Market Segmentation, Research, Products & Services
Chapter 8: Market Segmentation
Market Segmentation: Definition & Importance
Definition: Dividing a market into distinct groups of buyers with different needs, characteristics, or behaviors.
Importance: Helps firms tailor marketing efforts and products to meet specific customer needs, increasing efficiency and effectiveness.
Criteria for Successful Segmentation
- Substantiality: Segment must be large/profitable enough. Example: Teenagers as a large, spend-heavy segment.
- Identifiability & Measurability: Must be able to identify and measure characteristics (e.g., income, age).
- Accessibility: Must be reachable with marketing mix (ads, distribution, etc.).
- Responsiveness: Segment must respond differently to different marketing mixes.
Bases for Segmenting Consumer Markets
- Demographic Segmentation: Age, gender, income, ethnicity, life stage. Example: AARP targets 50+ consumers.
- Geographic Segmentation: Region, population density, climate. Example: Snowblower ads in Northern states only.
- Psychographic Segmentation: Lifestyle, values, personality. Example: Patagonia targets eco-conscious, active lifestyles.
- Behavioral Segmentation:
- Usage Rate: Light vs. heavy users.
- Benefits Sought: What customers want (e.g., whitening toothpaste vs. cavity protection).
Targeting Strategies
- Undifferentiated Targeting: Single marketing mix for the entire market. Example: Salt, flour.
- Concentrated Targeting: Focuses on one specific niche/segment. Example: Rolex targets luxury watch buyers only.
- Multi-segment Targeting: Targets two or more segments with different strategies for each. Example: Nike targets runners, basketball players, and casual wearers separately.
Customer Relationship Management (CRM)
Definition: Uses detailed customer data to personalize marketing. Example: Amazon recommends products based on browsing/purchase history. Helps firms understand behavior, retain customers, and increase loyalty.
Positioning Strategies & Perceptual Mapping
Positioning: How a brand is perceived in the minds of consumers. Example: Volvo = safety, Apple = innovation.
Perceptual Mapping: Visual representation of how consumers perceive brands based on attributes like price or quality. Helps firms reposition or differentiate.
Practice Questions & Answers
Q1: What are the four criteria that a useful segmentation scheme must meet? A: Substantiality, Identifiability & Measurability, Accessibility, Responsiveness.
Q2: How does multi-segment targeting differ from concentrated targeting? A: Multi-segment targets two or more segments with unique mixes for each, while Concentrated focuses on one single niche, maximizing efficiency for that group.
Q3: What role does CRM play in creating effective target market strategies? A: CRM helps companies collect and use data to customize marketing, improve retention, and build long-term relationships. It enables precise segmentation and targeted messaging.
Chapter 9: Marketing Research
Role and Importance of Marketing Research
Definition: The process of planning, collecting, and analyzing data relevant to marketing decision-making.
Purpose: Reduces risk, improves decision-making, helps companies understand customers and market trends.
Example: A clothing brand surveys customers to understand why sales dipped—finds sizing complaints.
Steps in the Marketing Research Process
- Identifying and Formulating the Problem/Opportunity: Define the issue clearly—what decision needs data support? Example: “Why are Gen Z customers abandoning our app?”
- Planning the Research Design: Decide how to collect the data—survey, focus group, experiment?
- Specifying the Sampling Procedure: Decide who to study (the sample) and how to select them (random, convenience, etc.).
- Collecting Data: Actually gather the information—interviews, surveys, observations.
- Analyzing the Data: Use stats and software to find patterns, relationships, or trends.
- Preparing and Presenting Reports: Summarize key findings and present recommendations to stakeholders.
- Following Up: Ensure decisions are made from findings and check on long-term results.
Types of Research Data
Primary Data: Data collected firsthand for the specific problem. Example: A company does a focus group to test a new product name. Pros: Specific, current. Cons: Time-consuming, expensive.
Secondary Data: Previously collected data used for a new analysis. Example: Using U.S. Census or industry reports. Pros: Fast, cheap. Cons: May be outdated or not a perfect fit.
