific buyers on an individual level. Whether
the firm aims for the entire market or smaller market E
segments, the goal of marketing strategy is to identify specific customer needs, then
Adesign a marketing program
that can satisfy those needs. To do this effectively, the firm must have a comprehenN including their motivasive understanding of its current and potential customers,
tions, behaviors, needs, and wants.
D
The ability to determine in-depth information about customers is a fairly recent
R technology and marketing
phenomenon in marketing. Fifty years ago, for example,
know-how were less sophisticated. Marketers of the day
A were unable to fully understand customers’ needs and wants, much less make fine distinctions among smaller
segments of the total market. Marketers tended to offer products that came in only
one variety, flavor, or style. Today, market segmentation
1 is critical to the success of
most firms. Segmentation allows marketers to more precisely define and understand
1
customer needs, and gives them the ability to tailor products to better suit those
needs. As discussed in Beyond the Pages 5.1, the level2of detailed information available about customers today has changed the way firms do business. However, the
3
use of such information raises concerns about consumer privacy. Still, without segmentation we would not enjoy the incredible varietyTof products available today.
Consider the number of choices we have in categories
Ssuch as soft drinks, cereals,
packaged goods, automobiles, and clothing. In many respects, segmentation has
improved our standard of living. Customers now expect firms to delve into their
needs and wants, and to tailor products accordingly. This fact makes market segmentation a vital part of marketing strategy. Until a firm has chosen and analyzed a
target market, it cannot make effective decisions regarding other elements of the
marketing strategy.
In this chapter, we examine issues associated with buyer behavior in both consumer and business markets. We also discuss traditional and individualized
approaches to market segmentation, the criteria for successful market segmentation,
and specific target marketing strategies. The potential combinations of target
119
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120
Chapter 5 • Customers, Segmentation, and Target Marketing
BEYOND THE PAGES 5.1
Companies Learn Our Secrets Through
Data Mining1
Consider a world where what you eat, read,
wear, listen to, watch, buy, and do can be
reduced to a mathematical formula. Every
move you make is tracked with such a level of
specificity that your entire life can be captured
in a computer model. Sound far-fetched? It’s not.
Today, the combination of computer science,
mathematics, and business is changing our
view of consumers and their behavior. The ability to track consumer behavior has never been
more advanced than it is today. The new
insights gained from the mathematical modeling
of consumer behavior is creating new avenues
for business, allowing marketers to develop
one-to-one relationships with consumers, and
causing a fair amount of anxiety. It is also causing a sharp increase in the hiring of math graduates from our nation’s universities.
Through advanced math, computer modeling, and data mining, businesses have been
able to track consumer attitudes and behaviors
for some time. The difference today is the
unprecedented access to data made available
via the Internet and other technologies. Over
the past 10 years, a sizable portion of the consuming public has moved its work, play, conversation, and shopping online. These integrated
networks collect vast amounts of data and
store our lives in databases that can be connected in ways that allow us to capture a more
complete picture of consumer behavior. For
example, researchers at companies like Facebook, Yahoo!, Google, and Amazon are developing mathematical models of customers. These
firms are also working with other companies
and government agencies to develop models
that can predict voting behavior, how patients
respond to disease intervention, or which
employee is best suited for a job assignment.
For example, Target’s data mining expertise
raised a few eyebrows when the New York
Times uncovered that the retailer was able to
tell when a customer was pregnant or about to
deliver. Target’s statisticians are able to tie millions of purchases together to reveal patterns in
their data. One of their insights: When women
become pregnant, they buy a lot of supplements
such as calcium, magnesium, and zinc. When
their delivery date is close, pregnant women
tend to buy a lot of scent-free products, large
bags of cotton balls, hand sanitizer, and washcloths. Target uses this information to target
ads and coupons to the right consumers. Data
mining results like these are one of the reasons
for Target’s incredible growth from $44 billion in
revenue in 2002 to roughly $72.5 billion in 2013.
Retailers are not the only companies that
use data mining. The advertising and media
industries are perhaps the most affected by this
G shift. As mass audience advertising has declined,
A marketers have been looking for ways to target
customers more directly. Google is a pioneer in
T this effort because the company has amassed an
E unfathomable amount of data on what customers do online. Other companies now provide
S data mining solutions. In research conducted
, with SPSS, for example, Italian carmaker Fiat
was able to improve customer relations and
increase customer retention by 6 to 7 percent.
D Microsoft uses its own analytical techniques to
the productivity of its workforce. FurtherE study
more, Harrah’s Entertainment (a major player in
A the casino industry) has increased their annual
rate by using computer models to preN growth
dict which customers will respond to the comD pany’s targeted advertising and promotional
R offers.
