1. Focusing Marketing Strategy with Segmentation and Positioning
Chapter 4
Focusing Marketing Strategy with Segmentation and Positioning
Chapter Four
Focusing Marketing Strategy with Segmentation and Positioning
For use only with Perreault/Cannon/McCarthy or Perreault/McCarthy texts. © 2009 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin

2. Focusing Marketing Strategy with Segmentation and Positioning (Exhibit 4-1)
In a broad sense, this chapter is about understanding and analyzing customers in a market.
In Chapters 5, 6, and 7 we will look more closely at specific influences on the behavior of both final consumers and organizational customers. However, this chapter sets the stage for that by explaining how marketing managers combine different types of information about customers to guide targeting decisions.

3. Focusing Marketing Strategy with Segmentation and Positioning (Exhibit 4-1)
Defining markets
Dimensions to use
Identifying segments
Identifying segments to target
Segmentation approaches
Positioning
Understanding customer’s view
Positioning techniques
Evaluating segment preferences
Differentiating the marketing mix
Relationship between
positioning & targeting
This chapter brings focus to the search for market opportunities. It covers the topics of segmentation and targeting in great detail. And, then, moves on to talk about differentiation and positioning.

4. Taking Advantage of Opportunities
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Taking Advantage of Opportunities
Summary Overview
La-Z-Boy has designed more fashionable chairs to tap into new market segments.
Key Issues
Prior to introducing a product, however, a firm such as La-Z-Boy has to have a good understanding of the target market.
It also needs to assess the current state of competition, including how consumers perceive the differences and similarities among alternative brands.
Should the organization then decide to proceed with the development of a marketing mix to serve a particular target market, it must differentiate its offering.
From this ad, it appears that La-Z-Boy also thinks that gender provides a good way to segment its market.
This presentation will cover how marketers can use market segmentation, differentiation, and positioning to take advantage of opportunities in the marketplace.

5. Naming Product Markets and Generic Markets
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Product Type
Customer Needs
Product-Market Definition
Summary Overview
A complete product-market definition includes four parts:
Key Issues
Managers need to think about more than the product they already produce and sell. This can be done by naming product markets and generic markets with a four-part description.
 First, The product type--the type of good and/or service offered. It should meet customer needs.
 Next, customer needs--refers to the needs of the customer (user) that are being met by the product.
 Customer types--identify who specifically is using the product.
 Geographic area--identifies where the market is located.
In defining product-markets, marketers provide names for each level of definition.
Discussion Question: What are the components of the product-market definition for Skippy peanut butter?
 In defining generic markets, there is no product type; the definition consists of the customer needs, customer type, and geographic area.
Geographic Area
Customer Type
No Product Type in Generic Market Definition

6. Segmentation is a Two-Step Process
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1. Naming broad product-markets
and
Summary Overview
Market segmentation is a two-step process. This process fails too often because marketers do not realize the complexities of consumer behavior and they attempt to categorize a market around too few consumer-related variables of distinction.
Key Issues
The steps in market segmentation are:
 Naming broad product-markets, or disaggregating. Marketers must break apart all possible needs into some generic markets and broad product-markets in which the firm may be able to profitably operate.
 Segmenting is an aggregating process--clustering people with similar needs into individual market segments.
Market segment: a relatively homogeneous group of consumers who will respond to a marketing mix in a similar way.
2. Segmenting markets and selecting targets

7. The Process of Narrowing Down to Target Markets (Exhibit 4-3)
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All customer needs
Narrowing down to specific product-market
Some generic market
One broad product-market
Summary Overview
Market segmentation is a two-step process. This process fails too often because marketers do not realize the complexities of consumer behavior and they attempt to categorize a market around too few consumer-related variables of distinction.
Key Issues
 All customer needs: Marketers should break apart or disaggregate all customer needs.
Generic market: a market with broadly similar needs and sellers offering various ways of satisfying those needs.
Defining the market broadly can help the marketer to uncover some potential new opportunities. The marketer can then narrow down to specific product-markets.
 Product-market: a market with very similar needs and sellers offering various close substitute ways of satisfying those needs.
 Segmenting: the next step is an aggregating process – the marketer groups together people with similar needs into a market segment. Here we look for similarities.
Discussion Question: Using Exhibit 4-3 as a guide, think of the generic market for transportation and the broad product-market of customers for motorcycles. Can you segment the broad product market into several submarkets?
 After defining the market, marketers can select a particular target market approach.
Segmenting into possible target markets
Homogeneous (narrow) product-markets
Selecting target marketing approach
Single target market
Multiple target markets
Combined target markets

