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McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 7
Market Segmentation and Targeting

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After studying this chapter you
should be able to:
• Define and explain market segmentation,
target markets, and product differentiation
and positioning.
• Understand the criteria used for evaluating
the likely success of a segmentation strategy.
• Know the role of market segmentation in the
development of marketing strategies and
programs.

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• Describe the issues involved in product
and brand positioning.
• Understand the alternative bases for
segmenting consumer and business-to-
business markets.
• Evaluate alternative approaches for
pursuing segmentation strategies.
After studying this chapter you
should be able to:

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Market Segmentation
• Market
Segmentation:
– Divides a market into
subsets of
prospective
customers who
behave in the same
way, have similar
wants, or have
similar
characteristics that
relate to purchase.
• Intermarket
Segments:
– Well-defined, similar
clusters of customers
across national
boundaries.

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Target Markets
Targeting:
Selecting which segments in a market
are appropriate to focus on and
designing the means of reaching them.

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Product Differentiation
• Product
Differentiation:
– Exists when a firm’s
offerings differ or are
perceived to differ from
those of competing
firms on any attribute,
including price.

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From Mass Marketing to Mass
Customization
• Mass Customization:
– Complex manufactured
products made to order.

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Criteria for Effective
Segmentation
Five Criteria:
1. Measurability
2. Accessibility
3. Substantialness
4. Durability
5. Differential Responsiveness

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Stages in Developing Market
Segmentation Strategies

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Bases for Segmentation
• Demographics
• Geographics
• Psychographics &
Lifestyles
• Benefit Segmentation
• Economic
Segmentation
• International
Segmentation

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Combining Bases of Market
Segmentation

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Segmentation Strategies
Undifferentiated Strategy
Differentiated Strategy
Concentrated Strategy

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Countersegmentation Strategy
• Countersegmentation:
– An alternative strategy to traditional segmentation
approaches.
• Combines market segments
• Consumers accept lower price over variety

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Factors Influencing
Segmentation Strategy
• Size and type of the market
• Competitive factors
• Product-related factors:
1. Stage in the product life cycle.
2. Degree to which the product may be varied
or modified.
• Firm’s size and financial position

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Estimating Segment Potentials
1. Set time period of interest.
2. Define product level.
3. Specify segment characteristics or
bases.
4. Identify geographic market boundaries.

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Estimating Segment Potentials
5. Make assumptions about the marketing
environment.
6. Make assumptions about company’s own
marketing efforts and programs (controllable
factors).
7. Make estimates of market potential, industry
sales, and company sales.

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Developing Forecasts
• Qualitative
Procedures:
– Survey of Buyers’
Intentions
– Expert Opinion
– Composite of
Salesforce
Estimates
• Quantitative
Methods:
– Trend Analysis
– Market Tests
– Statistical Demand
Analysis

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Firm and Market Potentials and
Forecasts
Industry Level
Firm Level
Best Possible Results Expected Results for Given Strategy
Market Potential Market Forecast
Sales Potential Sales Forecast

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Targeting Market Segments
• To select target segments, the firm
must consider:
– The segment’s potential sales volume and
profits.
– Competition currently selling to the
segments.
– The firm’s abilities and objectives.

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Positioning
Repositioning:
When a firm wants to shift consumer
opinions about an existing brand.
Positioning:
Designing a marketing program, including
the product mix, that is consistent with how
the company wants its products or
services to be perceived.

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Perceptual Maps
• Perceptual Maps:
– Spatial representations of consumer
perceptions of products or brands, are often
used to evaluate brand positions in a market.
• Diet Pepsi
• Pepsi Cola
• RC Cola
• Dr Pepper
• Diet Sprite
• Diet 7-Up
• 7-Up
• Sprite
• Orange Crush
• Coke Classic

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Micromarketing
Micromarketing:
Combines census and
Demographic data to identify
clusters of households
that share similar
consumption patterns.

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Micromarketing
• Enhances the effectiveness of marketing efforts
by:
– Identifying potential markets for direct selling
through mail and telemarketing campaigns.
– Profiling customers by matching them to
demographic and lifestyle clusters.
– Learning which areas offer the greatest potential in
site selection for new stores or offices.
– Tailoring advertising themes and planning media.

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Market Segmentation and Ethics
– Advertising to Children
– Harmful Products
– Privacy Issues
– Product Proliferation