Of course, all of this sophistication comes at
A a price. The ability of companies to track customers and model their behavior raises a number
of privacy concerns. Although most companies
1 take great pains to protect individual consumer
1 identities and their private information, major
issues often arise. For example, that same data
2 warehouse Target uses to reach its customers
3 was hacked in late 2013. The hackers stole perinformation and credit card numbers for
T sonal
over 70 million Target customers. Major proS blems like this are still relatively rare; however,
the continuing erosion of consumer privacy is
likely to continue. A key question for marketers
is at what point will consumers say enough is
enough? How far can firms push the boundaries
of data collection and analysis before consumers mount a backlash?
9781337669078, Marketing Strategy: Text and Cases, Seventh Edition, O.C. Ferrell – © Cengage Learning.
All Rights Reserved. No distribution allowed without express authorization. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-240
Chapter 5 • Customers, Segmentation, and Target Marketing
markets and marketing programs are essentially limitless. Choosing the right target
market from among many possible alternatives is one of the key tests in developing a
good marketing strategy.
BUYER BEHAVIOR IN CONSUMER MARKETS
Trying to understand the buyer behavior of consumers is a very trying and challenging task. The behavior of consumers is often irrational and unpredictable. Consumers often say one thing but do another. Still, the effort spent trying to understand
consumers is valuable because it can provide needed insight on how to design products and marketing programs that better meet consumer needs and wants. One of
the most recent trends in learning about customers is the rising use of ethnography, a
qualitative research technique designed to understand cultural phenomena such as
communication, shared meanings, and personal interests. Computer maker Lenovo,
for example, has used ethnographic research to learn more about how families in
G
India use consumer electronics. One interesting finding is that the family social center in Indian homes is the parents’ bedroom. The kitchen
A serves the same social function in American homes. Lenovo uses this type of information to develop consumer
T
electronics that better fit differing family lifestyles in India and the United States.
E have been scouring social
With the continuing growth of the Internet, marketers
media such as Facebook, Twitter, and Instagram to gain
S cultural insights about consumers. One of the most useful of these sites is Pinterest, where people can “pin”
, growth (up 111 percent in
anything that interests them. Pinterest’s phenomenal
2014) and its open nature make it a treasure trove of information about American
culture. Marketers see Pinterest as a great way to showcase brands, especially
D
among women (42 percent of all women online use Pinterest).
The number of male
2
users has also been growing—up 73 percent in 2014. E
In this section, we look at key issues with respect to buyer behavior in consumer
A and the factors that alter
markets. Here, we examine the consumer buying process
the ways consumers buy goods and services. As we will
N see, successful marketing
strategy depends on a clear understanding of customers with respect to who they
D Although this understandare, what they need, what they prefer, and why they buy.
ing clearly has relevance for designing the product offering,
R it also impacts the pricing, distribution, and promotion decisions in the marketing program.
A
The Consumer Buying Process
1
The consumer buying process shown in Exhibit 5.1 depicts five stages of activities
that consumers may go through in buying goods and1services. The process begins
with the recognition of a need, and then passes through
2 the stages of information
search, evaluation of alternatives, purchase decision, and postpurchase evaluation.
3
A marketer’s interest in the buying process can go well beyond these stages to
include actual consumption behaviors, product uses, and
T product disposal after consumption. As we consider each stage of the buying process, it is important to keep a
S
few key issues in mind.
First, the buying process depicts the possible range of activities that may occur
in making purchase decisions. Consumers, however, do not always follow these
stages in sequence and may even skip stages en route to making a purchase. For
example, impulse purchases, such as buying a pack of chewing gum or a newspaper,
do not involve lengthy search or evaluation activities. On the other hand, complex
purchases like buying a home are often quite lengthy as they incorporate every
stage of the buying process. Likewise, consumers who are loyal to a product or
brand will skip some stages and are most likely to simply purchase the same product
they bought last time. Consequently, marketers have a difficult time promoting brand
9781337669078, Marketing Strategy: Text and Cases, Seventh Edition, O.C. Ferrell – © Cengage Learning.
All Rights Reserved. No distribution allowed without express authorization. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-240
121
122
Chapter 5 • Customers, Segmentation, and Target Marketing
EXHIBIT 5.1
The Consumer Buying Process.
Stages
Key Issues
Need Recognition
•
•
•
•
•
Information Search
•
Evaluation of Alternatives
•
•
•
•
•
Purchase Decision
•
Postpurchase Evaluation
•
•
Consumer needs and wants are not the same.
An understanding of consumer wants is essential for market segmentation and the development
of the marketing program.
Marketers must create the appropriate stimuli to foster need recognition.
Consumers trust internal and personal sources of information more than external sources.
The amount of time, effort, and expense dedicated to the search for information depends on
(1) the degree of risk involved in the purchase, (2) the amount of experience the consumer has
with the product category, and (3) the actual cost of the search in terms of time and money.
Consumers narrow their potential choices to an evoked set of suitable alternatives that may
meet their needs.
Consumers translate their needs
G into wants for specific products or brands.
Consumers evaluate products as bundles of attributes that have varying abilities to satisfy their
A
needs.
T product is in the evoked set of potential alternatives.
Marketers must ensure that their
Marketers must take steps toE
understand consumers’ choice criteria and the importance they
place on specific product attributes.