8. Market Segmentation Defines Possible Target Markets (Exhibit 4-4)
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Broad product-market (or generic market) name goes here (The bicycle-riders product-market)
Submarket 1
(Exercisers)
Submarket 2
(Off-road
adventurers)
Submarket 3
(Transportation riders)
Submarket 4
(Socializers)
Submarket 5
(Environmentalists)
Summary Overview
Market segmentation groups customers with similar needs.
Key Issues
Here we can see five different submarkets for the broad product-market of bicycle riders.
Discussion Question: What are the primary needs for each of these submarkets for bicycles?

9. How Far Should the Aggregating Go? (Exhibit 4-5A and 4-5B)
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B. Product-market showing six segments
A. Product-market showing three segments
Summary Overview
As shown in this exhibit, one can segment a market into any number of segments, ( three segments, exhibit 4-5A and six segments, exhibit 4-5B) but how far should a marketer go in aggregating similar consumers into target markets?
Key Issues
Criteria for segmenting:
Homogeneous within--the customers in a market segment should be as similar as possible with respect to their likely responses to marketing mix variables and their segmenting dimensions.
Heterogeneous between--the customers in different segments should be as different as possible with respect to their likely responses to marketing mix variables and their segmenting dimensions.
Substantial--the segment must be big enough to be profitable.
Discussion Question: Some firms, like Dell Computer, are able to market directly to individuals and to customize products and services to their unique needs. What advancements make this mass customization possible?
Operational--the segmenting dimensions should be useful for identifying customers and deciding on marketing mix variables.
Status dimension
Dependability dimension

10. Segmenters and Combiners Aim at Specific Target Markets (Exhibit 4-6)
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The Strategy
A segmenter develops a different marketing mix for each segment.
Strategy one
Strategy two
Strategy three
Single target
market approach
Multiple target
Summary Overview
Market-oriented strategies refine the segmentation process into actionable submarkets.
Key Issues
 Single target market approach--the marketer segments the market and picks one of the homogeneous segments as the firm’s target market.
 Multiple target market approach--the marketer segments the market, chooses two or more segments, and then treats each segment as a separate target market needing a different marketing mix.
Discussion Question: Suppose you are an entrepreneur who is preparing to start a small business. Would you be more likely to select a single or multiple target market approach? Why?
 Combined target market approach--the marketer combines two or more submarkets into one larger target market as a basis for one strategy.
Seeks economies from having one effort serve more than one market.
The
strategy
A combiner aims at two or more submarkets with the same marketing mix.

11. Segmenting vs. Combining
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Too Much Combining Is Risky
Combiners Try to Satisfy “Pretty Well”
Segmenters Try to Satisfy “Very Well”
Key Issues
Summary Overview
There are many factors that affect the choice between being a “segmenter” and a “combiner.”
Key Issues
 Combiners try to satisfy customers “pretty well.”
 Too much combining is risky, because an innovative segmenter may “chip away” at the various segments of the combined target market.
Discussion Question: What companies that you are familiar with have suffered because segmenters have “chipped away” pieces of their target markets?
 Segmenters try to satisfy customers “very well.”
Segmenting may produce bigger sales, if the segmenter can capture a large share of a smaller market segment.
Many consumers are willing to pay more in order to satisfy their needs more precisely.
 Segment or combine? Depends on:
firm’s resources;
competition in the various segments;
similarity of customer needs, attitudes, and buying behavior.
 Profit is often the balancing point, because the profit potential often dictates how specialized a marketing mix can be.
Profit Is the Balancing Point
Segmenting May Produce Bigger Sales
Segment or Combine?

