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Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7

1

Designed by Eric Brengle B-books, Ltd.

CHAPTER

7

Segmenting and Targeting Markets

Prepared byDeborah Baker

Texas Christian University

Introduction to MarketingMcDaniel, Lamb, Hair

9

2Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7

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

LOI

LO2

LO3

LO4


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

LO5

LO6

LO7

LO9

LO8


Describe the characteristics of markets

and market segments

Market SegmentationLOI

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 5

LOI

(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.

A Market Is...


Market SegmentationLOI

MarketMarketPeople or organizations with needs or wants and the ability and willingness to buy.

People or organizations with needs or wants and the ability and willingness to buy.

MarketSegment

MarketSegment

A subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs.

A subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs.

MarketSegmentation

MarketSegmentation

The process of dividing a market into meaningful, relatively similar, identifiable segments or groups.

The process of dividing a market into meaningful, relatively similar, identifiable segments or groups.


LOI The Concept of Market Segmentation


Explain the importance of market segmentation

The Importance of Market Segmentation

LO2

9Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7LO2

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

The Importance of Market Segmentation


REVIEW LEARNING OUTCOMEThe Importance of Market Segmentation

LO2

Marketsegmentation

More precise definition of customers needs and wants

More accurate marketing objectives

Improved resource allocation

Better marketing results


Discuss criteria for successful market

segmentation

Criteria for Successful SegmentationLO3


LO3

SubstantialitySegment must be large

enough to warrant a special marketing mix.

Identifiabilityand

Measurability

Segments must be identifiable and their size measurable.

AccessibilityMembers of targeted segments

must be reachable with marketing mix.

ResponsivenessUnless segment responds to a marketing mix differently, no separate treatment is needed.

Criteria for Segmentation


REVIEW LEARNING OUTCOMESuccessful Market Segmentation

LO3

Usefulsegment?

Substantial Identifiable and measurable Accessible Responsive

Then, yes: Useful segmentation scheme


Describe the bases commonly used to

segment consumer markets

Bases for Segmenting Consumer MarketsLO4


LO4

SegmentationBases

SegmentationBases

Characteristics of individuals,

groups, or organizations used

to divide a total market into

segments.

(variables)

Bases for Segmenting Consumer Markets

16Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 LO4

Usage RateUsage Rate

Benefits SoughtBenefits Sought

PsychographicsPsychographics

DemographicsDemographics

GeographyGeography

Bases for Segmentation


LO4 Geographic Segmentation

Region of the country or world

Market size

Market density

Climate


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


LO4 Demographic Segmentation

AgeAge

GenderGender

IncomeIncome

Ethnic backgroundEthnic background

Family life cycleFamily 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


LO4

Age

MaritalStatus Children

Family Life Cycle


LO4 Family Life Cycle


LO4

PsychographicSegmentation

PsychographicSegmentation

Psychographic Segmentation

Market segmentation on the

basis of personality,

motives, lifestyles, and

geodemographics.


LO4

PersonalityPersonality

MotivesMotives

LifestylesLifestyles

GeodemographicsGeodemographics

Online

http://www.marthastewart.comhttp://www.goodhousekeeping.com

Bases for Psychographic Segmentation


LO4 Lifestyle Segmentation

How time is spent

Importance of things around them

Beliefs

Socioeconomic characteristics

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7

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LO4


LO4

GeodemographicSegmentation

GeodemographicSegmentation

Geodemographic Segmentation

Segmenting potential customers

into neighborhood lifestyle

categories.

Combines geographic,

demographic, and lifestyle

segmentation.


LO4

BenefitSegmentation

BenefitSegmentation

Benefit Segmentation

The process of grouping

customers into market segments

according to the benefits they

seek from the product.


LO4 Benefit Segmentation

Usage-RateSegmentation

Usage-RateSegmentation

Dividing a market by the

amount of product bought

or consumed.

Dividing a market by the

amount of product bought

or consumed.

80/20Principle

80/20Principle

A principle holding that

20 percent of all customers

generate 80 percent of

the demand.

A principle holding that

20 percent of all customers

generate 80 percent of

the demand.


LO4 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.

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 OUTCOMEBases for Segmenting Consumer Markets

LO4

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

• Benefitssought

• Former• Potential• 1st time• Light or

irregular• Medium• Heavy


Describe the bases for segmenting

business markets

Bases for Segmenting Business MarketsLO5


LO5 Bases for Segmenting Business Markets

CompanyCharacteristics

CompanyCharacteristics

BuyingProcesses

BuyingProcesses

ProducersProducers

ResellersResellers

GovernmentGovernment

InstitutionsInstitutions

34Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7LO5

Company Characteristics

Bases for Segmenting Business Markets

Geographic location

Type of company

Company size

Volume of purchase

Product use


LO5 Buyer Characteristics

SatisficersSatisficers

Business customers who place

an order with the first familiar

supplier to satisfy product and

delivery requirements.

Business customers who place

an order with the first familiar

supplier to satisfy product and

delivery requirements.

OptimizersOptimizers

Business customers who

consider numerous suppliers,

both familiar and unfamiliar,

solicit bids, and study all

proposals carefully before

selecting one.

Business customers who

consider numerous suppliers,

both familiar and unfamiliar,

solicit bids, and study all

proposals carefully before

selecting one.


