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Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 1
MKTG
Designed byAmy McGuire, B-books, Ltd.
Prepared byDeborah Baker, Texas Christian University
Lamb, Hair, McDaniel 2007-2008
7CHAPTERSegmenting and Targeting Markets
Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 2
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
Describe the bases for segmenting business markets
LO1
LO2
LO3
LO4
LO5
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Learning Outcomes
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
LO6
LO7
LO8
LO9
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Describe the characteristics of markets and
market segments
Market SegmentationMarket SegmentationLO1
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LO1
A Market Is...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.
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Market Segmentation
7-6
Targeting “everyone” is:Targeting “everyone” is: •Expensive •Wasteful•Nearly impossible
A more sensible approach:A more sensible approach:•Identify smaller segments who are most likely to consider your brand (segmentation) and target them with specifically designed MC messages
Teenagers
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Market Segmentation
LO1
MarketMarket
MarketSegment
MarketSegment
MarketSegmentation
MarketSegmentation
People or organizations with needs or wants and the ability and willingness to buy.
People or organizations with needs or wants and the ability and willingness to buy.
A subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs.
A subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs.
The process of dividing a market into meaningful, relatively similar, identifiable segments or groups.
The process of dividing a market into meaningful, relatively similar, identifiable segments or groups.
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The Market Segmentation Process
Market Segmentation
1. Identify people with shared needs and characteristics
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The Market Segmentation Process
7-9
Market Segmentation1. Identify people with
shared needs and characteristics2. Aggregate these groups into market segments according to their mutual interest in the product’s utility
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The Concept of Market Segmentation
LO1
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Explain the importance
of market segmentation
The Importance of Market SegmentationThe Importance of Market SegmentationLO2
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The Importance of Market Segmentation
LO2
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
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REVIEW LEARNING OUTCOMELO2
The Importance of Market Segmentation
Marketsegmentation
More precise definition of customers needs and wants
More accurate marketing objectives
Improved resource allocation
Better marketing results
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Discuss criteria for successful market
segmentation
Criteria for Successful SegmentationCriteria for Successful SegmentationLO3
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Criteria for Segmentation
LO3
Substantiality
Identifiabilityand Measurability
Accessibility
Responsiveness
Segment must be large enough to warrant a special marketing mix.
Segments must be identifiable and their size measurable.
Members of targeted segments must be reachable with marketing mix.
Unless segment responds to a marketing mix differently, no separate
treatment is needed.
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REVIEW LEARNING OUTCOMELO3
Usefulsegment?
Substantial Identifiable and measurable Accessible Responsive
Then, yes: Useful segmentation scheme
Successful Market Segmentation
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Describe the bases commonly used
to segment consumer markets
Bases for Segmenting Bases for Segmenting Consumer MarketsConsumer Markets
LO4
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LO4
Bases for Segmenting Consumer Markets
SegmentationBases
SegmentationBases
Characteristics of individuals,
groups, or organizations used
to divide a total market into
segments. (variables)
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Bases for SegmentationLO4
Usage RateUsage Rate
Benefits SoughtBenefits Sought
PsychographicsPsychographics
DemographicsDemographics
GeographyGeography
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Geographic Segmentation
Region of the country or world
Market size
Market density
Climate
LO4
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Geography - Community
7-21
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Geography- Climate
7-22
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Geography - Region
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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 Quicker reaction to
competition
LO4
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Demographic Segmentation
LO4
AgeAge
GenderGender
IncomeIncome
Ethnic backgroundEthnic background
Family life cycleFamily life cycle
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Gender
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Demographic segmentation: Heavy usage patterns of various age groups
7-27
McGraw-Hill/Irwin
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Ethnic Segmentation
Largest ethnic markets are: Hispanic Americans African Americans Asian Americans
Will comprise 1/3 of U.S. population by 2010 with buying power of $1 trillion annually
LO4
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Products target Hispanics
7-29
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Family Life Cycle
LO4
Age
MaritalStatus Children
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Family Life Cycle
LO4
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Psychographic Segmentation
LO4
PsychographicSegmentation
PsychographicSegmentation
Market segmentation on the basis
of personality, motives, lifestyles,
and geodemographics.