12. Behavioral dimensions for segmenting consumer markets
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Needs
Information required
Benefits Sought
Type of problem-solving
Behavioral
Segmenting
Dimensions
Thoughts
Summary Overview
Segmenting dimensions guide marketing mix planning. Market segmentation forces marketing managers to decide which product-market dimensions might be useful for planning marketing strategies. A product-market may be described by behavioral segmentation dimensions.
Key Issues
 Needs – for example, customer needs could be economic, functional, or psychological;
 Benefits sought tend to be situation specific – for example a car buyer could be looking for good gas mileage or the ability to seat seven people.
Thoughts – buyers may be grouped by whether they have favorable or unfavorable attitudes or beliefs about the brand or product category.
 Rate of use – some customers may be heavy, medium, light or even non-users
Purchase relationship – customers could be segmented by whether they have an ongoing relationship, intermittent use, or a bad relationship.
 Brand familiarity – might vary from insisting on a brand to nonrecognition or rejection.
 Kind of shopping – refers to whether buyers do comparison shopping or perhaps buy on a convenience basis.
Buyers might use different problem solving approaches – and could be grouped in this way.
 Or buyers may have different information needs – some customers want a lot of information while others need little.
Discussion Question: What benefits do consumers seek in purchasing and using toothpaste? How do these benefits affect segmentation among consumers of toothpaste?
Kind of shopping
Rate of use
Brand familiarity
Purchase relationship

13. Geographic dimensions for segmenting consumer markets
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Region of world or country
Region in a country
Geographic
Segmentation
Dimensions
Summary Overview
Geographic dimensions are often used for segmentation. There may be different languages or laws in different countries – or a business may only be located in a certain geography.
Key Issues
Region of the world or country – for example, North America versus Europe, or New Zealand versus Japan.
 Region in a country – for example in the United States, the Rocky Mountain Region, Southeast, or Northeast may provide a basis for segmentation.
 The size of a city may also be useful for segmentation.
Size of city

14. Demographic dimensions for segmenting consumer markets
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Income
Gender or age
Demographic Segmentation Dimensions
Summary Overview
In addition to behavioral and geographic dimensions, there are also demographic segmentation dimensions.
Key Issues
 Income provides one basis – a marketing mix may appeal most to families with a particular income.
 Gender and age provide another demographic base of segmentation.
 Family size or family life cycle stage. Family life cycle stages include young singles, young married with no children, families with young children, divorced, empty nesters, or seniors.
 Occupation and education can also be used for segmentation.
 Finally, social class – lower, middle or upper
And ethnicity – for example: Hispanic, Asian, Native American, white, or multiracial.
Discussion Question: Considering the demographic variables of age and education levels, can you provide examples of products or services that are targeted to college students?
Family size or family life cycle stage
Occupation or education
Ethnicity or social class

15. Segmenting business markets
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Kind of relationship
Type of customer
Segmenting Dimensions for Business Markets
Demographics
Purchasing methods
Summary Overview
There are also many possible segmentation dimensions in the business or organizational market.
Key Issues
Among these dimensions are:
 Kind of relationship between buyer and seller – relationships might range from weak loyalty to strong loyalty to a vendor.
 Type of customer – customers may be segmented by whether they are service producers, a government agency, or a manufacturer.
 Demographics variables include geographic locations, size of the company, or industry.
 How the customer will use the product –will the product being sold be used in an installation, as a component or as a raw material .
 Type of buying situation – some characteristics of the buying situation might include the number of people involved in the purchase or whether the buying process is centralized or decentralized.
 Purchasing methods refer to factors like whether the buyer uses bids, vendor analysis, e-commerce websites, or other methods of buying.
Type of buying situation
How customers will use the product

16. Business-to-Business Segmentation
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Business-to-Business Segmentation
Summary Overview
This ad from Baldor shows how business-to business marketers incorporate segmenting dimensions in their marketing tactics.
Key Issues
For example, this ad is targeted at a particular type of customer—firms that have large vehicle fleets and a need for industrial electric motors.
The type of buying situation is also relevant.
It most likely represents a modified rebuy purchase—if the fleet buyer is considering alternative sources for replacement parts.

17. What Dimensions are used to Segment Markets?
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Qualifying
Dimensions
Relevant to including a customer type in a product-market
Help identify “core benefits”
Determining
Dimensions
Affect the customer’s purchase of a product or brand
Can be further segmented OR
Summary Overview
To select the important segmenting dimensions, think about two different types of dimensions: qualifying and determining.
Key Issues  Qualifying dimensions are those relevant to including a customer type in a product-market.
Help identify the “core features” that must be offered to everyone in a product-market.
 Determining dimensions are those that actually affect the customer’s purchase of a specific product or brand in a product-market.
Can be further segmented into groups.
Discussion Question: Can you describe a qualifying dimension and a determining dimension that help to define a product-market?

