1. CHAPTER 8 Segmenting and Targeting Markets
Lamb, Hair, McDaniel
Chapter 8 Segmenting and Targeting Markets
CHAPTER 8
Segmenting and
Targeting Markets
Marketing segmentation plays a key role in the marketing strategy of almost all successful organizations.
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2. © 2013 by Cengage Learning Inc. All Rights Reserved.
Chapter 8 Segmenting and Targeting Markets
A Market Is...
people or organizations with
needs or wants, and with
the ability and
the willingness to buy.
A group of people that lacks any one of these characteristics is NOT a market.
Notes:
The term market means different things to different people. We are all familiar with the supermarket, stock market, labor market, fish market, and flea market. All these types of markets share several characteristics.
Markets are composed of people or organizations with needs and wants that can be satisfied by particular product categories.
They have the ability to buy the products they seek, and are willing to exchange their resources for the desired products. 1
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Chapter 8 Segmenting and Targeting Markets
Market Segmentation
Market
Segment
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.
Notes:
Within a market, a market segment is a subgroup of people or organizations with one or more characteristics that cause them to have similar product needs.
Market segmentation is the division of a market into meaningful, relatively similar, and identifiable segments or groups. 1
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4. The Concept of Market Segmentation
Chapter 8 Segmenting and Targeting Markets
The Concept of Market Segmentation
Notes:
This graphic illustrates the concept of market segmentation, using age and gender as the bases.
Discussion/Team Activity:
Discuss other ways of segmenting the market in addition to age and gender.
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5. The Importance of Market Segmentation
Chapter 8 Segmenting and Targeting Markets
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
Notes:
Until the 1960s, market segmentation was not used extensively. Consider Coca-Cola with its one product aimed at the entire soft drink market. Today over a dozen different products are marketed by the company to different market segments.
Market segmentation plays a key role in the marketing strategy of organizations, leading to competitive advantage. The benefits are described on this slide.
Discussion/Team Activity:
Discuss how Coca-Cola’s product lines fit the needs of different market segments.
Name different fashion retailers and identify their marketing segmentation strategies. 2
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6. Criteria for Segmentation
Chapter 8 Segmenting and Targeting Markets
Criteria for Segmentation
Substantiality
Identifiability and Measurability
Accessibility
Responsiveness
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.
Notes:
Markets are segmented for three reasons:
Segmentation enables the identification of groups of customers with similar needs, and the analysis of the buying behavior of these groups.
Segmentation provides information for the specific matching of the design of marketing mixes with the characteristics of the segment.
Segmentation helps marketers satisfy customers wants and needs while meeting the organization’s objectives.
A segmentation scheme must produce segments that meet the four basic criteria as defined above. 3
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7. Bases for Segmentation
Chapter 8 Segmenting and Targeting Markets
Bases for Segmentation
Usage Rate
Benefits Sought
Psychographics
Demographics
Geography
Notes:
One or more of the characteristics listed above is used to segment markets. They are described on subsequent slides. 4
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8. Geographic Segmentation
Chapter 8 Segmenting and Targeting Markets
Geographic Segmentation
Region of the country or world
Market size
Market density
Climate
Notes:
Geographic segmentation of markets is based on the region, market size, market density (number of people within a unit of land), or climate. 4
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9. Benefits of Regional Segmentation
Chapter 8 Segmenting and Targeting Markets
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
Notes:
Consumer goods companies use a regional approach to marketing for the reasons shown on this slide.
Discussion/Team Activity:
Discuss the marketing of regional brands/products in various areas of the country. 4
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10. Demographic Segmentation
Chapter 8 Segmenting and Targeting Markets
Demographic Segmentation
Age
Gender
Income
Ethnic
Family life cycle
Notes:
Demographic information is widely available and often related to consumer behavior and buying.
