Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-1 IDENTIFYING MARKET SEGMENTS AND TARGETS C HAPTER

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-2 AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO: 1.Explain what market segmentation is and when to use it. 2.Identify the five steps involved in segmenting and targeting markets. 3.Recognize the different factors used to segment consumer and organizational markets.

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-3 AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO: 4.Know how to develop a market-product grid to identify a target market and recommend resulting actions. 5.Explain how marketing managers position products in the marketplace.

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-4 SNEAKERS MARKETING WARS: JAY-Z, YAO MING, AND A “SWOOSHLESS” NIKE LINE FOR WAL-MART How Do You Stand Out on “Sneaker Walls”?

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-5 SNEAKERS MARKETING WARS: JAY-Z, YAO MING, AND A “SWOOSHLESS” NIKE LINE FOR WAL-MART New Segments and Strategies

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-6  Age Segments Competitive Trends  Gender Segments  Price Segments  Sport Segments  Lifestyle Segments SNEAKERS MARKETING WARS: JAY-Z, YAO MING, AND A “SWOOSHLESS” NIKE LINE FOR WAL-MART

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-7 WHY SEGMENT MARKETS? What Market Segmentation Means  Market Segments Market Segments  Product Differentiation Product Differentiation  Segmentation: Linking Needs to Actions  Market Segmentation Market Segmentation

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-8 FIGURE 9-1 FIGURE 9-1 Market segmentation—linking market needs to an organization’s marketing program

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-9 WHY SEGMENT MARKETS? What Market Segmentation Means  How Reebok’s Segmentation Strategy Developed  Using Market-Product Grids Using Market-Product Grids

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-10 FIGURE 9-2 FIGURE 9-2 Market-product grid showing how different Reebok shoes reach segments of customers with different needs

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-11 WHY SEGMENT MARKETS? When to Segment Markets  Examples of Successful Market Segmentation Build-to-Order (BTO) Customer Relationship Management (CRM) Mass Customization

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-12 Street & Smith’s Baseball What product/market segmentation strategy?

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-13 Harry Potter What product/market segmentation strategy?

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-14 WHY SEGMENT MARKETS? When to Segment Markets  The Segmentation Trade-Off: CRM versus Synergy The Segmentation Trade-Off: CRM versus Synergy

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-15 Ann Taylor & Ann Taylor Loft What is the danger of a two-segment strategy?

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-16 Concept Check 1. Market segmentation involves aggregating prospective buyers into groups that have two key characteristics. What are they? A: The groups should (1) have common needs and (2) respond similarly to a marketing action.

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-17 Concept Check 2. When should a firm segment its markets? A: A firm goes to the trouble and expense of segmenting its markets when this will increase its sales, profit, and return on investment.

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-18 FIGURE 9-3 FIGURE 9-3 The five key steps in segmenting and targeting markets link market needs of customers to the organization’s marketing program

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-19 STEPS IN SEGMENTING AND TARGETING MARKETS Step 1: Group Potential Buyers into Segments Potential for Increased Profit  Criteria to Use in Forming the Segments Similarity of Needs of Buyers within a Segment Simplicity and Cost of Assigning Buyers to Segments Difference of Needs of Buyers Among Segments Potential of a Marketing Action to Reach a Segment

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-20 STEPS IN SEGMENTING AND TARGETING MARKETS Step 1: Group Potential Buyers into Segments  Ways to Segment Consumer Markets Customer Characteristics  Geographic: Region  Demographic: Household  Psychographic: Lifestyle

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-21 STEPS IN SEGMENTING AND TARGETING MARKETS Step 1: Group Potential Buyers into Segments  Ways to Segment Consumer Markets Buying Situations Frequency Marketing 80/20 Rule 80/20 Rule  Benefits Sought: Product Features  Usage/Patronage: Usage Rate Usage/Patronage: Usage Rate

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-22 FIGURE 9-B FIGURE 9-B Segmentation variables and breakdowns for U.S. consumer markets

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-23 Mac-Gray MicroFridge What benefits sought and what consumer market segments targeted?

