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CHAPTER 4

SEGMENTING AND TARGETING MARKET

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LEARNING OUTCOMES

LO 1 Describe the characteristics of markets and market segments

LO 2 Discuss criteria for successful market segmentation

LO 3 Describe the bases commonly used to segment consumer markets

LO 4 List the steps involved in segmenting markets

LO 5 Discuss alternative strategies for selecting target markets

LO 6 Explain how and why firms implement positioning strategies and how product differentiation plays a role

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(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.

A MARKET IS...LO 1

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MARKET SEGMENTATION

MarketMarketPeople 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.

MarketSegmentMarket

Segment

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.

MarketSegmentation

MarketSegmentation

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.

LO 1

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THE CONCEPT OF MARKET SEGMENTATION

LO 1

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THE IMPORTANCE OF MARKET SEGMENTATION

u Markets have a variety of product needs and preferences.

u Marketers can better define customer needs.

u Decision makers can define objectives and allocate resources more accurately.

LO 1

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REVIEW LEARNING OUTCOMEThe Importance of Market Segmentation

Marketsegmentation

More precise definition of customers needs and wants

More accurate marketing objectives

Improved resource allocation

Better marketing results

LO 1

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CRITERIA FOR SUCCESSFUL SEGMENTATION

SubstantialitySegment must be large

enough to warrant a special marketing mix.

Identifiabilityand

MeasurabilitySegments must be identifiable and

their size measurable.

AccessibilityMembers of targeted segments must

be reachable with marketing mix.

ResponsivenessUnless segment responds to a

marketing mix differently, no separate treatment is needed.

LO 2

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REVIEW LEARNING OUTCOMESuccessful Market Segmentation

Usefulsegment?

þ Substantialþ Identifiable and measurableþ Accessibleþ Responsive

Then, yes: Useful segmentation scheme

LO 2

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BASES FOR SEGMENTING CONSUMER MARKETS

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SegmentationBases

SegmentationBases

Characteristics of individuals, groups, or organizations used to divide a total market into segments. (variables)

LO 3

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Bases for Segmentation

Usage RateUsage Rate

Benefits SoughtBenefits Sought

PsychographicsPsychographics

DemographicsDemographics

GeographyGeography

LO 3

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Geographic Segmentation

• Region of the country or world• Market size• Market density• Climate

Different brand for different countries è

LO 3

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Geographic Segmentation

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

LO 3

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DEMOGRAPHIC SEGMENTATION

AgeAge

GenderGender

IncomeIncome

Ethnic backgroundEthnic background

Family life cycleFamily life cycle

LO 3

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DEMOGRAPHIC SEGMENTATION Gender Segmentation

• Women, nowadays …– handle 75% of family finances– Influence 80% of consumer purchases – Make purchase decisions about variety

of goods and services• New cars, hardware stores,

electronics, etc.• Other brands that have targeted men are

trying to target women– Gillette razors, Rogaine baldness

remedy, Nike, Reebok, etc.

LO 3

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DEMOGRAPHIC SEGMENTATION Income Segmentation

• Income – popular demographic variable for segmenting markets

• Lexus, Porsche, BMW catering to wealthy customers

• Price-sensitive consumers– Tesco brand– Econsave – Perodua Kancil

LO 3

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DEMOGRAPHIC SEGMENTATION Ethnic Segmentation

• Largest ethnic markets are:– Malays– Chinese– Indian

LO 3

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DEMOGRAPHIC SEGMENTATION Family Life Cycle

Age

MaritalStatus Children

LO 3

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DEMOGRAPHIC SEGMENTATION Family Life Cycle

LO 3

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PSYCHOGRAPHIC SEGMENTATION

PsychographicSegmentationPsychographicSegmentation

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

LO 3

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BASES FOR PSYCHOGRAPHIC SEGMENTATION

PersonalityPersonality

MotivesMotives

LifestylesLifestyles

GeodemographicsGeodemographics

LO 3

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PSYCHOGRAPHIC SEGMENTATION Lifestyle Segmentation

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

LO 3

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PSYCHOGRAPHIC SEGMENTATION Geodemographic Segmentation

GeodemographicSegmentation

GeodemographicSegmentation

Segmenting potential customers into neighborhood lifestyle categories.

Combines geographic, demographic, and lifestyle segmentation.

LO 3

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BENEFIT SEGMENTATION

BenefitSegmentation

BenefitSegmentation

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

LO 3

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BENEFIT SEGMENTATION

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.

