Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 1 MKTG Designed by Amy McGuire, B-books, Ltd. Prepared by Dana Freeman, B-books, Ltd. Lamb, Hair, McDaniel CHAPTER Segmenting and Targeting Markets

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 2 Learning Outcomes Describe the characteristics of markets and market segments Explain the importance of market segmentation Discuss criteria for successful market segmentation Describe the bases commonly used to segment consumer markets Describe the bases for segmenting business markets LO 1 LO 2 LO 3 LO 4 LO 5

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 3 Learning Outcomes List the steps involved in segmenting markets Discuss alternative strategies for selecting target markets Explain one-to-one marketing Explain how and why firms implement positioning strategies and how product differentiation plays a role LO 6 LO 7 LO 8 LO 9

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 4 Describe the characteristics of markets and market segments Market Segmentation LO 1

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 5 LO 1 A Market Is... 1) people or organizations with 2) needs or wants, and with 3) the ability and 4) the willingness to buy. A group of people that lacks any one of these characteristics is not a market.

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 6 Market Segmentation (OLCHS Café Example) LO 1 Market (n.) Market Segment (n.) Market Segment (n.) Market Segmentation (v.) Market Segmentation (v.) People or organizations with needs or wants and the ability and willingness to buy. A subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs. The process of dividing a market into meaningful, relatively similar, identifiable segments or groups.

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 7 The Concept of Market Segmentation LO 1

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 8 Explain the importance of market segmentation The Importance of Market Segmentation LO 2

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 9 The Importance of Market Segmentation LO 2  Markets have a variety of product needs and preferences  Marketers can better define customer needs  Decision makers can define objectives and allocate resources more accurately

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 10 REVIEW LEARNING OUTCOME LO 2 The Importance of Market Segmentation Market segmentation More precise definition of customers needs and wants More accurate marketing objectives Improved resource allocation Better marketing results

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 11 Discuss criteria for successful market segmentation Criteria for Successful Segmentation LO 3

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 12 Criteria for Segmentation LO 3 Substantiality Identifiability and Measurability Accessibility Responsiveness Segment must be large enough to warrant a special marketing mix. Segments must be identifiable and their size measurable. Members of targeted segments must be reachable with marketing mix. Unless segment responds to a marketing mix differently, no separate treatment is needed (boys and girls with conditioner)

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 13 REVIEW LEARNING OUTCOME LO 3 Useful segment?  Substantial  Identifiable and measurable  Accessible  Responsive Then, yes: Useful segmentation scheme Successful Market Segmentation

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 14 Describe the bases commonly used to segment consumer markets Bases for Segmenting Consumer Markets LO 4

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 15 LO 4 Bases for Segmenting Consumer Markets Segmentation Bases Characteristics of individuals, groups, or organizations used to divide a total market into segments. (variables)

Chapter 7Copyright ©2010Cengage Learning Inc. All rights reserved 16 Bases for Segmentation LO 4 Usage Rate Benefits Sought Psychographics Demographics Geography

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 17 Geographic Segmentation LO 4  Region of the country or world  Market size  Market density  Climate

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 18 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  Quicker reaction to competition LO 4

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 19 Demographic Segmentation LO 4 Age Gender Income Ethnic background Family life cycle

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 20 Ethnic Segmentation LO 4  Largest ethnic markets are:  Hispanic Americans  African Americans  Asian Americans  Will comprise 1/3 of U.S. population by 2010 with buying power of $1 trillion annually

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 21 Family Life Cycle LO 4 Age Marital Status Children

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 22 Family Life Cycle LO 4

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 23 Psychographic Segmentation LO 4 Psychographic Segmentation Market segmentation on the basis of personality, motives, lifestyles, and geodemographics. (beer vs. wine)

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 24 Bases for Psychographic Segmentation LO 4 Personality Motives Lifestyles Geodemographics Online

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 25 Lifestyle Segmentation LO 4  How time is spent  Importance of things around them  Beliefs  Socioeconomic characteristics

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 26 Geodemographic Segmentation LO 4 Segmenting potential customers into neighborhood lifestyle categories. Combines geographic, demographic, and lifestyle segmentation. Segmenting potential customers into neighborhood lifestyle categories. Combines geographic, demographic, and lifestyle segmentation. Geodemographic Segmentation Geodemographic Segmentation

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 27 Benefit Segmentation LO 4 The process of grouping customers into market segments according to the benefits they seek from the product. (Michigan cottage) Benefit Segmentation

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 28 Benefit Segmentation LO 4 Usage-Rate Segmentation Dividing a market by the amount of product bought or consumed. 80/20 Principle A principle holding that 20 percent of all customers generate 80 percent of the demand.

