Segmenting and Targeting Markets

Chapter 7 Version 6e 1©2002 South-Western

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Segmenting and Targeting Segmenting and Targeting MarketsMarkets

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Prepared byPrepared byDeborah BakerDeborah Baker

Texas Christian UniversityTexas Christian University


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Learning ObjectivesLearning Objectives

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1.1. Describe the characteristics of markets Describe the characteristics of markets and market segments.and market segments.

2. Explain the importance of market 2. Explain the importance of market segmentation.segmentation.

3. Discuss criteria for successful market 3. Discuss criteria for successful market segmentation.segmentation.


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Learning Objectives (continued)Learning Objectives (continued)

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4. Describe the bases commonly used to 4. Describe the bases commonly used to segment consumer markets.segment consumer markets.

5. Describe the bases for segmenting 5. Describe the bases for segmenting business markets.business markets.

6. List the steps involved in segmenting 6. List the steps involved in segmenting markets.markets.


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Learning Objectives (continued)Learning Objectives (continued)

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7. Discuss alternative strategies for 7. Discuss alternative strategies for selecting target markets.selecting target markets.

8.8. Explain how and why firms implement Explain how and why firms implement positioning strategies and how product positioning strategies and how product differentiation plays a role.differentiation plays a role.

9.9. Discuss global market segmentation Discuss global market segmentation and targeting issues.and targeting issues.


Learning Objective Learning Objective 1

Describe the characteristics of Describe the characteristics of markets and market segments.markets and market segments.


Market SegmentationMarket Segmentation

Market

MarketSegment

MarketSegmentation

People or organizations with needs or wants and the ability and

willingness to buy

A subgroup of people or organizations sharing one or more characteristics that cause them to

have similar product needs.

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

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A Market is...A Market is...(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.

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Explain the importance Explain the importance of market segmentation.of market segmentation.


The Importance of The Importance of Market SegmentationMarket Segmentation

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

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Learning Objective Learning Objective

Discuss criteria for successful Discuss criteria for successful market segmentation.market segmentation.

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Criteria for Successful Criteria for Successful SegmentationSegmentation

Criteria Criteria for for

Market Market SegmentsSegments

Substantiality

Identifiability

Accessibility

Responsiveness

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Criteria for SegmentationCriteria for Segmentation

SubstantialitySubstantiality

IdentifiabilityIdentifiabilityMeasurabilityMeasurability

AccessibilityAccessibility

ResponsivenessResponsiveness

Segment must be large enough to warrant a special

marketing mix.

Segments must be identifiable and their size measurable.

Members of targeted segments must be reachable with

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

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Describe the bases commonly Describe the bases commonly used to segment consumer markets.used to segment consumer markets.

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Segmentation BasesSegmentation Bases

Characteristics of individuals, groups,

or organizations used to divide a total market

into segments.(variables)

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Bases for SegmentationBases for Segmentation

Usage Rate

Benefits Sought

Psychographics

Demographics

Geography

Bases Bases Used toUsed toSegmentSegment

ConsumerConsumerMarketsMarkets

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Geographic SegmentationGeographic Segmentation

Segmenting markets by region of the country or

world, market size, market density, or climate.

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Geographic SegmentationGeographic Segmentation

Region of the country or world

Market size

Market density

Climate

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Benefits of Regional SegmentationBenefits of Regional Segmentation 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 React more quickly to competition

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Demographic SegmentationDemographic Segmentation

Segmenting markets by age, gender, income,

ethnic background, and family life cycle

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Bases for Bases for Demographic SegmentationDemographic Segmentation

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Age

Gender

Income

Ethnic background

Family Life Cycle


Ethnic BackgroundEthnic Background Largest ethnic markets are:

African-AmericanHispanic-AmericanAsian-American

Will comprise 1/3 of U.S. population by 2010 with buying power of a trillion dollars

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Family Life CycleFamily Life Cycle

AgeAge

MaritalMaritalStatusStatus ChildrenChildren

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Psychographic SegmentationPsychographic Segmentation4

Market segmentation on the basis of personality, motives, lifestyles, and

geodemographics.


Bases for Bases for Psychographic SegmentationPsychographic Segmentation

PsychographicPsychographicSegmentationSegmentation

Personality

Motives

Lifestyles

Geodemographics

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Lifestyle SegmentationLifestyle Segmentation4

How time is spent

Beliefs

Socioeconomic characteristics


Geodemographic SegmentationGeodemographic Segmentation4

Segmenting potential customers into

neighborhood lifestyle categories.

Combines geographic, demographic, and lifestyle

segmentation.


VALS 2 DimensionsVALS 2 DimensionsPrinciple-Principle-orientedoriented

Status-Status-orientedoriented

Action-Action-orientedoriented

Fulfillers

Believers

Actualizers

Achievers

Strivers

Strugglers

Experi-encers

Makers

Minimal Resources

Abundant Resources

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Benefit SegmentationBenefit Segmentation

The process of grouping customers into market segments according to the benefits they seek

from the product .