LO 3

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REVIEW LEARNING OUTCOMEBases 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

LO 3

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STEPS IN SEGMENTING MARKETS

Select a market

for study

Choosebases

for segmen-

tation

Selectdescriptors

Profileand

analyzesegments

Selecttarget

markets

Design,implement,

maintainmarketing

mix

1 53 42 6

LO 4

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STRATEGIES FOR SELECTING TARGET MARKETS

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.

LO 5

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STRATEGIES FOR SELECTING TARGET MARKETS

ConcentratedStrategy

UndifferentiatedStrategy

MultisegmentStrategy

LO 5

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UNDIFFERENTIATED TARGETING STRATEGY

UndifferentiatedTargetingStrategy

UndifferentiatedTargetingStrategy

A marketing approach that views the market as one big market with no individual segments and thus requires a single marketing mix.

LO 5

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UNDIFFERENTIATED TARGETING STRATEGY

UndifferentiatedStrategy

Advantage:

§ Potential savings on production and marketing costs

Disadvantages:

§ Unimaginative product offerings

§ Company more susceptible to competition

LO 5

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CONCENTRATED TARGETING STRATEGY

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ConcentratedTargeting Strategy

ConcentratedTargeting Strategy

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

NicheOne segment of a market.

LO 5

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CONCENTRATED TARGETING STRATEGY

ConcentratedStrategy

Advantages:§ 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

LO 5

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MULTISEGMENT TARGETING STRATEGY

MultisegmentTargetingStrategy

MultisegmentTargetingStrategy

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

LO 5

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MULTISEGMENT TARGETING STRATEGY

MultisegmentStrategy

Advantages:§ Greater financial success§ Economies of scale

Disadvantages:§ High costs§ Cannibalization

LO 5

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COSTS OF MULTISEGMENT TARGETING

u Product design costs

u Production costs

u Promotion costs

u Inventory costs

u Marketing research costs

u Management costs

u Cannibalization

LO 5

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CANNIBALIZATION

CannibalizationCannibalizationSituation that occurs when sales of a new product cut into sales of a firm’s existing products.

LO 5

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REVIEW LEARNING OUTCOMEAlternatives for Selecting Target Markets

Undifferentiated Multisegment Concentrated

LO 5

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ONE-TO-ONE MARKETING

One-to-OneMarketing

One-to-OneMarketing

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

LO 5

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One-to-One Marketing

Information-IntensiveInformation-Intensive

Long-TermLong-Term

One-to-OneMarketing is...

One-to-OneMarketing is...

IndividualizedIndividualized Cost ReductionCost Reduction

Has a Goal of…Has a Goal of…

Customer LoyaltyCustomer Loyalty

Increased RevenueIncreased Revenue

PersonalizedPersonalized

Customer RetentionCustomer Retention

LO 5

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ONE-TO-ONE MARKETING

1. One-size-fits all marketing no longer effective

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

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

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

Trends

LO 5

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POSITIONING

PositioningPositioningDeveloping a specific marketing mix to influence potential customers’ overall perception of a brand, product line, or organization in general.

LO 6

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Positioning of Procter & Gamble Detergents

LO 6

Brand Positioning MarketShare

Tide Tough, powerful cleaning 31.1%

Cheer Tough cleaning, color protection 8.2%

Bold Detergent plus fabric softener 2.9%

Gain Sunshine scent and odor-removing formula 2.6%

Era Stain treatment and stain removal 2.2%

Dash Value brand 1.8%

Oxydol Bleach-boosted formula, whitening 1.4%

Solo Detergent and fabric softener in liquid form 1.2%

Dreft Outstanding cleaning for baby clothes, safe 1.0%

Ivory Snow Fabric & skin safety on baby clothes 0.7%

Ariel Tough cleaner, aimed at Hispanic market 0.1%

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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

LO 6

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PRODUCT DIFFERENTIATION

ProductDifferentiation

ProductDifferentiation

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

Distinctions can be real or perceived.

LO 6

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PERCEPTUAL MAPPING

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PerceptualMapping

PerceptualMapping A means of displaying or

graphing, in two or more dimensions, the location of products, brands, or groups of products in customers’ minds.

LO 6

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PERCEPTUAL MAPPINGLO 6

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POSITIONING BASES

AttributeAttribute

Price and QualityPrice and Quality

Use or ApplicationUse or Application

Product UserProduct User

Product ClassProduct Class

CompetitorCompetitor

EmotionEmotion

LO 6

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REPOSITIONING

RepositioningRepositioning Changing consumers’ perceptions of a brand in relation to competing brands.

LO 6

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REVIEW LEARNING OUTCOME Positioning and Product Differentiation

LO 6