Chapter 6 Targeting Attractive Market Segments

Decision Processes Market segmentation Target marketing Positioning Market segmentation - Process by which a market is divided into distinct subsets of customers with similar needs and characteristics that lead them to respond in similar ways to a particular product offering and marketing program. Target marketing - Evaluating the relative attractiveness of various segments in terms of: Market potential, growth rate, competitive intensity, and other factors, along with the firm’s mission and capabilities to deliver what each segment wants, in order to choose which segments it will serve. Brand positioning - Designing product offerings and marketing programs that can establish an enduring competitive advantage in the target market by creating a unique brand image, or position, in the customer’s mind.

Most Markets are Heterogeneous Variation among market segments affect the differences and response rates Markets - Complex entities that can be defined in a variety of ways Variation among market segments is in: Product preferences Size and growth in: Demand, media habits, and competitive structures.

Importance of Market Segmentation Population growth has slowed and more product markets are maturing Social and economic forces have produced customers with more varied and sophisticated needs Increasing importance toward microsegmentation Implementing sharply focused marketing programs

Steps in the Market Segmentation Process Identify a homogeneous segment that differs from other segments Specify criteria that define the segment Determine segment size and potential

How are Market Segments Best Defined? Segmentation decisions are based on: Who the customers are? Where they are? How they behave?

Demographic Segmentation Common attributes Age Sex Income Occupation Education Race and ethnic origin Instructor: Refer to Exhibit 6.2

Demographic Segmentation Industrial market segmentation Macro-segmentation Micro-segmentation

Geographic Segmentation Trade area: Area within a geographically defined region Geodemographic segmentation Involves both demographic and geographic factors Geodemographics attempts to predict consumer behavior by making demographic, psychographic, and consumer information available at the block and zip code or postcode levels.

Behavioral Segmentation Consumer needs Product usage and purchase influence Lifestyle Organizational behavioral attributes Consumer needs Customer needs are expressed in benefits sought from a particular product or service. Choice criteria: Consumers evaluate product or brand alternative on the basis of desired characteristics. Product usage and purchase influence Importance of product usage In many markets a small proportion of potential customers makes a high percentage of all purchases. Market segmentation based on sources of purchase influence for the product category is relevant for both consumer and organizational markets. Lifestyle Segmentation by lifestyle, or psychographics, segments markets on the basis of consumers’ activities, interests, and opinions—what they do or believe. Organizational behavioral attributes Purchasing structure: Degree to which the purchasing activity is centralized. Buying situation: Three distinct types of situations Straight rebuy - Recurring situation handled on a routine basis. Modified rebuy - Occurs when some element has changed in a client–supplier relationship. New buying situation - Requires the gathering of considerable information and an evaluation of alternative suppliers.

Innovative Segmentation Uses combination of different attributes to precisely target an attractive segment

Exhibit 6.7 - Steps in Constructing a Market Attractiveness /Competitive Position Matrix for Evaluating Potential Target Markets

Exhibit 6.8 - Factors Underlying Market Attractiveness and Competitive Position

Exhibit 6.8 - Factors Underlying Market Attractiveness and Competitive Position

Exhibit 6.10 - Market Attractiveness/ Competitive- Position Matrix

Exhibit 6.11 - Implications of Alternative Positions within the Market-Attractiveness/Competitive-Position Matrix Sources: Adapted from George S. Day, Analysis for Strategic Market Decisions (St. Paul: West, 1986), p. 204; and S. J. Robinson, R. E. Hitchens, and D. P. Wade, “The Directional Policy Matrix: Tool for Strategic Planning,” Long Range Planning 11 (1978), pp. 8–15.

Niche-Market Strategy Serves one or more segments with sufficient number of customers seeking specialized benefits Designed to avoid direct competition with larger firms

Mass-Market Strategy Captures sufficient volume to gain economies of scale and a cost advantage Requires: Substantial resources Production capacity Good mass-marketing capabilities

Mass-Market Strategy Differentiated marketing: Design separate products and marketing programs for differing segments

Growth-Market Strategy Targets one or more fast-growth segments Favored by smaller companies to avoid direct confrontations Requires strong R&D and marketing capabilities

Global Market Segmentation Traditional approach - View a country as a single segment comprising all consumers Is flawed Intercountry segmentation enables a company to develop reasonably standardized programs