Customers, Segmentation and Targeting

1. Customers, Segmentation & Target Marketing
Marketing Management [MKTG 315] Lecture 7
With Texts Based on Kotler & Keller (2012), Ferrell & Hartline (2011)
Lartey Jared Offei
Entrepreneurship Training Institute [E.T.I]
Corresponding E-mail:
joffei@vvu.edu.gh
Facebook||Twitter: @offeijared
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Scholar

2. • The consumer buying process
• Consumer and business markets
• Criteria for segmenting consumer / business markets
• Segmentation approaches for consumer markets
• Target marketing
- How do consumers make buying decisions?
- What factors influence their buying decisions?
- What is an evoke set?
- How do marketers go by segmenting markets?
- How do marketers target markets?
Lecture Outline/Questions

3. • In our previous sessions, we referred to a market as a
collection of buyers and sellers. In this session, we would
focus our attention on the buyers who collectively make up
the major portion of most markets.
• Firms can attempt to reach all buyers in a market, smaller
groups or even specific individuals.
• Irrespective of a firm’s choice, the goal of marketing strategy
is to identify specific customer needs and design a
marketing program to satisfy these needs.
• But to do this effectively, a firm must have a compressive
understanding of its current and potential customers
[motivations, behaviors, needs and wants].
Overview

4. • Previously, marketers tended to offer products that came in
only one variety, flavour or style (See Henry Ford’s car).
• Today, this is risky, market segmentation has become critical
to the success of most firms.
• Segmentation allows marketers to more precisely define
and understand customer needs, and an ability to tailor
products that better suit those needs.
• Without segmentation, we would not enjoy the incredible
variety of products today. In many respects, it has improved
our standard of living.
• Therefore, until a firm has chosen and analyzed a target
market, it can not make effective decisions regarding other
elements of the marketing strategy.
Overview

5. • Understanding the buying behaviour of consumers is very
trying and challenging. Perhaps because consumers can be
rational, irrational and unpredictable.
• For example, consumers often say one thing but do another.
However, the effort spent trying to understand them is still
valuable because it provides insights on how to design
products and marketing programs.
• One of the most recent trends in understanding consumers
is the rising use of ethnography [E.g. Lenovo, P&G].
The Consumer Buying Process

6. • The consumer buying process depicts five stages of
activities that consumers go through in buying goods and
services.
The Consumer Buying Process
Need
Recognitio
n
Information
Search
Evaluation of
Alternatives
Purchas
e
Decision
Post-
Purchase
Evaluatio
n

7. • Consumers however do not always follow these stages in
sequence and may even skip stages to making a purchase.
• For example impulse buying involving chewing gums and
newspapers do not involve lengthy search or evaluation
activities.
• On the other hand, complex purchases like buying an
automobile or a home are often quiet lengthy as they
incorporate every stage of the buying process.
• Likewise, consumers who are loyal to a product or brand will
skip some stages as they are mostly likely to purchase the
same product they bought the last time.
The Consumer Buying Process

8. Need Recognition
• The buying process begins when consumers recognize that
they have an unmet need.
• They realize there is a discrepancy between their existing
situation and their desired situation.
• These needs are a result of internal and external stimuli.
• For marketers, an important part of this stage involves
creating the appropriate stimuli that will foster need
recognition among consumers.
• Consumer needs at this stage are distinct from wants.
• Consumers may have a need for transportation but may
choose to satisfy that need with a car rather than
alternatives as a bicycle.
The Consumer Buying Process

9. Information Search
• Wants are the hot buttons for consumers and the key to
promoting further activity in the buying process.
• When done correctly, marketing stimuli can prompt
consumers to become interested in a product, leading to the
desire to seek out additional information.
• The desire for information can be passive or active.
• Information can come from a variety of sources.
• Internal sources: Memories, personal experience.
• Personal sources: Word-of-mouth, friends, family, co-
workers.
• External sources: Advertising, sales people.
The Consumer Buying Process

10. Information Search Cont.’
• Although external sources are numerous, consumers tend
to trust internal and personal sources more.
• Consumers use information to reduce their risk averse
nature and throughout the process they learn about different
products and brands.
• The outcome of information search is an evoke set. Which
is the list of suitable alternatives.
• This outcome forms the beginning of the next stage.
The Consumer Buying Process

