Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 1 MKTG Designed by Amy McGuire, B-books, Ltd. Prepared by

Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 1

MKTG

Designed byAmy McGuire, B-books, Ltd.

Prepared byDeborah Baker, Texas Christian University

Lamb, Hair, McDaniel 2007-2008

7CHAPTERSegmenting and Targeting Markets


Learning Outcomes

Describe the characteristics of markets and market segments

Explain the importance of market segmentation

Discuss criteria for successful market segmentation

Describe the bases commonly used to segment consumer markets

Describe the bases for segmenting business markets

LO1

LO2

LO3

LO4

LO5


Learning Outcomes

List the steps involved in segmenting markets

Discuss alternative strategies for selecting target markets

Explain one-to-one marketing

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

LO6

LO7

LO8

LO9


Describe the characteristics of markets and

market segments

Market SegmentationMarket SegmentationLO1


LO1

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.


Market Segmentation

7-6

Targeting “everyone” is:Targeting “everyone” is: •Expensive •Wasteful•Nearly impossible

A more sensible approach:A more sensible approach:•Identify smaller segments who are most likely to consider your brand (segmentation) and target them with specifically designed MC messages

Teenagers


Market Segmentation

LO1

MarketMarket

MarketSegment

MarketSegment

MarketSegmentation

MarketSegmentation

People or organizations with needs or wants and the ability and willingness to buy.

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.

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.

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


The Market Segmentation Process

Market Segmentation

1. Identify people with shared needs and characteristics


The Market Segmentation Process

7-9

Market Segmentation1. Identify people with

shared needs and characteristics2. Aggregate these groups into market segments according to their mutual interest in the product’s utility


The Concept of Market Segmentation

LO1


Explain the importance

of market segmentation

The Importance of Market SegmentationThe Importance of Market SegmentationLO2


The Importance of Market Segmentation

LO2

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


REVIEW LEARNING OUTCOMELO2

The Importance of Market Segmentation

Marketsegmentation

More precise definition of customers needs and wants

More accurate marketing objectives

Improved resource allocation

Better marketing results


Discuss criteria for successful market

segmentation

Criteria for Successful SegmentationCriteria for Successful SegmentationLO3


Criteria for Segmentation

LO3

Substantiality

Identifiabilityand 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.



Usefulsegment?

Substantial Identifiable and measurable Accessible Responsive

Then, yes: Useful segmentation scheme

Successful Market Segmentation


Describe the bases commonly used

to segment consumer markets

Bases for Segmenting Bases for Segmenting Consumer MarketsConsumer Markets

LO4


LO4

Bases for Segmenting Consumer Markets

SegmentationBases

SegmentationBases

Characteristics of individuals,

groups, or organizations used

to divide a total market into

segments. (variables)


Bases for SegmentationLO4

Usage RateUsage Rate

Benefits SoughtBenefits Sought

PsychographicsPsychographics

DemographicsDemographics

GeographyGeography


Geographic Segmentation

Region of the country or world

Market size

Market density

Climate

LO4


Geography - Community

7-21


Geography- Climate

7-22


Geography - Region


Benefits 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 Quicker reaction to

competition

LO4


Demographic Segmentation

LO4

AgeAge

GenderGender

IncomeIncome

Ethnic backgroundEthnic background

Family life cycleFamily life cycle

Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 267-26

Gender


Demographic segmentation: Heavy usage patterns of various age groups

7-27

McGraw-Hill/Irwin


Ethnic Segmentation

Largest ethnic markets are: Hispanic Americans African Americans Asian Americans

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

LO4


Products target Hispanics

7-29


Family Life Cycle

LO4

Age

MaritalStatus Children


Family Life Cycle

LO4


Psychographic Segmentation

LO4

PsychographicSegmentation

PsychographicSegmentation

Market segmentation on the basis

of personality, motives, lifestyles,

and geodemographics.


