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Segmenting and Targeting Markets

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Segmenting and Targeting Markets

  1. 1. 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
  2. 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 LO I LO 2 LO 3 LO 4
  3. 3. 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
  4. 4. Market Segmentation Describe the characteristics of markets and market segments LO I
  5. 5. 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.
  6. 6. 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.
  7. 7. The Concept of Market Segmentation LO I
  8. 8. The Importance of Market Segmentation Explain the importance of market segmentation LO 2
  9. 9. The Importance of Market Segmentation LO 2 <ul><li>Markets have a variety of product needs and preferences </li></ul><ul><li>Marketers can better define customer needs </li></ul><ul><li>Decision makers can define objectives and allocate resources more accurately </li></ul>
  10. 10. 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
  11. 11. Criteria for Successful Segmentation Discuss criteria for successful market segmentation LO 3
  12. 12. 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.
  13. 13. REVIEW LEARNING OUTCOME Successful Market Segmentation LO 3 Useful segment? <ul><li>Substantial </li></ul><ul><li>Identifiable and measurable </li></ul><ul><li>Accessible </li></ul><ul><li>Responsive </li></ul><ul><li>Then, yes: Useful segmentation scheme </li></ul>
  14. 14. Bases for Segmenting Consumer Markets Describe the bases commonly used to segment consumer markets LO 4
  15. 15. Bases for Segmenting Consumer Markets LO 4 Characteristics of individuals, groups, or organizations used to divide a total market into segments. (variables) Segmentation Bases
  16. 16. Bases for Segmentation LO 4 Usage Rate Benefits Sought Psychographics Demographics Geography
  17. 17. Geographic Segmentation <ul><li>Region of the country or world </li></ul><ul><li>Market size </li></ul><ul><li>Market density </li></ul><ul><li>Climate </li></ul>LO 4
  18. 18. <ul><li>New ways to generate sales in sluggish and competitive markets </li></ul><ul><li>Scanner data allow assessment of best selling brands in region </li></ul><ul><li>Regional brands appeal to local preferences </li></ul><ul><li>Quicker reaction to competition </li></ul>Benefits of Regional Segmentation LO 4
  19. 19. Demographic Segmentation LO 4 Age Gender Income Ethnic background Family life cycle
  20. 20. Ethnic Segmentation <ul><li>Largest ethnic markets are: </li></ul><ul><ul><li>Hispanic Americans </li></ul></ul><ul><ul><li>African Americans </li></ul></ul><ul><ul><li>Asian Americans </li></ul></ul><ul><li>Will comprise 1/3 of U.S. population by 2010 with buying power of $1 trillion annually </li></ul>LO 4
  21. 21. Family Life Cycle LO 4 Age Marital Status Children
  22. 22. Family Life Cycle LO 4
  23. 23. Psychographic Segmentation LO 4 Market segmentation on the basis of personality, motives, lifestyles, and geodemographics. Psychographic Segmentation
  24. 24. Bases for Psychographic Segmentation LO 4 Personality Motives Lifestyles Geodemographics Online http://www.marthastewart.com http://www.goodhousekeeping.com
  25. 25. Lifestyle Segmentation <ul><li>How time is spent </li></ul><ul><li>Importance of things around them </li></ul><ul><li>Beliefs </li></ul><ul><li>Socioeconomic characteristics </li></ul>LO 4
  26. 26. Biz Flix The Breakfast Club LO 4
  27. 27. Geodemographic Segmentation LO 4 Segmenting potential customers into neighborhood lifestyle categories. Combines geographic, demographic, and lifestyle segmentation. Geodemographic Segmentation
  28. 28. Benefit Segmentation LO 4 The process of grouping customers into market segments according to the benefits they seek from the product. Benefit Segmentation
  29. 29. 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.
  30. 30. Example of Usage-Rate <ul><li>Verizon, Sprint Nextel and others allow consumers with standard contracts to access the Internet via cellular high-speed services. </li></ul><ul><li>Some customers’ service is being cancelled because they are using excessive network capacity. </li></ul><ul><li>Sprint and Cingular Wireless charge based on usage: the amount of data bits they wirelessly transfer each month. </li></ul>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.
  31. 31. REVIEW LEARNING OUTCOME Bases for Segmenting Consumer Markets LO 4 Geography Demographics Psychographics Benefits Usage Rate <ul><li>Region </li></ul><ul><li>Market size </li></ul><ul><li>Market density </li></ul><ul><li>Climate </li></ul><ul><li>Age </li></ul><ul><li>Gender </li></ul><ul><li>Income </li></ul><ul><li>Race/ethnicity </li></ul><ul><li>Family life cycle </li></ul><ul><li>Personality </li></ul><ul><li>Motives </li></ul><ul><li>Lifestyle </li></ul><ul><li>Geodemo-graphics </li></ul><ul><li>Benefits sought </li></ul><ul><li>Former </li></ul><ul><li>Potential </li></ul><ul><li>1 st time </li></ul><ul><li>Light or irregular </li></ul><ul><li>Medium </li></ul><ul><li>Heavy </li></ul>
