1 Chapter 8: Segmenting and Targeting Markets Prepared by David Ferrell, B-books, Ltd. Designed by...

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Chapter 8: Segmenting and Targeting Markets

Prepared by David Ferrell, B-books, Ltd.

Designed by Eric Brengle, B-books, Ltd.

Learning Outcomes

Describe the characteristics of markets

and market segments

Explain the importance of market segmentation

Discuss criteria for successful market segmentation

Describe the bases commonly used to segment consumer markets

Learning Outcomes

Describe the bases for segmenting business markets

List the steps involved in segmenting markets

Discuss alternative strategies for selecting target markets

Explain one-to-one marketing

Explain how and why firms implement positioning strategies and how product differentiation plays a role

Market Segmentation

Describe the characteristics of markets

and market segments.

(1) people or organizations with

(2) needs or wants, and with

(3) the ability and

(4) the willingness to buy.

A group of people that lacks any one of these characteristics is not a market.

A Market Is...

Market Segmentation

Market- People or organizations with needs or wants and the ability and

willingness to buy.

Market Segment- A subgroup of peopleor organizations sharing one or more

characteristics that cause them to havesimilar product needs.

Market Segmentation- The process ofdividing a market into meaningful,

relatively similar, identifiable segmentsor groups.

The Concept of Market Segmentation

Review Learning OutcomeMarket Segmentation

The Importance of Market Segmentation

Explain the importance of market segmentation.

The Importance of Market Segmentation

Markets have a variety of product needs and preferences.

Marketers can better define customer needs.

Decision makers can define objectives and allocate resources more accurately.

Review Learning OutcomeThe Importance of Market Segmentation

Marketsegmentation

More precise definition of customers needs and wants

More accurate marketing objectives

Improved resource allocation

Better marketing results

Criteria for Successful Segmentation

Discuss criteria for successful market

segmentation.

Criteria for Segmentation

SubstantialitySegment must be large

enough to warrant a special marketing mix.

Identifiabilityand

Measurability

Segments must be identifiable and their size measurable.

AccessibilityMembers of targeted segments

must be reachable with marketing mix.

ResponsivenessUnless segment responds to a marketing mix differently, no separate treatment is needed.

Review Learning OutcomeSuccessful Market Segmentation

Usefulsegment?

Substantial Identifiable and measurable Accessible Responsive

Then, yes: Useful segmentation

Bases for Segmenting Consumer Markets

Describe the bases commonly used to

segment consumer markets.

Bases for Segmenting Consumer Markets

Segmentation Bases - Characteristics

of individuals, groups, or organizations

used to divide a total market into

segments (variables).

Bases for Segmentation

Usage RateUsage Rate

Benefits SoughtBenefits Sought

PsychographicsPsychographics

DemographicsDemographics

GeographyGeography

Geographic Segmentation

• Region of the country or world

• Market size

• Market density

• Climate

Benefits of Regional Segmentation

• New ways to generate sales in sluggish and competitive markets

• Scanner data allow assessment of best selling brands in region

• Regional brands appeal to local preferences

Demographic Segmentation

AgeAge

GenderGender

IncomeIncome

Ethnic backgroundEthnic background

Family life cycleFamily life cycle

Gender Segmentation

• In U.S., women…– Handle 75% of family finances– Influence 80% of consumer purchases – Make purchase decisions about variety

of goods and services• New cars, hardware stores, electronics, etc.

• Other brands that have targeted men are trying to target women– Gillette razors, Rogaine baldness

remedy, Nike, Reebok, etc.

Income Segmentation

• Income – popular demographic variable for segmenting markets

• According to Nielsen study, affluent households (earning more than $100k/ year) are twice as likely to shop at warehouses

• Price-sensitive consumers– P & G

• Bounty Basic paper towels• Charmin Basic bath tissue

Ethnic Segmentation

• Largest ethnic markets are:

– Hispanic Americans– African Americans– Asian Americans

• Will comprise 1/3 of U.S. population by 2010

Family Life Cycle

MaritalStatus Children

Family Life Cycle

Psychographic Segmentation

Psychographic Segmentation- Market

segmentation on the basis of

personality, motives, lifestyles,

and demographics.

Bases for Psychographic Segmentation

PersonalityPersonality

MotivesMotives

LifestylesLifestyles

GeodemographicsGeodemographics

Lifestyle Segmentation

• How time is spent

• Importance of things around them

• Beliefs

• Socioeconomic characteristics

Geodemographic Segmentation

Geodemographic Segmentation -

Segmenting potential customers into

neighborhood lifestyle categories.

Combines geographic, demographic,

and lifestyle segmentation

Benefit Segmentation

Benefit segmentation- The process of

grouping customers into market

segments according to the benefits

they seek from the past.

Usage-Rate Segmentation

Usage-Rate Segmentation- Dividing a

market by the amount of product

bought or consumed.

80/20 Principle- A principle holding

that 20 percent of all customers

generate 80 percent of the demand.

Review Learning OutcomeBases for Segmenting Consumer Markets

Geography Demographics Psychographics Benefits Usage Rate

• Region• Market size• Market

density• Climate

• Age• Gender• Income• Race/ethnicity• Family life

• Personality• Motives• Lifestyle• Geodemo-

graphics

• Benefitssought

• Former• Potential• 1st time• Light or

irregular• Medium• Heavy

Bases for Segmenting Business Markets

Describe the bases for segmenting

business markets.

