What is Marketing Segmentation and Targeting? 🚗
Tesla has a record of beating the odds with its prestige pricing strategy and data-driven marketing segmentation and targeting. Their Model S sells for circa AUD 120,000 and their Model X sells for AUD 107,650 (excluding taxes or other costs). They have tested different ways to segment a market and positioned Tesla firmly in the premium sports car market despite being a newbie with an alternative offer in a well-established automotive industry.
However, it wasn’t always like this. Before 2008, the Tesla brand was a relatively unknown, techy brand. Tesla Motors Inc was predominately an engineering firm (not the fun-loving, Tesla technology brand we have all come to know). Their target market segmentation and price positioning were vague and undefined, and their ideal target customers had barely heard of them.
Then, in 2008 everything changed. Elon Musk took over the company as chief executive and transformed the Tesla brand.
Their brand went from geek-sheek to Hollywood glam in a fairly short space of time. They re-positioned their brand as Tesla the ‘new technology for clean energy,’ rather than a premium electric sports car with gadgets and benefits. They created a demand for an entirely new premium, all-electric sports car segment using a prestige pricing strategy, clever storytelling, and marketing segmentation and targeting.
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What is Marketing Segmentation and Targeting? 🚗
From 2008 onward, Tesla attracted the demand and attention of their ideal target audience: i.e., an elite group of customers and private investors with lots of money to spend on a product that propped up an underlying belief or fantasy that successful individuals could change the world.
However, despite Tesla’s impressive turnaround situation (and ability to capture our imaginations with space travel and Elon’s glitzy parties with Hollywood celebrities and models), Tesla has been posting consistent deficits and continues to be a profitless company.
Tesla doesn’t have much cash compared to other industry giants – just over $US3 billion – and a debt-heavy balance sheet.
In this article, we will argue that although Tesla marketing segmentation and targeting and price positioning is a huge potential source of revenue for Tesla, it is also an area that is likely to impact their mid to long growth plans if not handled correctly.
We will explain Tesla’s marketing segmentation and targeting process, including an analysis of their pricing strategy, price positioning and customer segmentation to date. This followed by an evaluation of a Tesla target market segmentation case example.
What are the marketing segmentation and targeting of Tesla?
A lot of people are intrigued about Tesla market segmentation because the brand and story of Tesla (post-2008) are so powerful. But Tesla’s marketing segmentation and targeting is and always has been quite simple.
Tesla only really serves one target market. The one they created: i.e., the premium all-electric sports car market. They are currently working out their plans to cross over into the everyday market with their model X series. However, this is going to take another couple of years to achieve. And, a lot more private investment funding if they can get it (discussed later in this article).
Tesla, therefore, uses mono-segment positioning. Which means they focus on one segment in detail. However, they pay close attention to understanding customer sub-group activity (or micro-segments) within this one market segment.
Their marketing segmentation and targeting incorporate different types of segmentation.
It includes geographic, demographic, behavioural and psychographic. Their target market segmentation criteria include multiple variables: i.e., region, density, age, gender, life-cycle stage, occupation, loyalty, benefits sought, personality traits, social class, and lifestyle.
Tesla also uses an anticipatory type of positioning within their marketing segmentation and targeting process. They position Tesla’s products and services for a market segment that has low turnover based on forecasts that the turnover will increase in the future as clean energy becomes a societal norm.
Tesla’s pricing strategy
Tesla’s new product pricing strategy is created using psychological theory but informed by a data-driven marketing segmentation and targeting process.
Let me explain…
In 2008, the all-electric sports car was a novelty product in the traditional gas-fuelled automotive industry. People were unfamiliar with the concept of an all-electric sports car. The “uncool” Toyota Prius formed people’s knowledge of all-electric vehicles. Hardly a sports car image Tesla wanted to be associated with.
Most people back then were also pretty new to the idea of clean energy – i.e., Tesla’s mission statement. Tesla didn’t know if people would buy their novelty products because they didn’t have enough data on demand. They couldn’t set pricing based on capacity levels because they hadn’t sold any cars. Their product was new. And, their futuristic mission statement was quirky/odd.
