Sharpen the Focus: Target Marketing Strategies and Customer Relationship Management

1. Chapter 7 Sharpen the Focus:Target Marketing Strategies and Customer Relationship Management

2. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-2 Chapter Objectives Identify the steps in the target marketing process Understand the need for market segmentation and the approaches available to do it Explain how marketers evaluate segments and choose a targeting strategy Understand how marketers develop and implement a positioning strategy Explain how marketers increase long-term success and profits by practicing customer relationship management

3. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-3 Target Marketing Strategy: Selecting and Entering a Market Market fragmentation: The creation of many consumer groups due to the diversity of their needs and wants Target marketing strategy: Dividing the total market into different segments based on customer characteristics, selecting one or more segments, and developing products to meet those segments’ needs

4. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-4 Figure 7.1 Steps in the Target Marketing Process

5. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-5 Steps in the Target Marketing ProcessStep 1: Segmentation Segmentation: The process of dividing a larger market into smaller pieces based on one or more meaningful shared characteristics Segmentation variables: Dimensions that divide the total market into fairly homogeneous groups, each with different needs and preferences

6. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-6 Steps in the Target Marketing ProcessStep 1: Segmentation Segmentation variables include: Demographics—size, age, gender, ethnic group, income, education, occupation, family structure Generational marketing Psychographics—psychological, sociological, and anthropological factors Behavioral characteristics

7. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-7 Segmenting by Demographics: Age and Generational Marketing Children Teens Tweens Generation Y: born between 1979 and 1994 Generation X: born between 1965 and 1978 Baby boomers: born between 1946 and 1964 Older consumers LINK INFORMATION:Nintendo has developed a line of video games (wii and Nintendo DS formats) that are designed to appeal to people of all generations, which they have labeled “Touch Generations.” Their premise is that “gaming doesn’t have an age” and the games promoted are those which allegedly can be enjoyed by the young and old alike. It might be interesting to discuss this concept with students to get their take. Are the games promoted on the Web site likely to appeal to people of different ages, or is this simply wishful thinking on Nintendo’s part? Is the Touch Generations premise contrary to the essence of segmentation and targeting? GENERATIONAL MARKETING INFORMATION:A wealth of information is available related to Baby Boomers, Generation X, and Generation Y. Instructors may wish to embed a link in the PPT to one of the following videos available from the CBS News Web site, or review one of the articles referenced below: Videos:“The Millennials are Coming, Morley Safer On The New Generation Of American Workers,” May 25, 2007 www.cbsnews.com/stories/2007/11/08/60minutes/main3475200.shtml Funerals, Baby Boomer Style, February 25, 2008 CBS News Recent articles about Generation Y accessible online include: The Generation Y Hotel, By Deirdre Van Dyk, Time magazine, Posted Thursday, June. 12, 2008, available at www.time.com/time/magazine/article/0,9171,1813977,00.html?loomia_si=t0:a16:g2:r1:c0.106576:b18561152 * Can be used to illustrate how the hotel related the needs of Generation Y from those of Baby Boomers. What Gen Y Really Wants, By Penelope Trunk, Time magazine, posted, Thursday, July 05, 2007, available at www.time.com/time/magazine/article/0,9171,1640395,00.html. Generation Y: They've arrived at work with a new attitude By Stephanie Armour, USA TODAY, posted November 6, 2005, available at www.usatoday.com/money/workplace/2005-11-06-gen-y_x.htm.LINK INFORMATION:Nintendo has developed a line of video games (wii and Nintendo DS formats) that are designed to appeal to people of all generations, which they have labeled “Touch Generations.” Their premise is that “gaming doesn’t have an age” and the games promoted are those which allegedly can be enjoyed by the young and old alike. It might be interesting to discuss this concept with students to get their take. Are the games promoted on the Web site likely to appeal to people of different ages, or is this simply wishful thinking on Nintendo’s part? Is the Touch Generations premise contrary to the essence of segmentation and targeting? GENERATIONAL MARKETING INFORMATION:A wealth of information is available related to Baby Boomers, Generation X, and Generation Y. Instructors may wish to embed a link in the PPT to one of the following videos available from the CBS News Web site, or review one of the articles referenced below: Videos:“The Millennials are Coming, Morley Safer On The New Generation Of American Workers,” May 25, 2007 www.cbsnews.com/stories/2007/11/08/60minutes/main3475200.shtml Funerals, Baby Boomer Style, February 25, 2008 CBS News Recent articles about Generation Y accessible online include: The Generation Y Hotel, By Deirdre Van Dyk, Time magazine, Posted Thursday, June. 12, 2008, available at www.time.com/time/magazine/article/0,9171,1813977,00.html?loomia_si=t0:a16:g2:r1:c0.106576:b18561152 * Can be used to illustrate how the hotel related the needs of Generation Y from those of Baby Boomers. What Gen Y Really Wants, By Penelope Trunk, Time magazine, posted, Thursday, July 05, 2007, available at www.time.com/time/magazine/article/0,9171,1640395,00.html. Generation Y: They've arrived at work with a new attitude By Stephanie Armour, USA TODAY, posted November 6, 2005, available at www.usatoday.com/money/workplace/2005-11-06-gen-y_x.htm.

8. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-8

9. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-9 Segmenting by Demographics: Gender Many products appeal to one sex or the other Metrosexual: A straight, urban male who is keenly interested in fashion, home design, gourmet cooking, and personal care

10. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-10 Family Life Cycle Targeting Furniture is product category that varies with the family life cycle. Singles living away from home for the first time may purchase very small refrigerators to serve as beverage coolers in their dorm room, or inexpensive press wood furniture for an apartment. Young married couples purchase a greater number of items, but quality is likely to be relatively low because cost is a concern. As children join the family, parents purchase cribs, baby changing tables, and later on, twin beds or bunk beds. As family income rises, families may move to larger homes in more affluent neighborhoods, and purchase higher-quality furniture. After the kids have moved out of the house, couples in their prime working years may acquire a second (vacation) home, or upgrade their primary home furnishings to higher-quality items (Ethan Allen; leather sofas, etc.).Furniture is product category that varies with the family life cycle. Singles living away from home for the first time may purchase very small refrigerators to serve as beverage coolers in their dorm room, or inexpensive press wood furniture for an apartment. Young married couples purchase a greater number of items, but quality is likely to be relatively low because cost is a concern. As children join the family, parents purchase cribs, baby changing tables, and later on, twin beds or bunk beds. As family income rises, families may move to larger homes in more affluent neighborhoods, and purchase higher-quality furniture. After the kids have moved out of the house, couples in their prime working years may acquire a second (vacation) home, or upgrade their primary home furnishings to higher-quality items (Ethan Allen; leather sofas, etc.).

11. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-11 Segmenting by Demographics:Other Variables Family life cycle: Family needs change over time Income Strongly correlated with buying power Social Class Consumers buy according to image they wish to portray Race and ethnicity African Americans Asian Americans Hispanic Americans Place of residence Geographic regions Geodemography Geocoding

12. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-12 Segmenting by . . . ??

13. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-13 Segmenting by Place of Residence Geodemography: Combines geography with demographics Geocoding: Customizes Web advertising so people who log on in different places see ad banners for local businesses PRYSM by Claritas, is a geodemographic targeting system, which combines not only demographics and geography, but also lifestyle traits and product purchase behavior. The link referenced at: www.claritas.com/MyBestSegments/Default.jsp, lands at “My Best Segments,” from which instructors can access the “You Are Were You Live” USA Today special interactive report (click the round button toward the right-hand side of the page). Instructors can also click the Zip Code Look-Up button at the top of the page, and use this feature to look up the most prominent PRYSM clusters associated with a particular zip code. Once the list of top five clusters is returned, clicking on any cluster name will reveal some basic facts that distinguish that group. The Segment Look-Up tab at the top of the page provides access to a brief profile of any of the PRYSM clusters.PRYSM by Claritas, is a geodemographic targeting system, which combines not only demographics and geography, but also lifestyle traits and product purchase behavior. The link referenced at: www.claritas.com/MyBestSegments/Default.jsp, lands at “My Best Segments,” from which instructors can access the “You Are Were You Live” USA Today special interactive report (click the round button toward the right-hand side of the page). Instructors can also click the Zip Code Look-Up button at the top of the page, and use this feature to look up the most prominent PRYSM clusters associated with a particular zip code. Once the list of top five clusters is returned, clicking on any cluster name will reveal some basic facts that distinguish that group. The Segment Look-Up tab at the top of the page provides access to a brief profile of any of the PRYSM clusters.

14. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-14 Segmenting by Psychographics Psychographics: The use of psychological, sociological, and anthropological factors to construct market segments Members of psychographic segments typically share activities, interests, and opinions, or AIOS The VALS2 system segments U.S. consumers into eight unique groups

15. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-15 Figure 7.2VALS2TM

16. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-16 Segmenting by Behavior Behavioral segmentation: Segments consumers based on how they act toward, feel about, or use a product 80/20 rule: 20% of purchasers account for 80% of a product’s sales

17. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-17 Segmenting by Behavior Long tail concept: Firms CAN make money selling small amounts of items IF they sell enough different items User status: Heavy, medium, and light users and nonusers of a product Usage occasions

18. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-18 Segmenting B2B Markets Segmentation helps B2B firms understand the needs and characteristics of potential customers Firms can be segmented by: Organizational demographics Production technology used Whether customer is a user/nonuser of product North American Industry Classification System (NAICS)

19. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-19 Steps in the Target Marketing Process Step 2: Targeting Targeting: A strategy in which marketers evaluate the attractiveness of each potential segment and decide in which segment they will invest resources to try to turn them into customers The customer group(s) selected are referred to as the target market

20. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-20 Evaluation of Market Segments A viable target segment should: Have members with similar product needs/wants Be measurable in size and purchasing power Be large enough to be profitable Be reachable by marketing communications Have needs the marketer can adequately serve

21. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-21 Developing Segment Profiles After segments are identified, profiles or descriptions of the “typical” customer in a segment are developed Segment profiles might include demographics, location, lifestyle, and product-usage characteristics

22. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-22 Figure 7.3 Choose a Target Marketing Strategy

23. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-23 Choosing a Targeting Strategy Undifferentiated targeting strategy Appealing to a broad spectrum of people Differentiated targeting strategy Developing one or more products for each of several customer groups Concentrated targeting strategy Offering one or more products to a single segment

24. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-24 Choosing a Targeting Strategy Custom marketing strategy Tailoring specific products to individual customers Common in personal and professional services, and in industrial marketing Mass customization Modifying a basic good or service to meet the needs of an individual Students may ask whether or not services can be mass-customized. The answer is yes, and a visit to the Capital One Credit Lab may help to prove the point (www.capitalonecardlab.com/). Customers can customize their credit level and interest rate, reward program, and the picture on the card itself.Students may ask whether or not services can be mass-customized. The answer is yes, and a visit to the Capital One Credit Lab may help to prove the point (www.capitalonecardlab.com/). Customers can customize their credit level and interest rate, reward program, and the picture on the card itself.

25. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-25 Mass Customization

26. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-26 Steps in the Target Marketing Process Step 3: Positioning Positioning:Developing a marketing strategy to influence how a particular market segment perceives a good/service in comparison to the competition The ad at right positions Colgate Total as a toothpaste that fights germs for 12 hours

27. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-27 Steps in Developing a Positioning Strategy Analyze competitors’ positions Offer a good or service with a competitive advantage Finalize the marketing mix by matching mix elements to the selected segment Evaluate target market’s responses and modify strategies as needed Positioning is a strategic level decision that is critical in directing the marketing communication efforts for the brand. Competitive advantages ideally should be sustainable, but rarely are for the long haul. In fact, lack of sustainability is the biggest difficulty faced by those who position themselves as the “low cost” alternative. Using competitive advantages, or “points of difference” in the positioning strategy will only be effective if the competitive advantage chosen is meaningful enough to the consumer to influence his or her brand selection. However, consumers can surprise marketers with what they find to be meaningful. Apple’s sales soared when they began offering their computers in different colors—a feature totally unrelated to the functional benefits of the brand, but one that helped the users express their individuality and personality. In many product categories, it simply isn’t possible to develop a truly meaningful “real” competitive advantage, based on actual benefit-related differences. When products are fairly homogenous (cola soft drinks), marketers turn to image considerations and use these as the basis for positioning. In terms of finalizing the marketing mix, there are several implementation issues. Advertising slogans offer one method of expressing the brand’s position succinctly. Examples: Bounty is the “Quicker, Picker-Upper”; L’Oreal “Costs More, But I’m Worth It.” Distribution decisions can also influence perceptions of the brand’s quality or other attributes. (It would be inconsistent with the desired position to distribute a luxury good through mass merchandise stores.) And of course price and quality perceptions are strongly intertwined. Positioning is a strategic level decision that is critical in directing the marketing communication efforts for the brand. Competitive advantages ideally should be sustainable, but rarely are for the long haul. In fact, lack of sustainability is the biggest difficulty faced by those who position themselves as the “low cost” alternative. Using competitive advantages, or “points of difference” in the positioning strategy will only be effective if the competitive advantage chosen is meaningful enough to the consumer to influence his or her brand selection. However, consumers can surprise marketers with what they find to be meaningful. Apple’s sales soared when they began offering their computers in different colors—a feature totally unrelated to the functional benefits of the brand, but one that helped the users express their individuality and personality. In many product categories, it simply isn’t possible to develop a truly meaningful “real” competitive advantage, based on actual benefit-related differences. When products are fairly homogenous (cola soft drinks), marketers turn to image considerations and use these as the basis for positioning. In terms of finalizing the marketing mix, there are several implementation issues. Advertising slogans offer one method of expressing the brand’s position succinctly. Examples: Bounty is the “Quicker, Picker-Upper”; L’Oreal “Costs More, But I’m Worth It.” Distribution decisions can also influence perceptions of the brand’s quality or other attributes. (It would be inconsistent with the desired position to distribute a luxury good through mass merchandise stores.) And of course price and quality perceptions are strongly intertwined.

28. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-28 Modifying Positioning Strategies Repositioning is commonly used to change the brand image Requires redoing a product’s position in response to marketplace changes Repositioning may breathe life into Retro brands A once-popular brand that has been revived to experience a popularity comeback, often by riding a wave of nostalgia

29. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-29 S T P Segmentation, Targeting, Positioning NOT Richard Petty’s # 43 Sponsor:

30. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-30 The Brand Personality Brand personality:A distinctive image that captures the brand’s character and benefits Perceptual map: A technique used to visually describe where products/brands are “located” in consumers’ minds relative to competing brands

31. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-31 Brand Personalities

32. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-32 Figure 7.4Perceptual Map

33. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-33 Customer Relationship Management (CRM) Customer relationship management: A systematic tracking of consumers’ preferences and behaviors over time in order to tailor the value proposition as closely as possible to each individual’s unique wants and needs CRM facilitates one-to-one marketing

34. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-34 Four Steps in One-to-One Marketing Identify customers and get to know them in as much detail as possible Differentiate customers by their needs and value to the company Interact with customers; find ways to improve cost efficiency and the effectiveness of the interaction Customize some aspect of the products you offer each customer

35. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-35 CRM: A New Perspective on an Old Problem CRM systems use computers, software, databases, and the Internet to capture information at each touchpoint Touchpoints are any direct interface between customers and a company (online, by phone, in person, etc.) CRM proposes that customers are relationship partners, with each partner learning from the other every time they interact

36. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-36 CRM vs. CEM Customer Relationship Management characteristics: Share of customer (vs. share of market) Lifetime value of the customer Customer equity Focus on high-value customers Customer Experience Management (CEM): Concept of holistically aligning a firm’s people, processes, systems, and strategies to maximize the customer’s experience with all aspects of your firm and its brands To better illustrate the lifetime value of the customer concept, instructors can visit the following Web site during class, or create an exercise assignment that makes use of this resource: www.harvardbusinessonline.com/flatmm/flashtools/cltv/. Following the link above leads to the Customer Lifetime Value Tool, which is available from Harvard Business Online. This resource begins with an introduction and conceptual overview (which are a bit long for an in-class demo). However, instructors can skip straight to the Sample Problem to illustrate how lifetime value of the customer is calculated, or use the Tool to work an example interactively during class.To better illustrate the lifetime value of the customer concept, instructors can visit the following Web site during class, or create an exercise assignment that makes use of this resource: www.harvardbusinessonline.com/flatmm/flashtools/cltv/. Following the link above leads to the Customer Lifetime Value Tool, which is available from Harvard Business Online. This resource begins with an introduction and conceptual overview (which are a bit long for an in-class demo). However, instructors can skip straight to the Sample Problem to illustrate how lifetime value of the customer is calculated, or use the Tool to work an example interactively during class.

37. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-37 Real People, Real Choices: Decision Time at NutriSystem, Inc. Which strategy should NutriSystem implement: Option 1: Air testimonial ads from men who tried the 28-day weight loss program on cable Option 2: Don’t enter the men’s market Option 3: Develop a men’s program and launch it with a big splash on national television

38. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 7-38 Real People, Real Choices: Decision Made at NutriSystems, Inc. Tom chose option 1 No one felt that marketing weight loss to men would result in a successful campaign, so the firm minimized marketing costs by limiting the campaign to cable ads featuring testimonials Implementation: Ads were run on Bravo, Discovery, FX, National Geographic, Outdoor Life, Spike TV, Sci-Fi and Speed channels Measuring success: Media acquisition cost and length of stay per customer

39. Q: Business buyers can be segmented by all of the following factors except: 1. geography.  2. demographics.  3. benefits sought.  4. psychographics.

40. Q: Which of the following is not a typical basis for segmenting consumer markets? 1. Geography  2. Politics  3. Psychological profile  4. Behavior

41. Q: While evaluating market segments, marketers need to examine various structural forces that affect the long-term attractiveness of a segment. All the following are examples of such structural forces except: 1. aggressive competitors.  2. threat of substitute products.  3. stock market price of competitors.  4. powerful suppliers.

42. Q: Because the Internet allows increasingly refined and precise targeting with ads that are more relevant to consumers, marketers are more likely to seek personal information about each consumer for even more precise targeting. Which is more important to preserve? 1. Fewer, more relevant ads 2. Personal privacy

43. Q: Which of the following is not a value proposition? 1. More for Less  2. Less for More  3. More for More  4. Same for Less