Segmentation and Targeting: Demographics

Professor S.J. Grant

Spring 2007

BUYER BEHAVIOR, MARKETING 3250

Outline

What is market segmentation? Why segment? How to segment?

DemographicsGeographicPsychographicsEthnicitySocial class

Overview of the STP Process

1. Identify dimensions for segmentation

2. Develop profiles of the resulting segments

1. Evaluate attractiveness of each segment

2. Select the target segment(s)

1. Identify positioning concepts for segment

2. Select, develop and communicate the chosen positioning

Segmentation

Targeting

Positioning

Segmentation is the dividing of a market into subsets, on the basis of similar needs, characteristics or behavior, by which any subset can be selected as a marketing target to be reached with a distinct positioning and marketing mix

Segmentation

Market Segmentation

One size fits all? Physician

• General practitioner versus cancer specialist

Lawyer• Personal injury versus corporate tax

lawyerBusiness consultant

• Specialist versus generalist

Demographic Females vs. males Teenagers vs. senior citizens

Geographic East Coast vs. West Coast Urban vs. rural

Psychographic Lifestyle, individual differences

Ethnic Class

Working class vs. middle class Nouveau Riche vs. Old Money

Commonly Used Variables

Demographics

296.4 million people in the US (2006) 85 million households

Minorities make up more than 33% of the US population Hispanic Americans African Americans Asian Americans Native Americans

Almost half the work force is women

Demographics

Generational segmentsBaby Boom Generation

• 78 million (born 1946-1964)

Generation X• 45 million (born 1965-1976)

Generation Y, or Echo Boomers• 72 million (born 1977-1994)

Demographics

Declining birth rateCouples having fewer childrenSegment of couples at child-bearing

years is smaller (Generation X)Causing a shift in age distribution

Demographics

Generation Y 60% of children under 6 have mothers who

work outside the home (compare to 18% in 1960)

60% of households with children under 7 have PCs in home

Teenage population expected to peak in 2006 with 30 million

• Highest since 1975• $100 billion in annual purchasing power

Demographics

25%23-61995-20121977-1994

17%34-241984-19941966-1976

21%45-351973-19831955-1965

14%54-461963-19721946-1954

17%72-551946-19631928-1945

5%78-731940-19451922-1927

3%88-791930-19391912-1921

Share of Population

Age in 2000Coming of Age

BornCohort

Depression

World War II

Post-War

Boomers I

Boomers II

Generation X

Generation Y

Demographics

Depression/WWII Orange juice FDR Flattops No more

butter Sunday drives Mom, Dad,

Grandma, Grandpa

Dr. Spock

Baby Boomers The Juice runs Nixon HAIR No more war

Drive-thrus Mom and Dad

Dr. Strangelove

Generations X & Y The Juice walks Reagan Skinheads No more ozone

layer Drive-bys Mom or Dad

Dr. Kevorkian

Market Segmentation

Two approaches that recognize different consumer segments require different benefits

Volkswagen

Jetta Passat Phaeton

Toyota Lexus

Corolla Camry

Geographics

Shifts in population Pre-1950s: people from rural, agricultural

areas moved to urban areas After World War II, urban dwellers began to

move to the suburbs In the 1980s, populations moved from the

Northeast (New England, New York) and Midwest (Illinois, Ohio) to the South (Georgia), West (California, Washington) and Southwest (Arizona)

Geographics

Regions in the US have distinct character – though somewhat diminished because of migratory culture, but still preserved

Psychographics

Psychographics is a quantitative investigation of consumers’ personalities, values and lifestyles

Assessing dominant values of individuals can help lead to better predictions of consumer behaviorhttp://www.sric-bi.com/VALS/types.shtml

VALS Framework

Ethnicity: Hispanic

Largest minority group – 42.7 million Significant within group diversity Acculturation levels vary

AcculturatedBiculturalTraditional

Ethnicity: Hispanic

Family orientation/extended family Strong ethnic pride/work ethic Importance of religion Younger than national average Brand loyal

Ethnicity: African Americans

Currently 2nd largest minority group – 39.7 million

Politically and morally charged role and place in US history

Ethnicity: African Americans

Representation in highest and lowest income groups is increasing

Urban – 15 largest cities Higher within-group identification Religious groups/Church membership important Preservation of cultural identity Pay more attention to ads/prestigious brands Less trust in unadvertised brands Sales force interaction important

Ethnicity: Asian Americans

3rd largest group – 14.4 million Highly significant within group diversity On average, greater discretionary income High value on education, upward mobility Emphasis on family, tradition, cooperation Strong work ethic Buy for quality Loyal to “high quality” (i.e.,expensive)

brands

Middle Class

“Do the right thing” (i.e., the “done” thing)

Influenced by popularity and current trends

Organization and neatness important Joiners Mainstay of branded products

Working Class

Oftentimes struggling to survive More locally oriented – socially,

intellectually, and geographically Because of preoccupation with

money, use price as cue to quality

Nouveau Riche vs. Old Money Nouveau Riche

Intellectual (real or perceived)

Self-expression Entrepreneurial Status from

achievement

Old Money Liberal and

socially conscious Understated, but

known status symbols

Careful search for information vs. price/brand as cue

Social Class

Trickle Down:Upscale can do downscale

Status Float:Downscale aspire to upscale

Professor S.J. Grant Spring 2007

Segmentation and Targeting: Usage

BUYER BEHAVIOR, MARKETING 3250

Outline

What is segmentation? Why segment? How to segment?