Some common bases are age, gender, income, ethnic background, and family life cycle. 4
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Chapter 8 Segmenting and Targeting Markets
Age Segmentation
Marketers can segment markets using cohorts:
Tweens
Teens
Generation Y
Generation X
Baby Boomers
The War Generation (ages 61-66)
The Great Depression Generation (ages 67-76)
The G.I. Generation (ages 77+)
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Chapter 8 Segmenting and Targeting Markets
Gender Segmentation
Women make 70 percent of consumers goods purchases annually
Many marketers of male-dominated arenas are targeting women
Increasing numbers of marketers in female dominated categories are targeting men.
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Chapter 8 Segmenting and Targeting Markets
Income Segmentation
Determines consumer wants
Determines buying power
Retailers can appeal to:
low-income (Walmart)
High-income (Saks Fifth Avenue)
Both (Costco, Target)
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Chapter 8 Segmenting and Targeting Markets
Ethnic Segmentation
Largest ethnic markets are:
Hispanic Americans
African Americans
Asian Americans
Companies must make products geared toward specific ethnic groups as they continue to expand.
© Foodpix/Jupiterimages/Getty Images 4
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Chapter 8 Segmenting and Targeting Markets
Family Life Cycle
Age
Children
Marital Status
Notes:
Consumption patterns among people of the same age and gender differ because they are in different stages of the family life cycle stage.
The FLC is a series of stages determined by a combination of age, marital status, and the presence or absence of children. 4
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16. Exhibit 8.1 Family Life Cycle
Chapter 8 Segmenting and Targeting Markets
Exhibit 8.1 Family Life Cycle
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17. Psychographic Segmentation
Chapter 8 Segmenting and Targeting Markets
Psychographic Segmentation
Psychographic Segmentation
Market segmentation on the basis of personality, motives, lifestyles, and geodemographics.
Notes:
Demographics provide the skeleton, but psychographics add meat to the bones. 4
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18. Bases for Psychographic Segmentation
Chapter 8 Segmenting and Targeting Markets
Bases for Psychographic Segmentation
Personality
Motives
Lifestyles
Geodemographics 4
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19. Personality and Motive Segmentation
Reflects a person’s traits, attitudes, and habits.
Motives
Notes:
Personality reflects a person’s traits, attitudes, and habits. Consider the personality types that describe segmented Porsche buyers.
Motives: Carmakers might appeal to customers with status-related motives, whereas baby products appeal to emotional motives.
Marketers might appeal to emotional, rational, or status motives, among others. 4
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20. Lifestyle Segmentation
Chapter 8 Segmenting and Targeting Markets
Lifestyle Segmentation
How time is spent
Importance of things around them
Beliefs
Socioeconomic characteristics
Notes:
Lifestyle segmentation divides people into groups according to how time is spent, the importance of things around them, beliefs, and socioeconomic characteristics such as income and education. 4
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21. Geodemographic Segmentation
Chapter 8 Segmenting and Targeting Markets
Geodemographic Segmentation
Geodemographic
Segmentation
Segmenting potential
customers into
neighborhood lifestyle
categories.
Combines geographic,
demographic, and lifestyle segmentation. 4
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Chapter 8 Segmenting and Targeting Markets
Benefit Segmentation
Benefit Segmentation
The process of grouping customers into market segments according to the benefits they seek from the product.
Notes:
Benefit segmentation is different from other segmentation bases because it groups potential customers on the basis of their needs and wants instead of some other characteristic. 4
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23. Usage-Rate Segmentation
Chapter 8 Segmenting and Targeting Markets
Usage-Rate Segmentation
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.
Notes:
Most segmentation is based on the assumption that the selected variable(s) and customers’ needs are related. On the other hand, benefit segmentation groups potential customers on the basis of their needs or wants only.
Segmenting by usage rate enables marketers to focus efforts on heavy users or to develop multiple marketing mixes aimed at different segments.
The focus of marketing is often on the heavy-user segment, based on the 80/20 principle.