Survey Research Methods & Questionnaire Design
Survey Methods: In-person interviews – deeper insights but expensive; Phone surveys – less used today; Mail surveys – low response rate; Online surveys – fast, cheap, flexible (most common today).
Questionnaire Design Tips: Avoid leading or biased questions; Keep language simple; Use closed-ended questions for analysis; Include demographic questions at the end.
Impact of Internet & Mobile Technology
Online research allows faster, cheaper, and wider data collection. Mobile surveys = real-time data; can track location and behavior. Tools like Google Forms, SurveyMonkey, and social media polling are widely used.
Customer Motivations & Uncovering Them
Consumers don’t always say what they really think—use indirect methods. Projective techniques, ethnographic studies, and in-depth interviews help uncover deeper reasons. Example: A shopper may say they buy organic for health, but interviews reveal social status as a hidden driver.
Practice Questions & Answers
Q1: What is the first step in the marketing research process? A: Identifying and formulating the problem or opportunity.
Q2: What are the advantages of online surveys compared to traditional methods? A: Faster data collection, Lower cost, Easy to customize and analyze, and Can reach a wide or targeted audience.
Q3: How can companies use marketing research to understand hidden customer motivations? A: Use qualitative methods like interviews and observation, Apply techniques like projective questions and storytelling, Analyze behavioral patterns, not just what customers say.
Chapter 10: Product Concepts
Types of Consumer Products
- Convenience Products: Bought frequently and with minimal effort. Example: Snacks, toothpaste, soda. Low price, widespread availability.
- Shopping Products: Compared carefully on quality, price, and style. Example: Shoes, electronics, furniture. More expensive, sold in fewer outlets.
- Specialty Products: Unique characteristics or brand identification; buyers are willing to make a special effort. Example: Rolex watch, luxury car. High brand loyalty, limited distribution.
- Unsought Products: Consumers don’t normally think about buying or don’t know exist. Example: Life insurance, funeral services. Require aggressive promotion.
Product Items, Lines, and Mixes
- Product Item: A specific version of a product. Example: A 16 oz bottle of Diet Coke.
- Product Line: A group of related items. Example: Coca-Cola’s soft drinks.
- Product Mix: All products a company sells. Example: Coca-Cola’s drinks, juices, waters.
Branding Concepts
Brand Equity: The value of a brand based on consumer perception, awareness, and loyalty. Example: Apple can charge premium prices because of strong brand equity.
Types of Brands
- Manufacturer’s Brand (National Brand): Owned by the producer (e.g., Nike, Kellogg’s).
- Private Brand (Store Brand): Owned by retailers (e.g., Target’s Good & Gather).
- Captive Brand: Exclusively sold at one retailer but not associated with that retailer’s name. Example: Archer Farms at Target (now Good & Gather).
Branding Strategies
- Individual Branding: Using different brand names for different products. Example: Procter & Gamble’s Tide, Pampers, Gillette.
- Family Branding: Several products under one brand name. Example: Apple (iPhone, iPad, Mac).
- Co-Branding: Two brands on one product. Example: Doritos Locos Tacos (Doritos + Taco Bell).
Packaging Functions
- Contain & Protect: Prevent damage and spoilage.
- Promote the Product: Attract attention on shelves.
- Facilitate Storage & Use: Easy to open, resealable, stackable.
- Facilitate Recycling: Eco-friendly materials.
Labeling Types
- Persuasive Labeling: Focuses on branding and promotion (e.g., “New!”, “Tastes Better!”).
- Informational Labeling: Provides details like ingredients, instructions, and warnings.
Product Warranties
- Express Warranty: Written guarantee (e.g., “5-year parts warranty”).
- Implied Warranty: Automatically applies by law (e.g., product will work as expected).
Global Issues in Branding & Packaging
Companies must adapt product names, branding, and packaging to different languages, cultures, and regulations. Example: Packaging sizes or colors may differ across countries for cultural reasons.
Practice Questions & Answers
Q1: What are the four types of consumer products and how do they differ? A: Convenience: Inexpensive, frequent buys, little thought (e.g., gum). Shopping: Compared by consumers, higher price (e.g., shoes). Specialty: Unique, strong brand preference (e.g., Tesla). Unsought: Unplanned purchases, requires promotion (e.g., life insurance).
