5-1 © 2006 by Nelson, a division of Thomson Canada Limited 5/14/2015 Slides developed by: Peter Yannopoulos Chapter 5 Market Segmentation and Target Marketing

5-2 © 2006 by Nelson, a division of Thomson Canada Limited Market Segmentation The process of dividing markets into specific groups of customers with similar needs, purchasing behaviours, and identifying characteristics

5-3 © 2006 by Nelson, a division of Thomson Canada Limited The Essence of Market Segmentation The essence of market segmentation is to tailor the marketing effort and satisfy segment needs better than the competition

5-4 © 2006 by Nelson, a division of Thomson Canada Limited Market Segmentation as a Core Organizational Capability Obtain a deeper understanding of customers Cannot achieve superiority in all markets with the same product Helps minimize competition Presents growth opportunities

5-5 © 2006 by Nelson, a division of Thomson Canada Limited Identification Bases Geographic (county, region) Demographic (age, income, sex, family size, life cycle stage, education, occupation, marital status) Psychographic (activities, interests, opinions, values, personality) Response Profile Bases Benefits Sought (quality, features, taste, reliability) User Rate (heavy user, light user) Attitude (favourable, unfavourable) Usage Occasion Loyalty Status (brand switcher, variety-seeker, brand loyal, other brand loyal) User Status (non-user, first-time user, occasional user, regular user) Segmentation Bases for Consumer Markets

5-6 © 2006 by Nelson, a division of Thomson Canada Limited Segmentation Bases for Business Markets Response Profile Bases Purchase Criteria (Quality, features, reliability, delivery) Price sensitivity Usage Rate (Heavy, medium, light) Frequency of Purchase Who Uses the Product How the Product is Used Readiness to Buy Identification Bases Geographic Organizational Demographics - End User Industry - Firm Size Cultural - Growth Orientation - Purchasing Function - Purchasing Policies - Power Structure - Risk Attitude - Approach of Doing Business

5-7 © 2006 by Nelson, a division of Thomson Canada Limited Combining Identification and Response Profile Bases Market Segmentation = Identification Bases + Response Profile Bases

5-8 © 2006 by Nelson, a division of Thomson Canada Limited Segmenting for New Products Segment the market with one or more identification bases and then describe the resulting segments with one or more response profile bases Segment the market with one or more identification bases and then describe the resulting segments with one or more response profile bases

5-9 © 2006 by Nelson, a division of Thomson Canada Limited Segmenting for New Products (Concluded) Alternatively, you may start with response profile bases and then describe the segment using identification bases Alternatively, you may start with response profile bases and then describe the segment using identification bases

5-10 © 2006 by Nelson, a division of Thomson Canada Limited Segmenting for Existing Products Step 1: Target current customers Step 2: Target other segments

5-11 © 2006 by Nelson, a division of Thomson Canada Limited Segment Evaluation Criteria Corporate mission, vision, and goals Competitive intensity Accessibility Size and Growth Profitability EvaluatingSegments Distinctive competencies

5-12 © 2006 by Nelson, a division of Thomson Canada Limited Benefits of Segment Interrelationships Differentiation Economies of scale Benefits of segment Interrela-tionships Increase capacity utilization

5-13 © 2006 by Nelson, a division of Thomson Canada Limited Costs Due to Segment Interrelationships Inflexibility costs Coordination costs Costs due to segment Interrela-tionships Compromise costs

5-14 © 2006 by Nelson, a division of Thomson Canada Limited Segment Attractiveness – Company Capabilities Matrix Segment Attractiveness Company Capabilities LowHigh Superior Look for attractive niche or discard segment Most attractive segment High priority Inferior Least attractive segment Discard segment Build capabilities or discard segment

5-15 © 2006 by Nelson, a division of Thomson Canada Limited Target Marketing Strategies Mass Customization Strategy Multiple Segment Strategy Undifferentiated Strategy Single Segment Strategy TargetMarketing Strategies Strategies

5-16 © 2006 by Nelson, a division of Thomson Canada Limited Sequenced Entry Strategy A long-term entry strategy that involves entering a market on a small scale in order to avoid retaliation by established competitors

5-17 © 2006 by Nelson, a division of Thomson Canada Limited WestJet’s Sequenced Entry Strategy Western Canada Central Canada Eastern Canada Discount Segment Full-fare Segment Charter Segment