1. ©2003 South-Western Chapter 6 Version 3e1 chapter Segmenting and Targeting Markets 6 6 Prepared by Deborah Baker Texas Christian University

2. ©2003 South-Western Chapter 6 Version 3e2 chapter Learning Objectives 6 6 1.Describe the characteristics of markets and market segments. 2. Explain the importance of market segmentation. 3. Discuss criteria for successful market segmentation.

3. ©2003 South-Western Chapter 6 Version 3e3 chapter Learning Objectives (continued) 6 6 4. Describe the bases commonly used to segment consumer markets. 5. Describe the bases for segmenting business markets. 6. List the steps involved in segmenting markets.

4. ©2003 South-Western Chapter 6 Version 3e4 chapter Learning Objectives (continued) 6 6 7. Discuss alternative strategies for selecting target markets. 8.Explain how and why firms implement positioning strategies and how product differentiation plays a role. 9.Discuss global market segmentation and targeting issues.

5. ©2003 South-Western Chapter 6 Version 3e5 Learning Objective 1 1 Describe the characteristics of markets and market segments.

6. ©2003 South-Western Chapter 6 Version 3e6 Market Segmentation Market Segment Market Segment Market Segmentation Market Segmentation 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. 1 1

7. ©2003 South-Western Chapter 6 Version 3e7 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. 1 1

8. ©2003 South-Western Chapter 6 Version 3e8 Learning Objective 2 2 Explain the importance of market segmentation.

9. ©2003 South-Western Chapter 6 Version 3e9 The Importance of Market Segmentation  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 2 2

10. ©2003 South-Western Chapter 6 Version 3e10 Learning Objective Discuss criteria for successful market segmentation. 3 3

11. ©2003 South-Western Chapter 6 Version 3e11 Criteria for Successful Segmentation Criteria for Market Segments Substantiality Identifiability Accessibility Responsiveness 3 3

12. ©2003 South-Western Chapter 6 Version 3e12 Criteria for Segmentation SubstantialitySubstantialityIdentifiabilityMeasurabilityIdentifiabilityMeasurability AccessibilityAccessibility ResponsivenessResponsiveness 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. 3 3

13. ©2003 South-Western Chapter 6 Version 3e13 Learning Objective Describe the bases commonly used to segment consumer markets. 4 4

14. ©2003 South-Western Chapter 6 Version 3e14 Segmentation Bases Characteristics of individuals, groups, or organizations used to divide a total market into segments. (variables) 4 4

15. ©2003 South-Western Chapter 6 Version 3e15 Bases for Segmentation Usage Rate Benefits Sought Psychographics Demographics Geography Bases Used to Segment Consumer Markets 4 4

16. ©2003 South-Western Chapter 6 Version 3e16 Geographic Segmentation Segmenting markets by region of the country or world, market size, market density, or climate. 4 4

17. ©2003 South-Western Chapter 6 Version 3e17 Geographic Segmentation  Region of the country or world  Market size  Market density  Climate 4 4

18. ©2003 South-Western Chapter 6 Version 3e18 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 4 4

19. ©2003 South-Western Chapter 6 Version 3e19 Demographic Segmentation Segmenting markets by age, gender, income, ethnic background, and family life cycle 4 4

20. ©2003 South-Western Chapter 6 Version 3e20 Bases for Demographic Segmentation 4 4  Age  Gender  Income  Ethnic background  Family Life Cycle

21. ©2003 South-Western Chapter 6 Version 3e21 Ethnic Background  Largest ethnic markets are: African-American Hispanic-American Asian-American  Will comprise 1/3 of U.S. population by 2010 with buying power of a trillion dollars 4 4

22. ©2003 South-Western Chapter 6 Version 3e22 Family Life Cycle Age Marital Status Children 4 4

23. ©2003 South-Western Chapter 6 Version 3e23 Psychographic Segmentation 4 4 Market segmentation on the basis of personality, motives, lifestyles, and geodemographics.

24. ©2003 South-Western Chapter 6 Version 3e24 Bases for Psychographic Segmentation Psychographic Segmentation Personality Motives Lifestyles Geodemographics 4 4

25. ©2003 South-Western Chapter 6 Version 3e25 Lifestyle Segmentation 4 4  How time is spent  Beliefs  Socioeconomic characteristics

26. ©2003 South-Western Chapter 6 Version 3e26 Geodemographic Segmentation 4 4 Segmenting potential customers into neighborhood lifestyle categories. Combines geographic, demographic, and lifestyle segmentation.