Bases for Psychographic Segmentation

LO4

PersonalityPersonality

MotivesMotives

LifestylesLifestyles

GeodemographicsGeodemographics

Online

http://www.marthastewart.com http://www.goodhousekeeping.com


Lifestyle Segmentation

How time is spent Importance of things around them Beliefs Socioeconomic characteristics

LO4


Psychographic Segmentation

Values and Lifestyles Typology (VALS)

http://www.sric-bi.com/VALS/


Biz Flix

LO4The Breakfast Club


Geodemographic Segmentation

LO4

Segmenting potential customers into neighborhood lifestyle categories.

Combines geographic, demographic, and lifestyle segmentation.

Segmenting potential customers into neighborhood lifestyle categories.

Combines geographic, demographic, and lifestyle segmentation.

GeodemographicSegmentation

GeodemographicSegmentation


PRIZM• PRIZM (Potential Rating Index by Zip Market):

– Classifies every U.S. Zip Code into one of 62 categories– Rankings in terms of income, home value, and

occupation on a ZQ (Zip Quality) Scale – Categories range from most affluent “Blue-Blood

Estates” to the least well-off “Public Assistance”– Different clusters exhibit different consumption patterns

Prizm


PRIZM Clusters

Young Digerati are the nation's tech-savvy singles and couples living in fashionable neighborhoods on the urban fringe. Affluent, highly educated and ethnically mixed, Young Digerati communities are typically filled with trendy apartments and condos, fitness clubs, clothing boutiques, casual restaurants and all types of bars—from juice to coffee to microbrew.

The steady rise of older, healthier Americans over the past decade has produced one important by-product: middle-class, home-owning suburbanites who are aging in place rather than moving to retirement communities. Gray Power reflects this trend, a segment of older, midscale singles and couples who live in quiet comfort.


PRIZM Clusters01 Upper Crust

02 Blue Blood Estates

03 Movers & Shakers

04 Young Digerati

05 Country Squires

06 Winner's Circle

07 Money & Brains

08 Executive Suites

09 Big Fish, Small Pond

10 Second City Elite

11 God's Country

12 Brite Lites, Li'l City

13 Upward Bound

14 New Empty Nests

15 Pools & Patios

16 Bohemian Mix

17 Beltway Boomers

18 Kids & Cul-de-Sacs

19 Home Sweet Home

20 Fast-Track Families

21 Gray Power

22 Young Influentials

23 Greenbelt Sports

24 Up-and-Comers

25 Country Casuals

26 The Cosmopolitans

27 Middleburg Managers

28 Traditional Times

29 American Dreams

30 Suburban Sprawl

31 Urban Achievers

32 New Homesteaders

33 Big Sky Families

34 White Picket Fences

35 Boomtown Singles

36 Blue-Chip Blues

37 Mayberry-ville

38 Simple Pleasures

39 Domestic Duos

40 Close-In Couples

41 Sunset City Blues

42 Red, White & Blues

43 Heartlanders

44 New Beginnings

45 Blue Highways

46 Old Glories

47 City Startups

48 Young & Rustic

49 American Classics

50 Kid Country, USA

51 Shotguns & Pickups

52 Suburban Pioneers

53 Mobility Blues

54 Multi-Culti Mosaic

55 Golden Ponds

56 Crossroads Villagers

57 Old Milltowns

58 Back Country Folks

59 Urban Elders

60 Park Bench Seniors

61 City Roots

62 Hometown Retired

63 Family Thrifts

64 Bedrock America

65 Big City Blues

66 Low-Rise Living

67 Unclassified


PRIZM

• Branchburg, NJ 08876's most common PRIZM NE Segments are:

• Boomtown Singles• Country Squires• God’s Country• Middleberg Managers• Up–and-Comers

http://www.claritas.com/MyBestSegments/Default.jsp?ID=30&SubID=&pageName=Segment%2BLook-up


A Comparison of Two PRIZM Clusters


Benefit Segmentation

LO4

The process of grouping customers

into market segments according to the

benefits they seek from the product.





LO4

Usage-RateSegmentation

Usage-RateSegmentation

Dividing a market by the amount

of product bought or consumed.

Dividing a market by the amount

of product bought or consumed.

80/20Principle

80/20Principle

A principle holding that 20

percent of all customers generate

80 percent of the demand.

A principle holding that 20

percent of all customers generate

80 percent of the demand.