Discussion/Team Activity:
What programs do companies use to develop customers into heavy users? The list should include airline frequent flyer programs and in-store coupon dispensing. 4
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24. Bases for Segmenting Business Markets
Chapter 8 Segmenting and Targeting Markets
Bases for Segmenting Business Markets
Producers
Resellers
Government
Institutions
Company
Characteristics
Notes:
Company characteristics include geographic location, type of company, company size, and product use.
Segmenting by customer type allows business marketers to tailor their marketing mixes to the unique needs of particular types of organizations or industries.
Buying
Processes 5
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25. Company Characteristics
Chapter 8 Segmenting and Targeting Markets
Company Characteristics
Important segmentation variables:
Geographic location
Type of company
Company size
Product use 5
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26. Buyer Characteristics
Chapter 8 Segmenting and Targeting Markets
Buyer Characteristics
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.
Notes:
Many business marketers find it helpful to segment customers and prospective customers on the basis of how they buy.
Two purchasing profiles are satisficers and optimizers. Satisficers contact familiar suppliers and place the order with the first one to satisfy product and delivery requirements. Optimizers consider numerous suppliers, obtain bids, and study all proposals before selecting one. 5
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27. Buyer Characteristics
Chapter 8 Segmenting and Targeting Markets
Buyer Characteristics
Demographic characteristics
Decision style
Tolerance for risk
Confidence level
Job responsibilities
Notes:
The personal characteristics of the buyers influence their buying behavior and offer a viable basis for segmenting some business markets. 5
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28. Steps in Segmenting Markets
Chapter 8 Segmenting and Targeting Markets
Steps in Segmenting Markets 1
Select a market for study 2
Choose bases for segmentation 3
Select descriptors 4
Profile and analyze segments 5
Select target markets 6
Design, implement, and maintain marketing mix
Notes:
The purpose of market segmentation is to identify marketing opportunities. This slide traces the steps in segmenting a market.
(1) selecting a market or product category for study;
(2) choosing a basis or bases for segmenting the market;
(3) selecting segmentation descriptors;
(4) profiling and analyzing segments;
(5) selecting target markets; and
(6) designing, implementing, and maintaining appropriate marketing mixes.
Note that steps 5 and 6 occur after the segmentation scheme is developed.
Keep in mind that markets are dynamic and must be monitored proactively for changes in age, etc. Even though the segmentation classifications are static, the customers and prospects are changing.
Note that steps 5 and 6 are actually marketing activities
that follow market segmentation (steps 1 through 4). 6
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29. Strategies for Selecting Target Markets
Chapter 8 Segmenting and Targeting Markets
Strategies for Selecting Target Markets
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.
Notes:
Market segmentation is the first step in determining whom to approach about buying a product. The next task is to choose one or more target markets.
A target market is a group of people or organizations for which the organization designs, implements, and maintains a marketing mix to meet that group’s needs.
Because most markets will include customers with different lifestyles, backgrounds, and income levels, it is unlikely that a single marketing mix will attract all segments of the market. 7
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30. Strategies for Selecting Target Markets
Chapter 8 Segmenting and Targeting Markets
Strategies for Selecting Target Markets
Concentrated
Strategy
Undifferentiated
Multisegment
Notes:
The three general strategies for selecting target markets are undifferentiated, concentrated, and multisegment targeting. 7
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31. Undifferentiated Targeting Strategy
Chapter 8 Segmenting and Targeting Markets
Undifferentiated Targeting Strategy
A marketing approach that views the market as one big market with no individual segments and thus uses a single marketing mix.
Notes:
An undifferentiated targeting strategy is essentially a mass-market philosophy—viewing the market as one big market and using one marketing mix. 7
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32. Undifferentiated Targeting Strategy
Chapter 8 Segmenting and Targeting Markets
Undifferentiated Targeting Strategy
Undifferentiated
Strategy
Advantage:
Potential savings on production and marketing costs
Disadvantages:
Unimaginative product offerings
Company more susceptible to competition
Notes:
The first firm in an industry sometimes uses an undifferentiated targeting strategy.
Marketers of commodity products, such as flour and sugar, are also likely to use this strategy.
