1. Customer Analysis
Segmentation, Targeting & Positioning

2. What did we learn from BMW?
• The automobile market is divided into a number of “groups” or
“segments.” Sub-Compact; Compact; Full-Size; Luxury, etc.
• These divisions are however, product based, not customer based.
However, customers have, over time, “adopted” this segmentation
scheme
• BMW in the luxury / performance segment. But wants to segment
further based on “usage experience.” The Better Driver. Not product
based, but customer / market based.
• Usage experience + “Value pricing” for the segment key to
differentiating the product offering from Mercedes, Lexus & Infiniti
• Along with appropriate product and price, the promotions
(advertisements) and place (channels) also aligned with strategy

3. Segmentation
• What is Segmentation?
• Why do we need Segmentation?
• What do we do once we have “Segmented the Market” ?

4. Segmentation
• Market Segmentation is the Process of Identifying
Homogeneous Groups of Buyers Requiring Different Marketing
Strategies to Influence their Consumption
• Organizations have Limited Resources
• Consumers may be too Numerous, Widely Scattered and Varied
in their Needs
• Competing Organizations may be Better able to Attract Certain
Groups of Customers (Segments) in the Market
• Each Organization Should, Therefore Identify the Most
Attractive Parts of the Market That it Could Effectively Serve
(Target Market).

5. RJ Reynolds
• Focus on the Chicago market
• Company has several brands - Winston, Salem, etc.
• Question: How should RJR allocate its marketing resources in the
Chicago market ?
• The usage rate of RJR brand cigarettes varies across the city
• This usage rate seems to be related to the socio-economic
characteristics of the smokers
• Higher education level smokers use low tar cigarettes; “Blue collar”
folks smoke Winston, and African-American smokers prefer menthol
(found in Salem)
• Chicago’s North Shore area has high education levels; the South-East
area is a blue-collar neighborhood and the South side has many
African-American residences
• So, RJR allocates its promotion money based on brand & geography

6. A Segmentation Model
• In the above example, the usage rates of the different brands of
cigarettes formed the basis for the entire segmentation scheme.
Hence, this variable is referred to as a basis variable.
• In a regression context, think of the basis variable as a “dependent
variable.”
• The basis variable should capture the heterogeneity of interest to
the marketer, i.e., the differences across consumers.
• The geographic and socio-economic characteristics in the RJR
example are referred to as the descriptor variables.
• In a regression context, think of the descriptor variables as the
“independent variables.”
• The descriptor variables help the marketer deliver different 4P
levels to the different segments - different products (cigarette
brands); prices (low / medium / high); promotions (advertising in
specific magazines); place (different kinds of stores)

7. Descriptor Variables
Fraction of Customers
Relevant Descriptor
Low Education
High Education
20%
80%
Likelihood of Smoking Low-Tar
Cigarettes given Smoker
Irrelevant Descriptor
Own
Do Not Own
Microwave Microwave
30% 40%
Likelihood of Smoking Low-Tar
Cigarettes given Smoker

8. Segmentation Bases & Descriptors
Consumer
Bases: Needs, wants, benefits, solutions to
problems, usage situation, usage rates
Descriptors
• Demographics: Age, income, gender,
family size, marital status, social class
• Psychographics: Lifestyle, values,
personality
• Behavior: Use occasions, usage level,
brand loyalty, complementary and
substitute products used
• Decision making: Individual or group
choice, low or high involvement purchase,
attitudes and knowledge about product
class, price sensitivity, etc.
•
Media patterns: Level of use, types of
media used, times of use, etc.
Industrial
Bases: Needs, wants, benefits, solutions to
problems, usage situation, usage rates,
size, industry
Descriptors
Industry, size, location,current suppliers,
technology utilization
Personality characteristics of decision makers
Applications, order size, use occasions, usage
level, brand loyalty, complementary and
substitute products used
Purchase procedures, size and composition of
decision making group, use of outside
consultants, purchasing criteria,
(de)centralized purchasing, price
sensitivity, switching costs, budget cycle,
etc.
Patronage at trade shows, receptivity to sales
people, level of use, types of media used,
times of use

9. Criteria for Segmentation
A. IDENTIFIABLE
A good segmentation scheme must
have the following two characteristics
B. ACCESSIBLE
1. MUTUALLY EXCLUSIVE
C. RESPONSIVE
2. COLLECTIVELY EXHAUSTIVE
D. SIGNIFICANT