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 29 REVIEW LEARNING OUTCOME LO 4 Bases for Segmenting Consumer Markets GeographyDemographicsPsychographicsBenefitsUsage Rate Climate Geodemo- graphics Benefits sought Heavy Region Market size Market density Age Gender Income Race/ethnicity Family life cycle Personality Motives Lifestyle Former Potential 1 st time Light or irregular Medium

Chapter 7Copyright ©2010Cengage Learning Inc. All rights reserved 30 Economic Crisis and Shifting Targets LO 4 Beyond the Book In an economy with a depressed housing market and equity losses, many boomers now face an uncertain retirement income and must reprioritize their spending. A recent survey revealed that boomers are likely to cut spending on clothing, personal care, home furnishings, and travel, so companies in those sectors may need to shift their focus to a target demographic segment with better growth prospects. Source: David Court, The Downturn’s new rules for marketers,” mckinseyquarterly.com, December The high spending rates of the baby boom generation have made them a sought-after and profitable customer segment in the U.S., Japan, and Western Europe. But boomers were often borrowing against the “wealth effect” of real estate appreciation and the equity gains from retirement accounts.

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 31 Describe the bases for segmenting business markets Bases for Segmenting Business Markets LO 5

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 32 Bases for Segmenting Business Markets LO 5 Company Characteristics Company Characteristics Buying Processes Buying Processes Producers Resellers Government Institutions

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 33 Bases for Segmenting Business Markets LO 5 Company Characteristics  Geographic location  Type of company  Company size  Volume of purchase  Product use

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 34 Buyer Characteristics LO 5 Satisficers Business customers who place an order with the first familiar supplier to satisfy product and delivery requirements. Optimizers Business customers who consider numerous suppliers, both familiar and unfamiliar, solicit bids, and study all proposals carefully before selecting one.

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 35 Buyer Characteristics LO 5 Demographic characteristics Decision style Tolerance for risk Confidence level Job responsibilities

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 36 REVIEW LEARNING OUTCOME LO 5 Segmenting Business Markets Producers Resellers Institutions Governments Buying Process Company Characteristics

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 37 List the steps involved in segmenting markets Steps in Segmenting a Market LO 6

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 38 REVIEW LEARNING OUTCOME LO 6 Steps in Segmenting Markets Select a market for study Choose bases for segmen- tation Select descriptors Profile and analyze segments Select target markets Design, implement, maintain marketing mix Note that steps 5 and 6 are actually marketing activities that follow market segmentation (steps 1 through 4).

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 39 Discuss alternative strategies for selecting target markets Strategies for Selecting Target Markets LO 7

Chapter 7Copyright ©2010Cengage Learning Inc. All rights reserved 40 Strategies for Selecting Target Markets LO 7 Target Market A group of people or organizations for which an organization designs, implements, and maintains a marketing mix intended to meet the needs of that group, resulting in mutually satisfying exchanges.

Chapter 7Copyright ©2010Cengage Learning Inc. All rights reserved 41 Strategies for Selecting Target Markets LO 7 Concentrated Strategy Undifferentiated Strategy Multisegment Strategy

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 42 Undifferentiated Targeting Strategy LO 7 Undifferentiated Targeting Strategy A marketing approach that views the market as one big market with no individual segments and thus requires a single marketing mix.

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 43 LO 7 Undifferentiated Strategy Advantage:  Potential savings on production and marketing costs Disadvantages:  Unimaginative product offerings  Company more susceptible to competition Undifferentiated Targeting Strategy

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 44 Concentrated Targeting Strategy LO 7 Concentrated Targeting Strategy A strategy used to select one segment of a market for targeting marketing efforts. Niche One segment of a market. (Twilight books)

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 45 LO 7 Concentrated Strategy Advantage:  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 Concentrated Targeting Strategy

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 46 Multisegment Targeting Strategy LO 7 Multisegment Targeting Strategy A strategy that chooses two or more well-defined market segments and develops a distinct marketing mix for each.

