Market Segmentation, Targeting, and Positioning Chapter 9 Market Segmentation, Targeting, and Positioning

Chapter Objectives Identify the essential components of a market. Outline the role of market segmentation in developing a marketing strategy. Describe the criteria necessary for effective segmentation. Explain each of the four bases for segmenting consumer markets. Identify the steps in the market segmentation process. Discuss four basic strategies for reaching target markets. Summarize the types of positioning strategies. Explain the reasons for positioning and repositioning products.

Selecting a Target Market Before a marketing mix strategy can be implemented, the marketer must identify, evaluate, and select a target market. Market: people or institutions with sufficient purchasing power, authority, and willingness to buy Target market: specific segment of consumers most likely to purchase a particular product

Types of Markets Consumer products: goods or services purchased by an ultimate consumer for personal use Business products: goods or services purchased for use either directly or indirectly in the production of other goods and services for resale The key to classification is to identify the purchaser and the reasons for buying the goods.

P&G Courts Business Customers WSJ 1/26/07 P&G struggles to find significant sales growth in consumer households Expands its “Professional Division - sale to janitors, fast-food workers, maids, and launderers Conducted marketing research at hotels and fast-food restaurants U.S. market is $3.2 billion

KC Masterpiece Product Targeted at Selected Consumers

Cattlemen’s Product Targeted at the Business Market: Comes in 1 and 5 Gallon Containers. Introduced more than 40 years ago to meet the special needs of foodservice operators

The Role of Market Segmentation Market Segmentation Division of the total market into smaller, relatively homogeneous groups No single marketing mix can satisfy everyone. Therefore, separate marketing mixes should be used for different market segments.

No Market Segmentation

Segmented by Sex

Segmented by Age

Figure 9.1 Serving the Hispanic-American Market

Tom’s of Maine Targeting a Specific Marketing Segment Which segment?

Criteria for Effective Segmentation Market segmentation cannot be used in all cases. To be effective, segmentation must meet the following basic requirements. The market segments must be measurable in terms of both purchasing power and size. Marketers must be able to effectively promote to and serve a market segment. Market segments must be sufficiently large to be potentially profitable. The number of segments must match the firm’s capabilities.

Segmenting Consumer Markets Geographic Segmentation: Dividing an overall market into homogeneous groups on the basis of their locations Does not ensure that all consumers in a location will make the same buying decision. Help in identifying some general patterns.

Figure 9.3 The 10 Largest Cities in the U.S.

Pampers This ad is an example of geographic segmentation. Why?

Urban Data Classified by U.S. Government Core Based Statistical Area (CBSA) – at least one urban area 10,000 or more population Metropolitan Statistical Area (MSA) – urban center population of 50,000 and area population of over 100,000 Micropolitan Statistical Area – at least one town 10,000 to 49,999 population Consolidated Metropolitan Statistical Area (CMSA) – one of 25 urban giants Primary Metropolitan Statistical Area (PMSA) – urbanized county or counties, one million or more population [Seattle, Tacoma, Bremerton]

Using Geographic Segmentation Demand for some goods and services can vary according to the geographic region Most major brands get 40-80 percent of their sales from what are called core regions Climate is another important segmentation factor Northern consumers, for example, eat more soup than Southerners Southerners use more chlorine for their swimming pools than Northern residents

Figure 9.4 Geographic Segmentation: The Importance of Suburban Homeowners’ Buying Habits

Kubota Segmentation by Residence Location

Geographic Information Service (GIS): computer technology that records several layers of data on a single map Simplifies the job of analyzing marketing information by placing data in a spatial format . . . The result of which is a geographic map overlaid with digital data about consumers in a particular area.

Segmenting Consumer Markets Demographic Segmentation: dividing consumer groups according to characteristics such as sex, age, income, occupation, education, household size, and stage in the family life cycle U.S. Census Bureau

Segmenting by Gender Marketers must ensure that traditional assumptions are not false Recently, the lines have increasingly blurred Some companies market successfully to both genders

Segmenting by Age Identify market segments on the basis of age Products designed to meet the specific needs of certain age groups Dole: Developing a Product Specifically for Children

Tweens and Teens Rapidly growing market Significant purchasing power Cohert Effect Tendency among members of a generation to be influenced and drawn together by significant events occurring during their key formative years, roughly 17 to 22 years of age

Baby Boomers Born from 1946 until 1965. Nearly 42 percent of U.S. adults Values influenced both by the Vietnam War and the career-driven era Baby boomers over the age of 50 will have a total disposable income of $1 trillion

Figure 9.6 MasterCard: Appealing to Baby Boomers’ Nostalgia for Music

Seniors By 2025, 1 in 5 over age 65 Median age is now 35.2 years Life expectancy is 74 for men and to 79 for women Heads of households aged 55-plus control about three-quarters of the country’s total financial assets.

