10-1© 2000 McGraw-Hill Ryerson Limited

C H A P T E R T E N

MARKET SEGMENTATION,TARGETING, AND POSITIONING

10-2© 2000 McGraw-Hill Ryerson Limited

AFTER READING THIS CHAPTER YOU SHOULDAFTER READING THIS CHAPTER YOU SHOULDBE ABLE TO:BE ABLE TO:

� Explain what market segmentation is, when to use it, and thefive steps involved in segmentation.

� Recognize the different dimensions used to segment consumerand organizational markets.

� Develop a market-product grid to use in segmenting andtargeting a market.

� Interpret a cross tabulation to analyze market segments.

� Understand how marketing managers position products inthe marketplace.

10-3© 2000 McGraw-Hill Ryerson Limited

Sneakers Story: From Little Skirmishes to All-out WarSneakers Story: From Little Skirmishes to All-out War

� Global $12 billion dollar sneaker market forall kinds of athletic shoes.

� Sneaker manufacturers are searching for newmarket segments of consumers and ways todifferentiate their products from everyoneelse�s.

� Reebok�s marketing research shows that in1971 only 1 of every 27 women was involved insports; today it is 1 in 3!! Thus Reebok hasput special emphasis on the female market.

10-4© 2000 McGraw-Hill Ryerson Limited

Market Segmentation DefinedMarket Segmentation Defined

Market segmentation involves aggregatingprospective buyers into groups that:

1. Have common needs and

2. Will respond similarly to the marketing action.

The groups that result from the

market segmentation process are

called market segments, a relatively

homogeneous collection of prospective buyers.

10-5© 2000 McGraw-Hill Ryerson Limited

Product Differentiation DefinedProduct Differentiation Defined

Product differentiation, in the broadest sense,involves a firm�s using different marketing mixactivities, such as product features and advertising,to help consumers perceive the product as beingdifferent and better than competing products. Theperceived differences may involve physical ornonphysical features, such as image or price.

In a narrower sense, product differentiation involvesa firm�s selling two or more products with differentfeatures targeted to different market segments.

10-6© 2000 McGraw-Hill Ryerson Limited

PP10-1 Market Segmentation Links Market Needs to PP10-1 Market Segmentation Links Market Needs to an Organization�s Marketing Program an Organization�s Marketing Program

Identify marketneeds

Benefits in termsof:

�Product Features�Expense�Quality�Savings in timeand convenience

Process ofsegmenting andtargeting markets

Execute marketing program

A marketing mix in terms of:�Product�Price�Promotion�Place

10-7© 2000 McGraw-Hill Ryerson Limited

PP10-2 Reebok Market-Product GridMarket Segment Product

GROUP Running Aerobic Tennis Basketball Children�s Walking Cross Step Athletic Golf WITH Shoes Shoes Shoes Shoes Shoes Shoes Train�g Train�g clothing shoes

General NEED 1981 1982 1984 1984 1984 1986 1988 1991 1993 1997

runners P P

Performance- aerobic P p

conscious dancers

consumers tennis P P

(athletes) players

basketball P P

players

step S P

exercisers

golfers P P

Fashion- comfort & S S S S S S S

conscious style

consumers conscious

(nonathletes) walkers S S S S P P

children P

KEY: P=Primary Market S=Secondary Market

10-8© 2000 McGraw-Hill Ryerson Limited

When To SegmentWhen To Segment

1. One Product & Multiple

Market Segments

2. Multiple Products & Multiple

Market Segments

3. Segments of One: Mass

Customization

10-9© 2000 McGraw-Hill Ryerson Limited

Concept CheckConcept Check

1. Market segmentation involvesaggregating prospective buyers intogroups that have two keycharacteristics. What are they?

2. What is product differentiation?

3. The process of segmenting andtargeting markets is a bridge betweenwhat two marketing activities?

10-10© 2000 McGraw-Hill Ryerson Limited

PP10-3 Five Steps in Segmenting and Targeting MarketsPP10-3 Five Steps in Segmenting and Targeting Markets

Identifymarketneeds

Steps in segmenting andtargeting markets�Form prospective buyersinto segments

�Form products to be soldinto groups

�Develop a market-productgrid and estimate size ofmarkets

�Select target markets�Take marketing actions toreach target markets

Execute

marketing

program

10-11© 2000 McGraw-Hill Ryerson Limited

Criteria to Use in Forming Market SegmentsCriteria to Use in Forming Market Segments

1. 1. Potential for increased profit and ROI.Potential for increased profit and ROI.