LO5

Demographic characteristicsDemographic characteristics

Decision styleDecision style

Tolerance for riskTolerance for risk

Confidence levelConfidence level

Job responsibilitiesJob responsibilities

Buyer Characteristics


REVIEW LEARNING OUTCOMESegmenting Business Markets

LO5

Producers Resellers

InstitutionsGovernments

Buying Process

Company Characteristics


List the steps involved in segmenting markets

Steps in Segmenting a MarketLO6


REVIEW LEARNING OUTCOMESteps in Segmenting Markets

LO6

Select a market

for study

Choosebases

for segmen-

tation

Selectdescriptors

Profileand

analyzesegments

Selecttarget

markets

Design,implement,

maintainmarketing

mix

1 53 42 6


Discuss alternative strategies for selecting target markets

Strategies for Selecting Target MarketsLO7


TargetMarket

TargetMarket

LO7

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.

Strategies for Selecting Target Markets


LO7

ConcentratedStrategy

UndifferentiatedStrategy

MultisegmentStrategy

Strategies for Selecting Target Markets


UndifferentiatedTargetingStrategy

UndifferentiatedTargetingStrategy

LO7 Undifferentiated Targeting Strategy

A marketing approach that views the

market as one big market with no

individual segments and thus

requires a single

marketing mix.


LO7

UndifferentiatedStrategy

Undifferentiated Targeting Strategy

Advantage:

Potential savings on production and marketing costs

Disadvantages:

Unimaginative product offerings

Company more susceptible to competition


ConcentratedTargeting Strategy

ConcentratedTargeting Strategy

LO7 Concentrated Targeting Strategy

A strategy used to select one

segment of a market for targeting marketing efforts.

NicheOne segment of a

market.


LO7 Concentrated Targeting Strategy

ConcentratedStrategy

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


MultisegmentTargetingStrategy

MultisegmentTargetingStrategy

LO7 Multisegment Targeting Strategy

A strategy that chooses two or more

well-defined market segments and

develops a distinct marketing

mix for each.


LO7 Multisegment Targeting Strategy

MultisegmentStrategy

Advantages: Greater financial success Economies of scale

Disadvantages: High costs Cannibalization

49Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved

Chapter 7

LO7

Product design costs

Production costs

Promotion costs

Inventory costs

Marketing research costs

Management costs

Cannibalization

Costs of Multisegment Targeting


LO7 Cannibalization

CannibalizationCannibalizationSituation that occurs when sales

of a new product cut into sales

of a firm’s existing products.


REVIEW LEARNING OUTCOMEAlternatives for Selecting Target Markets

LO7

Undifferentiated Multisegment Concentrated


Explain one-to-one marketing

One-to-One MarketingLO8


LO8 One-to-One Marketing

One-to-OneMarketing

One-to-OneMarketing

An individualized marketing method that utilizes customer information to build long-term, personalized, and profitable relationships with each customer.


One-to-One MarketingLO8

Information-IntensiveInformation-Intensive

Long-TermLong-Term

One-to-OneMarketing is...One-to-One

Marketing is...

IndividualizedIndividualized Cost ReductionCost Reduction

Has a Goal of…Has a Goal of…

Customer LoyaltyCustomer Loyalty

Increased RevenueIncreased Revenue

PersonalizedPersonalized

Customer RetentionCustomer Retention


One-to-One Marketing

Trends

1. One-size-fits all marketing no longer effective

2. Direct and personal marketing will grow to meet needs of busy consumers.

3. Consumers will be loyal to companies that have earned—and reinforced—their loyalty.

4. Mass-media approaches will decline as technology allows better customer tracking.


REVIEW LEARNING OUTCOMEOne-to-One Marketing

LO8


Explain how and why firms implement positioning

strategies and how product differentiation

plays a role

PositioningLO9


PositioningPositioning

LO9 Positioning

Developing a specific marketing mix

to influence potential customers’

overall perception of a brand, product

line, or organization in general.


LO9Positioning of Procter & Gamble Detergents

Brand Positioning MarketShare

Tide Tough, powerful cleaning 31.1%

Cheer Tough cleaning, color protection 8.2%

Bold Detergent plus fabric softener 2.9%

Gain Sunshine scent and odor-removing formula 2.6%

Era Stain treatment and stain removal 2.2%

Dash Value brand 1.8%

Oxydol Bleach-boosted formula, whitening 1.4%

Solo Detergent and fabric softener in liquid form 1.2%

Dreft Outstanding cleaning for baby clothes, safe 1.0%

Ivory Snow Fabric & skin safety on baby clothes 0.7%

Ariel Tough cleaner, aimed at Hispanic market 0.1%


LO9 Effective Positioning

1. Assess the positions occupied by competing products

2. Determine the dimensions underlying these positions

3. Choose a market position where marketing efforts will have the greatest impact


ProductDifferentiation

ProductDifferentiation

LO9 Product Differentiation

A positioning strategy that some firms use to distinguish their products from those of competitors.

Distinctions can be real or perceived.


PerceptualMapping

PerceptualMapping

LO9 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.


Positioning BasesLO9

AttributeAttribute

Price and QualityPrice and Quality

Use or ApplicationUse or Application

Product UserProduct User

Product ClassProduct Class

CompetitorCompetitor

EmotionEmotion


RepositioningRepositioning

LO9 Repositioning

Changing consumers’

perceptions of a brand in relation

to competing brands.


REVIEW LEARNING OUTCOME Positioning and Product Differentiation

LO9

ch07 mlh intro m.aise ppt

Education

concept of market segmentation

successful segmentation

lifestyle segmentation

psychographic segmentation

benefit segmentation

geodemographic segmentation

variables segmentation

usagerate segmentation