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-24 FIGURE 9-C FIGURE 9-C Patronage of fast-food restaurants by adults 18 years and older: Simmons Market Research Bureau NCS/NHCS Spring 2004 Adult Full-Year Choices System Crosstabulation Report

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-25 FIGURE 9-4 FIGURE 9-4 Comparison of various kinds of users and nonusers for Wendy’s, Burger King, and McDonald’s fast-food restaurants

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-26 STEPS IN SEGMENTING AND TARGETING MARKETS Step 1: Group Potential Buyers into Segments  Variables to use in Forming Segments Students in Dorms Students in Apartments Day Commuters Night Commuters Faculty/Staff People Living in Area People Working in Area

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-27 STEPS IN SEGMENTING AND TARGETING MARKETS Step 1: Group Potential Buyers into Segments  Ways to Segment Organizational Markets Customer Characteristics  Geographic: Statistical Area  Demographic: NAICS Code  Demographic: Number of Employees  Benefits Sought: Product Features

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-28 FIGURE 9-D FIGURE 9-D Segmentation variables and breakdowns for U.S. organizational markets

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-29 Xerox WorkCenter C2424 What variables are used to segment organizational markets?

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-30 Concept Check 1. The process of segmenting and targeting markets is a bridge between what two marketing activities? A: identifying market needs and taking marketing actions

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-31 Concept Check 2. What are two main ways to segment consumer and organizational markets? A: customer characteristics and buying situations

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-32 STEPS IN SEGMENTING AND TARGETING MARKETS Step 2: Group Products to be Sold into Categories Step 3: Develop a Market-Product Grid and Estimate Size of Markets

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-33 FIGURE 9-5 FIGURE 9-5 Selecting a target market for your Wendy’s fast-food restaurant next to an urban university (target market is shaded)

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-34 STEPS IN SEGMENTING AND TARGETING MARKETS Step 4: Select Target Markets  Criteria to Use in Picking the Target Segments Market Size Expected Growth Cost of Reaching Segment Compatibility with the Organization’s Objectives and Resources Competitive Position  Choose the Segments

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-35 STEPS IN SEGMENTING AND TARGETING MARKETS  Your Wendy’s Segmentation Strategy Day Commuters Between-Meal Snacks Dinner to Night Students Step 5: Take Marketing Actions to Reach Target Markets

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-36 Wendy’s How can Wendy’s target different market segments with different advertising programs?

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-37 FIGURE 9-6 FIGURE 9-6 Advertising actions to reach specific student segments

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-38 STEPS IN SEGMENTING AND TARGETING MARKETS  Apple’s Ever-Changing Segmentation Strategy Step 5: Take Marketing Actions to Reach Target Markets

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-39 Apple Computer (1977–Today) How have Apple’s product lines and market segmentation strategies changed?

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-40 STEPS IN SEGMENTING AND TARGETING MARKETS  Marketing Synergies  Product Synergies Market-Product Synergies: A Balancing Act

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-41 FIGURE 9-E FIGURE 9-E Benefits (+) and drawbacks (-) of a firm’s market-product strategies

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-42 Concept Check 1. What are some criteria used to decide which segments to choose for targets? A: These criteria include market size, expected growth, competitive position, cost of reaching the segment, and compatibility with the organization’s objectives and resources.

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-43 Concept Check A: Each cell in the grid can show the estimated market size of a given product sold to a specific market segment. 2. In a market-product grid, what factor is estimated or measured for each of the cells?

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-44 Concept Check 3. What is the difference between marketing synergies and product synergies in a market-product grid? A: Marketing synergies run horizontally across a market-product grid. Each row represents an opportunity for efficiency in the marketing efforts to a market segment. Product synergies run vertically down the market-product grid. Each column represents an opportunity for efficiency in research and development (R&D) and production.

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-45 POSITIONING THE PRODUCT Product Positioning Using Perceptual MapsProduct Positioning Using Perceptual Maps  Identify Important Attributes for a Product Class  Judgments of Existing Brands on These Important Attributes  Ratings of an “Ideal” Brand’s Attributes  Perceptual Map Perceptual Map

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-46 Chocolate Milk How can dairies put more “zip” into sales?