Chapter 7Copyright ©2010Cengage Learning Inc. All rights reserved 47 Multisegment Targeting Beyond the Book designer print or no print, cushioned or non-cushioned, scented or unscented, economy priced or luxury priced, and single, double, or triple roll. Fort Howard Corporation, the market share leader in industrial toilet paper, does not even sell to the consumer market. {Standard Tissue} You might think a firm producing a standard product like toilet tissue would adopt an undifferentiated strategy. However, this market has industrial segments and consumer segments. Industrial buyers want an economical, single-ply product sold in boxes of a hundred rolls. The consumer market demands a more versatile product in smaller quantities. Within the consumer market, the product is differentiated with LO 7

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 48 LO 7 Multisegment Strategy Advantage:  Greater financial success  Economies of scale Disadvantages:  High costs  Cannibalization Multisegment Targeting Strategy

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 49 Costs of Multisegment Targeting LO 7  Product design costs  Production costs  Promotion costs  Inventory costs  Marketing research costs  Management costs  Cannibalization Multisegment Strategy

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 50 Cannibalization LO 7 Situation that occurs when sales of a new product cut into sales of a firm’s existing products. (Starbucks) Cannibalization

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 51 REVIEW LEARNING OUTCOME LO 7 Alternatives for Selecting Target Markets UndifferentiatedMultisegmentConcentrated

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 52 Explain one-to-one marketing One-to-One Marketing LO 8

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 53 One-to-One Marketing LO 8 One-to-One Marketing (Ritz Carlton) One-to-One Marketing (Ritz Carlton) An individualized marketing method that utilizes customer information to build long-term, personalized, and profitable relationships with each customer.

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 54 One-to-One Marketing LO 8 Information-Intensive Long-Term One-to-One Marketing is... One-to-One Marketing is... Individualized Cost Reduction Has a Goal of… Customer Loyalty Increased Revenue Personalized Customer Retention

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 55 One-to-One Marketing LO 8  One-size-fits all marketing no longer effective  Direct and personal marketing will grow to meet needs of busy consumers.  Consumers will be loyal to companies that have earned—and reinforced—their loyalty.  Mass-media approaches will decline as technology allows better customer tracking. Trends

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 56 REVIEW LEARNING OUTCOME LO 8 One-to-One Marketing

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 57 Explain how and why firms implement positioning strategies and how product differentiation plays a role Positioning LO 9

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 58 LO 9 Positioning Developing a specific marketing mix to influence potential customers’ overall perception of a brand, product line, or organization in general.

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 59 LO 9 0.7%Fabric & skin safety on baby clothesIvory Snow 0.1%Tough cleaner, aimed at Hispanic marketAriel 1.0%Outstanding cleaning for baby clothes, safeDreft 1.2%Detergent and fabric softener in liquid formSolo 1.4%Bleach-boosted formula, whiteningOxydol 1.8%Value brandDash 2.2%Stain treatment and stain removalEra 2.6%Sunshine scent and odor-removing formulaGain 2.9%Detergent plus fabric softenerBold 8.2%Tough cleaning, color protectionCheer 31.1%Tough, powerful cleaningTide Market Share PositioningBrand Positioning of Procter & Gamble Detergents LO 9

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 60 Effective Positioning LO 9 1.Assess the positions occupied by competing products 2.Determine the dimensions underlying these positions 3.Choose a market position where marketing efforts will have the greatest impact

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 61 LO 9 Product Differentiation A positioning strategy that some firms use to distinguish their products from those of competitors. Distinctions can be real or perceived. Eat Fresh!

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 62 A means of displaying or graphing, in two or more dimensions, the location of products, brands, or groups of products in customers’ minds. LO 9 Perceptual Mapping

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 63 Attribute Price and Quality Use or Application Product User Product Class Competitor Emotion (ASPCA) LO 9 Positioning Bases

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 64 Changing consumers’ perceptions of a brand in relation to competing brands. LO 9 Repositioning

Chapter 7Copyright ©2010 Cengage Learning Inc. All rights reserved 65 REVIEW LEARNING OUTCOME LO 9 Positioning and Product Differentiation