2.2. Similarity of needs of potential buyers within aSimilarity of needs of potential buyers within a

segment.segment.

3.3. Difference of needs of buyers among Difference of needs of buyers among segments.segments.

4.4. Feasibility of marketing action to reach a Feasibility of marketing action to reach a segment.segment.

5.5. Simplicity and cost of assigning potential buyersSimplicity and cost of assigning potential buyers

to segments.to segments.

10-12© 2000 McGraw-Hill Ryerson Limited

MAIN DIMENSION SEGMENTATION TYPICAL

VARIABLES BREAKDOWNSCUSTOMER CHARACTERISTICS

Geographic

Demographic

RegionCity or CensusMetropolitan area(CMA) sizeDensityClimate

Atlantic, Quebec, Ontario, Prairies, British ColumbiaUnder 5,000; 5,000-19,999; 20,000-49,999; 50,000-99,999; 100,000-249,999; 250,000-499,999; 500,000-999,999; 1,000,000 or more

Urban; suburban; small town; ruralEast; West

GenderAge

RaceLife StageIncome

Family sizeHome ownershipEducation

Male; female

Under 6; 6-11; 12-17; 18-24; 25-34; 35-44; 45-54; 55-64; 65-74; 75 and over

White; Black; Asian; Native; otherYoung single; young married; older married; etc.Under $10,000; 10,000-19,9999; 20,000-29,999; 30,000-39,999 40,000-54,999; 55,000-74,999; $75,000+

1; 2; 3; 4; 5 or moreOwn home; rent homeGrade school or less; some high school; high school graduate;some college; college graduate

PP10-4a Canadian Consumer Market Segmentation VariablesPP10-4a Canadian Consumer Market Segmentation Variables

10-13© 2000 McGraw-Hill Ryerson Limited

PP10-4b Canadian Consumer Market Segmentation VariablesPP10-4b Canadian Consumer Market Segmentation Variables

MAIN DIMENSION SEGMENTATION TYPICAL

VARIABLES BREAKDOWNS

CUSTOMER CHARACTERISTICS

Behavioural

Psychographic

Benefits soughtUsage rateUser statusLoyalty status

Quality; service; low cost Light user; medium user; heavy user

Non-user; ex-user; prospect; first-time user; regular user None; medium; strong

Personality

Lifestyle (GoldFarbSegments)

Gregarious; compulsive; extroverted; introverted

Structured; discontented; fearful; assured;resentful; caring

10-14© 2000 McGraw-Hill Ryerson Limited

MAIN DIMENSIONS VARIABLES TYPICAL BREAKDOWNS

Geographic Region Atlantic, Quebec, Ontario,segmentation Prairies, British Columbia

Location In CMA; not in CMA

Demographic NAICS code 2-digit; 3-digit; 4-digit; 5-digitsegmentation categories

Number of Employees 1�19; 20�99; 100�249; 250+Annual Sales Volume Less than $1 million; $1�10 mil-

lion; $10�100 million; over$100 million

Behavioural Benefits sought Quality; customer service; lowsegmentation price

Usage rate Light user; medium user; heavyuser

User status Nonuser; ex-user; prospect; first-time user; regular user

Loyalty status None; medium; strongPurchase method Centralized; decentralized;

Individual; groupType of buy New buy; modified rebuy; straight

rebuy

MAIN DIMENSIONS VARIABLES TYPICAL BREAKDOWNS

Geographic Region Atlantic, Quebec, Ontario,segmentation Prairies, British Columbia

Location In CMA; not in CMA

Demographic NAICS code 2-digit; 3-digit; 4-digit; 5-digitsegmentation categories

Number of Employees 1�19; 20�99; 100�249; 250+Annual Sales Volume Less than $1 million; $1�10 mil-

lion; $10�100 million; over$100 million

Behavioural Benefits sought Quality; customer service; lowsegmentation price

Usage rate Light user; medium user; heavyuser

User status Nonuser; ex-user; prospect; first-time user; regular user

Loyalty status None; medium; strongPurchase method Centralized; decentralized;

Individual; groupType of buy New buy; modified rebuy; straight

rebuy

PP10-5 Segmentation Variables for Organizational MarketsPP10-5 Segmentation Variables for Organizational Markets

