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.

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Bases for demographic segmentation

• Age

• Gender

• Income

• Ethnic background

• Family life cycle

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Family life cycle4

• Age

• Marital status

• Children

Psychographic segmentation

Market segmentation on

the basis of personality,

motives, lifestyles and

geodemographics.

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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.

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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

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Learning objective 6

Discuss the criteria for successful market segmentation

Criteria for successful segmentation

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• 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.

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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.

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Strategies for selectingtarget markets

Concentratedstrategy

Undifferentiatedstrategystrategy

Multi-segmentstrategy

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Undifferentiated targeting 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 targeting strategy (cont.)

Advantages:• Potential savings on

production and marketing costs

Disadvantages:• Unimaginative product

offerings• Company more

susceptible to competition

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Concentrated targeting strategy

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

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Niche

One segment of a market.

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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

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Multi-segment targeting strategy

A strategy that chooses two or more well-defined market segments and develops a distinct marketing mix for each.

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Advantages:• Greater financial

success• Economies of scale

Disadvantages:• High costs• Cannibalisation

Multi-segment targeting strategy (cont.)

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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.

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Position

The place a product, brand or group of products occupies in consumers’ minds relative to competing offerings.

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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.

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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.

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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

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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.

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