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Usage-Rate SegmentationUsage-Rate Segmentation

Dividing a market by the amount of product

bought or consumed.

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The 80/20 PrincipleThe 80/20 Principle

A principle holding that 20 percent of all customers

generate 80 percent of the demand.

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Describe the bases for Describe the bases for segmenting segmenting

business markets.business markets.

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MacrosegmentationMacrosegmentation

The process of dividing business markets into

segments based on general characteristics such as

geographic location, customer type, customer

size, and product use.

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MicrosegmentationMicrosegmentation

The process of dividing business markets into segments based on the

characteristics of decision-making units within a

macrosegment.

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Business Marketing SegmentationBusiness Marketing SegmentationGeographic

Customer Type

Customer Size

Product UseBusinessBusinessMarketsMarkets

Purchasing Criteria

Purchasing Strategy

Importance

Personal Characteristics

Micro- segmentation

Macro- segmentation

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List the steps involved List the steps involved in segmenting markets.in segmenting markets.


Steps in Segmenting a MarketSteps in Segmenting a Market

Select a

market for

study

Choosebases

for segmen-

tation

Selectdescrip-

tors

Profileand

analyzesegments

Selecttarget

markets

Design,imple-ment,

maintainmkting

mix

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Discuss alternative strategies Discuss alternative strategies for selecting target markets.for selecting target markets.

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Target MarketTarget MarketA 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.

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Strategies for SelectingStrategies for SelectingTarget MarketsTarget Markets

ConcentratedStrategy

UndifferentiatedStrategy

MultisegmentStrategy

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Undifferentiated Undifferentiated Targeting StrategyTargeting Strategy

Marketing approach that views the market as one big

market with no individual segments and thus requires

a single marketing mix.

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Undifferentiated Undifferentiated Targeting StrategyTargeting Strategy

AdvantagesAdvantages: Potential savings on

production and marketing costs

DisadvantagesDisadvantages: Unimaginative product

offerings Company more

susceptible to competition

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Concentrated Concentrated Targeting StrategyTargeting Strategy

A strategy used to select one segment of a market for targeting marketing efforts.

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NicheNiche

One segment ofa market.

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Concentrated Concentrated Targeting StrategyTargeting Strategy

AdvantagesAdvantages: Concentration of resources Meets narrowly defined

segment Small firms can compete Strong positioning

DisadvantagesDisadvantages: Segments too small, or

changing Large competitors may market

to niche segment

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Multisegment Multisegment Targeting StrategyTargeting Strategy

A strategy that chooses two or more well-defined

market segments and develops a distinct

marketing mix for each.

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AdvantagesAdvantages: Greater financial success Economies of scale

DisadvantagesDisadvantages: High costs Cannibalization

Multisegment Multisegment Targeting StrategyTargeting Strategy

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Costs of Multisegment TargetingCosts of Multisegment Targeting$ Product design costs

$ Production costs

$ Promotion costs

$ Inventory costs

$ Marketing research costs

$ Management costs

$ Cannibalization

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CannibalizationCannibalization

Situation that occurs when sales of a new product

cut into sales of a firm’s existing products.

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Explain how and why firms implement Explain how and why firms implement positioning strategies and positioning strategies and how product differentiation how product differentiation

plays a role.plays a role.

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PositioningPositioning

Developing a specific marketing mix to influence

potential customers’ overall perception of a brand,

product line, or organization in general.

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PositionPosition

The place a product, brand, or group of products

occupies in consumers’ minds relative to competing

offerings.

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Effective PositioningEffective Positioning

Assess the positions of competing products

Determine the dimensions of these positions

Choose an effective market position

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Product DifferentiationProduct Differentiation

A positioning strategy that some firms use to

distinguish their products from those of competitors.

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Perceptual MappingPerceptual Mapping

A means of displaying or graphing, in two or more

dimensions, the location of products, brands, or groups of products in customers’

minds.

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Perceptual Mapping--Levi’sPerceptual Mapping--Levi’s8

High PriceHigh Price

Low PriceLow Price

Cla

ssic

Cla

ssic

Designer

Designer

Old productNew product

Vintage

Red Line

Silver Tab

Slates

DockersPremium

DockersClassics

501 Red Tab

Basics

Red TabDry Goods

L2

Red TabElesco


Positioning BasesPositioning BasesAttribute

Price and Quality

Use or Application

Product User

Product Class

Competitor

Positioning Positioning BasesBases

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RepositioningRepositioning

Changing consumers’ perceptions of a brand

in relation to competing brands.

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Discuss global market segmentation Discuss global market segmentation and targeting issues.and targeting issues.

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Global IssuesGlobal Issues

Global Market Standardization

Trends

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Segmenting and Targeting Markets