They also didn’t want to set prices on their costs either because this would cap revenue. The cost of production is a relatively small percentage of the overall profit value of the Tesla brand. Cost-based pricing would limit their profitability. Investors and executives would not like this. It would be harder to increase prices in the future.
They then looked at people’s willingness to pay set prices for their products.
But found this approach was lacking too. Because when they launched in 2008, people hadn’t heard of them or didn’t know what they were buying. There would be little point in setting prices based on what people said they were willing to pay when the customer didn’t know what they were buying.
So instead, Tesla created a pricing strategy that leveraged their ideological brand using a mixture of psychological and pricing theory and data-driven target market segmentation (discussed in more detail below). They looked at their marketing segmentation and targeting research and found common pricing and psychological principles were driving sub-group activity to the brand and products.
Below listed are some basic psychographic profiles Tesla has created to develop their prestige pricing strategy for their Model S and X series:
- Hardcore loyal users – Status. Wealthy. Socially responsible. Cares about the environment. An early adopter to trends and intellectual concepts. Successful in life. Self-concept as a thinker and activist. Guilty about mass consumption and consumerism in general.
- Fad users – Likes novelty and being on-trend. Socially compliant (will strive to keep up with the group). Mid to late majority of adopting trends. Limited commitment to clean energy. Embraces mass consumerism. Self-concept as fun-loving and rich prefers the lifestyle aspects of Tesla.
- Switchers – Limited loyalty to clean energy and the environment. Would switch based on price and if competitors to Tesla offered a low-cost alternative.
Tesla’s marketing segmentation and targeting research showed customer groups (as profiled above) within their target segment were conforming to fundamental psychological and pricing principles. Namely: Social Identity theory, social compliance theory, and loss aversion.
They found that some customers would pay a lot of money to show how socially responsible they were.
They called this segment their hardcore loyals. Their marketing segmentation and targeting process revealed that hardcore loyals within their target market wanted to buy a fun, all-electric sports car as opposed to a gas-guzzling alternative like Bentley or Mercedes, etc. because they identified with Tesla’s mission or saw themselves as activists (Social Identify Theory).
Their marketing segmentation and targeting process also revealed that other customer groups within their target market behaved and valued different things from the group above. They called them fad users because they would eagerly comply with a popular trend or identify with status and celebrity (social compliance theory).
Next was a series of price trials to test different price points for their prestige pricing strategy for their Model X series. They produce segmented prices for the Model X and S range based on the most prominent customer value drivers emerging from their ongoing segmentation research.
Tesla’s marketing segmentation and targeting case example
Tesla’s approach to pricing and marketing segmentation and targeting is a huge potential source of revenue for the business and its investors. However, their current business model and operational capability are impacting their future pricing power and mid to long business growth plans.
First, there’s an increasing number of new players entering this marketplace. This includes different processes, customer channels, and product life cycles. Tesla needs to update operations quickly. They are the ones are being disrupted in a market segment they created.
Second, the arrival of new SUVs from other manufacturers will highlight production and pricing problems for Tesla which marketing segmentation and targeting alone cannot fix. Tesla plans to produce a second SUV, the mass-market Model Y, in the next few years. However, other competing electric brands have cheaper SUVs available now.
There’s the new Jaguar I-Pace all-electric crossover, for example, which is cheaper than the Tesla Model X and fits into a different segment.
The cheapest car Tesla has is the Model X is still about $10,000 US more than the I-Pace. After this, they’ve only really got the Model S to sell.
Third, they are now finding they cannot easily serve all their customers needs in their marketing segmentation and targeting. Some customer now wants a smaller sedan or a smaller SUV and Tesla simply doesn’t have one yet.
Fourth, Tesla is losing market share. Existing players are reclaiming potential buyers with all-electric crossovers and sedans, but Tesla only really has the Model S and Model X. People are looking for all-electric luxury crossover versatility in Tesla’s target market segment, including the good range in an appealingly designed package. They like the Jag and the less expensive price tag of $US70,000. The latest all-electric Jag is an extremely attractive offer to switchers and fad buyers looking to move to an exclusive electric car segment. Tesla may not be able to compete.
Tesla has only one car factory.