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Bases for Psychographic Segmentation
LO4
PersonalityPersonality
MotivesMotives
LifestylesLifestyles
GeodemographicsGeodemographics
Online
http://www.marthastewart.com http://www.goodhousekeeping.com
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Lifestyle Segmentation
How time is spent Importance of things around them Beliefs Socioeconomic characteristics
LO4
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Psychographic Segmentation
Values and Lifestyles Typology (VALS)
http://www.sric-bi.com/VALS/
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Biz Flix
LO4The Breakfast Club
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Geodemographic Segmentation
LO4
Segmenting potential customers into neighborhood lifestyle categories.
Combines geographic, demographic, and lifestyle segmentation.
Segmenting potential customers into neighborhood lifestyle categories.
Combines geographic, demographic, and lifestyle segmentation.
GeodemographicSegmentation
GeodemographicSegmentation
Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 38
PRIZM• PRIZM (Potential Rating Index by Zip Market):
– Classifies every U.S. Zip Code into one of 62 categories– Rankings in terms of income, home value, and
occupation on a ZQ (Zip Quality) Scale – Categories range from most affluent “Blue-Blood
Estates” to the least well-off “Public Assistance”– Different clusters exhibit different consumption patterns
Prizm
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PRIZM Clusters
Young Digerati are the nation's tech-savvy singles and couples living in fashionable neighborhoods on the urban fringe. Affluent, highly educated and ethnically mixed, Young Digerati communities are typically filled with trendy apartments and condos, fitness clubs, clothing boutiques, casual restaurants and all types of bars—from juice to coffee to microbrew.
The steady rise of older, healthier Americans over the past decade has produced one important by-product: middle-class, home-owning suburbanites who are aging in place rather than moving to retirement communities. Gray Power reflects this trend, a segment of older, midscale singles and couples who live in quiet comfort.
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PRIZM Clusters01 Upper Crust
02 Blue Blood Estates
03 Movers & Shakers
04 Young Digerati
05 Country Squires
06 Winner's Circle
07 Money & Brains
08 Executive Suites
09 Big Fish, Small Pond
10 Second City Elite
11 God's Country
12 Brite Lites, Li'l City
13 Upward Bound
14 New Empty Nests
15 Pools & Patios
16 Bohemian Mix
17 Beltway Boomers
18 Kids & Cul-de-Sacs
19 Home Sweet Home
20 Fast-Track Families
21 Gray Power
22 Young Influentials
23 Greenbelt Sports
24 Up-and-Comers
25 Country Casuals
26 The Cosmopolitans
27 Middleburg Managers
28 Traditional Times
29 American Dreams
30 Suburban Sprawl
31 Urban Achievers
32 New Homesteaders
33 Big Sky Families
34 White Picket Fences
35 Boomtown Singles
36 Blue-Chip Blues
37 Mayberry-ville
38 Simple Pleasures
39 Domestic Duos
40 Close-In Couples
41 Sunset City Blues
42 Red, White & Blues
43 Heartlanders
44 New Beginnings
45 Blue Highways
46 Old Glories
47 City Startups
48 Young & Rustic
49 American Classics
50 Kid Country, USA
51 Shotguns & Pickups
52 Suburban Pioneers
53 Mobility Blues
54 Multi-Culti Mosaic
55 Golden Ponds
56 Crossroads Villagers
57 Old Milltowns
58 Back Country Folks
59 Urban Elders
60 Park Bench Seniors
61 City Roots
62 Hometown Retired
63 Family Thrifts
64 Bedrock America
65 Big City Blues
66 Low-Rise Living
67 Unclassified
Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 41
PRIZM
• Branchburg, NJ 08876's most common PRIZM NE Segments are:
• Boomtown Singles• Country Squires• God’s Country• Middleberg Managers• Up–and-Comers
http://www.claritas.com/MyBestSegments/Default.jsp?ID=30&SubID=&pageName=Segment%2BLook-up
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A Comparison of Two PRIZM Clusters
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Benefit Segmentation
LO4
The process of grouping customers
into market segments according to the
benefits they seek from the product.