18. Determining vs. Qualifying Dimensions
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Determining Dimensions May Be Very Specific
Determining Dimensions May Change
Key Issues
Summary Overview
Several factors affect the specificity and use of determining and qualifying dimensions in segmenting markets.
Key Issues
 Determining dimensions may be very specific, depending on whether the marketer is concerned with a general product type or a specific brand.
 Determining dimensions may change over time, because needs may change or because competitors enter the market.
 Qualifying dimensions are important, too, because they help identify the “core” features that must be offered to everyone in a product-market.
 Within a broad product-market, there may also be different dimensions for different submarkets.
Discussion Question: Think about the various submarkets of bicycle riders--exercisers, off-road adventurers, environmentalists, etc. Can you describe how the determining and qualifying dimensions differ from submarket to submarket?
Different Dimensions For Different Submarkets
Qualifying Dimensions Are Important Too

19. Ethical Issues in Segmenting Markets
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Ethical Issues
International Issues
Exploitation
Creates Unnecessary Wants
Does Harm
Summary Overview
Along with the segmenting dimensions, there are other considerations for marketers in market segmentation.
Key Issues
 Ethical issues--some critics argue that target marketing:
exploits consumers;
makes them want things they don’t need;
may even cause physical, emotional, or financial harm.
Discussion Question: What types of companies are criticized the most for exploiting particular target markets?
 Success in international marketing requires even more segmenting, because there are so many countries, languages, and unique cultures.
 However, segmenting international markets adds just one step to the whole process of segmentation. First, marketers must segment by country or region, and then proceed with the same basic segmentation approaches already discussed.

20. Psychographic Segmentation
This video clip highlights psychographic segmentation used by Porsche before developing an ad campaign for their latest sports car.
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21. Segmenting Product Markets (Exhibit 4-11)
1. Select (name) the broad product-market
Segmenting Product Markets (Exhibit 4-11)
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2. Identify potential
customer needs
Best
Practice
Approach
for
Segmenting
Product-Markets
3. Form initial homogeneous
submarkets
4. Identify determining
dimensions
5. Name possible
product-markets
Summary Overview
This seven-step process for segmenting markets will help to find the determining dimensions for product types.
Key Issues
 Select (name) the broad product market: Decide what broad product-market the firm wants to be in—based on the firm’s objectives or current position.
 Identify potential customers’ needs: Write down as many basic needs as possible—reasons why people buy current offerings in this product-market.
 Form homogeneous submarkets—that is, narrow product markets:
Start by forming one submarket around a typical type of customer; aggregate similar people into the submarket.
Write down important need dimensions and customer-related characteristics.
Put people who don’t fit into one or more new submarkets.
 Identify the determining dimensions for each submarket—the ones that determine the choice of a product or brand.
 Name the possible product-markets—based on the relative importance of the determining dimensions.
 Evaluate why product-market segments behave as they do.
 Make a rough estimate of the size of each product-market segment—using available demographic data to determine which market segments are large enough to be profitable.
Use this process to outline the kinds of marketing mixes that would appeal to various markets—whether we want to serve new customers or better serve current customers.
6. Evaluate product-market
segments
7. Estimate size of each
product-market segments

22. More Sophisticated Techniques May Help in Segmenting
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Clustering
Summary Overview
Computer-aided methods afford marketers additional help in segmenting markets. The ability of the computer to record, sort, recombine, and analyze a great many variables relating to consumer behavior at the same time allows marketers to develop much more sophisticated market segments.
Key Issues
Among the techniques are as follows:
 Clustering techniques: try to find similar patterns within sets of data.
 Customer databases:
Past customer behavior is often the source of information.
Database sorting is especially helpful in providing services.
Discussion Question: How do you provide information to marketers that are attempting to meet your needs?
 Customer relationship management (CRM):
Sophisticated modeling techniques can predict the types of products or services an individual customer might want, based on the information stored in the database.
Anticipation of emerging needs helps a marketer to maintain a long-term relationship with customers.
Customer Database
Customer Relationship Management (CRM)

23. Cluster Analysis This slide relates to material on p. 110.
Summary Overview
Cluster analysis is used by firms such as Impact Media.
Key Issues
In this example, the firm is marketing its capabilities in finding clusters of consumers.
Once the clusters are identified, the consumers within the clusters can receive free samples of products that Impact Media’s clients wish to promote.

