1 Chapter 8: Segmenting and Targeting Markets Prepared by Amit Shah, Frostburg State University Designed by Eric Brengle, B-books, Ltd. Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Learning Outcomes 2 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 LO 1 LO 2 LO 3 LO 4 Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Learning Outcomes 3 Describe the bases for segmenting business markets 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 5 LO 6 LO 7 LO 9 LO 8 Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Market Segmentation 4 Describe the characteristics of markets and market segments. LO 1 Copyright 2010 by Cengage Learning Inc. All Rights Reserved

(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. A Market Is... Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Market Segmentation 6 Market- People or organizations with needs or wants and the ability and willingness to buy. Market Segment- A subgroup of people or organizations 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, identifiable segments or groups. Copyright 2010 by Cengage Learning Inc. All Rights Reserved

The Concept of Market Segmentation 7 Copyright 2010 by Cengage Learning Inc. All Rights Reserved

The Importance of Market Segmentation 8 Explain the importance of market segmentation. LO 2 Copyright 2010 by Cengage Learning Inc. All Rights Reserved

The Importance of Market Segmentation 9  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. Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Review Learning Outcome The Importance of Market Segmentation 10 LO 2 Market segmentation More precise definition of customers needs and wants More accurate marketing objectives Improved resource allocation Better marketing results Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Criteria for Successful Segmentation 11 Discuss criteria for successful market segmentation. LO 3 Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Criteria for Segmentation 12 Substantiality Segment must be large enough to warrant a special marketing mix. Identifiability and 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. Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Review Learning Outcome Successful Market Segmentation 13 LO 3 Useful segment?  Substantial  Identifiable and measurable  Accessible  Responsive Then, yes: Useful segmentation scheme Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Bases for Segmenting Consumer Markets 14 Describe the bases commonly used to segment consumer markets. LO 4 Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Bases for Segmenting Consumer Markets 15 Segmentation Bases - Characteristics of individuals, groups, or organizations used to divide a total market into segments (variables). Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Bases for Segmentation 16 Usage Rate Benefits Sought Psychographics Demographics Geography Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Geographic Segmentation Region of the country or world Market size Market density Climate 17 Copyright 2010 by Cengage Learning Inc. All Rights Reserved

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 18 Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Demographic Segmentation 19 Age Gender Income Ethnic background Family life cycle Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Gender Segmentation In U.S., women… – Handle 75% of family finances – Influence 80% of consumer purchases – Make purchase decisions about variety of goods and services New cars, hardware stores, electronics, etc. Other brands that have targeted men are trying to target women – Gillette razors, Rogaine baldness remedy, Nike, Reebok, etc. 20 Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Income Segmentation Income – popular demographic variable for segmenting markets According to Nielsen study, a ffluent households (earning more than $100k/ year) are twice as likely to shop at warehouses Price-sensitive consumers – P & G Bounty Basic paper towels Charmin Basic bath tissue 21 Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Ethnic Segmentation 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 22 Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Family Life Cycle 23 Age Marital Status Children Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Family Life Cycle 24 Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Psychographic Segmentation 25 Psychographic Segmentation- Market segmentation on the basis of personality, motives, lifestyles, and demographics. Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Bases for Psychographic Segmentation 26 Personality Motives Lifestyles Geodemographics Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Lifestyle Segmentation How time is spent Importance of things around them Beliefs Socioeconomic characteristics 27 Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Geodemographic Segmentation 28 Geodemographic Segmentation - Segmenting potential customers into neighborhood lifestyle categories. Combines geographic, demographic, and lifestyle segmentation Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Benefit Segmentation 29 Benefit segmentation- The process of grouping customers into market segments according to the benefits they seek from the past. Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Usage-Rate Segmentation 30 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. Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Review Learning Outcome Bases for Segmenting Consumer Markets 31 LO 4 GeographyDemographicsPsychographicsBenefitsUsage Rate Region Market size Market density Climate Age Gender Income Race/ethnicity Family life cycle Personality Motives Lifestyle Geodemo- graphics Benefits sought Former Potential 1 st time Light or irregular Medium Heavy Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Bases for Segmenting Business Markets 32 Describe the bases for segmenting business markets. LO 5 Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Bases for Segmenting Business Markets 33 Company Characteristics Company Characteristics Buying Processes Buying Processes Producers Resellers Government Institutions Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Bases for Segmenting Business Markets 34 Company Characteristics  Geographic location  Type of company  Company size  Volume of purchase  Product use Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Buyer Characteristics 35 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. Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Buyer Characteristics 36 Demographic characteristics Decision style Tolerance for risk Confidence level Job responsibilities Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Review Learning Outcome Segmenting Business Markets 37 LO 5 Producers Resellers Institutions Governments Buying Process Company Characteristics Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Steps in Segmenting a Market 38 List the steps involved in segmenting markets. LO 6 Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Review Learning Outcome Steps in Segmenting Markets 39 LO 6 Select a market for study Choose bases for segmen- tation Select descriptors Profile and analyze segments Select target markets Design, implement, maintain marketing mix Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Strategies for Selecting Target Markets 40 Discuss alternative strategies for selecting target markets. LO 7 Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Strategies for Selecting Target Markets 41 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. Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Strategies for Selecting Target Markets 42 Concentrated Strategy Undifferentiated Strategy Multisegment Strategy Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Undifferentiated Targeting Strategy 43 A marketing approach that views the market as one big market with no individual segments and thus requires a single marketing mix. Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Undifferentiated Targeting Strategy 44 Undifferentiated Strategy Advantage:  Potential savings on production and marketing costs Disadvantages:  Unimaginative product offerings  Company more susceptible to competition Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Concentrated Targeting Strategy 45 Concentrated Targeting Strategy – A strategy used to select one segment of a market for targeting efforts. Niche – One segment of a market. Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Concentrated Targeting Strategy 46 Concentrated Strategy 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 Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Multisegment Targeting Strategy 47 A strategy that chooses two or more well-defined market segments and develops a distinct marketing mix for each. Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Multisegment Targeting Strategy 48 Multisegment Strategy Advantages:  Greater financial success  Economies of scale Disadvantages:  High costs  Cannibalization Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Costs of Multisegment Targeting 49  Product design costs  Production costs  Promotion costs  Inventory costs  Marketing research costs  Management costs  Cannibalization Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Cannibalization 50 Situation that occurs when sales of a new product cut into a sales of a firm’s existing products. Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Review Learning Outcome Alternatives for Selecting Target Markets 51 LO 7 UndifferentiatedMultisegmentConcentrated Copyright 2010 by Cengage Learning Inc. All Rights Reserved