10. Strategic Approach to Segmentation
Identify Segments
Strategic Impact
Bases
Describe Segments
Levels
Category vs. Brand
Building
Use Product / Service?
•
•
User
Nonuser
Switching vs. Loyalty
Use my brand?
•
•
My brand
Other brand
Value of Customer
Level of Use?
•
•
•
Heavy
Moderate
Light
Image vs. Attribute
Timing
Occasion of use?
Varies by product
(Time of day..)
Form of the Value
Equation
Motivation for use?
•
•
Function
Psychic
Demographics
Media

11. Example: Category vs. Brand Building
Basis: Use Product or Service
BCI / CCI Analysis - Segments described by consumption levels
BCI: Brand Consumption Index
CCI: Brand Consumption Index
Number of units of brand X consumed by consumer J
BCI (J,X) =
Average number of units of brand X consumed in the market (per capita)
Number of units of the category consumed by consumer J
CCI (J) =
Average number of units of the category consumed per capita

12. CCI / BCI Analysis
Combine BCI and CCI to Examine Descriptors of the (e.g.) High CCI / Low BCI cell
CCI
LOW
HIGH
LOW
1.
2.
HIGH
3.
4.
BCI
Finding: Consumers in Cell #2, mostly live in the South-Western U.S. The firm
may want to allocate more resources to this geographic region (descriptor)

13. Problem
• Oftentimes, one needs to use multiple bases for segmentation. For
example, size of firm, order size and nature of application in an
industrial marketing application. Or in a financial services
application, the bases might be - number of accounts held with the
bank, frequency of ATM visits, volume of transactions, etc.
• Suppose there are N such basis variables. Let each variable have L
levels. Then the number of possible segments are NL.
• Obviously, there may be too many segments to be meaningful
• Hence, we need some procedure that can take the data across
consumers on all the relevant bases variables and then group those
consumers together who have similar values on the bases variables

14. Grouping consumers using their bases variables
Volume of
Transactions
Group 1
Group 3
Group 5
Group 2
Group 4
Number of
Accounts

15. Profiling the Segments
• When there are several bases variables, the statistical procedure
that is used to group consumers is called cluster analysis.
• Once the clusters (or segments) have been identified using the
bases variables, the next step is to describe (or profile) them using
the descriptor variables
• For example, in the financial services case, one can compute the
average income, age, family size, and media habits of the
consumers belonging to each of the 5 groups in the figure
• If the average profile of each group is “sufficiently” different,
then we have “good” descriptors
• Question: How do we decide how many segments to have? For
example, in the figure, one could potentially combine groups 1
and 2 to get a single, larger group. Then we would have only 4
segments

16. 3 Steps in a Segmentation study
• Survey stage
– Gathering data on a random sample of consumers for
several different bases and descriptor variables
• Analysis stage
– Cluster analysis
• Profiling stage
Later in the course, we will go through a specific application
to a PDA product

17. Market Segmentation
1. Identify Segmentation
Variables and Segment
the Market
Survey Stage
Analysis Stage
2. Develop Profiles of
Resulting Segments
Profiling Stage

18. Targeting
Opportunities for Profit
* Size
* Growth
Potential
TARGET
MARKET
SELECTION
Competitive Intensity
* Unmet Needs
* Entry Barriers
• Firm’s Objectives
• Firm’s Capabilities
• Synergies across
Segments

19. The Multi-factor Targeting Model
•
•
•
•
•
•
Select factors that drive segment
attractiveness and the firm’s relative
position
Attach a weight to each of the above
factors. The weights reflect the relative
importance of the factors
Rate each segment on each of the above
attractiveness and position factors
Compute the weighted sum to give you
an index of the attractiveness of each
segment and an index of the firm’s
position in each of the segments.
Select a mass marketing; multi-segment
or niche marketing strategy
Sequential targeting is also possible
Segment Attractiveness
• Market / Customer Factors
Size, growth, life cycle stage, loyalty,
price sensitivity, cyclicality in demand
• Economic & technological factors
Industry capacity, access to raw
materials,
barriers to entry & exit
• Competitive factors
• Environmental factors
Firm’s Position
• Market position factors
Relative share, change in share, company
image, breadth of product line
• Economic and technological factors
Cost position, capacity utilization,
technological position
• Capabilities
Management, sales force, innovation,
financial, channels

