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Segmenting and Targeting Markets

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  • Notes: The term market means different things to different people. Consider supermarket, stock market, labor market, fish market, and flea market. All these types of markets share several characteristics. Markets are composed of people or organizations with needs and wants that can be satisfied by particular product categories. They have the ability to buy the products they seek, and are willing to exchange their resources for the desired products.
  • Notes: Within a market, a market segment is a subgroup of people or organizations with one or more common characteristics that cause them to have similar product needs. Market segmentation is the division of a market into meaningful, identifiable segments or groups.
  • Notes: Exhibit 7.1 illustrates the concept of market segmentation, using age and gender as the bases. Discussion/Team Activity: Discuss other ways of segmenting the market in addition to age and gender.
  • Notes: Until the 1960s, market segmentation was not used extensively. Consider Coca-Cola with its one product aimed at the entire soft drink market. Today over a dozen different products are marketed by the company to different market segments. Market segmentation plays a key role in the marketing strategy of organizations, leading to competitive advantage. The benefits are described on this slide. Discussion/Team Activity: Discuss how Coca-Cola’s product lines fit the needs of different market segments. Name different fashion retailers and identify their marketing segmentation strategies.
  • Notes: Markets are segmented for three reasons: Segmentation enables the identification of groups of customers with similar needs, and the analysis of the buying behavior of these groups. Segmentation provides information for the specific matching of the design of marketing mixes with the characteristics of the segment. Segmentation helps marketers satisfy customers wants and needs while meeting the organization’s objectives. A segmentation scheme must produce segments that meet the four basic criteria as defined above.
  • Notes: Marketers use segmentation bases, or variables, to divide a total market into segments. Markets can be segmented using a single variable or multiple variables. Today’s trend is to use more rather than fewer variables to segment a market.
  • Notes: One or more of the characteristics listed above is used to segment markets and described on subsequent slides.
  • Notes: Geographic segmentation of markets is based on the region, market size, market density (number of people within a unit of land), or climate.
  • Notes: Consumer goods companies use a regional approach to marketing for the reasons shown on this slide. Discussion/Team Activity: Discuss the marketing of regional brands/products in various areas of the country.
  • Notes: Demographic information is widely available and often related to consumer behavior and buying. Some common bases are age, gender, income, ethnic background, and family life cycle. Consider age segmentation… There are about 20 million tweens (ages 9-12) in the U.S. This group spends over $20 billion per year. Retailers such as Limited Too and Abercrombie serve this market. Baby boomers (born between 1946 and 1964) represent more than $2 trillion in spending per year. There is marketing potential for products such as retirement properties, health and wellness products, automobiles with features for them, as well as other goods and services.
  • Notes: Consumption patterns among people of the same age and gender differ because of differences in the family life cycle stage. The FLC is a series of stages determined by a combination of age, marital status, and the presence or absence of children.
  • Notes: Exhibit 7.2 demonstrates both traditional and contemporary FLC patterns and shows how families’ needs, incomes, etc. differ at each stage. Married couples make up just 50.7% of the U.S. population. Unmarried Americans make up 42% of the workforce and 40% of home buyers. Discussion/Team Activity: Find examples of advertisements that target different stages of the family life cycle.
  • Online Martha Stewart Living Good Housekeeping Use psychographic segmentation to classify the kinds of consumers who would be interested in the products offered by Martha Stewart and Good Housekeeping online. Notes: Demographic segmentation provides the “skeleton,” but psychographic segmentation adds “meat to the bones.” Personality reflects a person’s traits, attitudes, and habits. Consider the personality types that describe segmented Porsche buyers. Motives: Carmakers appeal to customers with status-related motives, whereas baby products appeal to emotional motives. Lifestyles and geodemographics are described on subsequent slides.
