Think Marketing, 3e

Chapter 7: Market Segmentation and Target Marketing

CHAPTER 7
MARKET SEGMENTATION AND
TARGET MARKETING

Learning Objectives
LO1: Explain market segmentation and differentiate among the different forms of market
segmentation.
LO2: Describe the process used and information needed to identify and select target markets.
LO3: Explain the concept of market positioning and its role in contemporary marketing
practice.

CHAPTER SUMMARY

LO1 Explain market segmentation and differentiate among the different forms of market
segmentation.

A market was defined as a group of people having a similar need for a product or service, the
resources to purchase the product or service, and the willingness and ability to buy it.

When an organization offers a product or service to a wide range of consumers it is practising

mass marketing. Market segmentation involves the division of a large market into smaller
segments (or targets) based on common need and/or similar lifestyles. The marketer concentrates
on segments of the population by marketing different products to segments with different
characteristics. Other market segmentation alternatives are niche marketing, where an
organization targets a very small or narrow segment of the market, and direct segmentation,
where the organization targets customers on an individual basis.

With marketing segmentation the goal is to reach customers effectively. Advancing

technologies have enhanced the marketer’s ability to do so. Marketers can target customers
individually and send messages to where they live, a practice referred to as geo-targeting.
Through smartphones and GPS technology a marketer can track an individual’s whereabouts and
send messages to them as they move around, a practice referred to as location-based targeting.

LO2 Describe the process used and information needed to identify and select target
markets.

Segmenting a market involves three steps: identifying market segments, selecting the most
attractive segments to pursue, and positioning the product to appeal to the target market. The
marketer will use his or her knowledge of demographic trends in the population when identifying

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Chapter 7: Market Segmentation and Target Marketing

potential markets to pursue. The marketer will identify a profile of the target customer. The
profile is based on demographic, psychographic, geographic, and behaviour response
characteristics—whatever information is relevant to the situation.

Demographic characteristics include age, gender, income, education, occupation, marital

status, household formation, and ethnic background. Psychographic characteristics relate to the
lifestyle of the target and consider the target’s attitudes, interests, and opinions. Geographic
characteristics relate to where the target lives: urban, suburban, or rural locations. Behaviour
response segmentation considers the target’s occasion for using the product, the benefits they
require in the product, the frequency with which they use it, and their degree of brand loyalty.

The marketer develops a target market profile that considers relevant demographic,
psychographic, geographic, and behaviour response characteristics. The target market profile is a
key element of a marketing plan, since all marketing strategies are based on how well a marketer
understands the customer.

LO3 Explain the concept of market positioning and its role in contemporary marketing
practice.

Positioning involves designing a product or service to meet the needs of a target market and then
creating the appropriate marketing appeals so that the product stands out in the minds of
consumers. The goal is to plant a desirable image of the product in the customer’s mind.
Marketers describe how a brand is positioned in a positioning strategy statement, another key
element of a marketing plan. Many experts believe a sound positioning strategy is the foundation
of a marketing plan. Its importance is demonstrated by the fact that all marketing mix strategies
(product, price, distribution, and marketing communications) must fit with the positioning
strategy. Such integration is what creates the desirable image for the brand in the customer’s
mind.

Some common positioning strategies include head-on comparisons with competitors, brand
leadership, product differentiation, technical innovation, and lifestyle approaches. As a product
matures, such factors as competitive activity and changing consumer preferences will force the
re-evaluation of positioning strategies.

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CLASSROOM MANAGEMENT STRATEGIES

Here are some ideas for generating class discussion and participation:

1. Viewing the consumer persona in the Think Marketing box on The Nissan Juke, have students
write a consumer persona about themselves. How many demographic, psychographic, and
geographic characteristics can they identify about themselves? Without breaching confidentiality
(family socioeconomic status, sexual orientation, etc.) have students tally how many different
traits they could list and encourage them to build a lengthy list to illustrate how detailed market
segmentation can be.

2. To clearly demonstrate what market segmentation is, the simplest example for students is the
automobile industry. Have them divide (segment) the market based on price and product lines.
They should quickly come up with segments such as luxury, sport utility, crossover, mid-size,
compact, sub-compact, and economy. Have them identify specific brands in each segment. Then
ask them for a basic description of the typical driver (target consumer) in each segment (age,
income, and gender is a suitable start).

3. Ask students if they have been involved (unknowingly at the time) in any marketing strategy
that involves behavioural targeting and mass customization. Have they bought a personalized
product? Can they see the value in direct segmentation strategies?

4. Knowing basic demographic trends is one thing, but what are the implications of those trends?
Ask students for specific examples of brands or companies that have reacted to each trend: the
aging population, gender equality, changing household formations, and ethnic mix.

5. To generate discussion about psychographic segmentation, ask students to compare and

contrast the strategies employed by Coors Light beer and Bud Light beer. Have them identify the
primary target demographically, then have them address how each brand appeals to their
respective target. A comparison of Coca-Cola Classic and Pepsi-Cola is another good option.
These brands have different primary targets, so the lifestyle associations are different.