Even toilet tissue manufacturers have different segments—both industrial and consumer--and adopt different marketing mixes for different segments.
Additionally, small stores in small towns with no competition may offer one marketing mix and be successful. 7
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33. Concentrated Targeting Strategy Concentrated Targeting Strategy
Chapter 8 Segmenting and Targeting Markets
Concentrated Targeting Strategy
Concentrated Targeting Strategy
A strategy used to select one segment of a market for targeting marketing efforts.
Niche One segment of
a market.
Notes:
1. With a concentrated targeting strategy, a firm selects a niche for targeting its marketing efforts. 7
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34. Concentrated Targeting Strategy
Chapter 8 Segmenting and Targeting Markets
Concentrated Targeting Strategy
Advantage:
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
Concentrated
Strategy
Notes:
A concentrated strategy of focusing on a narrow market is sometimes more profitable than spreading resources over several different segments.
A concentrated strategy often enables small firms to compete effectively with much larger firms.
However, a concentrated strategy can also be disastrous for a firm that is not successful in its narrowly defined target market.
Discussion/Team Activity:
Identify firms that have adopted a niche strategy. Examples: watchmakers Patek Philippe, Rolex, and Breguet. Porsche, OshKosh B’Gosh, Orvis, Starbucks, AOL, and Enterprise Rent-A-Car. 7
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35. Multisegment Targeting Strategy
Chapter 8 Segmenting and Targeting Markets
Multisegment Targeting Strategy
Multisegment Targeting Strategy
A strategy that chooses two or more well-defined market segments and develops a distinct marketing mix for each.
Notes:
Multisegment targeting offers many potential benefits to firms, including greater sales volume, higher profits, larger market share, and economies of scale in manufacturing and marketing. 7
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36. Multisegment Targeting Strategy
Chapter 8 Segmenting and Targeting Markets
Multisegment Targeting Strategy
Multisegment
Strategy
Advantage:
Greater financial success
Economies of scale
Disadvantages:
Higher costs
Cannibalization
Notes:
Examples of multisegment targeting strategy include Best Buy, Gap, Walmart.
Discussion/Team Activity:
Walmart opened a pilot store in Plano, Texas, that stocks plasma TVs, fine jewelry, expensive wine, etc. Discuss ways that Walmart can attract upper-end customers. What marketing mix would you suggest? 7
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37. Costs of Multisegment Targeting Strategy
Chapter 8 Segmenting and Targeting Markets
Costs of Multisegment Targeting Strategy
Product design costs
Production costs
Promotion costs
Inventory costs
Marketing research costs
Management costs
Cannibalization
Notes:
Multisegment targeting does come with a price, including those costs shown on this slide. Before deciding on this strategy, firms should compare the benefits and costs of multisegment targeting to those of undifferentiated and concentrated targeting.
Cannibalization is a situation that occurs when sales of a new product cut into sales of a firm’s existing products. 7
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38. Explain one-to-one marketing
Chapter 8 Segmenting and Targeting Markets
One-to-One Marketing
Explain one-to-one marketing 8
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39. Information-Intensive
Chapter 8 Segmenting and Targeting Markets
One-to-One Marketing
Information-Intensive
Long-Term
One-to-One
Marketing is...
Individualized
Cost Reduction
Has a Goal of…
Customer Loyalty
Increased Revenue
Personalized
Customer Retention 8
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40. One-to-One Marketing Trends
Chapter 8 Segmenting and Targeting Markets
One-to-One Marketing Trends
One-size-fits all marketing no longer relevant
Direct and personal marketing efforts will grow to meet needs of busy consumers.
Consumers will be loyal to companies that have earned—and reinforced—their loyalty.
Mass-media approaches will decline as technology allows better customer tracking.
Notes:
These four major trends illustrate why one-to-one marketing is likely to grow.
Although mass marketing will continue to be used, especially to create brand awareness or remind consumers of a product, the advantages of one-to-one marketing cannot be ignored. 8
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41. © 2013 by Cengage Learning Inc. All Rights Reserved.
