ch7,

Irwin/McGraw-Hill & Dr. Chen7-1

Professor Jason C. H. Chen, Ph.D.School of Business Administration

Gonzaga UniversitySpokane, WA 99223

[email protected]

Chapter 7Chapter 7 Market Segmentation Market Segmentation

and Targetingand Targeting


After studying this chapter you should be able to:

Define and explain market segmentation, target markets, and product differentiation and positioning.

Understand the criteria used for evaluating the likely success of a segmentation strategy.

Know the role of market segmentation in the development of marketing strategies and programs.


Describe the issues involved in product and brand positioning.

Understand the alternative bases for segmenting consumer and business-to-business markets.

Evaluate alternative approaches for pursuing segmentation strategies.

After studying this chapter you should be able to:


OPENING VIGNETTE

WWW.SRIC-BI.COM 1. What does the VALS topology accomplish?2. What does new service does VALS offer?

Two Cases for this chapter (Making Marketing Decisions ):Case 7-1: PRIZM by Claritas: You Are Where You LiveCase 7-2: Marriott International: “Suite Deals”


Focusing Marketing Strategy and Evaluating Marketing Opportunities

Opportunities to be turned Intomarketing strategies and plans

Develop product marketScreening criteria

Focusing marketingStrategy

S.W.O.TAnalysis

Defining genericmarkets and

product-markets

Targeting and

Segmentation

Positioningand

Differentiation

Company mission,

objectives,resources

Competitoranalysis

Trends in externalenvironment:

Technological,Economic,

Political & LegalCultural & Social

Evaluating Opportunities


A Marketing Strategy – showing the 4 P’s of aMarketing Mix

PlaceProductPricePromotionC


Overview of Marketing Strategy Planning Process

PlaceProductPricePromotion C

External Market EnvironmentTechnologies Political and Legal Cultural and Social Economic

Narrowing down to focused strategy with quantitative and qualitative screening criteria

CustomersNeeds and other

SegmentingDimensions

CompanyObjectives

&Resources

CompetitorsCurrent

&Prospective

Segmentation &Positioning

Segmentation &TargetingS.

W.O.T.


StrategyHow to cope with a dynamic environment, capitalizing on opportunities and

handling threats… How to adopt and integrated systems orientation… How to be a market driven organization = STRATEGIC PLANNING

Mission Statement (Marketing Concept Orientation)

Objectives and Goals

Grand Strategy

Marketing Strategy and Tactics

Target Market (Segments, Position)

Marketing Mix

P P P P

Offering to the Market

Impact of Competition

and other Environmental

Items

Feedback of Results

Company-Wide Level


MASS MARKETSTRATEGY

MULTISEGMENTSTRATEGY

CONCENTRATIONSTRATEGY

Organization’s Single

Marketing Mix

Mass Market


Marketing Mix

Seg

men

t

A B C D E

Organization’s Several

Marketing Mixes

A D F

Seg

men

t

Seg

men

t

Seg

men

t

A B C D E F

MARKETING STRATEGY


Market Segmentation

Market Segmentation: Divides a market into

subsets of prospective customers who behave in the same way, have similar wants, or have similar characteristics that relate to purchase.

Intermarket Segments: Well-defined, similar

clusters of customers across national boundaries.


Target Markets

Targeting:Selecting which segments in a market

are appropriate to focus on and designing the means of reaching them.


Narrowing down target markets

Single target

marketing approach

Multiple target

marketing approach

Combined target

marketing approach

Select target

marketing approach

Allcustomer

needs

Somegenericmarket

Onebroad-

productmarket

Homogenous(narrow)product-markets

Segmenting into possible

target markets Narrowing down to

specific product-market


Product Differentiation

Product Differentiation: Exists when a firm’s

offerings differ or are perceived to differ from those of competing firms on any attribute, including price.


From Mass Marketing to Mass Customization

Mass Customization: Complex manufactured

products made to order.


Is Market Segmentation Appropriate?

Frequently use approaches for a sustainable marketing strategy (company) Developing brand-line extensions Repositioning the product for additional uses Identifying the needs of a particular segment, or segments Developing marketing strategies for each

When the segmentation strategy is not useful When the overall market is so small that marketing to a portion of

it is not profitable When the brand is dominant in the market and draws its appeal

from all segments


Value propositions1. Business model

2. Core competencies

competition structure/culture

Strategic intent

Finance M

anagemen

t Process

H/

R Technology

… Strategy

•Positioning on product/market

•Differentiation/choice of competitive advantage

•Competitive postureIndustry characteristics ，

Market growth ，Demand characteristics ，

Barrier of entry ， etc.

fulfill

IT Role?N

Consistent

Essentials for a Sustainable Enterprise

Analysis(Porter, SWOT)

Corporate strategy

Business strategy

Functional strategy

Business landscapeInternal/External

future positioning

Positioning

3. Execution


Criteria for Effective Segmentation

Five Criteria:1. Measurability2. Accessibility3. Substantialness4. Durability5. Differential Responsiveness