6. Regarding geographic segmentation, ask students to identify what areas a company should
focus on if it wants to be successful. The purpose is to get students examining where people
actually live and to determine how important key urban areas are in the success and failure of a
company. A quick examination of population (on a percentage basis) quickly puts things into
perspective.

7. Most companies practice market differentiation (i.e., they cover several bases in a market).
How does a niche player survive? Ask the students to assess the marketing strategies and success
of a few key niche companies or brands. This exercise should be planned in advance by asking
the students to do some secondary research and bring their findings to the next class.

8. Most fast-food restaurants have added all kinds of menu items well beyond their established
core products—the practice of market integration. Seek the students’ opinions of such a strategy.

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Doesn’t such a strategy just widen the choice consumers have each time they seek a restaurant
meal? Should these restaurants be trying a different marketing strategy? Ask for
recommendations.

9. Briefly explain the various types of positioning strategies, but then ask students for at least two
new examples of each type. Ask them to explain their examples based on what they have seen,
heard, and read about the brands or companies they mention.

ANSWERS TO EXPERIENCE MARKETING QUESTIONS

7-UP
Students should have no difficulty developing a demographic, psychographic, and behavioural
profile of the tween market. Once a profile has been developed, students should choose a
positioning strategy for new 7Up flavours. Specific marketing strategy recommendations based
on product, price, marketing communications, and distribution can be made to effectively target
tweens. Students need to ensure that their chosen positioning strategy is implemented in all the
elements of the marketing strategy for a consistent approach.

ANSWERS TO END-OF-CHAPTER QUESTIONS

Review Questions

1. What is the difference between mass marketing and market segmentation? Briefly explain.
(LO1)

Mass marketing involves one basic strategy that appeals to a broad range of consumers. Market
segmentation divides a large market into smaller markets based on certain variables for the
purposes of developing more targeted marketing strategies.

2. What is niche marketing and what are the risks associated with this form of market
segmentation? (LO1)

Niche marketing takes market segmentation a step further. A subgroup within a segment is
identified and a marketing strategy is designed to target the subgroup. Niche marketing is risky
because consumers are fickle—what’s popular today may not be tomorrow. If they move away
from your product and that’s all you offer, you are out of business. In using a niche strategy an
organization must have the capability of acting fast—to get in and out of markets quickly if need
be. Lengthy decision-making processes, a situation that exists in many large organizations, can
hamper the pursuit of unique niche marketing opportunities.

3. What is direct segmentation? Briefly explain. (LO1)

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Chapter 7: Market Segmentation and Target Marketing

Direct segmentation is a situation where unique marketing programs are devised for individual
customers (e.g., Dell customizes computers for each person placing an order). Technology is the
driving force behind direct segmentation. The Internet is the primary tool for communicating
with customers directly. As more companies adopt database management techniques, direct
segmentation will grow. Direct segmentation is efficient because no money is wasted dealing
with customers that will never buy the product.

4. What is the relationship between behavioural targeting and the concept of mass
customization? Briefly explain. (LO1)

Behavioural targeting tracks people’s preferences in an online environment. Those preferences

should lead to unique products and offers from organizations that are tracking the preferences.
Simply keeping track of what a customer does while visiting a company website provides
information for developing unique marketing strategies—the concept of mass customization.

5. What is a target market profile? (LO2)

A target market profile is a description of an ideal customer. It embraces demographic,

psychographic, and geographic characteristics as well as behavioural responses of potential
customers.

6. What is the difference between demographic segmentation, psychographic segmentation, and

geographic segmentation? Briefly explain. (LO2)

Demographic segmentation is the division of a market according to age, sex, marital status,
income, education, and ethnic background (descriptive variables). Psychographic segmentation is
the division of a market by activities, interests, and opinions (a person's lifestyle). Geographic
segmentation divides a market by place of residence (a region, city, or area within a city).

7. Why it is important for marketing organizations to monitor demographic and social trends in
Canada? Briefly explain. (LO2)

Monitoring demographic trends is vital to the development of an effective marketing strategy.

Organizations must continuously monitor variables such as age distribution, income, household
formation, and the increasing importance of ethnic markets. The marketplace is volatile, so
changes in marketing strategy must be considered. How a product appeals to a target market
today may not work five or ten years from now. Any example of repositioning demonstrates this
principle.

8. What is geodemographic segmentation and how can it be applied in marketing practice? (LO2)

Geodemographic segmentation divides a market based on a combination of demographic

characteristics with geographic characteristics based on the assumption that people seek out
residential neighbourhoods that include their lifestyle peers. In practice, an upscale shop may
wish to target younger, higher-income households clustered in redeveloped downtown areas.

