Segmentation and TargetingSegmentation and TargetingSegmentation and TargetingSegmentation and Targeting

Professor Chip BesioCox School of BusinessSouthern Methodist University

What Are Markets?What Are Markets?Aggregates of people,

With the ability to buy,

The willingness to buy,

The authority to buy.

Two Types of MarketsTwo Types of Markets

Consumer Markets – Individuals or households who benefit directly

by consumption, rather than to make a profit or to achieve Industrial Markets

Business Markets – Companies or organizations who purchase for

resale, use in production, or use in operations, including both profit-oriented and not-for-profit organizations.

What Is Market What Is Market Segmentation?Segmentation?

Market segmentation is the subdividing of a market into distinct subsets, where any subset may conceivably be selected as a marketing target to be reached with a distinct marketing mix

Market segmentation is the subdividing of a market into distinct subsets, where any subset may conceivably be selected as a marketing target to be reached with a distinct marketing mix

Segmentation DilemmaSegmentation Dilemma

MASS MARKETING Economies of Scale

CUSTOMIZATIONEveryone Wants

Something Different

Market segmentation—linking market needs to an organization’s marketing program

Segmentation CriteriaSegmentation Criteria

I. Customer Characteristics

II. Benefits Sought

III. Customer Behaviors

Customer CharacteristicsCustomer CharacteristicsDEMOGRAPHICSDEMOGRAPHICS

Consumer Markets:– Gender– Age– Income– Dual income family

Industrial Markets:– NAICS code– Size of company

Customer Characteristics Customer Characteristics PSYCHOGRAPHICSPSYCHOGRAPHICS

Consumer Markets:– Environmentally-conscious– Value and lifestyles

VALS (1978); VALS 2 (1989) Distinct patterns based on attitudes and values

Business Markets:– Corporate culture– Purchasing orientation

Customer Characteristics Customer Characteristics GEOGRAPHYGEOGRAPHY

Regional SegmentationZip Clustering

– Distinct marketing strategies created for similar types of neighborhoods stretched across the nation

– Examples include PRIZM, Market Metrics

Segmentation variables and breakdowns for U.S. consumer markets

Benefit SegmentationBenefit SegmentationWHAT BENEFIT DO YOU WANT?WHAT BENEFIT DO YOU WANT?

Rationale - The benefits people are seeking in consuming a given product are the true reasons for the existence of segments

Example - Toothpaste– Cavity prevention (e.g., Crest)– Fresh breath (e.g., Aquafresh)– White teeth (e.g., Rembrandt)

Behavior Segmentation Behavior Segmentation USAGE BEHAVIORSUSAGE BEHAVIORS

Volume of usage– Heavy users, moderate users, light users and

nonusers– 80/20 rule

Brand usage– Increase usage among users– Get users of competing brand to switch– Get nonusers to start

Usage occasion

Patronage of fast-food restaurants by adults 18 years and older: Simmons Market Research Bureau NCS/NHCS Spring 2008 Adult Full-Year Choices System Crosstabulation Report

Comparison of various kinds of users and nonusers for Wendy’s, Burger King, and McDonald’s fast-food restaurants

What Is “Targeting” a Market What Is “Targeting” a Market Segment?Segment?

“You can’t be all things to all people”

Therefore, companies typically focus on one or more segments and orient their marketing activities to those (potential) customers

Which Are the “Good” Which Are the “Good” Segments to Target?Segments to Target?

The most attractive market segments are:Large Growing

and have:High purchase volumeHigh marginsHigh customer value

Which Are the “Good” Which Are the “Good” Segments to Target?Segments to Target?

However, the most attractive segments are frequently already well-served and so are highly competitive

… so you must also consider: Number and strength of competitors Ease of entry into the segment Company’s current positioning

Targeting Dilemma - Segment Targeting Dilemma - Segment AttractivenessAttractiveness

SEGMENT VALUE SEGMENT VALUE More OpportunityMore Opportunity

COMPETITIONMore Companies

Compete for Valuable Segments

Which Are the “Good” Which Are the “Good” Segments to Target?Segments to Target?

Additional considerations for targeting:Customers are addressable - you can

reach themThe company is capable of building a

marketing program to target them

TargetingTargeting

Examples of successful targeting:– Wal-Mart - Value-conscious shoppers that

do not want to worry about short-term sales– Lexus - People with high disposable income

who value reliability and service, as well as prestige and luxury

– Cray - Price insensitive computer users that require maximum computing power

– Dupont - Less price-sensitive innovators in the use of plastics (skim pricing)

The five key steps in segmenting and targeting markets link market needs of customers to the organization’s marketing program

Market-product grid showing how different Reebok shoes reach segments of customers with different needs

Benefits (+) and drawbacks (-) of a firm’s market-product strategies