1. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Chapter 3 Market Segmentation, Targeting, and Positioning

2. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8-2 Chapter Objectives 1.Identify the essential components of a market. 2.Outline the role of market segmentation in developing a marketing strategy. 3.Describe the criteria necessary for effective segmentation. 4.Explain each of the four bases for segmenting consumer markets. 5.Identify the steps in the market segmentation process. 6.Discuss four basic strategies for reaching target markets. 7.Summarize the types of positioning strategies. 8.Explain the reasons for positioning and repositioning products.

3. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8-3 Selecting a Target Market Before a marketing mix strategy can be implemented, the marketer must identify, evaluate, and select a target market. Market: Market: people or institutions with sufficient purchasing power, authority, and willingness to buy Target market: Target market: specific segment of consumers most likely to purchase a particular product

4. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8-4 Types of Markets Consumer products: Consumer products: goods or services purchased by an ultimate consumer for personal use Business products: Business products: goods or services purchased for use either directly or indirectly in the production of other goods and services for resale The key to classification is to identify the purchaser and the reasons for buying the goods.

5. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8-5 KC Masterpiece Product Targeted at Selected Consumers

6. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8-6 Cattlemens Product Targeted at the Business Market: Comes in 1 and 5 Gallon Containers. Introduced more than 40 years ago to meet the special needs of foodservice operators

7. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8-7 The Role of Market Segmentation Market Segmentation: Market Segmentation: division of the total market into smaller, relatively homogeneous groups No single marketing mix can satisfy everyone. Therefore, separate marketing mixes should be used for different market segments.

8. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8-8 Toms of Maine Targeting a Specific Marketing Segment Which segment?

9. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8-9 Criteria for Effective Segmentation Market segmentation cannot be used in all cases. To be effective, segmentation must meet the following basic requirements. The market segments must be measurable in terms of both purchasing power and size. Marketers must be able to effectively promote to and serve a market segment. Market segments must be sufficiently large to be potentially profitable. The number of segments must match the firms capabilities.

10. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 10 Segmenting Consumer Markets Geographic Segmentation: Geographic Segmentation: Dividing an overall market into homogeneous groups on the basis of their locations Does not ensure that all consumers in a location will make the same buying decision. Help in identifying some general patterns.

11. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 11 Pampers This ad is an example of geographic segmentation. When visiting the web site look for the different countries Pampers markets to.

12. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 12 Crunch Fitness Centers Using Geographic Segmentation

13. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 13 Using Geographic Segmentation Demand for some goods and services can vary according to the geographic region Most major brands get 40-80 percent of their sales from what are called core regions Climate is another important segmentation factor Northern consumers, for example, eat more soup than Southerners Southerners use more chlorine for their swimming pools than Northern residents

14. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 14 Kubota Segmentation by Residence Location

15. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 15 Segmenting Consumer Markets Demographic segmentation: Demographic segmentation: dividing consumer groups according to characteristics such as sex, age, income, occupation, education, household size, and stage in the family life cycle A primary source for demographic data and United States is the Bureau of Census

16. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 16 Segmenting by gender Segmenting by gender Marketers must ensure that traditional assumptions are not false Other firms start by targeting one gender and then switch to both To some companies market successfully to both genders

17. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 17 Segmenting by age Segmenting by age Many firms identify market segments on the basis of age Products are often designed to meet the specific needs of certain age groups Examples: baby food and denture cream. Dole: Developing a Product Specifically for Children

18. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 18 Segmenting by age Segmenting by age Sociologists attribute different consumer needs and wants among various age groups to the cohort effect Cohort effect is a tendency among members of a generation to be influenced and drawn together by significant events occurring during their key formative years, roughly 17 to 22 years of age

19. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 19 Boomers BoomersPeople born from 1946 until 1965. Nearly 42 percent of U.S. adults were born in this period. Values of this age group were influenced both by the Vietnam War and the career-driven era. Baby boomers over the age of 50 will have a total disposable income of $1 trillion.

20. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 20 Seniors SeniorsBy 2025, Americans who are over age 65 will make up nearly 20 percent of the population. The current median age is now 35.2 years, up from 32.8 years a decade ago. The average life expectancy in the U.S. is 74 for men and to age 79 for women. In the U.S., heads of households aged 55-plus control about three-quarters of the countrys total financial assets.

21. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 21 Ethnic Group Segmentation Ethnic Group Segmentation Census Bureau projects that by 2050, nearly half of the population of the US will belong to nonwhite minority groups. The three largest and fastest-growing racial/ethnic groups in the US are African Americans, Hispanics, and Asian Americans.

22. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 22 Family Life Cycle Stages Segmentation Family Life Cycle Stages Segmentation The process of family formation and dissolution. The underlying theme is that life stage, not age per se, is the primary determinant of many consumer purchases. Today, the average woman gives birth to two children. She usually has her children at a later ageabout 35.

23. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 23 Segmenting by household type Segmenting by household type The traditional family has declined over the years Single-parent families, single-person households, and non-family group households have more than doubled during the same time Non-traditional households make likely buyers of single- serving and convenience foods DINKs, dual-income childless couples, are big buyers of gourmet foods, luxury items, and travel

24. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 24 Engels laws: Engels laws: three general statements based on his studies on the impact of household income changes on consumer spending behavior According to Engle, as family income increases: A smaller percentage of expenditures go for food The percentage spent on housing and household operations and clothing remains constant The percentage spent on other items (such as recreation and education) increases

25. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 25 Jaguar Segmentation based on income

26. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 26 Psychographic Segmentation Psychographic Segmentation Divides a population into groups that have similar psychological characteristics, values, and lifestyles Lifestyle: peoples decisions about how to live their daily lives, including family, job, social, and consumer activities The most common method for developing psychographic profiles of a population is to conduct a large-scale survey: VALS and VALS 2. Values and Lifestyles

27. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 27 Principle Oriented Status Oriented FULFILLED 11% BELIEVERS 16% ACTUALIZERS 8% ACHIEVERS 13% STRIVERS 13% STRUGGLERS 12% Abundant Resources Minimal Resources Action Oriented EXPERIENCERS 12% MAKERS 13% VALS 2 - Network

28. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 28 Segmenting Consumer Markets

29. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 29 Product-related segmentation: Product-related segmentation: dividing a consumer population into homogeneous groups based on characteristics of their relationships to the product Can take the form of segmenting based on: Benefits that people seek when they buy Usage rates for a product Consumers brand loyalty toward a product

30. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 30 Benefits Benefits Focuses on the attributes that people seek in a good or service and the benefits that they expect to receive from that good or service Groups consumers into segments based on what they want a product to do for them

31. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 31 Eclipse Segmenting by Benefits Sought

32. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 32 Usage Rates Usage Rates Segmenting by grouping people according to the amounts of a product that they buy and use Markets often divided into heavy-user, moderate-user, and light-user segments The 80/20 principle (Praedos Law) holds that a big percentage of a products revenues (roughly 80%) comes from a relative small, loyal percentage (around 20%) of total customers

33. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 33 Brand Loyalty Brand Loyalty Segmenting consumers grouped according to the strength of brand loyalty felt toward a product A practical example of this would be the frequent flyer programs of airlines and many hotels

34. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 34 The Market Segmentation Process Stage I: Identify Segmentation Process Stage II: Develop Relevant Profile Stage III: Forecast Market Potential Stage IV: Forecast Market Share Stage V: Select Specific Segment

35. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 35 Stage I: Identify Segmentation Process Stage I: Identify Segmentation Process Marketers follow two methods to determine the bases on which to identify markets: Segments are predefined by managers based on their observation of the behavioral and demographic characteristics of likely users Segments are defined by asking customers which attributes are important and then clustering the responses

36. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 36 Stage II: Develop Relevant Profile Stage II: Develop Relevant Profile Next, marketers seek further understanding of the consumer in each promising segment Must develop a profile of the typical consumer and each segment Helps to accurately match consumer needs with the firms marketing offers

37. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 37 Stage III: Forecast Market Potential Stage III: Forecast Market Potential Market segmentation and market opportunity analysis combine to produce a forecast of market potential within each segment Defines a preliminary go or no-go decision since the sales potential in each segment must justify resources devoted to further analysis

38. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 38 Stage IV: Forecast Market Share Stage IV: Forecast Market Share The next step is to forecast the firms probable market share Competitors positions in targeted segments must be analyzed A specific marketing strategy must be designed to serve the targeted segments The firm determines the expected level of resources it must commit to tap the potential demand in each segment

39. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 39 Stage V: Select Specific Segment Stage V: Select Specific Segment The preceding information, analysis, and forecasts allow management to assess the potential for achieving company goals and to justify committing resources in developing one or more segments Marketers also weigh more than monetary costs and benefits at this stage

40. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 40 Strategies for Reaching Target Markets Undifferentiated Marketing Differentiated Marketing Concentrated Marketing Micromarketing

41. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 41 Undifferentiated marketing: Undifferentiated marketing: when a firm produces only one product or product line and promotes it to all customers with a single marketing mix Sometimes called mass marketing Much more common in the past Undifferentiated Marketing

42. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 42 Differentiated marketing: Differentiated marketing: when a firm produces numerous products and promotes them with a different marketing mix designed to satisfy smaller segments Tends to raise costs Firms may be forced to practice differentiated marketing to remain competitive Differentiated Marketing

43. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 43 Differentiated Marketing Procter and Gamble Practicing Differentiated Marketing

44. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 44 Lunchables Using a Differentiated Marketing Strategy

45. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 45 Concentrated marketing (niche marketing): Concentrated marketing (niche marketing): when a firm commits all of its marketing resources to serve a single market segment Attractive to small firms with limited resources and to firms offering highly specialized goods and services Concentrated Marketing

46. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 46 Micromarketing: Micromarketing: involves targeting potential customers at a very basic level, such as by ZIP code, specific occupation, lifestyle, or individual household The Internet may allow marketers to make micromarketing even more effective GeneSolutions targeting a specific occupation

47. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 47 Selecting and Executing a Strategy Selecting and Executing a Strategy No single, best choice strategy suits all firms Determinants of a market-specific strategy: Company resources Product homogeneity Stage in the product life-cycle Competitors strategy

48. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 48 Hypothetical Competitive Positioning Map for Selected Retailers

49. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 8- 49