Chapter 7

Targeting
Attractive
Market
Segments

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
 Market Segmentation and Target
Marketing in Today’s Economy
• Market segmentation is the process by
which a market is divided into distinct
subsets of customers with similar needs
and characteristics.
• Target marketing requires evaluating the
relative attractiveness of various
segments.

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 Market Segmentation and Target
Marketing in Today’s Economy
• Brand positioning entails designing
product offerings and marketing programs
that can establish an enduring competitive
advantage in the target market by creating
a unique brand image, or position.
• These three decision processes are
closely linked and have strong
interdependence.

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 Market Segmentation and Target
Marketing in Today’s Economy
• Most markets are heterogeneous
– Markets are complex entities that can be
defined in a variety of ways.
– Critical issue: Finding an appropriate
segmentation scheme that will facilitate target
marketing, positioning, and the formulation of
successful marketing strategies and
programs.

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Importance of Market Segmentation in the
Development of Marketing Strategies
– Slowing population growth in many
developed countries, and maturing product-
markets.
– Social and economic forces have produced
customers with more varied and
sophisticated needs, tastes, and lifestyles
than ever before.
– Trend toward micro segmentation.
– Ease of implementing sharply focused
marketing programs
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 How are Market Segments Best
Defined?
• Steps in market segmentation:
– Identify a homogeneous segment that
differs from other segments.
– Specify criteria that define the segment.
– Determine segment size and potential.

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 How are Market Segments Best
Defined?
• Segmentation decisions are best made
based on:
– Who the customers are,
– Where they are, or
– How they behave relevant to the market in
question.
• The three approaches apply in both
consumer and organizational markets.

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 How are Market Segments Best
Defined?
• Segmenting demographically
– Demographic attributes used to segment
consumer markets are age; sex; income;
occupation; education; race and ethnic
origin.
– Industrial markets are segmented in two
stages:
• Macrosegmentation
• Microsegmentation

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 How are Market Segments Best
Defined?
• Segmenting geographically
– Particularly important in retailing and many
services businesses.
– One way to segment retail markets is by
distance or driving time from a particular
location.
– The area included within such a
geographically defined region is called a
trade area.

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 How are Market Segments Best
Defined?
• Geodemographic segmentation
– Market segmentation within the geographic
regions.
– Useful in assessing the size and market
potential of a market segment defined by a
particular trade area.
– Attempts to predict consumer behavior by
making demographic, psychographic, and
consumer information available at the block
and zip code or postcode levels.
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 How are Market Segments Best
Defined?
• Behavioral segmentation
– Behavioral descriptors are based not on who
the target consumers are or where they live,
but based on what they do.
– Behavioral attributes can take many forms.

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 How are Market Segments Best
Defined?
– Consumer needs:
• Customer needs are expressed in benefits
sought from a particular product or service.
• Consumers evaluate brand alternatives on the
basis of choice criteria.
• In organizational markets, customers consider
relevant benefits that include product
performance in different use situations.

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 How are Market Segments Best
Defined?
– Product usage and purchase influence
• Product-related attributes include product usage,
loyalty, purchase predisposition, and purchase
influence.
• Product usage is important because in many
markets a small proportion of customers makes
a high percentage of purchases.
• In organizational markets, customers are better
known, and heavy users are easier to identify.

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 How are Market Segments Best
Defined?
– Lifestyle
• Segmentation by lifestyle, or psychographics,
segments markets on the basis of consumers’
activities, interests, and opinions.
• Stanford Research Institute (SRI) has created a
U.S. segmentation service (called VALS 2),
which builds on the concept of self-orientation
and resources for the individual.

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 How are Market Segments Best
Defined?
– Organizational behavioral attributes
• Purchasing structure and buying situation
segmentation attributes are unique to
organizational markets.
• Purchasing structure is the degree to which the
purchasing activity is centralized.
• The buying situation attribute includes three
distinct types of situations: straight rebuy;
modified rebuy; and a new buying situation.

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 How are Market Segments Best
Defined?
• Innovative segmentation
– Understanding the demographic profile of a
target market enables the marketer to better
choose targeted marketing communication
vehicles.
– At the foundation of many a marketing
breakthrough one often finds an insightful
segmentation scheme that is sharply
focused in a behavioral way.

