Targeting Attractive Market Segments

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McGraw-Hill/Irwin
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Targeting
Attractive
Market
Segments
6

2. Discussion Questions
1. What’s a market?
2. What’s a market segment?

3. Discussion Questions
3. Why should we segment markets
and target certain segments?
Are there benefits in doing so?
Are there drawbacks?

4. Objectives of Market
Segmentation
 Identify a homogeneous segment
that differs from other segments
 Specify criteria that define the
segment
 Determine segment size and
potential

5. Discussion Question
4. How should market segments be
defined?
Three good ways to do it.
 Who the customers are
 Where they are
 How they behave

6. Ask, for each approach, “What tools do we have to define
segments this way?
Can you think of examples of markets typically segmented
this way?”
Who?
•Tools: demographic descriptors (age, income, gender,
education, etc.): cereal, clothing, cosmetics, some magazines
Where?
•Tools: geographic descriptors: suntan lotion, snow blowers,
trade areas for retail stores
How they behave?
Tools:
•Benefits sought: bicycles of various types, computers of
various types
•Product usage: key accounts among organizational buyers
•Lifestyle/psychographics: health clubs, automobiles/SUVs
•Social class: jewelry, automobiles

7. Discussion Question
5.What are some commonly used
demographic, geographic and
behavioral descriptors?

8. Segmentation basis Typical market segments
Geographic:
Region New England, Middle Atlantic, and other
census regions
City or MSA size Under 25,000; 25,001-100,000; 100,001-
500,000; 500,001-1,000,000; etc.
Urban-rural Urban, suburban, rural
Climate Hot, cold, sunny, rainy, cloudy
Demographic:
Income Under $10,000; $10,001-$25,000; $25,001-
$35,000; $35,001-$50,000; over $50,000
Age Under 6, 6-12, 13-19, 20-34, 35-49,
50-64, 65 and over
Gender Male, female
Family life cycle Young, single; young, married, no
children, etc.
Social class Upper class, upper middle, lower middle,
upper lower, etc.

9. Segmentation basis Typical market segments (cont.)
Demographic (cont.):
Education Grade school only, high school graduate,
college graduate
Occupation Professional, manager, clerical, sales,
student, homemaker, unemployed
Ethnic background African, Asian, European, Hispanic, Middle
Eastern, etc.
Psychographic:
Personality Ambitious, self-confident, aggressive,
introverted, extroverted, sociable
Life-style Activities (golf, travel); interests (politics,
modern art); opinions (conservation,
capitalism)
Values Values and Life-Styles 2 (VALS2), List of
Values (LOV)

10. Segmentation basis Typical market segments (cont.)
Behavioral:
Benefits desired Examples vary widely depending on
product: appliance — cost, quality,
operating life; toothpaste — no cavities,
plaque control, bright teeth, good taste,
low price
Usage rate Nonuser, light user, heavy user

11.  1. Fashion Statements—most affluent and educated, use
credit cards, expect to be treated well by retail personnel.
 2. Wanna-buys—similar to Fashion Statements but with less
income. Enjoy buying on impulse.
 3. Family Values—represent large families, often are
professionals, buying focuses on children or the home.
 4. Down to Basics—most likely to have children, not college
educated, careful spenders, prefer not to use credit, like
coupons.
 5. Matriarchs—older, often retired, they like department stores
but are risk averse and have few purchase plans.
A SEGMENTATION EXAMPLE
Female department store shoppers have been classified into 5
types, based on demographics, values, and attitudes. The groups
and their descriptive names are:

12. Discussion Question
6. Do these same approaches apply
to organizational markets?
Examples?

13. Who?
•Demographic descriptors: company age, size, etc.
Example: different software versions for small and large
businesses.
Where?
•Geographic descriptors: Example: B2B Websites in different
languages to reach different geographical markets.
How they behave?
•Benefits sought by different industries: Example: software
tailored to different vertical markets.
•Product usage: Example: treating key accounts among
organizational buyers differently
•Lifestyle/psychographics: Example: marketing corporate
wellness programs/corporate health club memberships to
different kinds of firms
•Social class: Example: company vehicles differ for different
job levels

14. BUSINESS MARKETS ARE OFTEN SEGMENTED
ON THE BASIS OF:
 Customer location.
 Type of business customer, including:
> Size
> Industry
> Purchase organization
> Purchase criteria
 Transaction conditions, including:
> Type of buying situation
» Straight rebuy
» Modified rebuy
» New buy
> Usage rate—heavy, light, nonusers.
> Purchase procedure.

