Segmenting and Targeting Markets

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

Segmenting and Targeting Markets

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