  • Notes: Lifestyle segmentation divides people into groups according to how time is spent, the importance of things around them, beliefs, and socioeconomic characteristics such as income and education. For example, a recent study of the women’s market divides women into four categories based on lifestyle distinctions: Explorers Achievers Builders Masters
  • Notes: Benefit segmentation is different from other segmentation bases because it groups potential customers on the basis of their needs and wants instead of some other characteristic. For example, Exhibit 7.3 in the textbook shows the lifestyle segmentation of the snack food market.
  • Notes: Most segmentation is based on the assumption that the selected variable(s) and customers’ needs are related. On the other hand, benefit segmentation groups potential customers on the basis of their needs or wants only. Segmenting by usage rate enables marketers to focus efforts on heavy users or to develop multiple marketing mixes aimed at different segments. The focus of marketing is often on the heavy-user segment, based on the 80/20 principle. Discussion/Team Activity: What programs do companies use to develop customers into heavy users? The list should include airline frequent flyer programs and in-store coupon dispensing.
  • Notes: Lifestyle segmentation divides people into groups according to how time is spent, the importance of things around them, beliefs, and socioeconomic characteristics such as income and education. For example, a recent study of the women’s market divides women into four categories based on lifestyle distinctions: Explorers Achievers Builders Masters
  • Notes: The business market consists of four segments: Producers Resellers Institutions Government
  • Notes: Company characteristics include geographic location, type of company, company size, and product use. Marketers may also segment customers on the basis of how they buy. Take, for example, key purchasing criteria, such as price, quality, technical support, and service. Personal characteristics of the buyers influence their buying behavior.
  • Notes: The purchasing strategies of buyers provide useful segments. Two purchasing profiles are satisficers and optimizers. Satisficers contact familiar suppliers and place the order with the first one to satisfy product and delivery requirements. Optimizers consider numerous suppliers, obtain bids, and study all proposals before selecting one.
  • Notes: The personal characteristics of the buyers influence their buying behavior and offer a viable basis for segmenting some business markets.
  • Notes: The purpose of market segment is to identify marketing opportunities. This slide traces the steps in segmenting a market. Keep in mind that markets are dynamic and must be monitored proactively for changes in age, etc. Even though the segmentation classifications are static, the customers and prospects are changing.
  • Notes: Market segmentation is the first step in determining whom to approach about buying a product. The next task is to choose one or more target markets. A target market is a group of people or organizations for which the organization creates a marketing mix to meet that group’s needs. Because most markets will include customers with different lifestyles, backgrounds, and income levels, it is unlikely that a single marketing mix will attract all segments of the market.
  • Notes: The three general strategies for selecting target markets are illustrated in Exhibit 7.4 and on this slide. A description of each follows.
  • Notes: An undifferentiated targeting strategy is essentially a mass-market philosophy—viewing the market as one big market and using one marketing mix.
  • Notes: The first firm in an industry sometimes uses an undifferentiated strategy. Consider Coca-Cola when it had a single product and a single size of its original soft drink. Marketers of commodity products, such as flour and sugar, are also likely to use this strategy. Additionally, small stores in small towns with no competition may offer one marketing mix and be successful. Even toilet tissue manufacturers have different segments—both industrial and consumer--and adopt different marketing mixes for different segments.
  • Notes: 1. With a concentrated targeting strategy, a firm selects a niche for targeting its efforts.
  • Notes: A concentrated strategy of focusing on a narrow market is sometimes more profitable than spreading resources over several different segments. A concentrated strategy often enables small firms to compete effectively with much larger firms. However, a concentrated strategy can also be disastrous for a firm that is not successful in its narrowly defined target market. Discussion/Team Activity: Identify firms that have adopted a niche strategy. Examples: watchmakers Patek Philippe, Rolex, and Breguet. Porsche, OshKosh B’Gosh, Orvis, Starbucks, AOL, and Enterprise Rent-A-Car.
  • Notes: Examples of multisegment targeting strategy include Best Buy, Gap, Wal-Mart. Discussion/Team Activity: Wal-Mart recently opened a pilot store in Plano, Texas, that stocks plasma TVs, fine jewelry, expensive wine, etc. Discuss ways that Wal-Mart can attract upper-end customers. What marketing mix would you suggest?