20. The Multi-factor Targeting Model
BUILD
Medium
GROW
REINFORCE SUPPORT
Low
Segment
Attractiveness
High
Firm’s Position
MAINTAIN HARVEST
Hig
h
Medium
DIVEST
Low

21. Market Targeting
3. Evaluate the
Attractiveness of
each Segment
Multi-factor Model
4. Select the Target
Segment(s).
Firm resources &
Strategy

22. Positioning
• Now that we have segmented the market and picked out the segments
we want to target with our offering, the next question is, how can we
convince consumers in the target segment to choose our offering?
• To do this, we have to convince this segment that our product /
service / firm:
• Meets (or exceeds) their needs
• Does it better than competitive offerings
• This is the role of Positioning in a firm’s marketing strategy

23. Needs
• In evaluating their needs and how different offerings fulfill this needs,
consumers look at the “value equation”
• Firms typically think of the value equation as:
• Value = Performance Quality ÷ Price
• Performance Quality = f (Product Attributes / Features)
• However, consumers are more concerned with the performance
quality relative to what they want
• That is, consumers are more focused on the Benefits from the product,
or Perceived Quality
• Further, their Perceived Price could be different from the actual price
of the product (e.g., costs associated with the down time of photocopy
machine)
• Value equation from consumer perspective is:
• Value = Perceived Quality ÷ Perceived Price
= Benefits ÷ Perceived Price

24. Suspension
Turning Radius
Example
Sportiness
Engine Capacity
Wheelbase
Roominess
Quality
Headroom
Miles / Gallon
Economy
Maintenance
Attributes
Benefits
Perceptions

25. ABCs of Positioning
• Attributes. Understand the attributes of the product or
service that drive the consumers’ perceived product or
service …..
• Benefits. The next step is to differentiate your product or
service offering from those of your competitors’ via your ….
• Communication of Value. You can change your advertising
message, your channels of distribution, your brand name,
etc...

26. Finding the Attributes that Help in Differentiation
Mapping the Consumption Chain - MacMillan & McGrath HBR
•
•
•
•
•
•
•
•
•
•
•
•
•
How does consumer become aware if need for your product / service?
How does consumer find your offering?
How does consumer make final selection?
How does consumer order and purchase your product or service?
How is your product / service delivered?
How is your product installed?
How is your product service paid for?
How is your product stored?
What is the customer really using the product for? (vinegar and coffee machines)
What does customer need help with while using the product?
What about returns and exchanges?
How is product repaired or serviced?
What happens when product is disposed of and no longer in use?

27. Positioning Analysis
1. The key to positioning is determining the needs of consumers along
(several ?) important benefit dimensions
2. Consumers perceptions of the existing services / products / firms in
the market (including yours ?) along each of these dimensions
3. Inferring opportunities / threats from the way in which consumers
perceive the set of products (in 2.) relative to their needs (in 1.)
• An important tool in Marketing that summarizes all this information is
called the Perceptual Map
• A perceptual map typically focuses on the two most important
attributes or benefits that consumers seek. Hence, it is a 2-D map with
each dimension corresponding to the attributes / benefits
• The perceptual map contains consumers’ Ideal Points (i.e., their
needs from 1. above) along each of the dimensions
• It also contains Brand Locations, i.e., consumers’ perceptions of the
brands in the market along the two dimensions of interest

28. A Perceptual Map
Sportiness
Porsche
BMW
Jaguar
Acura
NSX
1
4
Supra
VW
Golf
Economy
Prelude
Celica
2
6
5
3
Volvo
V70
Miata
Corolla
Civic
Twingo
Punto
1~6: Clusters of Ideal Points
Radius proportional to # of consumers

29. Collecting the Data
Car 1
Sporty
(1-7)
Consumer 1
Consumer 2
Consumer 3
Consumer 4
Consumer 5
Consumer 6
Economy
(1-7)
Car 2
Sporty
(1-7)
Economy
(1-7)
Car 3
Sporty
(1-7)
Economy
(1-7)
Ideal Point
Sporty
(1-7)
Economy
(1-7)

30. Positioning Statement
• For [target segment], the [product] [most important claim]
because [single most important support]
• For business travelers, Avis provides the best customer
service, because it’s #2 and tries harder.