Stages in Developing Market Segmentation Strategies


Stages in Developing MarketSegmentation Strategies

Exhibit 7-2 Develop a market segmentation strategy

Define overall product marketin whichcompanyoperates

Identifydistinguishingcharacteristicsof segments orbases forsegmentation

Describesegments

Evaluateapproaches forpotential &likely success

Select targetmarket

Determinedesiredpositioning andthen developmarketing mixto achievedesired position

1 2 3 4 5 6

Irwin/McGraw-Hill & Dr. Chen7-20 © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin—for use only with Basic Marketing

Exhibit 3-2Four Basic Types of Opportunities


Marketpenetration

Marketdevelopment Diversification

Productdevelopment

Present products New products

Present markets

New markets

Four Basic Types of Opportunities


Examples of Different Types of Opportunities

• Market Penetration – Arm & Hammer promotes new uses of its baking soda

• Market Development– Marriott Hotels target families for weekend "get-

aways" to rent rooms filled by business travelers during the week

• Product Development– Microsoft develops a new version of its Windows

operating system to appeal to the people who bought an earlier version but now want more features

• Diversification– RJR, the cigarette producer, adds baked goods to its

product line to appeal to new customers


Bases for Segmentation

Demographics Geographics Psychographics &

Lifestyles Benefit Segmentation Economic

Segmentation International

Segmentation

Irwin/McGraw-Hill & Dr. Chen7-24Behavioral

GeographicsD

emog

raph

ics

Psyc

hogr

aphi

cs

Personality

Lifestyle

Age

Gender

Income

Buying Power

Expenditure patterns

Occupation

Education

Race or nationality

Family life cycle

Social class

DecisionsAmount of usageType of usageBrand loyaltyBenefits sought

Nation/Region State/Region City/Neighborhood

Climate/Terrain Population density Market density

Segmentation Variables

Potential

Consumer

Segments


Demographic Dimensions

• Important operational dimensions for understanding market segments and developing marketing mixes– Much good data is available

• Important for determining size of consumer target markets – Is the market substantial?

• Seeing demographic trends helps identify opportunities– Shifts in age distribution– Geographic growth/decline


Map of United States Showing Population by State (all figures in thousands)


Percent Change in Population by State


Changes in the U.S. Birthrate, 1935-2005


Age Distribution

• Average age is increasing• But there is a big teen cycle on the

way• Post World War II "Baby Boomers“

– Still a big, influential group• 50 and older group to grow

dramatically in next decade


MyGeneration ad


Population Distribution (and Percent Growth Rate) by Age Groups for Different 10-Year Periods)


Median Family Income Over Time (in 1999 dollars)

0

10,000

20,000

30,000

40,000

50,000

60,000

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999


Percent of Total Income Going to DifferentIncome Groups in 1999

4.3

9.9

15.6

23

47.2

0 20 40 60

Lowest 20%

Middle

Top 20%

Each Group's Percent of Total Income


Income Distribution

• Growth in real income has slowed down• Middle income groups in U.S. enjoy real

choices– U.S. distribution like Canada, Western

Europe, Japan, Australia, New Zealand• Higher income groups still have much of the

spending power– Top 20% income group has over 47 percent

of total income!– Bottom 20% income group has only about

4 percent!


Types of Income

• DISPOSABLE INCOME–Income that is left after taxes

• DISCRETIONARY INCOME–What is left of disposable income

after paying for "necessities"


Age Age of childrenIn the household

Marital status

FAMILY LIFE CYCLEFACTORS

Family cycle factors


Middle-agedivorcedwithoutchildren

Middle-agemarriedwithoutchildren

Middle-agemarried

withchildren

Middle-agedivorced

withchildren

Middle-agedivorcedwithout

dependentchildren

Middle-agedivorcedwithoutchildren

Youngmarried

withchildren *

Youngmarriedwithout

children *

Youngsingle *

Middle-agemarriedwithout

dependentchildren

OlderMarried *

OlderUnmarried *

Youngdivorcedwithout

children *

Usual flow Recycled flow * Tradition family flow

Stages in Modern Family Life Cycles


Psychological (intra-personal) Variables

• Motivation• Perception• Learning• Attitudes and beliefs• Personality• Lifestyle (psychographics)


Possible Needs Motivating a Person to Some Action

Types of Needs Examples of Specific Needs

Hunger Thirst Activity Sleep Physiological needs Sex Rest Preservation Warmth

Aggression Curiosity Dominance Imitation Psychological needs Independence Love Nurturing Order Fulfillment Competition Relaxing Power Pride Self-Expression Tenderness Desire for… Acceptance Achievement Acquisition Affection Affiliation Appreciation Beauty Companionship Comfort Leisure Esteem Fame Happiness Knowledge Prestige Pleasure Recognition Respect Status Variety

Fear Pain Harm Depression Freedom from Ridicule Loss Sadness Anxiety

Discomfort Pressure Stress Illness


CONSUMERLIFESTYLES

Interests Opinions

Activities

PSYCHOGRAPHICS

Psychographics


Lifestyle Dimensions (and some related demographic dimensions)


Six Betty Crocker pictures, 1936-2000

(The original Betty, 1936)(1965)

(1972)

(Betty Crocker 2000)

(1980)

(1986)