27. ©2003 South-Western Chapter 6 Version 3e27 VALS 2 Dimensions Principle-oriented Status-orientedAction-oriented Fulfillers Believers Actualizers Achievers Strivers Strugglers Experi- encers Makers Minimal Resources Abundant Resources 4 4

28. ©2003 South-Western Chapter 6 Version 3e28 Benefit Segmentation The process of grouping customers into market segments according to the benefits they seek from the product. 4 4

29. ©2003 South-Western Chapter 6 Version 3e29 Usage-Rate Segmentation Dividing a market by the amount of product bought or consumed. 4 4

30. ©2003 South-Western Chapter 6 Version 3e30 The 80/20 Principle A principle holding that 20 percent of all customers generate 80 percent of the demand. 4 4

31. ©2003 South-Western Chapter 6 Version 3e31 Learning Objective Describe the bases for segmenting business markets. 5 5

32. ©2003 South-Western Chapter 6 Version 3e32 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 5

33. ©2003 South-Western Chapter 6 Version 3e33 Microsegmentation The process of dividing business markets into segments based on the characteristics of decision- making units within a macrosegment. 5 5

34. ©2003 South-Western Chapter 6 Version 3e34 Business Marketing Segmentation Geographic Customer Type Customer Size Product Use BusinessMarketsBusinessMarkets Purchasing Criteria Purchasing Strategy Importance Personal Characteristics Micro- segmentation Micro- segmentation Macro- segmentation Macro- segmentation 5 5

35. ©2003 South-Western Chapter 6 Version 3e35 Learning Objective 6 6 List the steps involved in segmenting markets.

36. ©2003 South-Western Chapter 6 Version 3e36 Steps in Segmenting a Market Select a market for study Choose bases for segmen- tation Select descrip- tors Profile and analyze segments Select target markets Design, imple- ment, maintain mkting mix 6 6

37. ©2003 South-Western Chapter 6 Version 3e37 Learning Objective Discuss alternative strategies for selecting target markets. 7 7

38. ©2003 South-Western Chapter 6 Version 3e38 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. 7 7

39. ©2003 South-Western Chapter 6 Version 3e39 Strategies for Selecting Target Markets Concentrated Strategy Concentrated Strategy Undifferentiated Strategy Undifferentiated Strategy Multisegment Strategy Multisegment Strategy 7 7

40. ©2003 South-Western Chapter 6 Version 3e40 Undifferentiated Targeting Strategy Marketing approach that views the market as one big market with no individual segments and thus requires a single marketing mix. 7 7

41. ©2003 South-Western Chapter 6 Version 3e41 Undifferentiated Targeting Strategy Advantages Advantages :  Potential savings on production and marketing costs Disadvantages Disadvantages:  Unimaginative product offerings  Company more susceptible to competition 7 7

42. ©2003 South-Western Chapter 6 Version 3e42 Concentrated Targeting Strategy A strategy used to select one segment of a market for targeting marketing efforts. 7 7

43. ©2003 South-Western Chapter 6 Version 3e43 Niche One segment of a market. 7 7

44. ©2003 South-Western Chapter 6 Version 3e44 Concentrated Targeting Strategy Advantages Advantages:  Concentration of resources  Meets narrowly defined segment  Small firms can compete  Strong positioning Disadvantages Disadvantages:  Segments too small, or changing  Large competitors may market to niche segment 7 7

45. ©2003 South-Western Chapter 6 Version 3e45 Multisegment Targeting Strategy A strategy that chooses two or more well-defined market segments and develops a distinct marketing mix for each. 7 7

46. ©2003 South-Western Chapter 6 Version 3e46 Advantages Advantages:  Greater financial success  Economies of scale Disadvantages Disadvantages:  High costs  Cannibalization Multisegment Targeting Strategy 7 7

47. ©2003 South-Western Chapter 6 Version 3e47 Costs of Multisegment Targeting $ Product design costs $ Production costs $ Promotion costs $ Inventory costs $ Marketing research costs $ Management costs $ Cannibalization 7 7

48. ©2003 South-Western Chapter 6 Version 3e48 Cannibalization Situation that occurs when sales of a new product cut into sales of a firm’s existing products. 7 7

49. ©2003 South-Western Chapter 6 Version 3e49 Learning Objective Explain how and why firms implement positioning strategies and how product differentiation plays a role. 8 8

50. ©2003 South-Western Chapter 6 Version 3e50 Positioning Developing a specific marketing mix to influence potential customers’ overall perception of a brand, product line, or organization in general. 8 8

51. ©2003 South-Western Chapter 6 Version 3e51 Position The place a product, brand, or group of products occupies in consumers’ minds relative to competing offerings. 8 8

52. ©2003 South-Western Chapter 6 Version 3e52 Effective Positioning  Assess the positions of competing products  Determine the dimensions of these positions  Choose an effective market position 8 8

53. ©2003 South-Western Chapter 6 Version 3e53 Product Differentiation A positioning strategy that some firms use to distinguish their products from those of competitors. 8 8

54. ©2003 South-Western Chapter 6 Version 3e54 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. 8 8

55. ©2003 South-Western Chapter 6 Version 3e55 Perceptual Mapping--Levi’s 8 8 High Price Low Price ClassicClassic DesignerDesigner Old product New product Vintage Red Line Silver Tab Slates Dockers Premium Dockers Classics 501 Red Tab Basics Red Tab Dry Goods L2 Red Tab Elesco

56. ©2003 South-Western Chapter 6 Version 3e56 Positioning Bases Attribute Price and Quality Use or Application Product User Product Class Competitor Positioning Bases 8 8

57. ©2003 South-Western Chapter 6 Version 3e57 Repositioning Changing consumers’ perceptions of a brand in relation to competing brands. 8 8

58. ©2003 South-Western Chapter 6 Version 3e58 Learning Objective Discuss global market segmentation and targeting issues. 9 9

59. ©2003 South-Western Chapter 6 Version 3e59 Global Issues Global Market Standardization Trends 9 9