© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter Five Market Segmentation Key Words / Outline Marketing segmentation, Post hoc segmentation, Priori segmentation, Benefit segmentation, Psychographic segmentation, Vertical dimension, Horizontal dimension, Geodemographic segmentation, Positioning map, Marketing mix © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Marketing Management, 8e

Market Segmentation DETERMINE CONSUMER NEEDS AND WANTS DIVIDE MARKETS ON RELEVANT DIMENSIONS DEVELOP PRODUCE POSITIONING DECIDE SEGMENTATION STRATEGY DESIGN MARKETING MIX STRATEGY

Meeting the Consumer Needs Successful marketing strategies depend on meeting consumer needs and wants A firm with a good deal of venture capital may seek to discover broad variety of unmet needs Operate within your firm’s need satisfaction activities At a strategic level, need and wants usually are translated into more operational concepts

Market Division Three important questions to be considered Should the segmentation be a priori or a post hoc? How does one determine the relevant dimensions or bases to use for segmentation? What are some bases for segmenting consumer and organizational buyer markets?

Market Segments for High-Tech Products The pessimists Business Family Entertainment Less Affluent Sidelined citizens Not interested in technology More Affluent Media-junkies Old consumers typically managers who don’t touch their computers at work Willing to use technology but slow to upgrade. Seek entertainment and can’t find much of it online. Prefer TV and other media

Market Segments for High-Tech Products The optimists Less Affluent Family Entertainment Techno-strivers Use technology from cell phones to pagers to online service primarily to gain career edge Families with limited budget but still Interested in new technology. Favor online entertainment but have less cash to spend on it More Affluent These customers are the biggest spenders and they’re early adopters of new technology for personal use Also big spenders but focused on technology for home uses such as family PC They like the on-line world for entertainment and are willing to spend for the latest technotainment

A Priori versus Post Hoc Segmentation A priori segmentation: An approach where the marketing manager has decided on the appropriate basis for segmentation in advance of doing any research on a market Post hoc segmentation: An approach in which people are grouped into segments on the basis of findings Both these approaches are valuable and the question of which to use depends in part how well the firm knows the market

Consumer Market Segmentation Customers can be divided or segmented by using Geography Demography Sociography Behavior

Organizational Buyer Markets Company size Purchase quantity Product application Organization type Location Purchase status Attribute importance

Psychographic Segmentation VALS 2 (“values and lifestyles”) Life styles are measured by asking consumers about their Activities Interests Opinions Segmentation research based on VALS™ is a product of SRI Consulting Business Intelligence

VALS 2 - Eight American Lifestyles Abundant Resources ACTUALIZERS Principle Oriented Status Oriented Action Oriented FULFILLEDS ACHIEVERS EXPERIENCERS BELIEVERS STRIVERS MAKERS STRUGGLERS Minimal Resources

Geodemographic Segmentation PRIZM: Potential Ranking Index by Zip Markets PRIZM assumes that similar customers live within the same or proximate neighborhood (s) PRIZM classifies every U.S. neighborhood into one of 62 distinct types or clusters of consumers PRIZM helps marketers understand customers in selected markets

Product Positioning Positioning can be achieved according to selected attributes or functions Superiority to competitive products Positioned by use or application Positioned in terms of particular types of users Positioned relative to a product class Position mapping is a visual depiction of customers perception of competitive products

Market Segmentation Strategies The firm may decide not to enter the market The firm may not decide to segment but to be a mass marketer if The market is so small it’s not profitable to market to one portion of it Heavy users comprise so much of sales they are the only relevant target Dominant brand does not need segmentation

Market Evaluation Measures 3Ms of market evaluation Measurable – large enough to measure size and characteristics Meaningful – large enough to deliver sufficient sales and growth potential Marketable – can be reached and served in an efficient manner

Market Evaluation Questions Measurability questions What are the appropriate bases for segmenting this market and can they be measured? Is secondary data available so this can be done inexpensively? If primary data are needed, will there be a return on investment? Are specific names/addresses needed? Can purchases by this segment be measured and tracked?

Market Evaluation Questions Meaningfulness Questions How many people are in this market and how frequently will they purchase the product? What market share can we expect? What is the growth potential? How strong is the competition and is it likely to change? How satisfied are the consumers in this market with current offerings?

Market Evaluation Questions Marketability Questions Can this segment be reached with current channels of distribution? Can we establish new channels efficiently, if needed? What promotion media does this segment read, listen to, or watch? Can we afford to promote to this segment and is there a media to reach them? Are people in this segment willing to pay a price necessary for profit? Can we produce a product for this market profitably?

Design Marketing Mix Selection of target market and designing the market should go hand in hand Marketing mix decisions should have already been carefully considered Product positioning has many implications for promotion and channel distribution