They build three vehicles: the Model S mid-size/full-size sedan, the Model X SUV, and the Model 3 compact sedan.
Fifth, unlike other car manufacturers, Tesla lacks a variety of offerings in their marketing segmentation and targeting. Apart from drivetrain variations and some appointments. It also completely lacks competitive vehicles in other segments.
Finally, Tesla doesn’t have a mass-market EV on the market, in the compact sedan target market segmentation. Chevy does have a mass-market vehicle in the compact hatchback segment, which is adjacent to the sedan segment.
Critics of the traditional industry say that people will continue to buy Tesla simply because it’s Tesla.
But, even their data-driven marketing segmentation and targeting process will be telling them a different story. Some people will be willing to switch to something just as good or better than Tesla if it’s offered to them at the right price point (i.e., the Jag).
People within Tesla’s marketing segmentation and targeting are looking for cheaper offers with benefits in this segment and Tesla just can’t offer them now. Also, the strength of Tesla’s loyal customer base has not been tested up to now. Will an everyday all-electric car and price point diminish a brand when their data-driven marketing segmentation and targeting indicates their business and brand is largely built on exclusivity, ideals, and status?
Tesla may get away with idealistic storytelling and “stretching” fewer vehicles across more segments for a couple more years. However, this approach tends not to work for longer very well. Or potentially, they could increase their range to appeal to more segments. However, this means more factories, and in turn more capital investment.
Tesla can’t go into the everyday market using a penetration pricing strategy without a huge upfront investment. And, they’re facing serious competition from existing players with scale, heritage and money. Industry car manufacturers have entered Tesla’s target market segment. What’s more, they have the money to compete and penetrate this niche target market with lower-cost alternatives.
In this article, we showed how Tesla’s business strategy uses four strategic pillars:
- product innovation (i.e., a premium all-electric car)
- A prestige pricing strategy
- Personality-driven PR advertising
- Substantial private investment.
We discussed how Tesla invests heavily in their marketing segmentation and targeting process to inform and update each pillar of their business strategy.
We argued that Tesla leverages a data-driven marketing segmentation and targeting process to develop a prestige pricing strategy based on psychological and monetary value drivers, as opposed to cost-based pricing.
A clear implication from this article is Tesla has a serious business model and operational issues to deal with now. Their pricing and marketing segmentation and targeting strategy are no longer enough to fix these issues.
The fun technology Tesla may end up being a bottomless pit for private investors and just another car for customers. Tesla ideological brand might be enough to stave off competitive pressure and disruption. Then, again it might not. Tough times for Tesla ahead.
Porsche’s Positioning Segmentation and Targeting in Marketing 🏁
Porsche is currently the most profitable automotive brand in the world. In 2011 they were integrated with Volkswagen to form the Integrated Automotive Group. They are most noteworthy for designing, manufacturing, and marketing sports cars, crossover utility vehicles, and automobile parts worldwide. They also offer services through their operating divisions and subsidiaries, including Porsche Design Group, Porsche Engineering, and Porsche Consulting. But did you know that a lot of Porsche’s success comes down to their profit scraping pricing strategy and customer profiling and segmentation techniques?
First of all, in this article, we argue that customer profiling and segmentation are what fuels Porsche’s pricing power and ongoing profitability. We also explain how Porsche uses customer profiling and segmentation to set optimal price points anchored to value rather than the cost of production. We’ll also provide several customer segment pricing examples.
Finally, you will learn how to price like Porsche in five easy steps.
How Porsche Use Marketing Segmentation and Targeting to Improve Their Pricing
Porsche’s pricing provides consumers with a frame of reference for the company. They strategically position the brand as a high priced, high quality, exclusive sports car to attract the right customer groups to the brand.
Below listed are some basic customer profiles developed by Porsche to set their prices across products and segments:
- The top gun profile consists of an ambitious and driven individual who cares about being noticed, power and control.
- The elitist profile includes an individual from old money (blue blood), has the attitude a car is just a vehicle and not an expression of a person’s personality.
- The proud patron’s owner profile sees a Porsche as a trophy considering it a reward for hard work with ownership as the main goal not being noticed.
