Analyzing Market Segments free essay sample

Analyzing Market Segments Selecting Target Markets Introduction The credit card industry in Canada has been challenged since the recession started in 2008. There has been an increase in government regulation along with a spike in consumer bankruptcies. Due to the change in market forces, a number of smaller credit issuers like GE Money have exited the industry. Relevant to this paper is the media release announcing that effective January 7th, 2011, financing for the HBC credit cards transferred over to Capital One Financial Corporation. The HBC private label credit card (HBC PLCC) has a large target market with 93% of their active cardholders being female. Geographic segmentation is similar for all market segments which are Canadian urban and suburban cities. The HBC family of stores includes the Bay, Zellers, Home Outfitters and Fields. In addition, HBC has a long-standing HBC Rewards program with an 8 million person cardholder base. It is my intention to look at the Capital One HBC PLCC, identify some key market segments, evaluate the attractiveness of each segment and share some recent market insights. Market Segment I have broken down the market for the HBC PLCC into four main segments which I’ve named the Post-Secondary Freshmen, â€Å"Senior’s Club†, â€Å"Value Seekers† and the â€Å"Rewards Junkies†. The â€Å"Post-Secondary Freshmen† are a group of single females without children, aged18-22 years and are in their first or second year of college or university. In terms of behavior, this segment would use the HBC PLCC as a leisure card and would be considered light user. Given that this segment is young in age and newly independent, they may be unaware or uniformed about private label credit cards. However, they may be looking to establish credit experience which is often not available with major credit cards. Therefore, this young segment may be interested in a PLCC to start building credit experience. This group may not be very loyal because the HBC family of stores most likely is not their preferred place to shop. However, females would be attracted to the â€Å"Beauty and the Bay† cosmetic business who look to â€Å"offer customers an extraordinary beauty adventure with the very best and most innovative beauty brands†. The Post-Secondary Freshmen† can be segmented psychographically based on their personality which is impulsive and they would have an air of confidence in terms of their ability to handle a credit card. The next market segment is the â€Å"Senior’s Club†. Zellers recognizes a senior at the young age of 55. This segment is very loyal to Zellers and operates with a fixed income. In terms of behavior, they would be considered a l ight user because they like to save their purchases so they can take advantage of the â€Å"15% Seniors Day discount† which is on the first Tuesday of every month. This segment is very predictable. They enjoy meeting their friends for coffee in the Zellers restaurant and get their shopping at a discount. Given their age, this group may not be interested or slightly adverse to owning a credit card. The third market segment is identified as â€Å"Value Seekers†. This group is predominately female and married with kids. They may live in a single income household making less than $80,000 per year and would be classified as in the lower to middle class. The â€Å"Value Seeker† is a medium user and is loyal customer as long as they feel they are getting more value for their dollar. The â€Å"Value Seeker† is a price shopper that is driven by deals. Specific to the HBC PLCC, they sign up for the credit card because of the 10% discount on the first purchase and may continue to use it to take advantage of â€Å"installment and deferred payment plans and Credit Exclusives† which are credit event days that offer a discount on purchases throughout the store. This group is very informed and knows exactly how much the HBC reward points are worth. They would calculate out that 80,000 rewards points translate to $800 in purchases before they get a $10 gift card. The last market segment identified is the â€Å"Rewards Junkie†. This group varies in age but is an educated, working class individual and is predominately female. They are a medium to strong user that may be more loyal to the HBC store than they are to the PLCC. However, this group will remain loyal to using the credit card as long as they feel they are earning a decent number of points. They are interested and look forward to earning enough points to save for a bigger item like a television. This nthusiastic attitude that they are â€Å"saving to get something† shows they find it fun to collect points and watch their balance grow. Segment Attractiveness To determine how attractive each of these segments are I put together a SMART Model (shown in Appendix B) that considers how measurable, substantial, accessible, differentiable and actionable each segment is. The â€Å"Rewards Junkie† segment is most attractive mainly because it is a large, profitable segment th at is very accessible thanks to the long-standing HBC Rewards program that has a cardholder base of over 8 million. Due to the partnership between HBC and Capital One, there is full access to this database of cardholders and it is very desirable to convert as many of these Rewards cardholders over to active HBC PLCC users. Currently, Capital One has an active PLCC base of 2 million cardholders so they have the opportunity to formulate effective programs and reach this group through mail, phone and the HBC point-of-sale touch points. This group is driven by rewards points so they may become exited that they can get double the points by using their HBC PLCC rather than just their HBC Rewards Card alone. The â€Å"Post-Secondary Freshmen† along with the â€Å"Senior’s Club† are not comparable in size which is estimated to be about 300,000 cardholders across Canada. Another reason why the â€Å"Rewards Junkie† segment is more attractive compared to the others is because they are a medium to strong user and have a high propensity