S
A consumer’s purchase intention
, and the actual act of buying are distinct concepts. Several
factors may prevent the actual purchase from taking place.
Marketers must ensure that their product is available and offer solutions that increase
possession utility.
D
Postpurchase evaluation is theEconnection between the buying process and the development of
long-term customer relationships.
A
Marketers must closely follow consumers’ responses (delight, satisfaction, dissatisfaction,
N the product’s performance and its ability to meet customers’
cognitive dissonance) to monitor
expectations.
D

R
A
switching because they must convince these customers to break tradition and take a
look at what different products have to offer.
1
Second, the buying process often involves a parallel sequence of activities associated with finding the most suitable
merchant of the product in question. That is,
1
while consumers consider which product to buy, they also consider where they
2
might buy it. In the case of name brand products, this selection process may focus
3
on the product’s price and availability
at different stores or online merchants. A specific model of Sony television,Tfor example, is often available from many different
retailers and may even be available at Sony’s website. Conversely, in the case of
private-label merchandise, theS
choices of product and merchant are made simultaneously. If a customer is interested only in Gap brand clothing, then that customer
must purchase the clothing from a Gap store or the Gap website.
Third, the choice of a suitable merchant may actually take precedence over the
choice of a specific product. In some cases, customers are so loyal to a particular
merchant that they will not consider looking elsewhere. For example, many older
consumers are fiercely loyal to American car manufacturers. These customers will
limit their product selection to a single brand or dealership, greatly limiting their
range of potential product choices. In other cases, customers might be loyal to a particular merchant because they hold that merchant’s credit card or are a member of
its frequent-user customer program. Finally, some merchants become so well known
9781337669078, Marketing Strategy: Text and Cases, Seventh Edition, O.C. Ferrell – © Cengage Learning.
All Rights Reserved. No distribution allowed without express authorization. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-240
G
A
T
E
When consumers purchase products like candy or gum on impulse,
S they rarely go through each
stage of the buying process.
,
David R. Frazier Photolibrary, Inc. / Alamy
Chapter 5 • Customers, Segmentation, and Target Marketing
D their buying process with
for certain products that customers just naturally execute
those merchants. Sears, for example, is well known for
E its selection of name-brand
appliances and tools. For many customers, Sears is the natural place to go when
they are in the market for a new refrigerator, washer, A
or wrenches.
N
D
The buying process begins when consumers recognize that they have an unmet need.
R
This occurs when consumers realize that there is a discrepancy
between their existing level of satisfaction and their desired level of satisfaction.
Consumers
can recogA
Need Recognition
nize needs in a variety of settings and situations. Some needs have their basis in
internal stimuli, such as hunger, thirst, and fatigue. Other needs have their basis in
external stimuli, such as advertising, window shopping,
1interacting with salespeople,
or talking with friends and family. External stimuli can also arouse internal
1
responses, such as the hunger you might feel when watching
an advertisement for
Pizza Hut.
2
Typically, we think of needs as necessities, particularly with respect to the
3 health, or love). However,
necessities of life (food, water, clothing, safety, shelter,
this definition is limited because everyone has a different
T perspective on what constitutes a need. For example, many people would argue that they need a car when
S
their real need is for transportation. Their need for a car is really a “want” for a car.
This is where we draw the distinction between needs and wants. A need occurs when
an individual’s current level of satisfaction does not equal their desired level of satisfaction. A want is a consumer’s desire for a specific product that will satisfy the need.
Hence, people need transportation, but they choose to fulfill that need with a car,
rather than with alternative products like motorcycles, bicycles, public transportation, a taxi, or a horse.
The distinction between needs and wants is not simply academic. In any marketing effort, the firm must always understand the basic needs fulfilled by their
products. For example, people do not need drills; they need to make holes or
9781337669078, Marketing Strategy: Text and Cases, Seventh Edition, O.C. Ferrell – © Cengage Learning.
All Rights Reserved. No distribution allowed without express authorization. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-240
123
124
Chapter 5 • Customers, Segmentation, and Target Marketing
drive screws. Similarly, they do not need lawnmowers; they need shorter, wellmanicured grass. Understanding these basic needs allows the firm to segment markets and create marketing programs that can translate consumer needs into wants
for their specific products. An important part of this effort involves creating the
appropriate stimuli that will foster need recognition among consumers. The idea is
to build on the basic need and convince potential consumers to want your product
because it will fulfill their needs better than any competing product.
It is also important to understand that wants are not the same thing as demand.
Demand occurs only when the consumer’s ability and willingness to purchase a specific product backs up their want for the product. Many customers want a luxury
yacht, for example, but only a few are able and willing to buy one. In some cases, consumers may actually need a product, but not want it. So-called “unsought products”
like life insurance, cemetery plots, long-term health insurance, and continuing education are good examples. In these cases, the marketer must first educate consumers on
the need for the product, and then convince consumers to want their products over
competing products. F…
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