10-15© 2000 McGraw-Hill Ryerson Limited

PP10-6 Selecting a Target Market for your Fast-Food RestaurantPP10-6 Selecting a Target Market for your Fast-Food Restaurant Next to an Urban University Next to an Urban University

PRODUCTS: MEALS

BETWEEN- AFTER- BREAK- MEAL DINNER

MARKETS FAST LUNCH SNACK DINNER SNACK

STUDENTDormitoryApartmentDay Commuter Night Commuter

NONSTUDENTFaculty or StaffLive in areaWork in area

0 1 3 0 31 3 3 2 10 3 2 1 00 0 1 3 2

0 3 1 1 00 1 2 2 11 3 0 1 0

Key: 3 Large market; 2 meduim market; 1 small market; 0 no market

10-16© 2000 McGraw-Hill Ryerson Limited

Criteria to Use in Picking the Target SegmentsCriteria to Use in Picking the Target Segments

1. Size: The estimated size of the market to determine whether or not it is worth going after.

2. Expected Growth: The size of the market may be small, but if it is growing significantlyit may be worth going after.

3. Competitive position: The less competition the more attractive the market.

10-17© 2000 McGraw-Hill Ryerson Limited

Criteria to Use in Picking the Target SegmentsCriteria to Use in Picking the Target Segments

4. Cost of reaching the market: Is the market

accessible to a firm�s marketing actions?

If not it should not be pursued.

5. Compatibility with the organization�s

objectives and resources.

10-18© 2000 McGraw-Hill Ryerson Limited

PP10-7 Advertising Actions to Reach Specific Student SegmentsPP10-7 Advertising Actions to Reach Specific Student Segments

PRODUCTS: MEALS

BETWEEN- AFTER- MEAL DINNER

MARKETS LUNCH SNACK DINNER SNACK

Dormitory studentsApartment studentsDay Commuter students Night Commuter students

1 3 0 33 3 1 13 2 1 00 1 3 2

Ads in buses; flyersunder windshield wipers

of cars in parking lots

Ad campaign:�Ten percent off allpurchases between2:00 and 4:30 P.M.

during winter quarter�

Ad on flyer underwindshield wipers

of cars in nightparking lots: �Free

Frosty with thiscoupon when youbuy a hamburgerand french fries�

10-19© 2000 McGraw-Hill Ryerson Limited

PP10-MNN Apple�s Segmentation Strategy

MARKETS PRODUCTS (PERSONAL COMPUTERS)

EDUCATION

COMMERICAL

SECTOR

Consumer/ household

Primarythrough OAC

Community College and University

Small business

Large business

Design and Publishing

SEGMENT

Family/ Games

StudentsFaculty/ administrationStudentsFaculty/ administration

Owners/ employeesAdministration/ technicalMedia/graphics/ InternetDesktop publishing

POWERMACINTOSH

G3

√√

√

√

√

√√

POWERBOOKG3

√√

√

√

√

√√

IMAC

√

√

√

POWERMACINTOSHG3 SERVER

√

√

√

√

√√

10-20© 2000 McGraw-Hill Ryerson Limited

Concept CheckConcept Check

1. What are some of the variables used to

segment customer markets?

2. What are some criteria used to decide

which segments to choose for targets?

3. Why is usage rate important in

segmentation studies?

10-21© 2000 McGraw-Hill Ryerson Limited

Definition of Cross TabulationDefinition of Cross Tabulation

A cross tabulation, or �cross-tab� is . . . .A cross tabulation, or �cross-tab� is . . . .

a method of presenting and relating data having two or

more variables. Cross tabs are used to analyze and

discover relationships in the data.

An important aspect of cross tabulations is deciding

which two variables should be paired together for

analysis.

a method of presenting and relating data having two or

more variables. Cross tabs are used to analyze and

discover relationships in the data.

An important aspect of cross tabulations is deciding

which two variables should be paired together for

analysis.

