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Segmenting and Targeting Markets
CHAPTER

7
Introduction to Marketing
Designed by Eric Brengle B-books, Ltd.

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Prepared by Deborah Baker Texas Christian University
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McDaniel, Lamb, Hair

Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved

LOI

Market Segmentation

Describe the characteristics of markets and market segments

Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved

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A Market Is...
(1) (2) (3) (4) 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.

LOI
Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 3

identifiable segments or groups. a division of Thomson Learning. Market Segment A subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs. All rights reserved . 4 Chapter 7 Copyright ©2008 by South-Western. relatively similar. Market Segmentation The process of dividing a market into meaningful.LOI Market Segmentation Market People or organizations with needs or wants and the ability and willingness to buy.

a division of Thomson Learning. All rights reserved 5 .LOI The Concept of Market Segmentation Chapter 7 Copyright ©2008 by South-Western.

a division of Thomson Learning.LO2 The Importance of Market Segmentation Explain the importance of market segmentation Chapter 7 Copyright ©2008 by South-Western. All rights reserved 6 .

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 LO2 Chapter 7 Copyright ©2008 by South-Western. All rights reserved 7 . a division of Thomson Learning.

LO2

REVIEW LEARNING OUTCOME
The Importance of Market Segmentation
More precise definition of customers needs and wants

Market segmentation

More accurate marketing objectives

Improved resource allocation

Better marketing results
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Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved

LO3

Criteria for Successful Segmentation

Discuss criteria for successful market segmentation

Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved

9

LO3

Criteria for Segmentation
Substantiality 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.
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Identifiability and Measurability

Accessibility

Responsiveness

Chapter 7 Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved

yes: Useful segmentation scheme Chapter 7 Copyright ©2008 by South-Western. All rights reserved 11 . a division of Thomson Learning.LO3 REVIEW LEARNING OUTCOME Successful Market Segmentation Useful segment? Substantial Identifiable and measurable Accessible Responsive Then.

All rights reserved 12 . a division of Thomson Learning.LO4 Bases for Segmenting Consumer Markets Describe the bases commonly used to segment consumer markets Chapter 7 Copyright ©2008 by South-Western.

a division of Thomson Learning. groups. All rights reserved 13 . or organizations used to divide a total market into segments.LO4 Bases for Segmenting Consumer Markets Segmentation Bases Characteristics of individuals. (variables) Chapter 7 Copyright ©2008 by South-Western.

All rights reserved LO4 14 .Bases for Segmentation Geography Demographics Psychographics Benefits Sought Usage Rate Chapter 7 Copyright ©2008 by South-Western. a division of Thomson Learning.

LO4 Geographic Segmentation Region of the country or world Market size Market density Climate Chapter 7 Copyright ©2008 by South-Western. All rights reserved 15 . a division of Thomson Learning.

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 Chapter 7 Copyright ©2008 by South-Western. All rights reserved 16 LO4 . a division of Thomson Learning.

LO4 Demographic Segmentation Age Gender Income Ethnic background Family life cycle Chapter 7 Copyright ©2008 by South-Western. All rights reserved 17 . a division of Thomson Learning.

S. population by 2010 with buying power of $1 trillion annually Chapter 7 Copyright ©2008 by South-Western. All rights reserved LO4 18 . a division of Thomson Learning.Ethnic Segmentation Largest ethnic markets are: – Hispanic Americans – African Americans – Asian Americans Will comprise 1/3 of U.

LO4 Family Life Cycle Age Marital Status Children Chapter 7 Copyright ©2008 by South-Western. a division of Thomson Learning. All rights reserved 19 .

All rights reserved 20 .LO4 Family Life Cycle Chapter 7 Copyright ©2008 by South-Western. a division of Thomson Learning.