- The Bon Vivants profile consists of thrill-seekers and jet-setters with the Porsche as a means of excitement.
- The fantasist profile sees the Porsche as a form of escape and does not care about impressing others.
These customer profiles feature unique customer value drivers present across customer segments to varying degrees.
Porsche uses these value drivers and profiles (listed below) to set price ceilings for their products based on value (as opposed to production costs) for their products.
A large amount of Porsche’s pricing success comes down to their detailed understanding of consumer psychology, including their customer profiling and segmentation techniques. For Porsche, customer profiling and segmentation is vital to strategic price-setting and positioning.
People that have or want to buy a Porsche expect to pay a lot of money. Therefore, a low price would put their target market off.
People around the world know that Porsche is not just a car, it’s the definition of success and self-actualisation. Someone who buys a Porsche has likely achieved their personal goals. The high price they pay for a Porsche is evidence of their success. Porsche has turned prestige pricing into a celebration of individual success and Porsche’s ongoing success and heritage.
The profiles above consist of an elite group of customers that are a mirror image of the brand. Porsche has used customer profiling and segmentation to find customers that personify the brand.
Porsche are looking for a specific group of customers who have demonstrated that they have lived up to the brand. The ease of paying a high price for a Porsche is proof of individual worth and ongoing success.
The price distinguishes a Porsche buyer from the rest. The brand distinguishes a Porsche buyer from other luxury sports car buyers.
Let’s compare a Porsche buyer with a Maserati buyer. It seems like both types of customer groups have money and can buy almost what they want. However, a Porsche buyer buys a Porsche because they want to join an elite club with history and provenance that reflects their own lives. In contrast, a Maserati buyer buys a Maserati because the buyer wants to celebrate a glamorous lifestyle reminiscent of the generation in which we now live.
Five easy steps to price like Porsche
Porsche are at a sophisticated level with their pricing because their customer profiling and segmentation techniques give them so much useful information at a sub-group level. They are confident where they probably fit in the automotive market. So they pay a great deal of attention to what people want and value when they buy into the Porsche brand.
But, if you are not used to pricing and segmenting like Porsche, but want to learn more, listed below are five easy steps to start pricing like Porsche:
1. Identify distinct consumer characteristics in your market segmentation.
Porsche’s pricing and marketing tools are closely aligned. Because they are designed to analyse differences at a subgroup level, not just segment level. Segment level descriptions are too vague for price optimisation to work properly.
2. Leverage and quantity customer drivers.
The Porsche case study above shows value drivers tied to customer profiling and segmentation. Psychological value drivers such as ambition, desire, satisfaction, and security all require quantitative techniques. Similarly, these include conjoint analysis, price trials, and experiment. As well as research to quantify the worth of various elements of a product across different segments and micro-segments. You need to understand why and how people buy, to identify the relevant metrics for your pricing structure.
3. Build an effective pricing structure.
Porsche’s pricing structure anchors price to perceived value and desire for status. Design a structure based on the finding from your customer profiling and market segmentation. Identify the right fences (price, buyer, etc.). Above all, pay attention to your customers’ needs and wants at a subgroup level. This will enable your pricing team to set the right price floors and ceilings for your products.
4. Begin to optimise and refine price points.
Select low volume products and a low-risk subgroup of customers. Also, update your price list as required. You may find that you probably need to re-think your approach and price positioning in the market. Porsche uses a prestige pricing strategy for their premium (luxury) segment. Along with sports cars (five segments) and a penetration pricing strategy for their crossover utility vehicles (two segments).
5. Certainly, adjust your offers.
Use offer design techniques to implement segment pricing with minimal enforcement of the segments. Like Porsche, you may find that your customers self-select offers. i.e., different packages, editions, loan repayments, insurances, additional extras, different range of the car. Let customer profiling and segmentation guide offer configuration. Porsche uses segmentation information to put features together in the “premium sports package” or the “luxury edition” and use a single price for that bundle of options.
Building a prestige pricing strategy based on marketing segmentation and targeting
Porsche’s prestige pricing strategy based on marketing segmentation and targeting make them one of the most profitable automobile manufacturers, with a 17% profit margin. The first Porsche 911 campaign alone has seen a sales increase year on year since the very first campaign. Even more, the introduction of the Cayenne, Macan, and Panamera has enabled Porsche to extend the brand because the vehicles are better suited for everyday use.