  • Notes: Multisegment targeting does come with a price, including those costs shown on this slide. Before deciding on this strategy, firms should compare the benefits and costs of multisegment targeting to those of undifferentiated and concentrated targeting.
  • Notes: Although introduction of a new product may cut into a firm’s existing product sales, companies are stealing sales from their own brands rather than lose to a competitor.
  • Notes: One-to-one marketing focuses on understanding customers as individuals instead of as part of a group. It is an individualized marketing method that utilizes customer information to build long-term, personalized, and profitable relationships with each customer. The goal is to reduce costs through customer retention and increase revenue through customer loyalty. Most businesses use a mass marketing approach to increase market share by selling their products to the greatest number of people. However, one-to-one marketing is used to increase share of customer--to sell more products to each customer. Instead of wide-spread, scattered messages across the spectrum of mass media, one-to-one marketers look for ways to communicate with each individual customer. Discussion/Team Activity: Discuss how Amazon.com has developed one-to-one marketing. What other companies use one-to-one marketing successfully?
  • Notes: Even though one-to-one marketing represents a huge commitment and a different way of thinking for marketers, it will grow. The trends shown on this slide illustrate why. Although mass marketing will continue to be used to create brand awareness or remind consumers of a product, the advantages of one-to-one marketing are strong.
  • Notes: Position is the place a product, brand, or group of products occupies in consumers’ minds relative to competing offerings. Positioning assumes that consumers compare products on the basis of important features. Effective positioning requires assessing the positions occupied by competing products, determining the important dimensions underlying these positions, and choosing a position in the market where the marketing efforts will have the greatest impact.
  • Notes: Exhibit 7.6 compares the unique positions for Procter & Gamble’s laundry detergents. Discussion/Team Activity: Discuss specific advertisements for these detergents and how these ads illustrate the unique positions listed on this slide. Examine the positioning message of other product advertisements.
  • Notes: Exhibit 7.7 shows Levi’s brands and subbrands, based on price and fashion style. Discussion/Team Activity: What is the target market and marketplace perception of some of Levi’s brands? What are Levi’s strengths in the marketplace? What are Levi’s weaknesses? How can Levi’s use perceptual mapping to enhance its product strategy?
  • Notes: The following bases for positioning are used: Attribute: Association of a product with a product feature, an attribute, or customer benefit. Price and quality: High price as a symbol of quality, or low price as an indicator of value may be used to position a product. Use or application: Stressing use or applications. Product user: Positioning base focuses on a personality or type of user. Product class: Product is positioned as associated with a particular category of products. Competitor: Positioning against competitors is a part of any positioning strategy. Emotion: Positioning using emotion focuses on how the product makes customers feel. One or more positioning bases is often used.
  • Notes: Products are repositioned to sustain growth in slow markets or to correct positioning mistakes A good example of repositioning was the National Pork Board’s campaign of “the other white meat.” Also, consider the expansion of Wal-Mart into the supermarket industry. A consultant predicts that two supermarkets will go out of business for every Wal-Mart superstore that opens in the U.S. Discussion/Team Activity: As giant Wal-Mart expands into the supermarket industry, what repositioning strategies should its competitors consider? How do you compete with the low-price position of Wal-Mart?
  • Notes: In this perceptual map for Cadillac, see how Cadillac is repositioning itself as a car for younger drivers.

Segmenting and Targeting Markets Segmenting and Targeting Markets Presentation Transcript

  • CHAPTER 7 Segmenting and Targeting Markets Designed by Eric Brengle B-books, Ltd. Prepared by Deborah Baker Texas Christian University Introduction to Marketing McDaniel, Lamb, Hair 9
  • 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 LO I LO 2 LO 3 LO 4
  • 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 LO 5 LO 6 LO 7 LO 9 LO 8
  • Market Segmentation Describe the characteristics of markets and market segments LO I
  • A Market Is... LO I (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.
