Chapter 8: Segmenting and Targeting Markets Introduction to Chapter 8: Segmenting and Targeting Markets Designed & Prepared by Laura Rush B-books, Ltd. Copyright Cengage Learning 2013 All Rights Reserved 1

Copyright Cengage Learning 2013 Chapter 8 Segmenting 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 LO1 LO2 LO3 LO4 Copyright Cengage Learning 2013 All Rights Reserved

Copyright Cengage Learning 2013 Chapter 8 Segmenting and Targeting Markets Learning Outcomes Describe the bases for segmenting business markets 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 LO5 LO6 LO7 LO8 LO9 Copyright Cengage Learning 2013 All Rights Reserved

Copyright Cengage Learning 2013 Chapter 8 Segmenting and Targeting Markets 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. Notes: The term market means different things to different people. Consider supermarket, stock market, labor market, fish market, and flea market. All these types of markets share several characteristics. Markets are composed of people or organizations with needs and wants that can be satisfied by particular product categories. LO1 Copyright Cengage Learning 2013 All Rights Reserved

The Importance of Market Segmentation Chapter 8 Segmenting and Targeting Markets The Importance of Market Segmentation 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. Notes: Market segmentation was rare before the 1960’s. Consider Coca-Cola with its one product aimed at the entire soft drink market. Today over a dozen different products are marketed by the company to different market segments. Market segmentation plays a key role in the marketing strategy of organizations, leading to competitive advantage. The benefits are described on this slide. Discussion/Team Activity: Discuss how Coca-Cola’s product lines fit the needs of different market segments. Name different fashion retailers and identify their marketing segmentation strategies. LO2 Copyright Cengage Learning 2013 All Rights Reserved

Criteria for Segmentation Chapter 8 Segmenting and Targeting Markets Criteria for Segmentation Substantiality Segment must be large enough to warrant a special marketing mix. Identifiability and Measurability Segments must be identifiable and their size measurable. Accessibility Members of targeted segments must be reachable with marketing mix. Notes: Markets are segmented for three reasons: Segmentation enables the identification of groups of customers with similar needs, and the analysis of the buying behavior of these groups. Segmentation provides information for the specific matching of the design of marketing mixes with the characteristics of the segment. Segmentation helps marketers satisfy customers wants and needs while meeting the organization’s objectives. A segmentation scheme must produce segments that meet the four basic criteria as defined above. Responsiveness Unless segment responds to a marketing mix differently, no separate treatment is needed. LO3 Copyright Cengage Learning 2013 All Rights Reserved

Bases for Segmentation Chapter 8 Segmenting and Targeting Markets Bases for Segmentation Usage Rate Benefits Sought Psychographics Demographics Geography Notes: Marketers use segmentation bases, or variables, to divide a total market into segments. Segmentation Bases are characteristics of individuals, groups, or organizations used to divide a total market into segments (variables). Markets can be segmented using a single variable or multiple variables. Today’s trend is to use more rather than fewer variables to segment a market. One or more of the characteristics listed above is used to segment markets. LO4 Copyright Cengage Learning 2013 All Rights Reserved

Bases for Psychographic Segmentation Chapter 8 Segmenting and Targeting Markets Bases for Psychographic Segmentation Personality Motives Lifestyles Geodemographics Notes: Psychographic Segmentation is market segmentation on the basis of personality, motives, lifestyles, and demographics. Demographic segmentation provides the “skeleton,” but psychographic segmentation adds “meat to the bones.” Personality reflects a person’s traits, attitudes, and habits. Consider the personality types that describe segmented Porsche buyers. Motives: Carmakers appeal to customers with status-related motives, whereas baby products appeal to emotional motives. Lifestyles and geodemographics are described on subsequent slides. LO4 Copyright Cengage Learning 2013 All Rights Reserved

Benefit Segmentation Benefit segmentation- The process of Chapter 8 Segmenting and Targeting Markets Benefit Segmentation Benefit segmentation- The process of grouping customers into market segments according to the benefits they seek from the past. Notes: Benefit segmentation is different from other segmentation bases because it groups potential customers on the basis of their needs and wants instead of some other characteristic. For example, Exhibit 8.3 in the textbook shows the lifestyle segmentation of the snack food market. LO4 Copyright Cengage Learning 2013 All Rights Reserved

Usage-Rate Segmentation Chapter 8 Segmenting and Targeting Markets Usage-Rate Segmentation Usage-Rate Segmentation- Dividing a market by the amount of product bought or consumed. 80/20 Principle- A principle holding that 20 percent of all customers generate 80 percent of the demand. Notes: Most segmentation is based on the assumption that the selected variable(s) and customers’ needs are related. On the other hand, benefit segmentation groups potential customers on the basis of their needs or wants only. Segmenting by usage rate enables marketers to focus efforts on heavy users or to develop multiple marketing mixes aimed at different segments. The focus of marketing is often on the heavy-user segment, based on the 80/20 principle. Discussion/Team Activity: What programs do companies use to develop customers into heavy users? The list should include airline frequent flyer programs and in-store coupon dispensing. LO4 Copyright Cengage Learning 2013 All Rights Reserved

Bases for Segmenting Business Markets Chapter 8 Segmenting and Targeting Markets Bases for Segmenting Business Markets Producers Resellers Government Institutions Notes: Company characteristics include geographic location, type of company, company size, and product use. Marketers may also segment customers on the basis of how they buy. Take, for example, key purchasing criteria, such as price, quality, technical support, and service. Personal characteristics of the buyers influence their buying behavior. Company Characteristics Buying Processes LO5 Copyright Cengage Learning 2013 All Rights Reserved