24. “Product Space” Representation of Positioning (Exhibit 4-13)
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High moisturizing
low moisturizing 2 1 4 5 7 3 8 6
Zest
Lever 2000
Safeguard
Dial
Lifebuoy
Tone
Dove
Lux
Coast
Lava
Summary Overview
This diagram shows the output of a computer program that does positioning analysis.
Key Issues
Two attributes of soap that account for the greatest difference in consumer perceptions:
 degree to which the soap is a deodorant soap.
 degree to which the soap is a moisturizing soap;
 The closer that any two dots are to each other, the more similar those brands are in the minds of consumers.
 Each segment may have its own preferences. The circles refer to the size of market attracted to a combination of attributes.
Discussion Question: What is the largest segment in the diagram? What brands serve that segment best?
Positioning may also lead to combining instead of segmenting, if a firm can successfully appeal to several segments with the same product.
Therefore, positioning studies can be part of a broader analysis because they:
identify important attributes of the product offerings in a market;
identify what offerings are likely to appeal to segments;
provide a basis for changing the marketing mix, should a marketer decide to reposition a product.
Nondeodorant
Deodorant

25. You should now be able to:
This slide relates to material on p. 90.
Know about defining generic markets and product-markets.
Know what market segmentation is and how to segment product-markets into submarkets.
Know three approaches to market-oriented strategy planning.
Know dimensions that may be useful for segmenting markets.
Know a seven-step approach to market segmentation that you can do yourself.
Know what positioning is and why it is useful.
You should now:
Know about defining generic markets and product-markets.
Know what market segmentation is and how to segment product-markets into submarkets.
Know three approaches to market-oriented strategy planning.
Know dimensions that may be useful for segmenting markets.
Know a seven-step approach to market segmentation that you can do yourself.
Know what positioning is--and why it is useful.

26. Key Terms Market Generic market Product market Market segmentation
This slide refers to boldfaced terms appearing in Chapter 4.
Market
Generic market
Product market
Market segmentation
Segmenting
Market segment
Single target market approach
Multiple target market approach
Combined target market approach
Combiners
Segmenters
Qualifying dimensions
Determining dimensions
Clustering techniques
Customer relationship management (CRM)
Positioning
Summary Overview
These are key terms you should be familiar with based upon the material in this presentation.
Key Issues
Market: a group of potential customers with similar needs who are willing to exchange something of value with sellers offering various goods and/or services--that is, ways of satisfying those needs.
Generic market: a market with broadly similar needs--and sellers offering various and often diverse ways of satisfying those needs.
Product-market: a market with very similar needs--and sellers offering various close substitute ways of satisfying those needs.
Market segmentation: a two-step process of: (1) naming broad product-markets and (2) segmenting these broad product-markets in order to select target markets and develop suitable marketing mixes.
Segmenting: an aggregating process that clusters people with similar needs into a market segment.
Market segment: a relatively homogeneous group of customers who will respond to a marketing mix in a similar way.
Single target market approach: segmenting the market and picking one of the homogeneous segments as the firm's target market.
Multiple target market approach: segmenting the market and choosing two or more segments, then treating each as a separate target market needing a different marketing mix.
Combined target market approach: combining two or more submarkets into one larger target market as a basis for one strategy.
Combiners: firms that try to increase the size of their target markets by combining two or more segments.
Segmenters: aim at one or more homogeneous segments and try to develop a different marketing mix for each segment.
Qualifying dimensions: the dimensions that are relevant to including a customer-type in a product-market.
Determining dimensions: the dimensions that actually affect the customer's purchase of a specific product or brand in a product-market.
Clustering techniques: approaches used to try to find similar patterns within sets of data.
Customer relationship management (CRM): an approach in which a seller fine-tunes the marketing effort with information from a customer database.
Positioning: an approach that refers to how customers think about proposed and/or present brands in a market.