Chapter 8 Segmenting and Targeting Markets
Positioning
Positioning is…
developing a specific marketing mix to influence potential customers’ overall perception or a brand, product line, or organization in general.
Notes:
Position is the place a product, brand, or group of products occupies in consumers’ minds relative to competing offerings.
Positioning assumes that consumers compare products on the basis of important features. Effective positioning requires assessing the positions occupied by competing products, determining the important dimensions underlying these positions, and choosing a position in the market where the marketing efforts will have the greatest impact. 9
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42. Positioning of Procter & Gamble Detergents
Chapter 8 Segmenting and Targeting Markets
Positioning of Procter & Gamble Detergents
Brand
Positioning
Tide
Tough, powerful cleaning
Cheer
Tough cleaning, color protection
Bold
Detergent plus fabric softener
Gain
Sunshine scent and odor-removing formula
Era
Stan treatment and stain removal
Dash
Value brand
Solo
Detergent and fabric softener in liquid form
Dreft
Outstanding cleaning for baby clothes, safe
Ivory
Fabric and skin safety on baby clothes
Ariel
Tough cleaner, aimed at Hispanic market
Notes:
This slide compares the unique positions for Procter & Gamble’s laundry detergents.
Discussion/Team Activity:
Discuss specific advertisements for these detergents and how these ads illustrate the unique positions listed on this slide.
Examine the positioning message of other product advertisements.
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43. Effective Positioning
Chapter 8 Segmenting and Targeting Markets
Effective Positioning
Assess the positions occupied by competing products
Determine the dimensions underlying these positions
Choose a market position where marketing efforts will have the greatest impact 9
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44. Product Differentiation
Chapter 8 Segmenting and Targeting Markets
Product Differentiation
Product Differentiation is…
a positioning strategy that some firms use to distinguish their products from those of competitors. 9
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Chapter 8 Segmenting and Targeting Markets
Perceptual Mapping
Perceptual Mapping is…
a means of displaying or graphing, in two or more dimensions, the location of products, brands, or groups of products in customers’ minds.
Notes:
Exhibit 8.3 shows how Saks Incorporated uses customer demographics, such as age, spending habits, and shopping patterns, to build a matrix that charts the best mix of clothes and accessories to stock in each store. You may find Exhibit 8.3 on the next slide.
Discussion/Team Activity:
What is the target market and marketplace perception of some of Saks’ brands? What are Saks’ strengths in the marketplace? What are Saks’ weaknesses? How can Saks use perceptual mapping to enhance its product strategy? 9
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Chapter 8 Segmenting and Targeting Markets
Positioning Bases
Attribute
Price and Quality
Use or Application
Product User
Product Class
Competitor
Emotion
Notes:
The following bases for positioning are used:
Attribute: Association of a product with an attribute, a product feature, or customer benefit.
Price and quality: High price as a symbol of quality, or low price as an indicator of value may be used to position a product.
Use or application: Stressing use or applications.
Product user: Positioning base focuses on a personality or type of user.
Product class: Product is positioned as associated with a particular category of products.
Competitor: Positioning against competitors is a part of any positioning strategy.
Emotion: Positioning using emotion focuses on how the product makes customers feel.
One or more positioning bases is often used. 9
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47. © 2013 by Cengage Learning Inc. All Rights Reserved.
Chapter 8 Segmenting and Targeting Markets
Repositioning
Repositioning is…
changing consumers’ perceptions of a brand in relation to competing brands.
Notes:
Products are repositioned to sustain growth in slow markets or to correct positioning mistakes
Also, consider the expansion of Walmart into the supermarket industry. A consultant predicts that two supermarkets will go out of business for every Walmart superstore that opens in the U.S.
Discussion/Team Activity:
As giant Walmart expands into the supermarket industry, what repositioning strategies should its competitors consider? How do you compete with the low-price position of Walmart? 9
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