Benefit Segmentation
Benefit Segmentation
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Benefit Segmentation
LO4
Usage-RateSegmentation
Usage-RateSegmentation
Dividing a market by the amount
of product bought or consumed.
Dividing a market by the amount
of product bought or consumed.
80/20Principle
80/20Principle
A principle holding that 20
percent of all customers generate
80 percent of the demand.
A principle holding that 20
percent of all customers generate
80 percent of the demand.
Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 45
LO4B
eyond
the
Book
Example of Usage-Rate
Verizon, Sprint Nextel and others allow consumers with standard contracts to access the Internet via cellular high-speed services.
Some customers’ service is being cancelled because they are using excessive network capacity.
Sprint and Cingular Wireless charge based on usage: the amount of data bits they wirelessly transfer each month.
SOURCE: Amol Sharma and Dionne Searcey, “Cell Carriers to Web Customers: Use Us, but Not too Much,” Wall Street Journal, May 11, 2006, B1.
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7-46
Example of Benefit
Tropicana Essentials targets consumers who want extra vitamins and no sodium
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REVIEW LEARNING OUTCOMELO4
Bases for Segmenting Consumer Markets
Geography Demographics Psychographics Benefits Usage Rate
• Region• Market size• Market
density• Climate
• Age• Gender• Income• Race/ethnicity• Family life
cycle
• Personality• Motives• Lifestyle• Geodemo-
graphics
• Benefitssought
• Former• Potential• 1st time• Light or
irregular• Medium• Heavy
Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 48
Describe the bases for segmenting
business markets
Bases for Segmenting Bases for Segmenting Business MarketsBusiness Markets
LO5
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Bases for Segmenting Business Markets
LO5
CompanyCharacteristics
CompanyCharacteristics
BuyingProcesses
BuyingProcesses
ProducersProducers
ResellersResellers
GovernmentGovernment
InstitutionsInstitutions
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Bases for Segmenting Business Markets
LO5
Company Characteristics
Geographic location
Type of company
Company size
Volume of purchase
Product use
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Buyer CharacteristicsLO5
SatisficersSatisficersBusiness customers who place an order
with the first familiar supplier to satisfy
product and delivery requirements.
Business customers who place an order
with the first familiar supplier to satisfy
product and delivery requirements.
OptimizersOptimizersBusiness customers who consider
numerous suppliers, both familiar and
unfamiliar, solicit bids, and study all
proposals carefully before selecting one.
Business customers who consider
numerous suppliers, both familiar and
unfamiliar, solicit bids, and study all
proposals carefully before selecting one.
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Buyer CharacteristicsLO5
Demographic characteristicsDemographic characteristics
Decision styleDecision style
Tolerance for riskTolerance for risk
Confidence levelConfidence level
Job responsibilitiesJob responsibilities
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REVIEW LEARNING OUTCOMELO5
Segmenting Business Markets
Producers Resellers
InstitutionsGovernments
Buying Process
Company Characteristics
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List the steps involved in
segmenting markets
Steps in Segmenting Steps in Segmenting a Marketa Market
LO6
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REVIEW LEARNING OUTCOMELO6
Steps in Segmenting Markets
Select a market
for study
Choosebases
for segmen-
tation
Selectdescriptors
Profileand
analyzesegments
Selecttarget
markets
Design,implement,
maintainmarketing
mix
Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 56
Discuss alternative strategies for
selecting target markets
Strategies for Selecting Strategies for Selecting Target MarketsTarget Markets
LO7
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Strategies for Selecting Target Markets
LO7
TargetMarketTargetMarket
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.
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Strategies for Selecting Target Markets
LO7
ConcentratedStrategy
UndifferentiatedStrategy
MultisegmentStrategy
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Undifferentiated Targeting Strategy
LO7
UndifferentiatedTargetingStrategy
UndifferentiatedTargetingStrategy
A marketing approach that
views the market as one big
market with no individual
segments and thus
requires a single
marketing mix.
Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 60
LO7
UndifferentiatedStrategy
Advantage:
Potential savings on production and marketing costs
Disadvantages:
Unimaginative product offerings
Company more susceptible to competition
Undifferentiated Targeting Strategy
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Concentrated Targeting Strategy
LO7
ConcentratedTargeting Strategy
ConcentratedTargeting Strategy
A strategy used to select one
segment of a market for
targeting marketing efforts.
