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Chapter 4Segmenting and targeting
markets
Learning objectives
1 Describe the characteristics of markets and market segments
2 Explain the importance of market segmentation
3 List the steps involved in segmenting markets
4 Describe the bases commonly used to segment consumer markets
5 Describe the bases for segmenting business markets
Learning objectives (cont.)
6 Discuss the criteria for successful market segmentation
7 Discuss alternative strategies for selecting target markets
8 Explain how and why organisations implement positioning strategies and how product differentiation plays a role
9 Discuss global market segmentation and targeting issues
Learning objective 1
Define the term marketingDescribe the characteristics of markets and market segments
Market segmentation
Market
Marketsegment
Marketsegmentation
People or organisations with needs or wants and the ability and
willingness to buy.
A subgroup of people or organisations sharing one or more characteristics that cause them to
have similar product needs.
The process of dividing a market into meaningful, relatively similar
and identifiable segments or groups.
1
Learning objective 2
Describe four marketing management philosophies.Explain the importance of
market segmentation
The importance of market segmentation
• Nearly all markets include people with different product needs and preferences.
• It helps to define needs and wants more precisely.
• Decision-makers can define objectives and allocate resources more accurately.
• More precise objectives = better evaluation of performance.
2
Learning objective 3
Describe four marketing management philosophies.List the steps involved in
segmenting markets
Steps in segmenting a market
• Select a market for study.
• Choose bases for segmentation.
• Select descriptors.
• Profile and analyse segments.
• Select target markets.
• Design, implement and maintain marketing mix.
3
Learning objective 4
Describe the bases commonly used to segment consumer markets
Segmentation bases
Characteristics of individuals, groups or organisations used to divide a total market into segments (variables).
4
Bases for segmentation4
• Geography
• Demographics
• Psychographics
• Benefits sought
• Usage rate
Geographic segmentation
Segmenting markets by region of the country or world, market size, market density or climate.
4
Geographic segmentation4
• Region of the country or world
• Market size
• Market density
• Climate
Benefits of regional segmentation
4
• 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.
Demographic segmentation
Segmenting markets by age, gender, income, ethnic background and family life cycle.
4
Bases for demographic segmentation
• Age
• Gender
• Income
• Ethnic background
• Family life cycle
4
Family life cycle4
• Age
• Marital status
• Children
Psychographic segmentation
Market segmentation on
the basis of personality,
motives, lifestyles and
geodemographics.
4
Bases for psychographic segmentation
4
• Personality
• Motives
• Lifestyles
• Geodemographics
Lifestyle segmentation4
• How time is spent
• Beliefs
• Socioeconomic
characteristics
Geodemographic segmentation
Segmenting potential customers into neighborhood lifestyle categories.
Combines geographic, demographic and lifestyle segmentation.
4
Benefit segmentation
The process of grouping customers into market segments according to the benefits they seek from the product.
4
Usage-rate segmentation
Dividing a market by the amount of product bought or consumed.
4
The 80/20 principle
A principle holding that
20 per cent of all customers
generate 80 per cent of the
demand.
Learning objective 5
Describe the bases
for segmenting
business markets
Macrosegmentation
The process of dividing business markets into segments based on general characteristics, such as geographic location, customer type, customer size and product use.
5
Microsegmentation
The process of dividing
business markets into
segments based on the
characteristics of
decision-making units
within a macrosegment.
5
Business marketing segmentation
Geographic
Customer type
Customer size
Product useBusinessBusinessmarketsmarkets Purchasing criteria
Purchasing strategy
Importance
Personal characteristics
Micro- segmentation
Macro- segmentation
5
Learning objective 6
Discuss the criteria for successful market segmentation
Criteria for successful segmentation
6
• Substantiality
• Identifiability
• Accessibility
• Responsiveness
Criteria for segmentation
Substantiality
Identifiability/measurability
Accessibility
Responsiveness
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.
6
Learning objective 7
Discuss alternative
strategies for selecting
target markets
Target market
A group of people or organisations
for which an organisation designs,
implements and maintains a
marketing mix intended to meet
the needs of that group, resulting
in mutually satisfying exchanges.
7
Strategies for selectingtarget markets
Concentratedstrategy
Undifferentiatedstrategystrategy
Multi-segmentstrategy
7
Undifferentiated targeting strategy
Marketing approach that
views the market as one big
market with no individual
segments and thus requires
a single marketing mix.
7
Undifferentiated targeting strategy (cont.)
Advantages:• Potential savings on
production and marketing costs
Disadvantages:• Unimaginative product
offerings• Company more
susceptible to competition
7
Concentrated targeting strategy
A strategy used to select one segment of a market for targeting marketing efforts.
7
Niche
One segment of a market.
7
Concentrated targeting strategy (cont.)
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
7
Multi-segment targeting strategy
A strategy that chooses two or more well-defined market segments and develops a distinct marketing mix for each.
7
Advantages:• Greater financial
success• Economies of scale
Disadvantages:• High costs• Cannibalisation
Multi-segment targeting strategy (cont.)
7
Costs of multi-segment targeting
• Product design costs
• Production costs
• Promotion costs
• Inventory costs
• Marketing research costs
• Management costs
• Cannibalisation
7
Explain how and why organisations implement positioning strategies and how product differentiation plays a role
Learning objectives 8
Positioning
Developing a specific marketing mix to influence potential customers’ overall perception of a brand, product line or organisation in general.
8
Position
The place a product, brand or group of products occupies in consumers’ minds relative to competing offerings.
8
Effective positioning8
• Assess the positions of competing products.
• Determine the dimensions of these positions.
• Choose an effective market position.
Product differentiation
A positioning strategy that some firms use to distinguish their products from those of competitors.
8
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.
8
Perceptual mapping – Levi’sHigh price
Low price
Cla
ssic
Desig
ner
Old product
New product
Vintage
Red Line
Silver Tab
Slates
DockersPremium
DockersClassics
501
Red TabBasics
Red Tab Dry Goods
L2
Red TabElesco
8
Positioning bases8
• Attribute
• Price and quality
• Use or application
• Product user
• Product class
• Competitor
Repositioning
Changing consumers’ perceptions of a brand in relation to competing brands.
8
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