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9. Briefly describe the four types of behaviour response segmentation, and provide an example of
each. (LO2)

The four types of behaviour response segmentation are

a) Occasion for Use: Showing how a product can be used for different occasions (e.g.,
orange juice is more than just a morning beverage)
b) Benefits Sought: Different consumers buy a product to satisfy different needs.
Therefore, if a product offers multiple benefits, they all should be communicated to the
consumer (e.g., breakfast cereals designed for “sweet tooths” and “health nuts”).
c) Usage Rate: This form of segmentation deals with frequency of purchase. Marketers
identify the heavy user and then present their product in a way that will attract more users
with a similar profile (e.g., beer marketing is more focused on young males).
d) Loyalty Response: The organization determines the characteristics of the brand-loyal
user and then develops strategies to attract users with similar profiles and behaviour
tendencies (e.g., Nike targeting loyal followers as the majority of its buyers).

10. Explain the relevance of positioning and repositioning in marketing practice. (LO3)

Given the high degree of competition in the marketplace, positioning is a concept that must be
understood. Positioning is a means of presenting a product to consumers so that they have a
desirable image of it. It focuses on unique features of a product in an effort to clearly distinguish
one product from another in the minds of consumers. Marketing strategies evolve from a
product's positioning. Repositioning is a strategy that attempts to change the image of a product
in the consumer's mind. As the marketplace changes and as a product moves through its life
cycle, such a change is necessary if a product is to stay in tune with the needs of the customer.

Discussion and Application Questions

1. Can one branded product be successfully positioned to be attractive to several different target
markets (e.g., Generation Y and baby boomers) at the same time? Discuss and provide examples
to strengthen your position.

Answers to this question will vary. Encourage students to examine some local companies who
target specific segments of the market and then allocate all their resources to satisfying that
segment.

2. How important is it for an organization to devise specific marketing strategies for the Quebec
market? Should unique strategies be developed for other regions and other cultural groups that
exist in major urban areas? Discuss and offer an opinion on the issue.

Marketing to French Quebec with unique strategies is very important today. The target
characteristics and behaviours are easy to identify and use to advantage. The market is sizable
and therefore should be profitable for marketers who are serious about attracting their loyalty.
Other cultural groups can also be targeted with specific messaging and outreach, but launching

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completely separate campaigns is not always realistic given limited resources. Marketers need to
be creative (i.e., offering multilingual workshops or events).

3. Conduct some secondary research to update the status of location-based marketing in Canada.
Has this marketing tool benefited Canadian companies? Provide some examples to verify the
benefits of this form of marketing.

Canadians have used location-based marketing extensively. Students can research products that
are targeted regionally, such as magazines or products that are only available in urban versus
rural areas. A major benefit of location-based marketing is that when combined with
demographics a marketer can obtain a better description of the target market and develop a
marketing strategy that will meet the unique needs of that market. Another advantage is that the
market can be easily measured because membership based on location is not ambiguous. Also,
targeting may be easier because advertising and promotional activities can be limited to a
geographic border.

4. Provide a new example of a company or brand that employs a brand leadership positioning
strategy. With regard to the consumer they are trying to reach and their competition, how
effective is this strategy? Assess and offer an opinion.

Answers will vary depending on the brands chosen. Ensure students uncover examples that truly
display brand leadership positioning versus lifestyle or product differentiation and encourage
them to back up their views on whether the strategy is effective.

ADDITIONAL ASSIGNMENTS

1. Consider several of the basic demographic traits that can be used to segment an audience (e.g.,
gender, age, and ethnicity). Have students list products, services, or companies that would only
market to an individual based on those specific traits. For deeper learning, have students research
all of the questions on Statistics Canada’s census form and consider how a company could
segment based on less common demographic traits and which types of products would be
interested in such demographic variables (relationship status, dating services; education level,
newspapers; household composition, daycares; commuting hours, satellite radio; etc.).

2. From a predetermined list of market categories in your local market (e.g., sporting goods
stores, electronics stores, shoe stores, bars), have students identify and assess the positioning of
all competitors. Place each competitor on a perceptual map. Based on their analysis of the
competitive situation, have students identify the best opportunity for a new competitor. Where
should a new competitor position itself to offer something unique to potential customers? Why?

3. Have students conduct secondary research to develop a marketing strategy profile for a
product, service, or company that has been repositioned to appeal to an older target market. What
changes have been made in its marketing strategy?

4. Have students review the marketing strategy of a product or service that is truly unique to your
geographic region. If this product or service were to expand into another geographic area (select

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a specific region) what changes would be necessary in marketing strategy? Such an assignment
will get students thinking about geographic segmentation and psychographic segmentation in
more detail.

5. Have students identify a company that uses a niche marketing strategy. The purpose of the
assignment is to assess potential opportunities and threats to that company to identify potential
changes in future marketing strategy. Areas the students might consider include the economy,
competition, technology, and changes in consumer preferences.

6. Select several markets and have students identify the positioning strategies of the leading
brands in each segment. Markets such as soft drinks, blue jeans, coffee, laundry detergents, and
shampoos are ideal for this type of exercise. What is the differential advantage of each major
brand?

7. Evaluate the marketing strategy of a prominent local retailer in your geographic area. The
evaluation should include the key concepts in the chapter: market segmentation, target market
identification, marketing strategy, and positioning.

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