TraditionalUsage based

• Non-users, current users, competitor’s users

• Benefits

Goal of Segmentation

Why segment? Segments seek different benefits and will,

therefore, respond to different positionings Segmenting allows a firm to identify which

consumers can be most effectively reached instead of employing a broad reach

Appealing to a diverse set of users with a common product is difficult, prone to failure

Market Segmentation

Market segmentation allows firms to: Take into account consumers’ diverse needs and differing

behaviors (heterogeneity) Design marketing mix to be more closely matched with

consumer needs and deliver value by precisely meeting consumer needs (i.e., consumer propositions not diluted by intra-target variance)

Improve the efficiency and effectiveness of resource allocation, boosting profitability

How to Segment

Segmentation divides diverse set of consumers into homogeneous groups that can be addressedWith common positioningWith common benefitsWith common media vehicle

How to Segment

Criteria for selecting segments as your target? Measurable (have to be able to find them) Addressable (once you find them, must

identify media to reach them) Substantial enough to support a business

Traditional segmentation Define segments on key descriptors (sex, age) Measure response differences across segments

Usage-based segmentation Identify segments that differ on key usage

dimensions Profile resulting segments on key demographic and

psychographic descriptors

Traditional vs. Usage Segmentation

Why Segment by Descriptors?

No other information is available Most useful way of addressing

specific segments

Why Segment by Usage?

Communicating with consumers about a category is facilitated when a pre-existing knowledge structure in placeAllows storage of information that is

consistent with prior notionsPersuasion is difficult when you are

contradicting beliefs

Benefit Segmentation

Segmentation acknowledges consumer heterogeneity

Heterogeneity is represented by different ideal points

Market segments are formed by clustering individual ideal points together

Gentle

Eff

ecti

ve

Ideal Point Segment 1

Ideal Point Segment 2

Bayer

Excedrin

Tylenol

Bufferin Private Label

Anacin

Road Warriors: Generally higher-Income, middle -aged men who drive 25,000 to 50,000 miles a year . . . buy premium with a credit card . . . purchase sandwiches and drinks from the convenience store . . . will sometimes wash their cars at the carwash.

18% of buyers

True Blues: Usually men and women with moderate to high incomes who are loyal to a brand and sometimes to a particular station . . . frequently buy premium gasoline and pay cash. 16% of buyers

Generation F3 (for fuel, food and fast): Upwardly mobile men and women-half under 25 years of age-who are constantly on the go . . . drive a lot and snack heavily from the convenience store.

27% of buyers

Homebodies: Usually housewives who shuttle their children around during the day and use whatever gasoline station is based in town or along their route of travel.

21% of buyers

Price Shoppers: Generally aren't loyal to either a brand or a particular station, and rarely buy the premium line . . . frequently on tight budgets . . . efforts to woo them have been the basis of marketing strategies for years.

20% of buyers

® Mobil Oil Company

Market Segmentation Example

Segmentation Schemes

Once the benefits underlying segments are understood, organizing segments according to usage is necessary for targeting Current users

• Heavy users• Moderate users• Light users

Competitors’ users Non-users

Current Users

Current users are the most important segment to targetCurrent users have already favorable

associations to the productCustomer retention pays off, much more

cost effective than pursuing new users• Due to high cost of customer acquisition,

relationship may be profitable only after 1 year

Current Users

Current users are most likely to sustain, increase consumption

• Heavy users account for disproportionate share of brand’s volume

• 80/20 rule applies to beer drinkers• Men, age 18-34, eat several meals a week at

McDonald’s• Heavy users of Campbell’s Soup purchase

300 cans per year

• A brand’s first obligation is to address current users

Competitors’ Users

Success of a strategy that targets a competitors’ users depends on the brand’s ability to convince consumers of its superiority Difficult to change beliefsMaking a challenging claim often

encourages consumers to rehearse their own thoughts

Non-Users

Targeting non-users may be warranted if targeting other segments do not enhance opportunities for growthPoint-of-entry strategy

• Consumers who may be considering using the category, e.g. new parents, diamond ring

Category build strategy• Consumers who buy category for uses other

than conventional ones, e.g. baking soda

Segmentation: Example 1

What is the most useful way to segment diaper market?Traditional variables

• Baby’s sex• Baby’s age• Baby’s weight

Usage variables• Benefits?

Segmentation: Diapers

Pampers aims at parents who are expecting their first child

• Premium diaper• Outstanding softness• Rash-care• Sesame Street

• First-time parents have unique mindset• Nothing but the best• Cautious• Baby is precious

Segmentation: Diapers

Luvs targets parents of 2nd or 3rd child• “No leaks” point of difference• Cheaper diaper• “Live, learn and then get Luvs”• Barney Rewards loyalty program

Segmentation: Example 2

Makers of shower gels have complex segmentation schemes Category Crazies – buy all the latest products Thrifty Concerned – want gels, but price sensitive Shower Freaks – men seeking ‘squeaky clean’ Sensible Selectors – older women seeking pH

balance, buying for families Promiscuous Practicals – brand switchers Unsophisticated Bathers – prefer baths to showers Cynical Pragmatists – soap is soap

Segmentation: Example 2