Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-1

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-2 McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 7 Market Segmentation and Targeting

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-3 Define and explain market segmentation, target markets, and product differentiation and positioning Understand the criteria used for evaluating the likely success of a segmentation strategy Know the role of market segmentation in the development of marketing strategies and programs Describe the issues involved in product and brand positioning Understand the alternative bases for segmenting consumer and business-to-business markets Evaluate alternative approaches for pursuing segmentation strategies Objectives

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-4 Market Segmentation Market segmentation divides a market into subsets of prospective customers who behave in the same way, have similar wants, or have similar characteristics that relate to purchase behavior. Market segmentation explains differences among groups of consumers who share similar characteristics and turn these differences into an advantage. Market segmentation lets a firm develop products and strategies to appeal to the preferences and unique needs of specific groups of customers.

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-5 It is useful for both new ventures and mature brands but its not always appropriate If overall market is so small that marketing to a portion of it is not profitable, then segmentation is not useful When the brand is dominant in the market and draws its appeal from all segments, then segmentation is not useful Market Segmentation

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-6 Target Markets Targeting: Selecting which segments in a market are appropriate to focus on and designing the means of reaching them.

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-7 Product Differentiation Product differentiation exists when a firm’s offerings differ or are perceived to differ from those of competing firms on any attribute. Marketers attempt to position a product or service in customers’ minds to convince customers that the product has unique and desirable characteristics.

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-8 Product Positioning Developing an overall image for a product or brand by designing a marketing program, including the product mix, that a market segment will perceive as desirable.

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-9 Criteria of Effective Segmentation Successful execution of a segmentation strategy depends on: Measurability: reflects the degree to which the size and purchasing power of segments can be assessed. Accessibility: describes the degree to which a firm can reach intended target segments efficiently. Substantialness: refers to the degree to which identified target segments are large enough or have sufficient sales and profit potential to warrant unique or separate marketing programs. Durability: refers to stability of segments – how do segments react as the products mature. Differential responsiveness: refers to the extent to which segments exhibit different responses to different marketing mixes.

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved Satisfying Segmentation Criteria By satisfying the above criteria: A company can choose segments that can be described in managerially useful terms (measurability); That can utilize its communication and distribution channels (accessibility); That are sufficient in profit potential (substantialness); That will persist for some reasonable period (durability) and; That vary in their reactions to different marketing efforts (differential responsiveness).

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved Developing Market Segmentation Strategy Define overall product market in which company operates Identify distinguishing characteristics of segments or bases for segmentation Describe segments Evaluate approaches for potential & likely success Select target markets Determine desired positioning and marketing mix to achieve desired position

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved Bases for Segmentation Demographics Geographics Psychographics and Lifestyles Benefit segmentation Economic segmentation International segmentation

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved Segmentation Strategies Undifferentiated Strategy: Marketing a single product using a single promotional mix for the entire market; most often used early in the life of a product category. Differentiated Strategy: Under differentiated strategy a firm uses different strategies for most or a large number of different segments. Concentrated Strategy: A firm pursues a concentrated strategy when it seeks a large share of just a few profitable segments, perhaps only one, of the total market. Counter-segmentation Strategy: Combining segments to appeal to a broad range of consumers.

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved Factors Influencing Segmentation Strategy If consumers are not sensitive to product differences, an undifferentiated strategy is appropriate. If firm sells to an overall product market with many different segments, a differentiated or concentrated approach is a better choice. For new products concentrated strategy is best. If firms’ interest is to develop primary demand, an undifferentiated strategy is appropriate. In later stages of a product’s life, large firms tend to pursue a differentiated segmentation strategy. A firm adopting and undifferentiated approach or pursuing only the largest segments may well invite substantial competition.

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved Estimating Segment Potentials To estimate market potential and likely sales, the firm should distinguish between firm and industry potentials and between forecasts of the best possible result and expected results. Market Potential: is the maximum amount of industry sales possible for a product or service for a specific period. Market Forecast: is a function of the amount of marketing expenditures put forth by all companies competing in that market. Sales Potential: is the maximum amount of sales of a specific firm can obtain for a specified time period.

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved Developing Forecasts There are a number of methods for forecasting sales: Survey of buyers’ intentions Expert opinion Composite of sales force estimates Trend analysis Market tests Statistical demand analysis

Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved Positioning Repositioning: When a firm wants to shift consumer opinions about an existing brand. Positioning: Designing a marketing program, including the product mix, that is consistent with how the company wants its products or services to be perceived.