to revolve their credit card balance. The â€Å"Post-Secondary Freshmen† group is attracted to a limited amount of goods (e. g. , beauty and cosmetics only) so they generate a higher receipt ticket price but do not use the card frequently. The â€Å"Value Seeker† segment is a light to medium user and is so focused on discounts and getting more value for their dollar that they end up having lower ticket prices and lower finance charges that accumulate if they revolve. On the other side of the spectrum is the â€Å"Senior’s Club† who may be adverse to credit so if they became a cardholder they would most likely be a â€Å"transactor† rather than a â€Å"revolver†. A transactor is a cardholder that makes a purchase on their credit card and pays it off in full by the due date. A transactor is still attractive to Capital One because it reduces the royalties they have to pay. However, transactors are not as profitable. Research Trends show that Canada is seeing a boom in premium credit cards where issuers remaining in the industry are targeting the most profitable customers. Almost every issuer in the Canadian marketplace has either refreshed or launched a brand new premium, annual-fee based rewards product†¦really going after the upper end of the market and the high-spending consumer. A premium card is one that offers a higher than average level of rewards and is reserved for customers who meet minimum spending or income levels. This is a shift in the market that still supports the attractiveness of the â€Å"Rewards Junkie† segment but will leave issuers, like Capital One, the opportunity to modify their program and implement tiered rewards based on spending. Research also shows that rewards cards are still popular and a key decision factor for consumers when they determine which credit card they will use. Canadian consumers are, more than ever, choosing cards based on the reward and affinity programs. Capital One and HBC have the opportunity to continue to work together to build loyalty and attract new customers based on the HBC Rewards program. The number of cards per capita is forecast to increase from 5. 4 to 6. 4 between 2010 and 2015, as consumers carry more cards in their wallets to maximize the reward benefits of their purchases. This tells me that the Canadian credit card industry is still profitable and Capital One has the opportunity to adjust their rewards program to target more â€Å"Rewards Junkies† and have their HBC card be the card of choice. Appendix A – Market Analysis Framework: HBC Private Label Credit Card . | Post-Secondary Freshmen| Seniors Club| Value Junkie| Rewards Junkie| Demographic Segmentation| Age: 18-22 years Female * Young, single, no kids * 1st or 2nd year of university/college| Age: 55+ * Male and female Life Cycle: golden years Generation: Baby Boomers * Fixed income| Age: 30-45 Generation: Gen X; families that are stretched; stay at home moms Social Class: upper lower-upper middle? | Age: wide rage; some time available Generation: Baby Boomers who have financial freedom on t heir radar Social Class: upper lower-upper middle? Educated| Geographic Segmentation| Canada Urban ; Suburban| Canada Urban ; Suburban| Canada Urban ; Suburban| Canada Urban ; Suburban| Behavioural Buying Segmentation| *Potential user * Use the credit card as a leisure card * Light user; 1st time credit card getting credit experience * May be unaware/ uninformed * Low loyalty| *Occasions: 1st Tues of each month = Seniors Day (15% discount); opportunity to meet and have coffee with friends * More loyal to Zellers than the credit card * May not be interested in the credit card or even negative * Transactors| * Like deals; may switch if they can get better deals elsewhere * Sign up for the credit card to get 10% off and take advantage of promotions * Spend some time online Want more value for their $| * Loyal to HBC (not necessarily the credit card) * Driven by rewards; as long as they earn a decent # they will stay; may switch if they can earn more points elsewhere (switching costs are irrelevant) * Want more value for their $| Psychographic Segmentation| Lifestyle: starting out Personality: impulsive; like to get what they want now * Confident; I can handle it attit ude| Lifestyle: golden years with lots of time available * Enjoy consistency and club-like belonging| Lifestyle: busy families| Lifestyle: some time available; like to get things immediately| Appendix B – SMART Model: Segment Attractiveness SMART Model: Segment Attractiveness| Key Success Factors| Weight| Post-Secondary Freshmen| Seniors Club| Value Seekers| Rewards Junkie|   | Measurable| 0. 20| 3| 3| 4| 5|   | Substantial| 0. 20| 2| 2| 3| 5|   | Accessible| 0. 20| 2| 3| 4| 5|   | Differentiable| 0. 20| 5| 5| 3| 4|   | Actionable| 0. 20| 5| 5| 5| 5|   | Total Weighted Scores| 1. 00| 3. 4| 3. 6| 3. 8| 4. 8|   | Bibliography Credit Card Review. â€Å"The Hbc credit card credit card reviews. † Accessed May 25, 2011. http://www. creditcardreview. a/The-Hbc-credit-cardcredit-card119/ Euromonitor International, â€Å"Financial Cards and Payments in Canada,† Euromonitor International (2011), Accessed May 27, 2011. Hilton, Betsy. â€Å"Beauty and the Bay: The Bay Announces Shelley Rozenwald as its new Chief Beauty Adventurer. † HBC Media Centre, November 16, 2010. http://www2. hbc. com/hbc/mediacentre/press/hbc/press. asp? prId=387 Hudso n’s Bay Co. â€Å"Store Locator. † Accessed May 27, 2011. http://www. hbc. com/storelocator/storedetails. asp? langid=ENstoreid=105 Layne, Rachel. â€Å"GE Capital Sells Hudson Bay Portfolio to Capital One. Bloomberg Businessweek, November 9, 2010. http://www. businessweek. com/news/2010-11-09/ge-capital-sells-hudson-bay-portfolio-to-capital-one. html Robertson, Grant. â€Å"Credit Card Issuers Target the Big Spenders. † Globe and Mail, March 17, 2011. http://www. theglobeandmail. com/globe-investor/credit-card-issuers-target-the-big-spenders/article1946691/ [ 1 ]. Layne, â€Å"GE Capital Sells Hudson Bay Portfolio to Capital One. † http://www. businessweek. com/news/2010-11-09/ge-capital-sells-hudson-bay-portf