CompanyCharacteristics

BuyingProcesses

ProducersProducers

ResellersResellers

GovernmentGovernment

InstitutionsInstitutions

Company Characteristics

Geographic location

Type of company

Company size

Volume of purchase

Product use

Buyer Characteristics

Satisficers - Business customers who place an order with the first

familiar supplier to satisfy product and delivery requirements.

Optimizers - Business customers who consider numerous suppliers,

both familiar and unfamiliar, solicit bids, and study all proposals

carefully before selecting one.

Buyer Characteristics

Demographic characteristicsDemographic characteristics

Decision styleDecision style

Tolerance for riskTolerance for risk

Confidence levelConfidence level

Job responsibilitiesJob responsibilities

Review Learning OutcomeSegmenting Business Markets

Producers Resellers

InstitutionsGovernments

Buying Process

Company Characteristics

Steps in Segmenting a Market

List the steps involved in segmenting markets.

Review Learning OutcomeSteps in Segmenting Markets

Select a market

for study

Choosebases

for segmen-

tation

Selectdescriptors

Profileand

analyzesegments

Selecttarget

markets

Design,implement,

maintainmarketing

1 53 42 6

Strategies for Selecting Target Markets

Discuss alternative strategies

for selecting target markets.

A group of people or organizations for

which an organization designs, implements,

and maintains a marketing

mix intended to meet the needs

of that group, resulting in mutually

satisfying exchanges.

ConcentratedStrategy

UndifferentiatedStrategy

MultisegmentStrategy

Undifferentiated Targeting Strategy

A marketing approach that

views the market as one big

market with no individual

segments and thus requires

a single marketing mix.

Undifferentiated Targeting Strategy

UndifferentiatedStrategy

Advantage:

Potential savings on production and marketing costs

Disadvantages:

Unimaginative product offerings

Company more susceptible to competition

Concentrated Targeting Strategy

Concentrated Targeting Strategy –

A strategy used to select

one segment of a market

for targeting efforts.

Niche – One segment of a market.

Concentrated Targeting Strategy

ConcentratedStrategy

Advantages: Concentration of resources Meets narrowly defined

segment Small firms can compete Strong positioning

Disadvantages: Segments too small, or

changing Large competitors may

market to niche segment

Multisegment Targeting Strategy

A strategy that chooses two or

more well-defined market

segments and develops a

distinct marketing mix for each.

Multisegment Targeting Strategy

MultisegmentStrategy

Advantages: Greater financial success Economies of scale

Disadvantages: High costs Cannibalization

Costs of Multisegment Targeting

Product design costs

Production costs

Promotion costs

Inventory costs

Marketing research costs

Management costs

Cannibalization

Situation that occurs when

sales of a new product cut into

a sales of a firm’s

existing products.

Review Learning OutcomeAlternatives for Selecting Target Markets

Undifferentiated Multisegment Concentrated

One-to-One Marketing

Explain one-to-one marketing.

An individualized marketingmethod that utilizes customer information to build long-term,

personalized, and profitablerelationships with each

customer.

Information-IntensiveInformation-Intensive

Long-TermLong-Term

One-to-OneMarketing is...One-to-One

Marketing is...

IndividualizedIndividualized Cost ReductionCost Reduction

Has a Goal of…Has a Goal of…

Customer LoyaltyCustomer Loyalty

Increased RevenueIncreased Revenue

PersonalizedPersonalized

Customer RetentionCustomer Retention

1. One-size-fits all marketing no longer effective

2. Direct and personal marketing will grow to meet needs of busy consumers.

3. Consumers will be loyal to companies that have earned—and reinforced—their loyalty.

4. Mass-media approaches will decline as technology allows better customer tracking.

Trends

Review Learning OutcomeOne-to-One Marketing

Positioning

Explain how and why firms

implement positioning

strategies and how product

differentiation plays a role.

Positioning

Developing a specific

marketing mix to influence

potential customers’

overall perception of a brand,

product line, or organization

in general.

Positioning of Procter & Gamble Detergents

Brand Positioning MarketShare

Tide Tough, powerful cleaning 31.1%

Cheer Tough cleaning, color protection 8.2%

Bold Detergent plus fabric softener 2.9%

Gain Sunshine scent and odor-removing formula

Era Stain treatment and stain removal 2.2%

Dash Value brand 1.8%

Oxydol Bleach-boosted formula, whitening 1.4%

Solo Detergent and fabric softener in liquid form

Dreft Outstanding cleaning for baby clothes, safe

Ivory Snow

Fabric & skin safety on baby clothes 0.7%

Ariel Tough cleaner, aimed at Hispanic market

Effective Positioning

1. Assess the positions occupied by competing products

2. Determine the dimensions underlying these positions

3. Choose a market position where marketing efforts will have the greatest impact

Product Differentiation

A positioning strategy that some firms use to

distinguish their products from those of their competitors.

Distinctions can be real or perceived.

Perceptual Mapping

A means of displaying or graphing, in two or more

dimensions, the location of products, brands, or groups

of products in customers’ minds.

Perceptual Mapping

Source: Based on Vanessa O’Connell, “Park Avenue Classic or Soho Trendy?” The Wall Street Journal, April 20, 2007, B1.

Positioning Bases

AttributeAttribute

Price and QualityPrice and Quality

Use or ApplicationUse or Application

Product UserProduct User

Product ClassProduct Class

CompetitorCompetitor

EmotionEmotion

Repositioning

Changing perceptions of a brand in relation to competing brands.

Review Learning Outcome Positioning and Product Differentiation

1 Chapter 8: Segmenting and Targeting Markets Prepared by David Ferrell, B-books, Ltd. Designed by...

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