10-22© 2000 McGraw-Hill Ryerson Limited

PP10-8 Cross TabulationsPP10-8 Cross Tabulations

AGE OFHEAD OF ONCE 2 OR 3 ONCEHOUSEHOLD A WEEK TIMES A MONTH(YEARS) OR MORE A MONTH OR LESS TOTAL

FREQUENCY

24 or less 25 to 3940 or overTotal

144 52 19 21546 58 29 13382 69 87 238272 179 135 586

A. ABSOLUTE FREQUENCIES

B. ROW PERCENTAGES: RUNNING PERCENTAGES HORIZONTALLY AGE OFHEAD OF ONCE 2 OR 3 ONCEHOUSEHOLD A WEEK TIMES A MONTH(YEARS) OR MORE A MONTH OR LESS TOTAL

24 or less 25 to 3940 or overTotal

67.0% 24.2 8.8 100.0%34.6 43.6 21.8 100.034.4 29.0 36.6 100.046.4% 30.6% 23.0% 100.0%

10-23© 2000 McGraw-Hill Ryerson Limited

The Value of Cross TabulationsThe Value of Cross Tabulations

�� The most widely used technique forThe most widely used technique for

organizing and presenting marketingorganizing and presenting marketing

data.data.

�� The simple format allows directThe simple format allows direct

interpretation and an easy means ofinterpretation and an easy means of

communicating data to management.communicating data to management.

10-24© 2000 McGraw-Hill Ryerson Limited

The Value of Cross TabulationsThe Value of Cross Tabulations

�� They have great flexibility and can beThey have great flexibility and can beused to summarize experimental,used to summarize experimental,observational, and questionnaire data.observational, and questionnaire data.

�� The ultimate value of cross tabulations toThe ultimate value of cross tabulations toa marketing manager lies in obtaining aa marketing manager lies in obtaining abetter understanding of the wants andbetter understanding of the wants andneeds of buyers andneeds of buyers and targeting keytargeting keysegments.segments.

10-25© 2000 McGraw-Hill Ryerson Limited

Product PositioningProduct Positioning

Product Positioning refers to the place an offeringoccupies in consumers� minds on importantattributes relative to competitive offerings.

2 Approaches to Product Positioning:

1. Head-to-Head Positioning: involves competing directly with competitors on similar attributes inthe same target market.

2. Differentiation Positioning: involves seeking a less competitive, smaller market niche in which to locate a brand.

10-26© 2000 McGraw-Hill Ryerson Limited

Perceptual MapsPerceptual MapsA key to positioning a product effectively is theperceptions of consumers. In determining abrand�s position and the preferences ofconsumers, companies obtain three types of datafrom consumers:

1. Evaluations of the important attributes for aproduct class.

2. Judgments of the existing brands with the important attributes.

3. Ratings of an �ideal� brand�s attributes.

10-27© 2000 McGraw-Hill Ryerson Limited

Perceptual MapsPerceptual Maps

From these data, it is possible

to develop a perceptual map, a

means of displaying via two

dimensions the location products

or brands occupy in the minds of

consumers.

10-28© 2000 McGraw-Hill Ryerson Limited

PP10-9 GM�s Strategy to Reposition Its Major Car BrandsPP10-9 GM�s Strategy to Reposition Its Major Car Brands

A. Consumer perceptions in 1982 [o] and GM goals for 1990 [�]

B. Potential change in goals from 1990 [�] to 2002

High Price

Low Price

Family/Conservative

Personal/Expressive

�Cadillac o �Buick o

Chevrolet o �

o Pontiac �

� Saturn (1990)

� Oldsmobile o

High Price

Low Price

Family/Conservative

Personal/Expressive

Cadillac �

Buick �

Oldsmobile

?

?

?

??

Chevrolet �

�

� Saturn

�Pontiac

10-29© 2000 McGraw-Hill Ryerson Limited

RepositioningRepositioning

Repositioning involves changing

the place an offering occupies in a

consumer�s mind relative to

competitive offerings.

10-30© 2000 McGraw-Hill Ryerson Limited

Concept CheckConcept Check

1. What is cross tabulation?

2. What are some advantages of cross

tabulations?

3. Why do marketers use perceptual

maps in product positioning

decisions?

10-31© 2000 McGraw-Hill Ryerson Limited

SLN10-1SLN10-1 Market-Product Grid Showing Size of Markets for Market-Product Grid Showing Size of Markets for Pillows for Three Different Segments of SleepersPillows for Three Different Segments of Sleepers

Products

Medium

Markets Soft Pillow Pillow Firm Pillow

Stomach Sleepers L M S

Back Sleepers M L M

Side Sleepers S M L

KEY: L, Large Market; M, medium market; S, small market

L

L

L