Identifying Market Segments & Targets

Why Segment Markets? Businesses want to respond better to the wants and needs of groups of potential buyers This increases sales and in turn, profits One size does not fit all

Why Segment Markets? What It Means To Segment Prospective buyers are placed into groups Groups with common needs Those that will act the same when exposed to a marketing action Market segments are the relatively homogeneous groups of prospective buyers that result from the market segmentation process

Why Segment Markets? What It Means To Segment Because there are different segments, companies use the strategy of product differentiation Firm uses different marketing mix activities to get consumers to think their product is better than the competition Can be physical or nonphysical features

Why Segment Markets? When To Segment Markets When a company thinks that segmenting customers will increase sales, profits, and return on invest, it should segment

Why Segment Markets? When To Segment Markets Uses of Market Segments One product, multiple market segments Multiple products, multiple market segments Mass customization

One Product, Multiple Market Segments The company has 1 product/service and sells it to two or more segments Avoids extra costs in development, research, engineering, manufacturing Extra costs in promotion, distribution (expensive, but not as expensive as creating a different product)

One Product, Multiple Market Segments Movies Same movie, different ads for different segments Divine Secrets of the Ya-Ya Sisterhood

From Glamour magazine

From Maxim magazine

Multiple Products, Multiple Market Segments Athletic Shoes New Balance Website Expensive to have so many styles, but better serves customers High-End/Low-End Banana Republic/Old Navy Timberland Website

Mass Customization Every person is unique, so tailor product to fit each person Nike Website Timberland Website

Steps To Segment and Targeting Markets Step #1: Group Potential Buyers into Segments Step #2: Group Products to be Sold into Categories Step #3: Develop a Market-product Grid and Estimate Size of Market Step #4: Select Target Market Step #5: Take Marketing Actions to Reach Target Market

Steps To Segment and Targeting Markets Step #1: Group Buyers into Segments Segmenting Basics Potential for increased profits If you can’t increase profits by segmenting, then don’t segment Similarity of needs of potential buyers within a segment Potential buyers need to be similar in terms of wants/needs Use same advertising media

Steps To Segment and Targeting Markets Step #1: Group Buyers into Segments Segmenting Basics Difference of needs and buyers among segments By segmenting customers, costs of marketing increases; if costs are more than potential sales, create less segments Potential of a marketing action to reach a segment If you can’t develop a marketing plan to reach a segment, don’t segment

Steps To Segment and Targeting Markets Step #1: Group Buyers into Segments Segmenting Basics Simplicity and cost of assigning potential buyers to segments Managers have to see potential buyers characteristics and assign them to a segment

Ways to Segment Consumer Markets Customer Characteristics Steps To Segment and Targeting Markets Step #1: Group Buyers into Segments Ways to Segment Consumer Markets Customer Characteristics Geographic Characteristics (Region) Campbell’s nacho cheese Too hot for eastern US, not hot enough for western and southwestern US Cheerwine – “It’s A Carolina Thing” Sun-Drop

Ways to Segment Consumer Markets Customer Characteristics Steps To Segment and Targeting Markets Step #1: Group Buyers into Segments Ways to Segment Consumer Markets Customer Characteristics Demographic Characteristics Includes age, sex, family size, education, income, social class BMW Virginia Slims Pillsbury biscuits or family size packages

Ways to Segment Consumer Markets Customer Characteristics Steps To Segment and Targeting Markets Step #1: Group Buyers into Segments Ways to Segment Consumer Markets Customer Characteristics Psychographic Characteristics (Lifestyle) Assumes that if you live a certain way, so do your neighbors Colorado, Montana more ranches, large trucks/trailers

Ways to Segment Consumer Markets Steps To Segment and Targeting Markets Step #1: Group Buyers into Segments Ways to Segment Consumer Markets Buying Situations Benefits Sought (Product Features) What’s important to customers Develop products and ads to focus on this Usage/Patronage Usage rate is the quantity consumed or visits to a store in a certain time frame Frequent fliers Usage rate sometimes called 80/20

Steps To Segment and Targeting Markets Step #2: Group Products Into Categories Make sure the right product is marketed to right segment Sears Craftsman catalogs J.C. Penney Home, clothing, baby catalogs

Steps To Segment and Targeting Markets Step #3: Develop Market-Product Grid Relates market segments of potential buyers to products offered or potential marketing actions by company Potential market segments are the rows Potential product lines are the columns Each cell can show estimated market size of product sold to that specific segment

Steps To Segment and Targeting Markets Step #3: Develop Market-Product Grid

Steps To Segment and Targeting Markets Step #4: Select Target Markets Target market segments can’t be too narrow, won’t have high sales potential Target market segments can’t be too broad, spend too much on marketing efforts

Steps To Segment and Targeting Markets Step #4: Select Target Markets How do you select target market segments? Market Size Estimate size by using marketing research Estimated Growth How much growth could occur? Competitive Position A lot of current competition? Future?

Steps To Segment and Targeting Markets Step #4: Select Target Markets How do you select target market segments? Cost of Reaching Segments Don’t spend tons of money trying to reach a segment that you’ll never reach Compatibility with Organization’s Objectives and Resources

Steps To Segment and Targeting Markets Step #5: Take Marketing Action Develop a marketing plan Evaluate marketing activities Drop or design new activities based on evaluations

Steps To Segment and Targeting Markets Step #5: Take Marketing Action Positioning the Product Product Positioning The place an offering occupies in customers minds on important attributes relative to competitive products Product Repositioning Changing the place an offering occupies in customers minds on important attributes relative to competitive products

Product Positioning Approaches to Product Positioning Head to Head Positioning Directly placing your product with similar products of competitors Ex: Coca-Cola vs. Pepsi Differentiation Positioning Seeking a less competitive, smaller market niche in which to place a brand Don’t want to compete with your own products Ex: Applebee’s Carside To Go

Product Positioning Based on perceptions of customers Need to know the following about customers: Identification of important attributes for a product Judgments of these attributes from existing brands Ratings of an ideal brand’s attributes

Product Positioning A perceptual map can be created from these data Means of displaying or graphing in two dimensions the location of products or brands in the minds of customers to see how your product stacks up to other brands

Product Positioning – Perceptual Map