  • Market Segmentation LO I Market People or organizations with needs or wants and the ability and willingness to buy. Market Segment A subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs. Market Segmentation The process of dividing a market into meaningful, relatively similar, identifiable segments or groups.
  • The Concept of Market Segmentation LO I
  • The Importance of Market Segmentation Explain the importance of market segmentation LO 2
  • The Importance of Market Segmentation LO 2
    • 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 OUTCOME The Importance of Market Segmentation LO 2 Market segmentation 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 LO 3
  • Criteria for Segmentation LO 3 Substantiality Segment must be large enough to warrant a special marketing mix. Identifiability and Measurability Segments must be identifiable and their size measurable. Accessibility Members of targeted segments must be reachable with marketing mix. Responsiveness Unless segment responds to a marketing mix differently, no separate treatment is needed.
  • REVIEW LEARNING OUTCOME Successful Market Segmentation LO 3 Useful segment?
    • Substantial
    • Identifiable and measurable
    • Accessible
    • Responsive
    • Then, yes: Useful segmentation scheme
  • Bases for Segmenting Consumer Markets Describe the bases commonly used to segment consumer markets LO 4
  • Bases for Segmenting Consumer Markets LO 4 Characteristics of individuals, groups, or organizations used to divide a total market into segments. (variables) Segmentation Bases
  • Bases for Segmentation LO 4 Usage Rate Benefits Sought Psychographics Demographics Geography
  • Geographic Segmentation
    • Region of the country or world
    • Market size
    • Market density
    • Climate
    LO 4
    • 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
    Benefits of Regional Segmentation LO 4
  • Demographic Segmentation LO 4 Age Gender Income Ethnic background Family life cycle
  • 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
    LO 4
  • Family Life Cycle LO 4 Age Marital Status Children
  • Family Life Cycle LO 4
  • Psychographic Segmentation LO 4 Market segmentation on the basis of personality, motives, lifestyles, and geodemographics. Psychographic Segmentation
  • Bases for Psychographic Segmentation LO 4 Personality Motives Lifestyles Geodemographics Online http://www.marthastewart.com http://www.goodhousekeeping.com
  • Lifestyle Segmentation
    • How time is spent
    • Importance of things around them
    • Beliefs
    • Socioeconomic characteristics
    LO 4
  • Biz Flix The Breakfast Club LO 4
  • Geodemographic Segmentation LO 4 Segmenting potential customers into neighborhood lifestyle categories. Combines geographic, demographic, and lifestyle segmentation. Geodemographic Segmentation
  • Benefit Segmentation LO 4 The process of grouping customers into market segments according to the benefits they seek from the product. Benefit Segmentation
  • Benefit Segmentation LO 4 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.
  • 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.
    LO 4 SOURCE: Amol Sharma and Dionne Searcey, “Cell Carriers to Web Customers: Use Us, but Not too Much,” Wall Street Journal, May 11, 2006, B1.
  • REVIEW LEARNING OUTCOME Bases for Segmenting Consumer Markets LO 4 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
    • Benefits sought
    • Former
    • Potential
    • 1 st time
    • Light or irregular
    • Medium
    • Heavy
  • Bases for Segmenting Business Markets Describe the bases for segmenting business markets LO 5
  • Bases for Segmenting Business Markets LO 5 Company Characteristics Buying Processes Producers Resellers Government Institutions
  • Bases for Segmenting Business Markets LO 5
    • Geographic location
    • Type of company
    • Company size
    • Volume of purchase
    • Product use
    Company Characteristics
  • Buyer Characteristics LO 5 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 LO 5 Demographic characteristics Decision style Tolerance for risk Confidence level Job responsibilities
  • REVIEW LEARNING OUTCOME Segmenting Business Markets LO 5 Producers Resellers Institutions Governments Buying Process Company Characteristics
  • Steps in Segmenting a Market List the steps involved in segmenting markets LO 6
  • REVIEW LEARNING OUTCOME Steps in Segmenting Markets LO 6 1 5 3 4 2 6 Select a market for study Choose bases for segmen-tation Select descriptors Profile and analyze segments Select target markets Design, implement, maintain marketing mix
  • Strategies for Selecting Target Markets Discuss alternative strategies for selecting target markets LO 7
  • Strategies for Selecting Target Markets LO 7 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. Target Market
  • Strategies for Selecting Target Markets LO 7 Concentrated Strategy Undifferentiated Strategy Multisegment Strategy
  • Undifferentiated Targeting Strategy LO 7 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
  • Undifferentiated Targeting Strategy LO 7
    • Advantage :
      • Potential savings on production and marketing costs
    • Disadvantages :
      • Unimaginative product offerings
      • Company more susceptible to competition
    Undifferentiated Strategy
  • Concentrated Targeting Strategy Concentrated Targeting Strategy LO 7 A strategy used to select one segment of a market for targeting marketing efforts. Niche One segment of a market.