Consequently, Porsche’s approach to pricing is customer-focused as opposed to cost-based. Hence they seek to optimise prices based on value, as opposed to their cost structures.
As a result, Porsche offers high-quality products for a premium price with various price points for products across their range. They optimise prices for the product by leveraging their lifestyle brand.
Finally, their brand is certainly made up of numerous customer driver drivers. Most noteworthy heritage and status as well as the typical features and benefits of a sports car. So these value drivers are the source of their pricing power.
Porsche takes time to understand key customer value drivers across segments and subgroups because it improves their strategic price positioning in the market.
So, with better marketing and pricing tools, including customer profiling and segmentation, carmakers like Porsche know what types of customers they are going after and why and what they are likely to pay for a new car. They can target a more precise and relevant group of people and can refine this further by targeting only the top 30-40%.
Therefore, this is a key point. Aligning your pricing, customer profiling, and segmentation to corporate strategy means the business is in a better position to capture the market opportunity. Above all a mass marketing, cost-based pricing approach would miss this. This is because of reduced wastage of advertising budget. Normally that would have been spent targeting people who have no intention of converting, simply because they fit a demographic profile.
B2C Principles of Marketing Segmentation Targeting and Positioning
Psychographic segmentation has taken value-based pricing practices to a whole new level. Using psychographic segmentation it’s now possible to tweak the method of setting prices typically based on superficial demographic categories like age, gender, ethnicity, and other broader variables. On top of this, psychographic segmentation gives you the opportunity to modify how consumers respond to different price points and offers (segmentation demographic psychographic behavioural). Think product benefits, buying patterns, and the volume of purchases.
Pricing teams that refine pricing based on psychographic segmentation examples such as values and interests are now able to determine optimal price points with a greater degree of accuracy. Identifying and understanding consumers emotional and psychological responses to price and value is fast becoming the focus for profitable revenue growth.
In this article, I will discuss psychographic segmentation examples and its synergies with value-based pricing. As I go through, I will use B2C fuel industry case examples. These will point out ways a pricing and revenue management team can use psychographic segmentation questions to inform and test their assumptions on consumer pricing and buying preferences. From here, we’ll go through some possibilities of how pricing teams can trial more dynamic pricing in industries used to fairly fixed and traditional pricing and offers.
What’s the value of marketing segmentation and targeting examples?
If you want to drive more profitable sales without sacrificing volume or revenue, one sure-fire tactic is to figure out a way to charge different prices to customers with different values and reasons for buying.
The late Sir Colin Marshall, CEO, and chairman at British Airways (BA), touched upon the value capture possible of using advanced pricing and psychological principles (psychographic factors in market segmentation) when he said:
“You’re always going to be faced with the fact that the great majority of people will buy on price. However, even for a seeming commodity such as air travel, an element of the travelling public is willing to pay a slight premium for superior service. In our case, we’re talking about an average of 5%. On our revenues of £5 billion, however, that 5% translates into an extra £250 million, or $400 million, a year.”
Colin Marshall’s statement here, explains the significant dollar contribution of a sophisticated and management price change. Literally, BA got millions of dollars from implementing smarter pricing. However, he did not explain how? (Not surprising, because the CEO is not a pricing or psychology expert and may not know the cause and effect relationship of consumer psychology and psychographic variables market segmentation.)
Marketing segmentation and targeting examples case study
To see the full value of marketing segmentation and targeting questions, let’s look at a case study of the B2C fuels market and what revenue opportunities get missed when we assess the consumer fuels market through demographics alone.
Yes, people with different incomes, cars, postcodes make somewhat different fuel purchases (i.e., demographic variables). Knowing this does, however, not tell us why they are buying different amounts of fuels OR what they value OR what they are willing to pay for or not. What consumers value, their motivations for buying is also the essential information to any pricing function looking to set optimal price points by product, customer segment or micro-segment.