NicheOne segment of a
market.
Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 62
LO7
ConcentratedStrategy
Advantage:
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
Concentrated Targeting Strategy
Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 63
MultisegmentTargeting Strategy
LO7
MultisegmentTargetingStrategy
MultisegmentTargetingStrategy
A strategy that chooses two or
more well-defined market
segments and develops a
distinct marketing
mix for each.
Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 64
LO7
MultisegmentStrategy
Advantage:
Greater financial success
Economies of scale
Disadvantages:
High costs
Cannibalization
MultisegmentTargeting Strategy
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Costs of Multisegment Targeting
LO7
Product design costs
Production costs
Promotion costs
Inventory costs
Marketing research costs
Management costs
Cannibalization MultisegmentStrategy
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Cannibalization
LO7
Situation that occurs when
sales of a new product cut into
sales of a firm’s existing
products.
CannibalizationCannibalization
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REVIEW LEARNING OUTCOMELO7
Alternatives for Selecting Target Markets
Undifferentiated Multisegment Concentrated
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Approaches to Targeting Markets
Wal-Mart M
Strategy A
Strategy C
Strategy B
C
A
B
UNDIFERENTIATED(MASS MARKETING)
DIFFERENTIATED(Happy Meal, Big Mac, Chicken Salad)
Market StrategyB
C
A
Curves for Women, Gold’s Gym, American Assoc. for Retired Persons)
Strategy A
Strategy B
Strategy C
A
C
B
CUSTOMIZED (1-to-1) MARKETING(Personal Amenities for Ritz-CarltonLoyals, BK Whopper, Custom Cars)
CONCENTRATED
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Explain one-to-one marketing
One-to-One MarketingOne-to-One MarketingLO8
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One-to-One Marketing
LO8
An individualized marketing method that utilizes customer information to build long-term, personalized, and profitable relationships with each customer.
One-to-OneMarketing
One-to-OneMarketing
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One-to-One Marketing
LO8
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
Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 72
One-to-One Marketing
LO8
One-size-fits all marketing no longer effective
Direct and personal marketing will grow to meet needs of busy consumers.
Consumers will be loyal to companies that have earned—and reinforced—their loyalty.
Mass-media approaches will decline as technology allows better customer tracking.
TrendsTrends
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REVIEW LEARNING OUTCOMELO8
One-to-One Marketing
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7-74
Custom Beauty Solutions
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Explain how and why firms implement
positioning strategies and how product
differentiation plays a role
PositioningPositioningLO9
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LO9
Positioning
Developing a specific
marketing mix to
influence potential
customers’ overall
perception of a brand,
product line, or
organization in
general.
Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 77
LO9 0.7%Fabric & skin safety on baby clothesIvory Snow
0.1%Tough cleaner, aimed at Hispanic marketAriel
1.0%Outstanding cleaning for baby clothes, safeDreft
1.2%Detergent and fabric softener in liquid formSolo
1.4%Bleach-boosted formula, whiteningOxydol
1.8%Value brandDash
2.2%Stain treatment and stain removalEra
2.6%Sunshine scent and odor-removing formulaGain
2.9%Detergent plus fabric softenerBold
8.2%Tough cleaning, color protectionCheer
31.1%Tough, powerful cleaningTide
MarketShare
PositioningBrand
Positioning of Procter & Gamble
DetergentsLO9
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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
LO9
Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 79
LO9
Product Differentiation
A positioning strategy that some firms use to distinguish their products from those of competitors.
Distinctions can be real or perceived.
Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 80
A means of displaying or
graphing, in two or more
dimensions, the location of
products, brands, or groups
of products in customers’
minds.
LO9
Perceptual Mapping
Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 817-81
Perceptual Map
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AttributeAttribute
Price and QualityPrice and Quality
Use or ApplicationUse or Application
Product UserProduct User
Product ClassProduct Class
CompetitorCompetitor
EmotionEmotionLO9
Positioning Bases
Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 83
Changing consumers’
perceptions of a brand in
relation to competing brands.
LO9
Repositioning