  32. 32. Bases for Segmenting Business Markets Describe the bases for segmenting business markets LO 5
  33. 33. Bases for Segmenting Business Markets LO 5 Company Characteristics Buying Processes Producers Resellers Government Institutions
  34. 34. Bases for Segmenting Business Markets LO 5 <ul><li>Geographic location </li></ul><ul><li>Type of company </li></ul><ul><li>Company size </li></ul><ul><li>Volume of purchase </li></ul><ul><li>Product use </li></ul>Company Characteristics
  35. 35. 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.
  36. 36. Buyer Characteristics LO 5 Demographic characteristics Decision style Tolerance for risk Confidence level Job responsibilities
  37. 37. REVIEW LEARNING OUTCOME Segmenting Business Markets LO 5 Producers Resellers Institutions Governments Buying Process Company Characteristics
  38. 38. Steps in Segmenting a Market List the steps involved in segmenting markets LO 6
  39. 39. 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
  40. 40. Strategies for Selecting Target Markets Discuss alternative strategies for selecting target markets LO 7
  41. 41. 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
  42. 42. Strategies for Selecting Target Markets LO 7 Concentrated Strategy Undifferentiated Strategy Multisegment Strategy
  43. 43. 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
  44. 44. Undifferentiated Targeting Strategy LO 7 <ul><li>Advantage : </li></ul><ul><ul><li>Potential savings on production and marketing costs </li></ul></ul><ul><li>Disadvantages : </li></ul><ul><ul><li>Unimaginative product offerings </li></ul></ul><ul><ul><li>Company more susceptible to competition </li></ul></ul>Undifferentiated Strategy
  45. 45. 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.
  46. 46. Concentrated Targeting Strategy LO 7 <ul><li>Advantages : </li></ul><ul><ul><li>Concentration of resources </li></ul></ul><ul><ul><li>Meets narrowly defined segment </li></ul></ul><ul><ul><li>Small firms can compete </li></ul></ul><ul><ul><li>Strong positioning </li></ul></ul><ul><li>Disadvantages : </li></ul><ul><ul><li>Segments too small, or changing </li></ul></ul><ul><ul><li>Large competitors may market to niche segment </li></ul></ul>Concentrated Strategy
  47. 47. 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
  48. 48. Multisegment Targeting Strategy LO 7 <ul><li>Advantages : </li></ul><ul><ul><li>Greater financial success </li></ul></ul><ul><ul><li>Economies of scale </li></ul></ul><ul><li>Disadvantages : </li></ul><ul><ul><li>High costs </li></ul></ul><ul><ul><li>Cannibalization </li></ul></ul>Multisegment Strategy
  49. 49. Costs of Multisegment Targeting LO 7 <ul><li>Product design costs </li></ul><ul><li>Production costs </li></ul><ul><li>Promotion costs </li></ul><ul><li>Inventory costs </li></ul><ul><li>Marketing research costs </li></ul><ul><li>Management costs </li></ul><ul><li>Cannibalization </li></ul>
  50. 50. Cannibalization LO 7 Cannibalization Situation that occurs when sales of a new product cut into sales of a firm’s existing products.
  51. 51. REVIEW LEARNING OUTCOME Alternatives for Selecting Target Markets LO 7 Undifferentiated Multisegment Concentrated
  52. 52. One-to-One Marketing Explain one-to-one marketing LO 8
  53. 53. 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.
  54. 54. 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
  55. 55. One-to-One Marketing <ul><li>One-size-fits all marketing no longer effective </li></ul><ul><li>Direct and personal marketing will grow to meet needs of busy consumers. </li></ul><ul><li>Consumers will be loyal to companies that have earned—and reinforced—their loyalty. </li></ul><ul><li>Mass-media approaches will decline as technology allows better customer tracking. </li></ul>LO 8 Trends
  56. 56. REVIEW LEARNING OUTCOME One-to-One Marketing LO 8
  57. 57. Positioning Explain how and why firms implement positioning strategies and how product differentiation plays a role LO 9
  58. 58. Positioning LO 9 Positioning Developing a specific marketing mix to influence potential customers’ overall perception of a brand, product line, or organization in general.
  59. 59. 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
  60. 60. Effective Positioning <ul><li>Assess the positions occupied by competing products </li></ul><ul><li>Determine the dimensions underlying these positions </li></ul><ul><li>Choose a market position where marketing efforts will have the greatest impact </li></ul>LO 9
  61. 61. 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.
  62. 62. 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.
  63. 63. Perceptual Mapping LO 9
  64. 64. Positioning Bases LO 9 Attribute Price and Quality Use or Application Product User Product Class Competitor Emotion
  65. 65. Repositioning LO 9 Repositioning Changing consumers’ perceptions of a brand in relation to competing brands.
  66. 66. REVIEW LEARNING OUTCOME Positioning and Product Differentiation LO 9

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