We all buy fuel for different reasons…
The price of fuel is just one of the reasons we buy fuel. Some people may choose, for example, to purchase fuel from a particular service station because they value convenience. This means they are prepared to buy more expensive fuel to avoid a detour from their daily commuter route. They are prepared to pay more for the convenience of staying on their preferred route to work.
For this group, the price of fuel may be on their list of considerations when they buy their fuel, but it may not be their top driver for purchasing fuel. They have probably made a conscious decision to trade price for convenience. They want to buy from a service station that is convenient to them at a critical point in their daily routine or journey.
Other people may not value convenience or price but the ease of access
This means they are willing to buy petrol from service stations with large forecourts and clear and visible entrances and exits. They may even go out of their way to find a service station with ease of access. Some go off their main route because they like a particular service station.
Again, the price may be a consideration for them as well. However, they are willing to spend more on fuel because the service station is easy to access, navigate and leave. They value their time and don’t want to cue up for cheap fuel. Especially at a service station with a limited number of pumps. Being late for work, or a meeting is a massive risk driver that they are willing to pay a bit extra to avoid.
9 Advantages of marketing segmentation and targeting
Specifically, marketing segmentation and targeting approach analysis help pricing teams to:
- Direct the appropriate amounts of promotional attention and money to the most potentially profitable segments of his market
- Work out an appropriate margin for a product line. Identify gross margin percentages that truly parallels the demands of the market. Rather, than cost-plus margin pricing that bulks in some areas and ignores other potentially quite profitable segments
- Identify the first signs of a major trend in a swiftly changing market. Give the business room to prepare or take advantage of it
- Determine the advertising campaign that will be most effective for a particular pricing strategy or campaign. Quantify and monitor the market responsive to each by product, group, and segment
- Develop targeted promos and loyalty programs for different segments and customer groups
- Determine the proportion of the budget that should be allocated to each campaign
- Identify trends to anticipate the financial impact, risk, and competitive tension
- Correct the timing of advertising and promotional efforts. Ensure that they are massed in the weeks, months, and seasons. Especially when resistance to the price increase is low and responsiveness is at maximum
- Understand otherwise seemingly meaningless psychographic information about consumers. Develop new scoring and rating systems. Use these systems to measure consumer value drivers by group and segment and inform segmentation and strategy
Using psychographic factors in market segmentation allows you to create smarter pricing. For example, you can understand why some segments and customer groups overlap with other segments. You can also start aligning your prices to your customer’s values and preferences rather than just following or reacting to your competitors’ pricing tactics. You can also move beyond differential pricing and accusations of price gouging.
When pricing teams uncover what consumers actually value, they are in a stronger position. This doesn’t mean penalising them for living in an expensive neighbourhood. No. It means they can begin to start trialling dynamic pricing that offers real value back to their customers. What’s more, this can happen without forgoing predictive forecasting accuracy, volumes or hard-earned revenues.
A pricing team need to understand the sensitives of marketing segmentation and targeting to employ value-based pricing
They can also re-calibrate their demand forecasts based on an accurate understanding of current trends and be less dependant on past volumes and trends with little significance to what customer actually value now. These in turn will override tired demographic categorisation, forecasting and hypothesises about price and consumer preferences. Typically based on analyses of simple cost and demand drivers.
Traditional demographic methods of market segmentation do not usually provide enough information to inform segmentation. Analyses of customer segments by age, sex, geography, and income level are not likely to provide as much direction for pricing strategy as management requires (psychographic segmentation market definition).
Believing consumers don’t buy based on their values and interest is a mistake. Consumers in B2C markets act just like customers in B2B markets. They increasingly identify their values and interests over their geographic or demographic profiles when they make a buying decision. Psychographic segmentation makes it easier for teams to improve pricing and trial dynamic pricing on the right sites and segments. Using a cookie-cutter approach to customer segmentation is not very effective. Demographic or even geographic variables often ignore the reasons why customers buy from us. As well as when they are willing to pay more or not.
Leading global companies already practise this such as Starbucks psychographic segmentation, Zara psychographic segmentation as well as Nike and Apple.
Demographic segmentation should not be disregarded. Instead, it should be regarded as only one among many possible ways of analysing markets.
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