Chapter 4 Segmenting and targeting markets

Learning objectives 1 Describe the characteristics of markets and market segments 2 Explain the importance of market segmentation 3 List the steps involved in segmenting markets 4 Describe the bases commonly used to segment consumer markets 5 Describe the bases for segmenting business markets

Learning objectives (cont.) 6 Discuss the criteria for successful market segmentation 7 Discuss alternative strategies for selecting target markets 8 Explain how and why organisations implement positioning strategies and how product differentiation plays a role 9 Discuss global market segmentation and targeting issues

Define the term marketing Learning objective 1 Describe the characteristics of markets and market segments Define the term marketing

Market segmentation 1 Market Market segment Market segmentation People or organisations with needs or wants and the ability and willingness to buy. Market segment A subgroup of people or organisations sharing one or more characteristics that cause them to have similar product needs. Market segmentation The process of dividing a market into meaningful, relatively similar and identifiable segments or groups.

Describe four marketing management philosophies. Learning objective 2 Describe four marketing management philosophies. Explain the importance of market segmentation

The importance of market segmentation 2 The importance of market segmentation Nearly all markets include people with different product needs and preferences. It helps to define needs and wants more precisely. Decision-makers can define objectives and allocate resources more accurately. More precise objectives = better evaluation of performance.

Describe four marketing management philosophies. Learning objective 3 Describe four marketing management philosophies. List the steps involved in segmenting markets

Steps in segmenting a market 3 Steps in segmenting a market Select a market for study. Choose bases for segmentation. Select descriptors. Profile and analyse segments. Select target markets. Design, implement and maintain marketing mix.

Learning objective 4 Describe the bases commonly used to segment consumer markets

4 Segmentation bases Characteristics of individuals, groups or organisations used to divide a total market into segments (variables).

Bases for segmentation 4 Bases for segmentation Geography Demographics Psychographics Benefits sought Usage rate

Geographic segmentation 4 Geographic segmentation Segmenting markets by region of the country or world, market size, market density or climate.

Geographic segmentation 4 Geographic segmentation Region of the country or world Market size Market density Climate

Benefits of regional segmentation 4 Benefits of regional segmentation New ways to generate sales in sluggish and competitive markets. Scanner data allow assessment of best-selling brands in region. Regional brands appeal to local preferences. React more quickly to competition.

Demographic segmentation 4 Demographic segmentation Segmenting markets by age, gender, income, ethnic background and family life cycle.

Bases for demographic segmentation 4 Bases for demographic segmentation Age Gender Income Ethnic background Family life cycle

4 Family life cycle Age Marital status Children

Psychographic segmentation 4 Psychographic segmentation Market segmentation on the basis of personality, motives, lifestyles and geodemographics.

Bases for psychographic segmentation 4 Bases for psychographic segmentation Personality Motives Lifestyles Geodemographics

Lifestyle segmentation 4 Lifestyle segmentation How time is spent Beliefs Socioeconomic characteristics

Geodemographic segmentation 4 Geodemographic segmentation Segmenting potential customers into neighborhood lifestyle categories. Combines geographic, demographic and lifestyle segmentation.

4 Benefit segmentation The process of grouping customers into market segments according to the benefits they seek from the product.

Usage-rate segmentation 4 Usage-rate segmentation Dividing a market by the amount of product bought or consumed.

The 80/20 principle A principle holding that 20 per cent of all customers generate 80 per cent of the demand.

Learning objective 5 Describe the bases for segmenting business markets

5 Macrosegmentation The process of dividing business markets into segments based on general characteristics, such as geographic location, customer type, customer size and product use.

5 Microsegmentation The process of dividing business markets into segments based on the characteristics of decision-making units within a macrosegment.

Business marketing segmentation 5 Business marketing segmentation Geographic Customer type Macro- segmentation Customer size Business markets Product use Purchasing criteria Purchasing strategy Micro- segmentation Importance Personal characteristics

Learning objective 6 Discuss the criteria for successful market segmentation

Criteria for successful segmentation 6 Criteria for successful segmentation Substantiality Identifiability Accessibility Responsiveness

Criteria for segmentation 6 Criteria for segmentation Substantiality Segment must be large enough to warrant a special marketing mix. Identifiability/ measurability Segments must be identifiable and their size measurable. Accessibility Members of targeted segments must be reachable with marketing mix. Responsiveness Unless segment responds to a marketing mix differently, no separate treatment is needed.

Learning objective 7 Discuss alternative strategies for selecting target markets

7 Target market A group of people or organisations for which an organisation designs, implements and maintains a marketing mix intended to meet the needs of that group, resulting in mutually satisfying exchanges.

Strategies for selecting target markets 7 Strategies for selecting target markets Concentrated strategy Undifferentiated Multi-segment

Undifferentiated targeting strategy 7 Undifferentiated targeting strategy Marketing approach that views the market as one big market with no individual segments and thus requires a single marketing mix.

Undifferentiated targeting strategy (cont.) 7 Undifferentiated targeting strategy (cont.) Advantages: Potential savings on production and marketing costs Disadvantages: Unimaginative product offerings Company more susceptible to competition

Concentrated targeting strategy 7 Concentrated targeting strategy A strategy used to select one segment of a market for targeting marketing efforts.

7 Niche One segment of a market.

Concentrated targeting strategy (cont.) 7 Concentrated targeting strategy (cont.) Advantages: Concentration of resources Meets narrowly defined segment Small firms can compete Strong positioning Disadvantages: Segments too small or changing Large competitors may market to niche segment

Multi-segment targeting strategy 7 Multi-segment targeting strategy A strategy that chooses two or more well-defined market segments and develops a distinct marketing mix for each.

Multi-segment targeting strategy (cont.) 7 Multi-segment targeting strategy (cont.) Advantages: Greater financial success Economies of scale Disadvantages: High costs Cannibalisation

Costs of multi-segment targeting 7 Costs of multi-segment targeting Product design costs Production costs Promotion costs Inventory costs Marketing research costs Management costs Cannibalisation

Learning objectives 8 Explain how and why organisations implement positioning strategies and how product differentiation plays a role

8 Positioning Developing a specific marketing mix to influence potential customers’ overall perception of a brand, product line or organisation in general.

8 Position The place a product, brand or group of products occupies in consumers’ minds relative to competing offerings.

Effective positioning 8 Effective positioning Assess the positions of competing products. Determine the dimensions of these positions. Choose an effective market position.

Product differentiation 8 Product differentiation A positioning strategy that some firms use to distinguish their products from those of competitors.

8 Perceptual mapping A means of displaying or graphing, in two or more dimensions, the location of products, brands or groups of products in customers’ minds.

Perceptual mapping – Levi’s 8 Perceptual mapping – Levi’s High price Low price Classic Designer Vintage Red Line Slates Red Tab Elesco Red Tab Dry Goods Dockers Premium Silver Tab 501 L2 Dockers Classics Red Tab Basics Old product New product

Positioning bases 8 Attribute Price and quality Use or application Product user Product class Competitor

8 Repositioning Changing consumers’ perceptions of a brand in relation to competing brands.