One-to-One Marketing 52 Explain one-to-one marketing. LO 8 Copyright 2010 by Cengage Learning Inc. All Rights Reserved

One-to-One Marketing 53 An individualized marketing method that utilizes customer information to build long-term, personalized, and profitable relationships with each customer. Copyright 2010 by Cengage Learning Inc. All Rights Reserved

One-to-One Marketing 54 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 Copyright 2010 by Cengage Learning Inc. All Rights Reserved

One-to-One Marketing 1.One-size-fits all marketing no longer effective 2.Direct and personal marketing will grow to meet needs of busy consumers. 3.Consumers will be loyal to companies that have earned—and reinforced—their loyalty. 4.Mass-media approaches will decline as technology allows better customer tracking. 55 Trends Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Review Learning Outcome One-to-One Marketing 56 LO 8 Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Positioning 57 Explain how and why firms implement positioning strategies and how product differentiation plays a role. LO 9 Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Positioning 58 Developing a specific marketing mix to influence potential customers’ overall perception of a brand, product line, or organization in general. Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Positioning of Procter & Gamble Detergents 59 BrandPositioningMarket Share TideTough, powerful cleaning31.1% CheerTough cleaning, color protection8.2% BoldDetergent plus fabric softener2.9% GainSunshine scent and odor-removing formula2.6% EraStain treatment and stain removal2.2% DashValue brand1.8% OxydolBleach-boosted formula, whitening1.4% SoloDetergent and fabric softener in liquid form1.2% DreftOutstanding cleaning for baby clothes, safe1.0% Ivory SnowFabric & skin safety on baby clothes0.7% ArielTough cleaner, aimed at Hispanic market0.1% Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Effective Positioning 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 60 Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Product Differentiation 61 A positioning strategy that some firms use to distinguish their products from those of their competitors. Distinctions can be real or perceived. Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Perceptual Mapping 62 A means of displaying or graphing, in two or more dimensions, the location of products, brands, or groups of products in customers’ minds. Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Perceptual Mapping Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Positioning Bases 64 Attribute Price and Quality Use or Application Product User Product Class Competitor Emotion Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Repositioning 65 Changing perceptions of a brand in relation to competing brands. Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Review Learning Outcome Positioning and Product Differentiation 66 LO 9 Copyright 2010 by Cengage Learning Inc. All Rights Reserved