11. Evaluation of Alternatives
• In evaluating the alternative choices in the evoke set,
consumers literally translate their needs into want for a
specific product or brand.
• This stage is the “black box” of consumer behaviour
because it is typically the hardest for marketers to
understand, measure or influence.
• Consumers evaluate products as bundles of attributes that
have varying abilities to satisfy their needs.
• These attributes may include image, reputation, reliability,
safety etc.
• One of many important considerations for marketers is to
get their products in the evoke set. By this, they must
always remind consumers of their company and its
offerings.
The Consumer Buying Process

12. Purchase Decision
• After consumers evaluate alternatives in the evoke set, they
form an intention to purchase a particular product or brand.
• This is “when demand meets the real product”.
• We should note that a purchase intention and the actual act
of buying are distinct concepts.
• Marketers can eliminate risks of purchase by warranties or
guarantees.
• But assuming potential intervening factors are not a
concern, the critical concerns for marketers during this stage
are product availability and possession utility.
• What factors influence the consumer buying process?
The Consumer Buying Process

13. Post-purchase Evaluation
• This stage is the connection between the buying process
and the development of long-term customer relationships.
• Marketers must closely follow consumer responses to
monitor product’s performance and ability to meet customer
expectations.
• At this stage, buyers will experience one of these four
outcomes:
• Delight – greatly exceeding buyers expectations
• Satisfaction – meeting buyers expectations
• Dissatisfaction – short of buyers expectations
• Cognitive dissonance – post-purchase doubt, buyer unsure
of product’s performance relative to his or her expectation
The Consumer Buying Process

14. Business Markets
• As we shift our attention to buyer behaviour in business
markets, we should keep in mind that business and
consumer markets have many things in common.
• Both contain buyers and sellers who seek to make good
purchases and satisfy their personal objectives and needs.
• Both focus on customer satisfaction as the desired outcome.
• They differ however especially in consumption of the
purchased products.

15. Business Markets
There are four types of business markets:
• Commercial markets: Industries that buy raw materials for
producing finished goods.
• Reseller markets: Channel intermediaries such as
wholesalers, retailers and brokers.
• Government markets: Federal, state, county, city and local
governments.
• Institutional markets: Non-commercial organizations as
churches, schools, charities and hospitals.

16. The Business Buying Process
• Like consumers, businesses follow a buying process.
• Given the complexity, risk and legal obligations, they tend to
follow the stages in sequence.
• Problem recognition
• Developing product specifications
• Vendor identification and qualification
• Solicitation for proposals and bids
• Vendor selection
• Order processing
• Vendor performance review

17. • Understanding the processes consumers and businesses
use to make purchases provides a lead in uncovering
similarities of groups and how hey can be segmented and
targeted.
• We define market segmentation as the process of dividing
the total market for a particular product into relatively
homogeneous segments and groups.
Market Segmentation

18. • To be effective, segmentation should create groups where
the members within have similar likes, tastes, needs, wants
and preferences.
• This means a market segment should be dissimilar from
other groups.
• In reality the most fundamental segmentation decision is
whether to segment at all.
• Some firms go with mass marketing by targeting an entire
market.
• However, most firms opt to segment because, it is often
mandated by customers due to their search for unique
products.
• Most firms also believe they can be successful by directing
their scarce resources to unique needs or customer
requirements.
Market Segmentation

19. • As we delve into segmentation approaches, it is important to
note that not all approaches are viable in a marketing sense.
• For example it makes no sense to segment the soft drink
market by eye colour.
• The segmentation approach must make sense at least in
the following related criteria:
• Identifiable and measurable
• Substantial
• Accessible
• Responsive
• Viable and sustainable
Criteria for Successful Segmentation

20. • The goal in segmenting consumer markets is to isolate
individual characteristics that distinguish one or more
segments from the total market.
• Different factors used for segmenting consumer markets fall
into one of these four broad categories:
a) Demographic segmentation
b) Behavioural segmentation
c) Psychographic segmentation
d) Geographic segmentation
Segmenting Consumer Markets

