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Target Marketing Strategies

Chapter 8

Lecture Slides

Solomon, Stuart, Carson, & Smith

Your name here

Course title/number

Date

©Copyright 2003 Pearson Education Canada Inc. 8-2

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Chapter Learning ObjectivesWhen you have completed your study of this chapter,

you should be able to:

• Understand the three steps of developing a target marketing strategy.

• Understand the need for market segmentation in today’s business environment.

• Know the different dimensions marketers use to segment consumer markets.

• Understand the bases for segmentation in business-to-business markets.

• Explain how marketers evaluate and select potential market segments.

• Explain how marketers develop a targeting strategy.

• Understand how a firm develops and implements a positioning strategy.

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Introduction to the Topic

• If your product:– is completely unique,

– has no substitute,

– people need it to survive,

– you have no competition,

– and demand is without limits,

– then market segmentation is not likely to interest you.

– However, if your products are like the other 99.9% in the market place, then listen up!

• This topic forms the basis for the vast majority of marketing efforts by organizations, hence its importance to our study.

Figure 8.1

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Selecting and Entering a Market

• “You can have it any colour you want, as long as it is black.” This famous quote is attributed to Henry Ford, who was providing his opinion about the necessity of offering the customer a choice.

• Market fragmentation: creation of many consumer groups due to a diversity of distinct need and wants in modern society.

• “Having it your way” is a good way to describe the consumer’s desire for products that more closely suit their tastes, rather than putting up with only one

version. • Target marketing strategy: dividing the total

market into different segments based on customer characteristics, selecting one or more segments, and developing products to meet the needs of those specific segments.

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Segmentation, Targeting, and Positioning

Develop profiles ofresulting segments

MarketSegmentation

Develop measures ofsegment attractiveness

Select thetarget segment(s)

Develop positioningfor each segment

Develop marketing mixfor each segment

Identify bases forsegmenting market

Markettargeting

Marketpositioning

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The Process of Segmentation

• Segmentation: the process of dividing a larger market into smaller pieces, based on one or more meaningful, shared characteristics.• The purpose of segmenting a market is to design a separate marketing mix tailored to the specific desires of each segment.

• Segmentation variables: bases for dividing the total market into fairly homogeneous groups, each with different needs and preferences.

• Segmentation strategies can be based on demographic, psychographic, or behavioural factors.

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Segmentation by Demographics

• Demographics: statistics that measure observable aspects of a population, including age, gender, ethnic group, income, education, occupation, and family structure.

• Demographic factors are attractive to use as segmentation variables because they are (relatively) easy to

identify and measure. • Segmenting by age is

interesting due to Canada’s unusual population distribution, caused by our recent history.

1996 Canadian Population by Selected Age Group

0 1E+06 2E+06 3E+06 4E+06 5E+06

Under 15

15 to 24

25 to 44

45 to 64

65 to 74

75 plus

Po

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Age groups

FemaleMale

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Segmentation by Demographics (continued)

• Baby boomers: the largest age group in Canada, it includes people born between 1947 and 1966. This trend is also repeated in the United States, only ten times larger.

• Due to their numbers, the needs of the baby boomers have dominated the marketplace and our culture for the past 50 years, and will continue to do so for another 30 years.

• Just be careful about calling them old!

1996 Canadian Population by Selected Age Group

0 1E+06 2E+06 3E+06 4E+06 5E+06

Under 15

15 to 24

25 to 44

45 to 64

65 to 74

75 plus

Po

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Age groups

FemaleMale

©Copyright 2003 Pearson Education Canada Inc. 8-9

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Segmentation by Demographics (continued)

• Segmenting by gender will work for many products that are actually gender-specific, but one must be careful not to make too many assumptions in today’s politically correct marketplace.

• Family structure is a useful base for segmentation as consumption changes in relatively predictable ways as a family begins and grows.

• The only problem is that today’s definition of what a family is has changed due to a number of social trends.

• Income and social class can be useful bases, but difficult to define precisely.

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Segmentation by Demographics (continued)

• Segmenting by ethnic origin can be useful, if we know that consumption behaviour is different between groups.

• Canada has a diverse population by ethnic origin, and this trend will continue in the future as the majority of population growth continues to be due to immigration, and not birth rate.