Segmenting by Ethnic Group By 2050, nearly half of the population of the US will belong to nonwhite minority groups. The three largest and fastest-growing racial/ethnic groups in the US are African Americans, Hispanics, and Asian Americans.

Ethnic Group Segmentation Hispanic African Americans Asian Americans Native Americans People of Mixed Race

Figure 9.7 Breakdown of U.S. Minority Populations

Family Life Cycle Stages Segmentation The process of family formation and dissolution Life stage, not age per se, is the primary determinant of many consumer purchases

Figure 9.8 Segmenting by Family Life Cycle Stage

Segmenting by Household Type Today’s U.S. households are very diverse Married couples and their children Blended by divorce or loss of spouse Headed by single parent, same-sex parents, grandparents

Segmenting by Income and Expenditure Patterns Engel’s Laws, as family income increases: A smaller percentage of expenditures go for food The percentage spent on housing and household operations and clothing remains constant The percentage spent on other items (such as recreation and education) increases

Figure 9.9 Princess Cruise Lines Targets People with Large Disposable Incomes

Jaguar Segmentation based on income

Demographic Segmentation Abroad Obtaining the data necessary for global demographic segmentation is often difficult Many countries do not operate regularly scheduled census programs For example, the most recent census of Holland is now over 20 years old, and Germany skipped its census from 1970 to 1987 Daily life cycle data is difficult to apply in global demographic segmentation efforts

Psychographic Segmentation Divides a population into groups that have similar psychological characteristics, values, and lifestyles Lifestyle: people’s decisions about how to live their daily lives, including family, job, social, and consumer activities The most common method for developing psychographic profiles of a population is to conduct a large-scale survey AIO statements describe activities, interests, and opinions VALS and VALS 2 [eight categories] “Values and Lifestyles”

Psychographic Segmentation of Global Markets like those done by Roper Starch can paint useful pictures of the residents of various countries Roper found six psychographic consumer segments that are common to 35 nations Strivers Devouts Altruists Intimates Fun seekers Creatives

Using Psychographic Segmentation Psychographic profiles produce rich descriptions of potential target markets Greater detail aids in matching a company’s image and its offerings with the types of consumers who are likely purchasers

Figure 9.11 Appealing to Intimates and Fun Seekers

Product-Related Segmentation Dividing a consumer population into homogeneous groups based on characteristics of their relationships to the product Can take the form of segmenting based on: Benefits that people seek when they buy a product Usage rates for a product [80/20 principle] Consumers’ brand loyalty toward a product

Benefits Focuses on the attributes that people seek in a good or service and the benefits that they expect to receive from that good or service Groups consumers into segments based on what they want a product to do for them

Eclipse Segmenting by Benefits Sought

Usage Rates Segmenting by grouping people according to the amounts of a product that they buy and use Markets often divided into heavy-user, moderate-user, and light-user segments The 80/20 principle (“Praedo’s Law”) holds that a big percentage of a product’s revenues (roughly 80%) comes from a relative small, loyal percentage (around 20%) of total customers

Brand Loyalty Segmenting consumers grouped according to the strength of brand loyalty felt toward a product Frequent flyer programs of airlines and many hotels

Using Multiple Segmentation Bases Increase accuracy in reaching the right markets Combine multiple bases Geographic and Demographic Product-related with income and expenditure patterns

The Market Segmentation Process Develop a Relevant Profile for each Segment Forecast Market Potential Forecast Probable Market Share Select Specific Market Segments

Strategies for Reaching Target Markets Undifferentiated Marketing: when a firm produces only one product or product line and promotes it to all customers with a single marketing mix Differentiated Marketing: when a firm produces numerous products and promotes them with a different marketing mix designed to satisfy smaller segments

Concentrated Marketing (niche marketing): when a firm commits all of its marketing resources to serve a single market segment Micromarketing: involves targeting potential customers at a very basic level, such as by ZIP code, specific occupation, lifestyle, or individual household

Differentiated Marketing Procter and Gamble Practicing Differentiated Marketing

Selecting and Executing a Strategy No single, best choice strategy suits all firms Determinants of a market-specific strategy: Company resources Product homogeneity Stage in the product life-cycle Competitors’ strategy

Positioning: a marketing strategy that emphasizes serving a specific market segment by achieving a certain position in buyers’ minds Attributes Price/quality Competitors Application Product user Product class

Positioning map Graphic illustration that shows differences in consumers’ perceptions of competing products Reposition Marketing strategy to change the position of its product in consumers’ minds relative to the positions of competing products

Hypothetical Competitive Positioning Map for Selected Retailers

End Of Chapter Nine