Q2: How does brand equity contribute to a company’s success? A: Increases customer loyalty and trust. Enables premium pricing and competitive advantage. Boosts brand awareness and long-term profitability.
Q3: What are the main functions of packaging in product strategy? A: Protect the product. Promote brand and attract customers. Make the product easy to store, handle, and use. Help meet sustainability or legal requirements.
New-Product Development Process
- New-Product Strategy: Aligns product development with business goals and market needs.
- Idea Generation: Brainstorming from employees, customers, R&D, or competitors.
- Idea Screening: Filtering ideas to spot feasible, profitable ones.
- Business Analysis: Financial forecasting, cost, profit potential, and market demand.
- Development: Product prototypes, branding, packaging, and initial marketing.
- Test Marketing: Introducing the product to a limited market to gauge response. Risk: Costly and may alert competitors.
- Commercialization: Full-scale launch with distribution, promotion, and production.
Why Products Succeed or Fail
Success Factors: Clear customer benefits, Strong marketing support, Good product-market fit.
Failure Reasons: Poor market research, Overestimation of demand, Bad timing, Poor product design.
Product Life Cycle Stages
- Introduction: High costs, low sales, awareness-building. Strategy: Stimulate trial with promotions, heavy investment.
- Growth: Sales rise rapidly, competitors enter. Strategy: Brand differentiation, increase market share.
- Maturity: Sales plateau, competition is fierce. Strategy: Maximize profit, defend share, product enhancements.
- Decline: Sales fall, product may be retired. Strategy: Reduce costs, harvest, or discontinue.
Diffusion of Innovation: Adopter Categories
- Innovators (2.5%): Risk-takers, first to try.
- Early Adopters (13.5%): Opinion leaders, influence others.
- Early Majority (34%): Deliberate, cautious.
- Late Majority (34%): Skeptical, adopt due to pressure.
- Laggards (16%): Last to adopt, resistant to change.
Influencing Factors
- Complexity
- Relative advantage
- Compatibility
- Observability
- Trialability
Balancing Personalization & Privacy
Use customer data (like past purchases or location) to customize offers. Must comply with privacy laws (e.g., GDPR, CCPA). Transparency, consent, and secure data handling are key. Example: Spotify uses listening history for personalized playlists, but also offers data privacy settings.
Practice Questions & Answers
Q1: What are the seven steps in the new-product development process? A: New-product strategy, Idea generation, Idea screening, Business analysis, Development, Test marketing, Commercialization.
Q2: How do marketing strategies differ between the growth and maturity stages of the product life cycle? A: Growth Stage: Focus on market expansion, differentiating from new competitors, increasing distribution, and enhancing brand awareness. Maturity Stage: Focus shifts to retaining customers, improving product features, finding new uses, or entering new markets while maximizing profit.
Q3: How can companies balance personalization and privacy concerns in product development? A: Collect only necessary data, be transparent about usage, gain customer consent, and protect data with strong security. Example: Spotify uses listening history for personalized playlists, but also offers data privacy settings.
Chapter 12: Services and Nonprofit Organization Marketing
Differences Between Services and Goods
- Intangibility: Services can’t be touched, seen, or stored like physical goods. Example: You can see a car before buying, but can’t “see” a haircut until it’s done. Marketing Tip: Use tangible cues (e.g., uniforms, logos, ambiance) to build trust.
- Inseparability: Production and consumption happen at the same time. Example: A dentist performs the service while the patient is present. Marketing Tip: Emphasize service provider quality and training.
- Heterogeneity: Services are inconsistent; each delivery can vary. Example: Your experience at the same restaurant may change with different waiters. Marketing Tip: Standardize through employee training and technology.
- Perishability: Services can’t be stored for future use. Example: An empty airplane seat on a flight is lost revenue. Marketing Tip: Use pricing strategies (e.g., dynamic pricing, off-peak discounts) to manage demand.
Service Quality Components (RATER Model)
- Reliability: Performing dependably and accurately. Example: FedEx consistently delivering on time.
- Assurance: Knowledge and courtesy of employees. Example: A confident doctor explaining procedures clearly.