21. Demographic Segmentation
• Segmenting markets based on demographic variables tend
to be the most widely used as they are relatively easy to
measure.
• This requires using distinctive variables as gender, age,
income, education, religion, social class, occupation,
nationality and ethnicity.
• Unfortunately, demographic segmentation becomes less
useful when the firm has a strong interest in understanding
the motives or values that drive buying behaviour.
• For example, how would you describe the demographic
characteristics of a price-sensitive, value-conscious
consumer?
Segmenting Consumer Markets

22. Behavioural Segmentation
• This is the most powerful approach because it uses actual
consumer behaviour or product usage to make distinctions
among market segments.
• Consequently, it is the most closely associated with
customer needs.
• Its variables include product usage, benefits sought and
price sensitivity.
• While it remains a powerful tool, it is quiet complex to
execute in practice.
Segmenting Consumer Markets

23. Psychographic Segmentation
• Delving into consumer thoughts and feelings is the subject
of psychographic segmentation.
• This approach deals with state-of-mind variables as
motives, attitudes, opinions, values, lifestyle, interest and
personality.
• These variables are more difficult to measure.
• Psychographic segments can be combined with other
segmentation approaches to create fully developed
consumer profiles.
• It is useful because it transcends purely descriptive
characteristics to help explain psychographic issues directly
connected to buying behaviour.
Segmenting Consumer Markets

24. Geographic Segmentation
• Geographic characteristics often play a large part in
developing market segments.
• This is because it allows marketers to focus their marketing
programs where their products are more likely to be
accepted.
• Not only does this make marketing activities more useful but
it also reduces expenditures.
• Geographic variables include region, city size and
population density.
• Even ubiquitous products sell better in some places.
Segmenting Consumer Markets

25. • One of the most basic methods of segmenting business
markets involves the four types of markets earlier
discussed.
• In addition to the types of business markets, firms can also
segment business buyers with the following variables:
a) Type of organization
b) Organizational characteristics
c) Benefits sought or buying processes
d) Personal and psychological characteristics
e) Relationship intensity
Segmenting Business Markets

26. • Once a firm has completed segmenting a market, it must
evaluate each market segment to determine its
attractiveness and whether it offers opportunities that match
the firm’s capabilities and resources.
• In this sense, attractive segments may be dropped for
several reasons including lack of resources, no synergy with
corporate mission, overwhelming competition, ethical or
legal concerns.
• Targeting involves selecting and pursing market segments.
• A firm might consider five basic strategies for target market
selection.
Target Marketing Strategies

27. Mass Market Targeting
• Only large firms with required resources have the capability
to execute mass market targeting.
• This involves developing multiple marketing programs to
serve all customer segments simultaneously.
• Coca-Cola for example offers roughly 400 branded
beverages across many segments in over 200 countries.
Target Marketing Strategies
X X X
X X X
X X X
M1 M2 M3
P1
P2
P3
Where:
P = Product Category
M = Market

28. Single Segment Targeting
• Firms use single segment targeting when their capabilities
are intrinsically tied to the needs of a specific market
segment.
• These firms are true specialist in a product category. They
constantly strive to quality and customer satisfaction by
understanding needs, preferences and lifestyle of their
consumers.
• E.g. Porsche & Ray-Ban
Target Marketing Strategies
X
M1 M2 M3
P1
P2
P3

29. Selective Targeting
• Firms that have multiple capabilities in different product
categories use selective targeting successfully.
• They “cherry pick” the most attractive market segments.
• It allows a firm an advantage to diversify its risks.
Target Marketing Strategies
X
X
X
P1
P2
P3
M1 M2 M3

30. Product Specialization
• Firms engage in product specialization when their expertise
in a product category can be leveraged across many
different market segments.
• Firms can adapt product specifications to match different
needs of customer groups.
Target Marketing Strategies
X X X
P1
P2
P3
M1 M2 M3

31. Market Specialization
• Firms engage in market specialization when their knowledge
and expertise in one market allows them to offer customized
marketing programs that not only deliver needed products
but also provide needed solutions to customer problems.
• E.g. Oral care companies.
Target Marketing Strategies
X
X
X
P1
P2
P3
M1 M2 M3

32. Marketing Insight
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