15. Segmentation basis Typical market segments
Customer location:
Region Southeast Asia, Central America, Upper
Midwest, Atlantic Seaboard
Locations Single buying site, multiple buying sites
Customer type:
Size Sales volume, number of employees
Industry SIC code, NAICS code
Organization structure Centralized or decentralized; group or
individual decision
Purchase criteria Quality, price, durability, lead time
Type of use Resale, component part, ornamental
Transaction conditions:
Buying situation Straight rebuy, modified rebuy, new buy
Usage rate Nonuser, light user, heavy user
Purchasing procedure Competitive bidding, lease, svc. contracts
Order size Small, medium, large
Service requirements Light, moderate, heavy

16. How should we Decide Which Segments to
Target? - Steps in Constructing a Market-
Attractiveness/Competitive-Position Matrix (Exhibit 6.7)
1. Choose criteria to measure market
attractiveness and competitive position.
2. Weigh market attractiveness and competitive
position factors to reflect their relative importance.
3. Assess the current position of each potential
target market on each factor.
4. Project the future position of each market based on
expected environmental, customer, and competitive trends
5. Evaluate implications of possible future changes for
business strategies and resources requirements.

17. A Useful Tool for Assessing Market
Segments: Segment Rating Chart
WEIGHT RATING
(0-10)
TOTAL
Market attractiveness factors
Customer needs and behavior .5 10 5.0
Segment size and growth rate .3 7 2.1
Macro trends .2 8 1.6
Total: Market attractiveness 1.0 8.7
Competitive position factors
Opportunity for competitive
advantage
.6 7 4.2
Capabilities and resources .2 5 1.0
Industry attractiveness .2 7 1.4
Total: Competitive position 1.0 6.6

18. The Market Attractiveness/
Competitive Position Matrix Exhibit
6.10
l
Market
Attractiveness
High
(8-10)
Moderate
(4-7)
Low
(0-3)
High
(8-10)
Moderate
(4-7)
Low
(0-3)
Company’s Competitive Position
l = Market attractiveness and competitive position of distance runners segment

20. Implications of Alternative Positions
Within the Market-Attractiveness/
Competitive-Position Matrix Exhibit 6.11
High
Low
Med.
Market
Attractiveness
Competitive Position
Strong
Medium
Weak
Desirable Potential Target
Protect position:
• Invest to grow at max.
digestible rate
• Concentrate on
maintaining strength
Desirable Potential Target
Invest to build:
• Challenge for leadership
• Build selectively on
strengths
• Reinforce vulnerable areas
Build selectively:
• Spec. in limited strengths
• Seek to overcome weak.
• Withdraw if indications of
sustainable growth are
lacking
Desirable Potential Target
Build selectively:
• Emphasize profitability by
increasing productivity
• Build up ability to counter
competition
Manage for earnings:
• Protect existing strengths
• Invest to improve position
only in areas where risk is
low
Limited expansion or
harvest:
• Look for ways to
expand w/out high risk;
otherwise min. invest.
and focus operations
Protect and refocus:
• Defend strengths
• Seek ways to increase
current earnings without
speeding market’s decline
Manage for earnings:
• Protect position
• Minimize investment
Divest:
• Sell when possible to
maximize cash value
• Meantime, cut fixed costs &
avoid further investment
Sources: Adapted from George S. Day, Analysis for Strategic Market Decisions (St. Paul: West, 1986), p. 204; D. F. Abell and J. S. Hammond, Strategic Market
Planning Problems and Analytical Approaches (Englewood Cliffs, NJ: Prentice Hall, 1979); and S. J. Robinson, R. E. Hitchens, and D. P. Wade, “The Directional Policy
Matrix: Tool for Strategic Planning,” Long Range Planning 11 (1978), pp. 8-15.

21. Discussion Questions
7. What targeting strategies are
available?
When should each be used?

22. Niche-market strategy
•One or more segments with substantial number of customers
seeking somewhat specialized benefits from a product or service
•Strategy is designed to avoid direct competition with larger firms that are
pursuing bigger segments
Mass-market strategy
•Ignore any segment differences and design a single product-and-marketing
program that will appeal to the largest number of consumers
(undifferentiated marketing)
•Objective of strategy is to capture sufficient volume to gain economies of
scale and a cost advantage
•Favored by larger business units or by those whose parent corporation
provides substantial support
•A second approach to the mass market is to design separate products and
marketing programs for the differing segments (differentiated marketing)

23. Growth-market strategy
•Often target one or more fast-growth segments
•A strategy often favored by smaller competitors to avoid
direct confrontations with larger firms while building volume
and share