- Tangibles: Physical appearance of facilities, staff, and materials. Example: A clean, well-branded Starbucks store.
- Empathy: Caring, individualized attention. Example: Luxury hotels remembering guest preferences.
- Responsiveness: Willingness to help customers quickly. Example: Amazon offering rapid customer support.
The Gap Model of Service Quality
Helps identify where service delivery falls short of customer expectations.
- Knowledge Gap: Management doesn’t understand what customers expect.
- Standards Gap: Lack of proper service standards.
- Delivery Gap: Employees don’t deliver to standards.
- Communication Gap: What’s promised ≠ what’s delivered.
- Perception Gap: Customer’s perceived service differs from expectations.
Solution: Use training, better communication, clear standards, and consistent feedback loops to close these gaps. Example: Amazon offering rapid customer support.
Marketing Mixes for Services (7 Ps)
- Product (core & supplementary services)
- Price (tiered pricing, demand-based pricing)
- Place (delivery systems, accessibility)
- Promotion (tangible cues, testimonials)
- People (employees are part of the experience)
- Process (flow of service delivery)
- Physical Evidence (environment, materials, signage)
Relationship Marketing in Services
Focuses on customer retention over acquisition. Builds long-term value via: Financial Bonds: Loyalty programs, discounts. Social Bonds: Personalized service, community feel. Customization Bonds: Personalized recommendations, tailored offers. Example: Sephora’s Beauty Insider program.
Internal Marketing in Service Firms
Treat employees as internal customers. Satisfied employees = better service. Strategies include: Training, Empowerment, Recognition, Supportive culture. Example: Southwest Airlines’ employee-first philosophy.
Nonprofit Organization Marketing
Focuses on mission-driven goals (not profit). Targets multiple audiences: donors, volunteers, beneficiaries. Uses storytelling, transparency, and emotional appeal. Often relies on partnerships, social media, and public service announcements. Example: Charity: Water shows where every dollar goes using maps and reports.
Crisis Management in Service Contexts
Service failures (e.g., flight delays, hospital errors) demand fast, empathetic responses. Best practices: Immediate acknowledgment, Apology and compensation, Transparent communication, Empower frontline staff to resolve issues. Example: Ritz-Carlton allows employees to spend up to $2,000 to fix any guest issue without manager approval.
Practice Questions & Answers
Q1: What are the four unique characteristics that distinguish services from goods? A: Intangibility, Inseparability, Heterogeneity, and Perishability.
Q2: How can the Gap Model help improve service quality? A: By identifying specific gaps between customer expectations and actual service delivery, companies can focus on training, better communication, setting standards, and empowering employees to close these gaps.
Q3: What are effective strategies for handling customer crises in service organizations? A: Respond quickly, offer sincere apologies, provide compensation if necessary, be transparent, and empower employees to solve issues on the spot.
Chapter 13: Supply Chain Management and Marketing Channels
Supply Chains & Supply Chain Management
A supply chain is the connected network of businesses and activities involved in producing and delivering a product to the end customer.
Supply Chain Management (SCM): The coordination of these activities to optimize value delivery, cost efficiency, and customer satisfaction. Example: From a farmer growing tomatoes → wholesaler → grocery store → you.
Internal & External Supply Chain Integration
Internal Integration: Coordination within the company (e.g., logistics, marketing, operations all working together).
External Integration: Coordination with outside partners like suppliers, distributors, and retailers. Example: Walmart integrates internally via real-time inventory systems and externally with suppliers using shared data.
Eight Key Processes of Excellent SCM
- Customer Relationship Management (CRM): Builds loyalty and satisfaction.
- Customer Service Management: Ensures strong service from order to delivery.
- Demand Management: Balances customer demand with supply capabilities.
- Order Fulfillment: Efficiently delivers what’s ordered, when and where needed.
- Manufacturing Flow Management: Coordinates production and delivery scheduling.
- Supplier Relationship Management: Ensures reliable supplier partnerships.
- Product Development & Commercialization: Aligns supply chain with new product launches.
- Returns Management: Efficiently handles product returns and reverse logistics.