Ethnic Origin Number PercentTotal Canadian Population 26,994,045 100.0%Total single origins 19,199,790 71.1%Total multiple origins 7,794,250 28.9%British alone 5,611,050 20.7%British alone or with other 12,047,920 44.6%French alone 6,129,680 22.6%French alone or with other 8,389,180 31.1%Single European 4,146,065 15.2%German 911,560 3.4%Italian 750,055 2.8%Ukrainian 406,645 1.5%Dutch 358,180 1.3%Polish 272,810 1.0%Portuguese 246,890 0.9%Greek 151,150 0.6%Hungarian 100,725 0.4%Aboriginal alone 470,615 1.7%Aboriginal alone or with other 1,002,670 3.7%Single Asian 1,607,230 5.9%Chinese 586,645 2.2%East Indian 324,840 1.2%Filipino 157,250 0.6%Vietnamese 84,005 0.3%Black 214,265 0.8%Jewish 245,840 0.9%Other single origins 1,446,355 5.4%

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Segmentation by Demographics (continued)

• Segmenting by geography means using different marketing mixes to appeal to different regional tastes, such as offering stronger tasting coffee in Western Canada.

• For most companies, segmenting by geography in Canada may be impractical due to the small size of our regional markets.

• Geodemography: a segmentation technique that combines geography with demographics.

• The basic assumption of geodemography is that people who live near one another tend to share similar characteristics.

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Segmentation by Psychographics• Psychographics: information

about the activities and interests, and opinions of consumers that is used to construct market segments.

• VALS™ (Values and Lifestyles): psychographic system that divides people into eight segments.

• The dimensions used are based on psychological characteristics, such as willingness to take risks and innovativeness, and access to resources.

• You can take the survey by clicking on the link.

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Segmentation by Behaviour

• Behavioural segmentation: technique that divides consumers into segments on the basis of how they act toward, feel about, or use a product or service.

• Usage occasions: indicator used in one type of market segmentation based on when consumers use a product most.

• 80/20 Rule: a marketing rule of thumb that 20% of purchasers account for 80% of a product’s sales. Also known as the concentration principle.

• This explains why beer companies seem to be preoccupied with under-25 year old males!

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Segmenting Business Markets

• Segmenting business customers can be done by industry using the

NAICS classification system (Chapter 7), or by their consumption behaviour using various operating variables.

• Operating variables: the production technology used, the business customer’s degree of technical, financial, or operations expertise,and whether the prospect is a current user or non-user of the product.

• Companies will also differentiate customers based on how they buy, such as the competitive bidding systems used by governments.

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Targeting

• Target market: group or groups that a firm selects to turn into customers as a result of segmentation and targeting.

• The objective of targeting is to choose the segment(s) that the company can most profitably serve, given its resources and capabilities.

• Segment profile: a description of the “typical” customer in a segment. This is done to help determine the best way to reach them.

• Market potential: the maximum demand expected among consumers in a segment for a product or service.

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Criteria for Evaluating Segments

• Measurable: can the buyer characteristics be easily identified and segmented into groups at reasonable cost?

• Similarity of needs: buyers within the group have similar needs and wants.

• Distinctness of needs: buyers in each group have distinct needs and wants.

• Profit potential: is there greater potential for profit by segmenting a market than attempting to serve the mass market?

• Accessible: can the buyers in the segment be reached effectively with a simple marketing action?

• Capability: does the company have the resources and capability of satisfying the segment?

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Choosing a Targeting Strategy

• Differentiated targeting strategy: developing one or more products for each of several distinct customer groups and making sure these offerings are kept separate in the marketplace.

• Example: Black & Decker sell under own brand name to homeowners and the DeWalt line to professional contractor users.

• Undifferentiated targeting strategy: appealing to a broad spectrum of people.

• Example: selling one version of the product to many different markets, such as baking soda.

• Concentrated targeting strategy: focusing a form’s efforts on offering one or more products to a single segment.

• Example: Burton snowboards

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Choosing a Targeting Strategy (continued)

• Custom marketing strategy: approach that tailors specific products and the messages about them to individual customers.

• As practiced by most professional service providers, and some on-line retailers.

• Mass customization: approach that modifies a basic product or service to meet the needs of an individual.

• “Made to measure” has traditionally meant expensive and low volume.

• Mass customization uses technology to take this idea to a larger scale to bring the costs down to a more affordable level.

• You can have a mountain bike built to your exact measurements!

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Positioning

• Positioning: developing a marketing strategy aimed at influencing how a particular market segment perceives a product or service in comparison to the competition.

• Repositioning: redoing a product’s position to respond to marketplace changes.

• Brand personality: a distinctive image that captures a product or service’s character and benefits.

• Perceptual map: a picture of where products or brands are “located” in consumers minds. Figure 8.4

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Famous Last Words…

• The three processes of segmentation, targeting, and positioning form the essence of marketing in today’s competitive environments.

• Without them, mass marketing would be our only alternative, and we know how boring that can be!