Bases for Segmenting Business Markets Chapter 8 Segmenting and Targeting Markets Bases for Segmenting Business Markets Company Characteristics Geographic location Type of company Company size Volume of purchase Product use LO5 Copyright Cengage Learning 2013 All Rights Reserved

Buyer Characteristics Chapter 8 Segmenting and Targeting Markets Demographic characteristics Decision style Tolerance for risk Confidence level Job responsibilities Notes: The personal characteristics of the buyers influence their buying behavior and offer a viable basis for segmenting some business markets. Two purchasing profiles are satisficers and optimizers: Satisficers - Business customers who place an order with the first familiar supplier to satisfy product and delivery requirements. Optimizers - Business customers who consider numerous suppliers, both familiar and unfamiliar, solicit bids, and study all proposals carefully before selecting one. Satisficers contact familiar suppliers and place the order with the first one to satisfy product and delivery requirements. Optimizers consider numerous suppliers, obtain bids, and study all proposals before selecting one. LO5 Copyright Cengage Learning 2013 All Rights Reserved

Strategies for Selecting Target Markets Chapter 8 Segmenting and Targeting Markets Concentrated Strategy Undifferentiated Multisegment Notes: Undifferentiated Strategy is a marketing approach that views the market as one big market with no individual segments and thus requires a single marketing mix. An undifferentiated targeting strategy is essentially a mass-market philosophy—viewing the market as one big market and using one marketing mix. Concentrated Targeting Strategy is a strategy used to select one segment of a market for targeting efforts, often a niche – One segment of a market. Multisegment Strategy is a strategy that chooses two or more well-defined market segments and develops a distinct marketing mix for each. LO7 Copyright Cengage Learning 2013 All Rights Reserved

Information-Intensive Chapter 8 Segmenting and Targeting Markets One-to-One Marketing Information-Intensive Long-Term One-to-One Marketing is... Individualized Cost Reduction Has a Goal of… Customer Loyalty Increased Revenue Personalized Customer Retention Notes: One-to-one marketing focuses on understanding customers as individuals instead of as part of a group. It is an individualized marketing method that utilizes customer information to build long-term, personalized, and profitable relationships with each customer. The goal is to reduce costs through customer retention and increase revenue through customer loyalty. Most businesses use a mass marketing approach to increase market share by selling their products to the greatest number of people. However, one-to-one marketing is used to increase share of customer--to sell more products to each customer. Instead of wide-spread, scattered messages across the spectrum of mass media, one-to-one marketers look for ways to communicate with each individual customer. Discussion/Team Activity: Discuss how Amazon.com has developed one-to-one marketing. What other companies use one-to-one marketing successfully? LO8 Copyright Cengage Learning 2013 All Rights Reserved

Copyright Cengage Learning 2013 Chapter 8 Segmenting and Targeting Markets One-to-One Marketing Trends 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. Notes: Even though one-to-one marketing represents a huge commitment and a different way of thinking for marketers, it will grow. The trends shown on this slide illustrate why. Although mass marketing will continue to be used to create brand awareness or remind consumers of a product, the advantages of one-to-one marketing are strong. LO8 Copyright Cengage Learning 2013 All Rights Reserved

Positioning Developing a specific marketing mix to influence Chapter 8 Segmenting and Targeting Markets Positioning Developing a specific marketing mix to influence potential customers’ overall perception of a brand, product line, or organization in general. Notes: Position is the place a product, brand, or group of products occupies in consumers’ minds relative to competing offerings. Positioning assumes that consumers compare products on the basis of important features. Effective positioning requires assessing the positions occupied by competing products, determining the important dimensions underlying these positions, and choosing a position in the market where the marketing efforts will have the greatest impact. LO9 Copyright Cengage Learning 2013 All Rights Reserved

Product Differentiation Chapter 8 Segmenting and Targeting Markets Product Differentiation A positioning strategy that some firms use to distinguish their products from those of their competitors. Distinctions can be real or perceived. LO9 Copyright Cengage Learning 2013 All Rights Reserved

Copyright Cengage Learning 2013 Positioning Bases Chapter 8 Segmenting and Targeting Markets Attribute Price and Quality Use or Application Product User Product Class Competitor Emotion Notes: The following bases for positioning are used: Attribute: Association of a product with a product feature, an attribute, or customer benefit. Price and quality: High price as a symbol of quality, or low price as an indicator of value may be used to position a product. Use or application: Stressing use or applications. Product user: Positioning base focuses on a personality or type of user. Product class: Product is positioned as associated with a particular category of products. Competitor: Positioning against competitors is a part of any positioning strategy. Emotion: Positioning using emotion focuses on how the product makes customers feel. One or more positioning bases is often used. LO9 Copyright Cengage Learning 2013 All Rights Reserved

Changing perceptions of a Chapter 8 Segmenting and Targeting Markets Repositioning Changing perceptions of a brand in relation to competing brands. Notes: Products are repositioned to sustain growth in slow markets or to correct positioning mistakes A good example of repositioning was the Proctor & Gamble’s baby-care business when they changed Pampers’ position from emphasizing dryness to focusing on helping Mom with her baby’s development. Also, consider the expansion of Wal-Mart into the supermarket industry. A consultant predicts that two supermarkets will go out of business for every Wal-Mart superstore that opens in the U.S. Discussion/Team Activity: As giant Wal-Mart expands into the supermarket industry, what repositioning strategies should its competitors consider? How do you compete with the low-price position of Wal-Mart? LO9 Copyright Cengage Learning 2013 All Rights Reserved