LO4B

eyond

the

Book

Example of Usage-Rate

Verizon, Sprint Nextel and others allow consumers with standard contracts to access the Internet via cellular high-speed services.

Some customers’ service is being cancelled because they are using excessive network capacity.

Sprint and Cingular Wireless charge based on usage: the amount of data bits they wirelessly transfer each month.

SOURCE: Amol Sharma and Dionne Searcey, “Cell Carriers to Web Customers: Use Us, but Not too Much,” Wall Street Journal, May 11, 2006, B1.


7-46

Example of Benefit

Tropicana Essentials targets consumers who want extra vitamins and no sodium



Bases for Segmenting Consumer Markets

Geography Demographics Psychographics Benefits Usage Rate

• Region• Market size• Market

density• Climate

• Age• Gender• Income• Race/ethnicity• Family life

cycle

• Personality• Motives• Lifestyle• Geodemo-

graphics

• Benefitssought

• Former• Potential• 1st time• Light or

irregular• Medium• Heavy


Describe the bases for segmenting

business markets

Bases for Segmenting Bases for Segmenting Business MarketsBusiness Markets

LO5


Bases for Segmenting Business Markets

LO5

CompanyCharacteristics

CompanyCharacteristics

BuyingProcesses

BuyingProcesses

ProducersProducers

ResellersResellers

GovernmentGovernment

InstitutionsInstitutions


Bases for Segmenting Business Markets

LO5

Company Characteristics

Geographic location

Type of company

Company size

Volume of purchase

Product use


Buyer CharacteristicsLO5

SatisficersSatisficersBusiness customers who place an order

with the first familiar supplier to satisfy

product and delivery requirements.

Business customers who place an order

with the first familiar supplier to satisfy

product and delivery requirements.

OptimizersOptimizersBusiness customers who consider

numerous suppliers, both familiar and

unfamiliar, solicit bids, and study all

proposals carefully before selecting one.

Business customers who consider

numerous suppliers, both familiar and

unfamiliar, solicit bids, and study all

proposals carefully before selecting one.


Buyer CharacteristicsLO5

Demographic characteristicsDemographic characteristics

Decision styleDecision style

Tolerance for riskTolerance for risk

Confidence levelConfidence level

Job responsibilitiesJob responsibilities



Segmenting Business Markets

Producers Resellers

InstitutionsGovernments

Buying Process

Company Characteristics


List the steps involved in

segmenting markets

Steps in Segmenting Steps in Segmenting a Marketa Market

LO6



Steps in Segmenting Markets

Select a market

for study

Choosebases

for segmen-

tation

Selectdescriptors

Profileand

analyzesegments

Selecttarget

markets

Design,implement,

maintainmarketing

mix


Discuss alternative strategies for

selecting target markets

Strategies for Selecting Strategies for Selecting Target MarketsTarget Markets

LO7


Strategies for Selecting Target Markets

LO7

TargetMarketTargetMarket

A 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.


Strategies for Selecting Target Markets

LO7

ConcentratedStrategy

UndifferentiatedStrategy

MultisegmentStrategy


Undifferentiated Targeting Strategy

LO7

UndifferentiatedTargetingStrategy

UndifferentiatedTargetingStrategy

A marketing approach that

views the market as one big

market with no individual

segments and thus

requires a single

marketing mix.


LO7

UndifferentiatedStrategy

Advantage:

Potential savings on production and marketing costs

Disadvantages:

Unimaginative product offerings

Company more susceptible to competition

Undifferentiated Targeting Strategy


Concentrated Targeting Strategy

LO7

ConcentratedTargeting Strategy

ConcentratedTargeting Strategy

A strategy used to select one

segment of a market for

targeting marketing efforts.

NicheOne segment of a

market.


LO7

ConcentratedStrategy

Advantage:

Concentration of resources Meets narrowly defined segment Small firms can compete Strong positioning

Disadvantages:

Segments too small, or changing Large competitors may

market to niche segment

Concentrated Targeting Strategy


MultisegmentTargeting Strategy

LO7

MultisegmentTargetingStrategy

MultisegmentTargetingStrategy

A strategy that chooses two or

more well-defined market

segments and develops a

distinct marketing

mix for each.