31. Questions to ask when Positioning
• What position do we own?
• Find the answer in the marketplace
• What position do we want?
• Select one that does not become obsolete
• Who must we out-gun?
• Do we have enough money?
• Spend enough to accomplish objective
• Can we stick it out?
• Expect internal pressures for change
• Do ads match our position?
• Don’t let creativity get in the way

32. Creating Value Through Positioning:
Super Premium Vodka
• Defined by Federal regulations as “neutral spirits so
distilled or so treated after distillation with charcoal or
other materials as to be without distinctive character,
aroma, taste or color”
• Stolichnaya (Russia); Absolut (Sweden); Finlandia
(Finland); Denaka (Denmark); Elduris (Iceland);
Tanqueray Sterling (UK)
• Average price around $15 versus $8.50 for a 750 ml. bottle
• “Ultra Premium” Stolichnaya Cristall priced at more than
$20 per 750 ml.

33. Creating Value Through Positioning:
Jaguar Automobiles
• For years Jaguar was a “much admired, much ogled hunk
of hardware that didn’t run very well or very often, but it
reeked of prestige, status and the luxury image.”
• Bought by Ford for $2.5-3.0 billion
• Average buyer of XJ-6 is 48 years old, male, and makes
more than $100000 per year

34. Positioning in the Cosmetics Industry
•
•
•
•
•
Why haven’t Japanese soap and cosmetic firms been as successful as Japanese
automobile and electronics firms?
Unilever (Anglo-Dutch); P&G (American); L’Oreal (French) are international
giants
Kao (Soaps) and Shiseido (Cosmetics) big Japanese firms
R&D:
• Shiseido
3% of sales
• Kao
4.5% of sales
• 4 scientists on Board of Directors
• P&G / Unilever
2.5% of sales
Image & Advertising
• Mike Perry, Personal Products Director Unilever describes his job as
“selling dreams in a bottle”
• Sam Sugiyama, Manager of the London Office of Shiseido says that he
spends almost nothing on advertising: “Technology and service mean
success. Advertising is not a short cut.”

35. Example of Positioning: Beers as People
Beer Brand
At a Party
As his hobbies
As his occupation
Budweiser
Older guy
Watch ball games,
rake leaves
Businessman
Heineken
Three piece
Polo
Rich guy
Michelob
Smoke a pipe
Philately
Professional
Schlitz
Flex muscles
Busting kids
Factory, service
station worker
Pabst
Drunk
Square dancing, guns
Jockey with 50 to 1
odds
Miller
Good guy, friendly
Golf, tennis
Junior executive
Carling
Fishes butt out of
beer and drinks it
Horse shoes
Laborer

36. Positioning totally new products
• First Automobile: “Horseless Carriage”
• Similarly: “off-track” betting; “lead-free” gasoline; “tubeless” tire
• “AGAINST” Position: Avis is only No. 2 in rent-a-cars, so why
go to us? We try harder
• “UGLY” Position: The 1970 VW will stay ugly longer
• “UN” Position: 7Up: the Un-Cola
• Reposition Competitor: You have tasted the German beer that is
most popular in America (Lowenbrau). Now taste the German
beer that is most popular in Germany (Beck's)

37. Positioning
5. Identify Possible
Positioning Concepts
for each Target
Segment
6. Select, Develop and
Signal the Chosen
Positioning Concept
Perceptual Map
Positioning
Statement

38. Summary
• Segmentation is the concept that recognizes diversity in the
marketplace. The process of segmenting the market
produces clusters of people who are similar
• Targeting a segment involves the identification of
segments to which marketing effort will be directed.
Marketers must select targets for which their product will
meet a need.
• Positioning requires designing a company and product
image and developing a marketing mix to promote the
image to the target segment(s)

39. S-T-P process
Market Segmentation
1. Identify
Segmentation
Variables and Segment
the Market
2. Develop Profiles of
Resulting Segments
Market Targeting
Product/Service Positioning
3. Evaluate the
Attractiveness of each
Segment
5. Identify Possible
Positioning Concepts
for each Target
Segment
4. Select the Target
Segment(s).
6. Select, Develop
and
Signal the Chosen
Positioning Concept

40. Competitive Leverage Analysis
Bells &
Whistles
Hot
Buttons
Discriminating
Power
Entry Tickets
Penny
Savers
Importance
Unmet Needs