  • Concentrated Targeting Strategy LO 7
    • 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
    Concentrated Strategy
  • Multisegment Targeting Strategy LO 7 A strategy that chooses two or more well-defined market segments and develops a distinct marketing mix for each. Multisegment Targeting Strategy
  • Multisegment Targeting Strategy LO 7
    • Advantages :
      • Greater financial success
      • Economies of scale
    • Disadvantages :
      • High costs
      • Cannibalization
    Multisegment Strategy
  • Costs of Multisegment Targeting LO 7
    • Product design costs
    • Production costs
    • Promotion costs
    • Inventory costs
    • Marketing research costs
    • Management costs
    • Cannibalization
  • Cannibalization LO 7 Cannibalization Situation that occurs when sales of a new product cut into sales of a firm’s existing products.
  • REVIEW LEARNING OUTCOME Alternatives for Selecting Target Markets LO 7 Undifferentiated Multisegment Concentrated
  • One-to-One Marketing Explain one-to-one marketing LO 8
  • One-to-One Marketing LO 8 One-to-One Marketing An individualized marketing method that utilizes customer information to build long-term, personalized, and profitable relationships with each customer.
  • One-to-One Marketing LO 8 Information-Intensive Long-Term One-to-One Marketing is... Individualized Cost Reduction Has a Goal of… Customer Loyalty Increased Revenue Personalized Customer Retention
  • One-to-One Marketing
    • 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.
    LO 8 Trends
  • REVIEW LEARNING OUTCOME One-to-One Marketing LO 8
  • Positioning Explain how and why firms implement positioning strategies and how product differentiation plays a role LO 9
  • Positioning LO 9 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 LO 9 0.7% Fabric & skin safety on baby clothes Ivory Snow 0.1% Tough cleaner, aimed at Hispanic market Ariel 1.0% Outstanding cleaning for baby clothes, safe Dreft 1.2% Detergent and fabric softener in liquid form Solo 1.4% Bleach-boosted formula, whitening Oxydol 1.8% Value brand Dash 2.2% Stain treatment and stain removal Era 2.6% Sunshine scent and odor-removing formula Gain 2.9% Detergent plus fabric softener Bold 8.2% Tough cleaning, color protection Cheer 31.1% Tough, powerful cleaning Tide Market Share Positioning Brand
  • Effective Positioning
    • Assess the positions occupied by competing products
    • Determine the dimensions underlying these positions
    • Choose a market position where marketing efforts will have the greatest impact
    LO 9
  • Product Differentiation LO 9 Product Differentiation A positioning strategy that some firms use to distinguish their products from those of competitors. Distinctions can be real or perceived.
  • Perceptual Mapping LO 9 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 LO 9
  • Positioning Bases LO 9 Attribute Price and Quality Use or Application Product User Product Class Competitor Emotion
  • Repositioning LO 9 Repositioning Changing consumers’ perceptions of a brand in relation to competing brands.
  • REVIEW LEARNING OUTCOME Positioning and Product Differentiation LO 9