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-47 FIGURE 9-7 FIGURE 9-7 Your challenge as a marketing manager: Try to position chocolate milk to make it more appealing to adults

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-48 POSITIONING THE PRODUCT Product Positioning Using Perceptual Maps  Positioning Chocolate Milk for Adults Packaging “Adult” Chocolate Milk Finding a New Position for Chocolate Milk in the Minds of Adults: Nutrition

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-49 FIGURE 9-8 FIGURE 9-8 A perceptual map to suggest a strategy for positioning chocolate milk to reach adults

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-50 Concept Check A: Product positioning refers to the place an offering occupies in consumers’ minds on important attributes relative to competitive offerings. 1. What is product positioning?

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-51 Concept Check A: Marketers use perceptual maps to display in two dimensions the location of their and competing products or brands to see how consumers perceive them and then take marketing actions. 2. Why do marketers use perceptual maps in product positioning decisions?

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-52 APPLE’S LATEST MARKET-PRODUCT STRATEGIES GOING ONLINE

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide Access the Apple History website. Identify the new and remaining markets Apple has targeted with new and existing products compared to those described in the text and the Marketing NewsNet. Going Online

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-54 Going Online 2. Can Apple survive as a niche PC marketer like BMW has with autos? Why or why not?

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-55 NOKIA: A PHONE FOR EVERY SEGMENT VIDEO CASE 9

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-56 VIDEO CASE 9 Nokia

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide Why has segmentation been a successful marketing strategy for Nokia? VIDEO CASE 9 Nokia

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide What customer characteristics were used by mobile phone marketers during the industry’s early stages of growth? Which customer characteristics and segmentation variables does Nokia use? VIDEO CASE 9 Nokia

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide Create a market-product grid for Nokia today. What potential new markets could you add to the grid? VIDEO CASE 9 Nokia

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-60 MARKET SEGMENTATION IN PRACTICE: WHAT KIND OF PILLOW DO YOU NEED? SUPPLEMENTAL LECTURE NOTE 9-1

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-61 FIGURE 9-A FIGURE 9-A Market-product grid showing the size of markets for pillows for three different segments of sleepers

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-62 MARKET-PRODUCT SYNERGIES SUPPLEMENTAL LECTURE NOTE 9-2

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-63 FIGURE 9-F FIGURE 9-F Market-product grid of alternative strategies for a lawnmower manufacturer

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-64 INTERPRETING CENSUS DATA IN-CLASS ACTIVITY 9-1

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-65 U.S. Census 2000 Promotional Video

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-66 Census 2000 Short Form

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-67

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-68

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-69

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-70 American Community Survey Video

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-71 American Community Survey Form

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-72 PRODUCT CATEGORIZATION TO IDENTIFY PRODCUT GROUPS IN-CLASS ACTIVITY 9-2

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-73 PRODUCT POSITIONING FOR CONSUMERS AND RETAILERS IN-CLASS ACTIVITY 9-3

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide M Post-it ® Notes TV ad

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide M Post-it ® Flag Highlighter Invention + =

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide M Post-it ® Flag Highlighter Colors and Packages

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide M Post-it ® Flag Highlighter Front and Back of Package

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-78

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-79

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-80 Market Segmentation Market segmentation involves aggregating prospective buyers into groups that (1) have common needs and (2) will respond similarly to a marketing action.

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-81 Market Segments Market segments are the relatively homogeneous groups of prospective buyers that result from the market segmentation process.

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-82 Product Differentiation Product differentiation is a strategy that involves a firm’s using different marketing mix activities to help consumers perceive the product as being different and better than competing products.

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-83 Market-Product Grid A market-product grid is a framework to relate the market segments of potential buyers to products offered or potential marketing actions by the firm.

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-84 Synergy Synergy is the increased customer value achieved through performing organizational functions more efficiently.

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-85 Usage Rate Usage rate is the quantity consumed or patronage (store visits) during a specific period of time.

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide /20 Rule The 80/20 rule is a concept that suggests 80 percent of a firm’s sales are obtained from 20 percent of its customers.

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-87 Product Positioning Product positioning refers to the place an offering occupies in consumers’ minds on important attributes relative to competitive products.

Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-88 Perceptual Map A perceptual map is a means of displaying or graphing in two dimensions the location of products or brands in the minds of consumers to enable a manager to see how consumers perceive competing products or brands relative to its own and then take marketing actions.