LO7

MultisegmentStrategy

Advantage:

Greater financial success

Economies of scale

Disadvantages:

High costs

Cannibalization

MultisegmentTargeting Strategy


Costs of Multisegment Targeting

LO7

Product design costs

Production costs

Promotion costs

Inventory costs

Marketing research costs

Management costs

Cannibalization MultisegmentStrategy


Cannibalization

LO7

Situation that occurs when

sales of a new product cut into

sales of a firm’s existing

products.

CannibalizationCannibalization



Alternatives for Selecting Target Markets

Undifferentiated Multisegment Concentrated


Approaches to Targeting Markets

Wal-Mart M

Strategy A

Strategy C

Strategy B

C

A

B

UNDIFERENTIATED(MASS MARKETING)

DIFFERENTIATED(Happy Meal, Big Mac, Chicken Salad)

Market StrategyB

C

A

Curves for Women, Gold’s Gym, American Assoc. for Retired Persons)

Strategy A

Strategy B

Strategy C

A

C

B

CUSTOMIZED (1-to-1) MARKETING(Personal Amenities for Ritz-CarltonLoyals, BK Whopper, Custom Cars)

CONCENTRATED


Explain one-to-one marketing

One-to-One MarketingOne-to-One MarketingLO8


One-to-One Marketing

LO8

An individualized marketing method that utilizes customer information to build long-term, personalized, and profitable relationships with each customer.

One-to-OneMarketing

One-to-OneMarketing



LO8

Information-IntensiveInformation-Intensive

Long-TermLong-Term

One-to-OneMarketing is...One-to-One

Marketing is...

IndividualizedIndividualized Cost ReductionCost Reduction

Has a Goal of…Has a Goal of…

Customer LoyaltyCustomer Loyalty

Increased RevenueIncreased Revenue

PersonalizedPersonalized

Customer RetentionCustomer Retention



LO8

One-size-fits all marketing no longer effective

Direct and personal marketing will grow to meet needs of busy consumers.

Consumers will be loyal to companies that have earned—and reinforced—their loyalty.

Mass-media approaches will decline as technology allows better customer tracking.

TrendsTrends





7-74

Custom Beauty Solutions


Explain how and why firms implement

positioning strategies and how product

differentiation plays a role

PositioningPositioningLO9


LO9

Positioning

Developing a specific

marketing mix to

influence potential

customers’ overall

perception of a brand,

product line, or

organization in

general.


LO9 0.7%Fabric & skin safety on baby clothesIvory Snow

0.1%Tough cleaner, aimed at Hispanic marketAriel

1.0%Outstanding cleaning for baby clothes, safeDreft

1.2%Detergent and fabric softener in liquid formSolo

1.4%Bleach-boosted formula, whiteningOxydol

1.8%Value brandDash

2.2%Stain treatment and stain removalEra

2.6%Sunshine scent and odor-removing formulaGain

2.9%Detergent plus fabric softenerBold

8.2%Tough cleaning, color protectionCheer

31.1%Tough, powerful cleaningTide

MarketShare

PositioningBrand

Positioning of Procter & Gamble

DetergentsLO9


Effective Positioning

1. Assess the positions occupied by competing products

2. Determine the dimensions underlying these positions

3. Choose a market position where marketing efforts will have the greatest impact

LO9


LO9

Product Differentiation

A positioning strategy that some firms use to distinguish their products from those of competitors.

Distinctions can be real or perceived.


A means of displaying or

graphing, in two or more

dimensions, the location of

products, brands, or groups

of products in customers’

minds.

LO9

Perceptual Mapping

Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 817-81

Perceptual Map


AttributeAttribute

Price and QualityPrice and Quality

Use or ApplicationUse or Application

Product UserProduct User

Product ClassProduct Class

CompetitorCompetitor

EmotionEmotionLO9

Positioning Bases


Changing consumers’

perceptions of a brand in

relation to competing brands.

LO9

Repositioning



Positioning and Product Differentiation

Documents

Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 1 MKTG Designed by Amy McGuire, B-books, Ltd. Prepared by