Social (intra-personal) Influenceson Consumers

• Family• Reference groups• Social class• Culture and subculture


Characteristics and Attitudes of Middle and Lower Classes

• Middle classes–Plan and save for the

future–Analyze alternatives–Understand how the

world works–Feel they have

opportunities–Willing to take risks–Confident about

decision making–Want long-run quality

or value

• Lower classes– Live for the present– "Feel" what is "best"– Have simplistic ideas

about how things work– Feel controlled by the

world– "Play it safe"– Want help with decision

making– Want short-run

satisfaction


Exhibit 7-5 A two stage segmentation example

Combining Bases of MarketSegmentation

Stage 1Initial

segmentation

Stage 2Supplemental

segmentation descriptorsManagerialdecisions

Usage: Heavyvs. Light

Demographics: Income & Education

LifestylesAdvertising Content

(conservative, youthful,appeals, & messages)

Media Selection(magazines &TV programs)


MASS MARKETSTRATEGY

MULTISEGMENTSTRATEGY

CONCENTRATIONSTRATEGY


Marketing Mix

Mass Market


Marketing Mix

Seg

men

t

A B C D E

Organization’s Several

Marketing Mixes

A D F

Seg

men

t

Seg

men

t

Seg

men

t

A B C D E F

MARKETING STRATEGY

PORTER’S FIVE COMPETITIVE FORCES MODEL

THE FIRMTRADITIONAL COMPETITORS

NEW MARKET ENTRANTS

SUPPLIERS

SUBSTITUTE PRODUCTS & SERVICES

CUSTOMERS

ThreatsThreats

Bargaining power

N

Internal Forces1.customer focus2.communication3.core competencies4.complexity5.quality


Porter’s Generic Strategy Framework – 3 Strategies for achieving Competitive Advantage

Competitive Mechanism

Overall Cost Leadership

Focus

DifferentiationIndustrywide (Broad Target)

Particular Segment only

(Narrow Target)C

ompe

titiv

e S

cope

Lower CostPosition

Uniqueness Perceived by

Customer

N


Segmentation Strategies

Undifferentiated Strategy

Differentiated Strategy

Concentrated Strategy


Countersegmentation Strategy

Countersegmentation: An alternative strategy to traditional segmentation

approaches. Combines market segments Consumers accept lower price over variety


Factors Influencing Segmentation Strategy

Size and type of the market Competitive factors Product-related factors:

1. Stage in the product life cycle.2. Degree to which the product may be varied

or modified. Firm’s size and financial position


Estimating Segment Potentials

1. Set time period of interest.2. Define product level.3. Specify segment characteristics or bases.4. Identify geographic market boundaries. 5. Make assumptions about the marketing

environment.6. Make assumptions about company’s own

marketing efforts and programs (controllable factors).

7. Make estimates of market potential, industry sales, and company sales.


Firm and Market Potentials and Forecasts

Industry LevelFirm Level

Best Possible Results Expected Results for Given Strategy

Market Potential Market ForecastSales Potential Sales Forecast


Developing Forecasts

Qualitative Procedures:

Survey of Buyers’ Intentions

Expert Opinion

Composite of Salesforce Estimates

Quantitative Methods: Trend Analysis

Market Tests

Statistical Demand Analysis


Targeting Market Segments

To select target segments, the firm must consider: The segment’s potential sales volume and

profits.

Competition currently selling to the segments.

The firm’s abilities and objectives.


Cost Leadership

Business Strategies and its Competitive Advantage

Cost Focus

Differentiation

Differentiation Focus

Industrywide

(Broad Target)

Particular Segment

only (Narrow Target)

Com

petit

ive

Sco

pe

Competitive Mechanism

Lower CostPosition

Uniqueness Perceived by

Customer

Industrial economy Knowledge-based economy

Inno

vatio

n

Alli

ance

Gro

wth


Positioning

Repositioning:When a firm wants to shift consumer

opinions about an existing brand.

Positioning:Designing a marketing program, including

the product mix, that is consistent with how the company wants its products or

services to be perceived.


Perceptual Maps Perceptual Maps:

Spatial representations of consumer perceptions of products or brands, are often used to evaluate brand positions in a market.

• Diet Pepsi

• Pepsi Cola

• RC Cola

• Dr Pepper

• Diet Sprite

• Diet 7-Up

• 7-Up• Sprite

• Orange Crush

• Coke Classic

Conservative Expressive

High price

Low price


Genericmarket

definition

Product-market

definition

Customer(user) needs

Customertypes

Geographicalarea

Product type(good and/or service)

Relationship between Generic and Product-Market Definitions


Micromarketing

Micromarketing:Combines Census and

Demographic data to identify clusters of households

that share similar consumption patterns.


Micromarketing Enhances the effectiveness of marketing efforts

by: Identifying potential markets for direct selling through

mail and telemarketing campaigns.

Profiling customers by matching them to demographic and lifestyle clusters.

Learning which areas offer the greatest potential in site selection for new stores or offices.

Tailoring advertising themes and planning media.


Market Segmentation and Ethics

Advertising to Children Harmful Products Privacy Issues Product Proliferation

Documents

ch7,