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Choosing Attractive Market Segments:
A Five-Step Process
• Within an established firm it is often better
to apply a common analytical framework
across segments.
– Market-attractiveness/competitive-position
matrix

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Steps in Constructing a Market-Attractiveness/Competitive-
Position Matrix for Evaluating Potential Target Markets

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Choosing Attractive Market Segments:
A Five-Step Process
• Step 1: Select market-attractiveness and
competitive-position factors
– Market-attractiveness factors
– Competitive-position factors
• Step 2: Weight each factor
– A numerical weight is assigned to each
factor to indicate its relative importance in
the overall assessment

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Choosing Attractive Market Segments:
A Five-Step Process
• Step 3: Rate segments on each factor,
plot results on matrices
– This step requires that evidence be collected
to objectively assess each of the criteria
identified in Step 1.
– Once assessments have been made, the
weighted results can be plotted on a market-
attractiveness/competitive-position matrix

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Market-Attractiveness/Competitive-Position Matrix

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Choosing Attractive Market Segments:
A Five-Step Process
• Step 4: Project future position for each
segment
– Determine how the market’s attractiveness
is likely to change over the next three to five
years.
– For this assessment, start by considering:
• Possible shifts in customer needs and behavior.
• The entry or exit of competitors and changes in
their strategies.

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Choosing Attractive Market Segments:
A Five-Step Process
– Managers must also address several
broader issues:
• Possible changes in product or process
technology.
• Shifts in the economic climate.
• The impact of social or political trends.
• Shifts in the bargaining power or vertical
integration of customers.

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Choosing Attractive Market Segments:
A Five-Step Process
• Step 5: Choose segments to target,
Allocate resources
– Managers should consider a market
segment to be a desirable target only if it is
strongly positive on at least one of the two
dimensions of market attractiveness and
potential competitive position and at least
moderately positive on the other.

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Implications of Alternative Positions within the Market-Attractiveness/
Competitive-Position Matrix for Target Market Selection, Strategic
Objectives, and Resource Allocation

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 Different Targeting Strategies Suit
Different Opportunities
• Niche-market strategy
– Involves serving one or more segments that,
while not the largest, consist of a sufficient
number of customers seeking somewhat-
specialized benefits from a good or service.
– Designed to avoid direct competition with
larger firms that pursue bigger segments.

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 Different Targeting Strategies Suit
Different Opportunities
• Mass-market strategy
– A business can pursue a mass-market
strategy in two ways:
• Ignore any segment differences and design a
single product-and-marketing program that will
appeal to the largest number of consumers.
• Design separate products and marketing
programs for the differing segments
(differentiated marketing).

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 Different Targeting Strategies Suit
Different Opportunities
• Growth-market strategy
– Businesses often target one or more fast-
growth segments, even though these
segments may not currently be very large.
– Usually requires strong R&D and marketing
capabilities, plus the resources to finance
rapid growth.

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 Global Market Segmentation

• Traditional approach to global market

segmentation is flawed because it:
– Relies on country variables rather than
consumer behavior.
– Assumes homogeneity within the country
segment.
– Ignores the possibility of the existence of
homogeneous groups of consumers across
country segments

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 Global Market Segmentation

• More and more companies are

approaching global market segmentation
by attempting to identify consumers with
similar needs and wants reflected in their
behavior in the marketplace in a range of
countries.

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 Global Market Segmentation

• Reasons why companies expand

internationally:
– To defend their home position against global
competitors who are constantly looking for
vulnerability.
– To service customers who are also
engaging in global expansion.
– To earn foreign exchange.

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 Take-Aways

• Marketers and entrepreneurs who find

new and insightful ways to segment
mature markets often uncover
opportunities for uncontested market
entry and rapid growth.
• Sharply focused target marketing
enables marketers to differentiate from
mass-market leaders by giving
consumers in a narrowly defined market
segment what they want.
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 Take-Aways

• Focused market entry strategies

conserve resources and facilitate early
success.
• The five-step procedure provided in this
chapter identifies segments having the
highest potential.

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 Take-Aways

• The market-attractiveness/competitive-
position matrix is a useful analytical
framework for deciding which markets or
market segments to enter and from
which to withdraw.

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