1. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University CHAPTER 8 Identifying Market Segments and Targets 8 - 1

2. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University After reading this chapter you should be able to: Explain what market segmentation is, when to use it, and the five steps involved in segmentation. Recognise the different factors used to segment consumer and organisational markets. 8 - 2

3. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University After reading this chapter you should be able to: Demonstrate the significance of heavy users in targeting markets. Develop a market-product grid to use in segmenting and targeting a market. Describe how marketing managers position products in the marketplace. 8 - 3

4. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Why Segment Markets? A business firm segments its markets so it can respond more effectively to the wants of groups of potential buyers and thus increase its sales and profits. Not-for-profit organisations also segment the clients they serve to satisfy client needs more effectively while achieving the organisation’s goals. Let’s consider (1) what market segmentation is and (2) when it is necessary to segment markets. 8 - 4

5. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Market Segmentation Overview 8 - 5

6. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University What Market Segmentation Means People have different needs and wants, even though it would be easier for marketers if they didn’t. Market segmentation involves aggregating prospective buyers into groups that (1) have common needs and (2) will respond similarly to a marketing action. The groups that result from this process are market segments, relatively homogeneous groups of prospective buyers. Each market segment consists of people who are relatively similar to each other in terms of their consumption behaviour. The existence of different market segments has caused firms to use a marketing strategy of product differentiation. This strategy involves a firm using different marketing mix activities, such as product features and advertising, to help consumers perceive the product as being different and better than competing products. 8 - 6

7. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Uncle Sam and Market Segmentation Uncle Sam was one of the first examples of successful market segmentation. Can you think of any examples? 8 - 7

8. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Segmentation: Linking Needs to Actions Market segmentation first stresses the importance of grouping people or organisations in a market according to the similarity of their needs and the benefits they are looking for in making a purchase. Second, such needs and benefits must be related to specific marketing actions the organisation can take. These actions may involve separate products or other aspects of the marketing mix such as price, advertising or personal selling activities, or distribution strategies. The process of segmenting a market and selecting specific segments as targets is the link between the various buyers’ needs and the organisation’s marketing program 8 - 8

9. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Example of a Market Segmentation Grid 8 - 9

10. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University When to Segment Markets A business firm goes to the trouble and expense of segmenting its markets when it expects that this will increase its sales, profit and return on investment. When expenses are greater than the potentially increased sales from segmentation, a firm should not attempt to segment its market. The specific situations that illustrate this point are the cases of: 1.one product and multiple market segments, 2.multiple products and multiple market segments and 3.‘segments of one’, or mass customisation. 8 - 10

11. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Example: Segmentation and Shampoo The text discusses the successful examples of Decore Shampoo and how it segmented the market and then successfully marketed products to each of these segments. Each of the products opposite have been successfully marketed at a specific segment. 8 - 11

12. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University The Segmentation Trade-Off: CRM versus Synergies The key to successful product differentiation and market segmentation strategies is finding the ideal balance between satisfying a customer’s individual wants and achieving organisational synergy, the increased customer value achieved through performing organisational functions more efficiently. The ‘increased customer value’ can take many forms: more products, improved quality on existing products, lower prices, easier access to product through improved distribution, and so on. 8 - 12

13. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Concept Check 1.Market segmentation involves aggregating prospective buyers into groups that have two key characteristics. –What are they? –What is product differentiation? 2.The process of segmenting and targeting markets is a bridge between what two marketing activities? 1. The groups should (1) have common needs and (2) respond similarly to a marketing action. 2.Product differentiation involves a firm’s using different marketing mix activities to help consumers perceive the product as being different and better than competing products. 3. These activities are (1) identifying market needs and (2) taking marketing actions. 8 - 13

14. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Steps in Segmenting and Targeting Markets 8 - 14

15. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Steps in Segmenting and Targeting Markets The process of segmenting a market and then selecting and reaching the target segments is divided into five steps. 1.Form Potential Buyers into Segments 2.Form Products to Be Sold into Groups 3.Develop a Market-Product Grid and Estimate Size of Markets 4.Select Target Markets 5.Take Marketing Actions to Reach Target Markets Segmenting a market is not a science—it requires large doses of common sense and managerial judgment. 8 - 15

16. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Step 1: Form Potential Buyers into Segments It’s not always a good idea to segment a market. Grouping potential buyers into meaningful segments involves meeting some specific criteria that answer the question: –Would segmentation be worth doing and is it possible? If so, the next step is to find specific variables that can be used to create the various segments. A marketing manager should develop segments for a market that meet five main criteria: 1.Potential for increased profit. The best segmentation approach is the one that maximises the opportunity for future profit and return on investment (ROI). 2.Similarity of needs of potential buyers within a segment. Potential buyers within a segment should be similar in terms of a marketing activity, such as product features sought or advertising media used. 3.Difference of needs of buyers among segments. If the needs of the various segments aren’t very different, combine them into fewer segments. A different segment usually requires a different marketing action that, in turn, means greater costs. If increased sales don’t offset extra costs, combine segments and reduce the number of marketing actions. 4.Potential of a marketing action to reach a segment. Reaching a segment requires a simple but effective marketing action. If no such action exists, don’t segment. 5.Simplicity and cost of assigning potential buyers to segments. A marketing manager must be able to put a market segmentation plan into effect. 8 - 16

17. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Ways to Segment Consumer Markets – Consumer Characteristics Two kinds of variables are generally used to segment consumer markets: (1) customer characteristics and (2) buying situations. Several customer characteristics used in segmenting consumer markets are based on those from the Australian and New Zealand census data: demographics (gender, age, race, household size); geographic (region, city size); and socioeconomic variables (income, education, occupation). In addition, psychographic characteristics like personality (gregarious, introverted, compulsive) and lifestyle (consumer activities, interests, opinions) can be used. 8 - 17

18. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Ways to Segment Consumer Markets - buying situations Buying situations are another way to segment consumer markets. These buying situations include benefits sought (product features, quality, service, warranty) and Usage (heavy user, light user, non-user). –Usage rate is sometimes referred to in terms of the 80/20 rule, a concept that suggests 80 per cent of a firm’s sales are obtained from 20 per cent of its customers. 8 - 18

19. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Variables to Use in Forming Segments Sometimes even the simplest variables which might be used to form segments, such as gender, do not appear to be used effectively by business and other organisations. Car manufacturers know that women represent 50 per cent of the car buying population and make or influence over 80 per cent of all purchasing decisions. As a result car companies make great efforts to attract women, but the weak link is typically the dealership experience. 8 - 19

20. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Ways to Segment Organisational Markets There are also a number of variables that might be used to segment organisational markets. –Location. –Exporters. –Number of employees. –Benefits sought. 8 - 20

21. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Step 2: Form Products to Be Sold into Groups As important as grouping customers into segments is finding a means of grouping the products you’re selling into meaningful categories. If the firm has only one product or service, this isn’t a problem, but when it has dozens or hundreds, these must be grouped in some way so buyers can relate to them. This is why department stores and supermarkets are organised into product groups, with the departments or aisles containing related merchandise. Likewise, manufacturers have product lines that are the groupings they use in the catalogues sent to customers. 8 - 21

22. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University A needs-based segmentation approach applied to some Australian beers 8 - 22

23. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Step 3: Develop a Market-Product Grid and Estimate Size of Markets Developing a market-product grid means labelling the markets (or horizontal rows) and products (or vertical columns), as shown opposite. In addition, the size of the market in each cell (the market-product combination) must be estimated. For our beer market, this involves estimating the sales of each brand. 8 - 23

24. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Step 4: Select Target Markets A firm must take care to choose its target market segments carefully. If it picks too narrow a group of segments, it may fail to reach the volume of sales and profits it needs. If it selects too broad a group of segments, it may spread its marketing efforts so thin that the extra expenses are more than the increased sales and profits. So how does a company do this? 8 - 24

25. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Criteria to Use in Picking the Target Segments It does this by using two different kinds of criteria. There are two different kinds of criteria in the market segmentation process: 1.those to use in dividing the market into segments (discussed earlier) and 2.those to use in actually picking the target segments. Even experienced marketing executives often confuse these two different sets of criteria. So ensure that you read the text on this point so you can see how it is done. 8 - 25

26. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Choose the Segments As is often the case in marketing decisions, a particular segment may appear attractive according to some criteria and very unattractive according to others. It is therefore critical to ensure that a company chooses the right segment or it could lose more than just money. Sometimes the entire future of the company could be placed in doubt. 8 - 26

27. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Step 5: Take Marketing Actions to Reach Target Markets The purpose of developing a market-product grid is to trigger marketing actions to increase sales and profits. This means that someone must develop and execute an action plan. How did the “Where the bloody hell are you?” campaign do this? 8 - 27

28. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Concept Check 1.What are some of the variables used to segment consumer markets? 2.What are some criteria used to decide which segments to choose for targets? 1.These variables include demographic (gender, age, etc.), geographic (region, city size, etc.), socioeconomic (income, education, etc.), psychographic (lifestyle, etc.), benefits sought (features, quality, etc.) and usage rate (light/medium/heavy user). 2.These criteria include market size, expected growth, competitive position, cost of reaching the segment, and compatibility with the organisation’s objectives and resources. 8 - 28

29. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Concept Check 3. Why is usage rate important in segmentation studies? 3. Usage rate is the quantity consumed during a specific time period and varies among different customer groups. In many cases, 80% of a firm’s sales are obtained from 20% of its customers—the “heavy users.” As a result, these target consumers are the most important to the firm. 8 - 29

30. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Market-Product Synergies: A Balancing Act Recognising opportunities for key synergies —that is, efficiencies—is vital to success in selecting target market segments and making marketing decisions. Market-product grids illustrate where such synergies can be found. How? Let’s consider a market product grid for oral care opposite and examine the difference between marketing synergies and product synergies shown there. 8 - 30

31. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Positioning the Product When a company offers a product for sale, a decision critical to its long-term success is how to position it in the market upon introduction. Product positioning refers to the space an offering occupies in consumers’ minds on important attributes relative to competitive offerings. A key to positioning a product or brand effectively is the perceptions of customers. In determining its position and the preferences of customers, companies obtain three types of data from consumers: 1.The important attributes for a product class. 2.Judgments of where existing products or brands are located on these attributes. 3.The location of the firm’s own product or brand on these attributes 8 - 31

32. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Product Positioning Using Perceptual Maps The firm can then develop market strategies to move its product or brand to any ‘ideal’ position. From these data, it is possible to develop a perceptual map, a means of displaying or graphing in two dimensions the location of products or brands in the minds of consumers to enable a manager to see how consumers perceive competing products or brands and then take marketing actions. 8 - 32

33. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Concept Checks 1.What is product positioning? 2.Why do marketers use perceptual maps in product positioning decisions? 1.Product positioning refers to the place an offering occupies in consumers’ minds on important attributes relative to competitive offerings. 2. Marketers use perceptual maps to display in two dimensions the location of their and competing products or brands to see how consumers perceive them and then take marketing actions. 8 - 33

34. Copyright  2008 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: The Core by Kerin et al Slides prepared by Andrew Hughes, Australian National University Finish Questions? 8 - 34