LO4 Psychographic Segmentation Psychographic Segmentation Market segmentation on the basis of personality. and geodemographics. All rights reserved 21 . motives. Chapter 7 Copyright ©2008 by South-Western. lifestyles. a division of Thomson Learning.

marthastewart.com Online Chapter 7 Copyright ©2008 by South-Western.com http://www.goodhousekeeping. All rights reserved 22 . a division of Thomson Learning.LO4 Bases for Psychographic Segmentation Personality Motives Lifestyles Geodemographics http://www.

All rights reserved 23 . a division of Thomson Learning.LO4 Lifestyle Segmentation How time is spent Importance of things around them Beliefs Socioeconomic characteristics Chapter 7 Copyright ©2008 by South-Western.

a division of Thomson Learning.LO4 The Breakfast Club 24 Chapter 7 Copyright ©2008 by South-Western. All rights reserved .

a division of Thomson Learning. and lifestyle segmentation. Chapter 7 Copyright ©2008 by South-Western. Combines geographic. demographic.LO4 Geodemographic Segmentation Geodemographic Segmenting potential customers Segmentation into neighborhood lifestyle categories. All rights reserved 25 .

All rights reserved 26 .LO4 Benefit Segmentation Benefit Segmentation The process of grouping customers into market segments according to the benefits they seek from the product. a division of Thomson Learning. Chapter 7 Copyright ©2008 by South-Western.

LO4 Benefit Segmentation Usage-Rate Segmentation Dividing a market by the amount of product bought or consumed. a division of Thomson Learning. Chapter 7 Copyright ©2008 by South-Western. 80/20 Principle A principle holding that 20 percent of all customers generate 80 percent of the demand. All rights reserved 27 .

“Cell Carriers to Web Customers: Use Us. but Not too Much. Sprint Nextel and others allow consumers with standard contracts to access the Internet via cellular high-speed services. Chapter 7 Copyright ©2008 by South-Western. 2006. a division of Thomson Learning. B1.LO4 Example of Usage-Rate Verizon. May 11. Sprint and Cingular Wireless charge based on usage: the amount of data bits they wirelessly transfer each month. All rights reserved 28 . Some customers’ service is being cancelled because they are using excessive network capacity. SOURCE: Amol Sharma and Dionne Searcey.” Wall Street Journal.

All rights reserved 29 . a division of Thomson Learning.LO4 REVIEW LEARNING OUTCOME Bases for Segmenting Consumer Markets Geography Demographics Psychographics Benefits Usage Rate • Region • Market size • Market density • Climate • • • • • Age Gender Income Race/ethnicity Family life cycle • • • • Personality Motives Lifestyle Geodemographics • Benefits sought • • • • Former Potential 1st time Light or irregular • Medium • Heavy Chapter 7 Copyright ©2008 by South-Western.

LO5 Bases for Segmenting Business Markets Describe the bases for segmenting business markets Chapter 7 Copyright ©2008 by South-Western. All rights reserved 30 . a division of Thomson Learning.

a division of Thomson Learning. All rights reserved Buying Processes 31 .LO5 Bases for Segmenting Business Markets Producers Resellers Government Institutions Company Characteristics Chapter 7 Copyright ©2008 by South-Western.

All rights reserved 32 .Bases for Segmenting Business Markets Company Characteristics Geographic location Type of company Company size Volume of purchase Product use LO5 Chapter 7 Copyright ©2008 by South-Western. a division of Thomson Learning.

All rights reserved . both familiar and unfamiliar. Satisficers Optimizers Business customers who consider numerous suppliers. a division of Thomson Learning. and study all proposals carefully before selecting one. 33 Chapter 7 Copyright ©2008 by South-Western. solicit bids.LO5 Buyer Characteristics Business customers who place an order with the first familiar supplier to satisfy product and delivery requirements.

All rights reserved 34 .LO5 Buyer Characteristics Demographic characteristics Decision style Tolerance for risk Confidence level Job responsibilities Chapter 7 Copyright ©2008 by South-Western. a division of Thomson Learning.

All rights reserved .LO5 REVIEW LEARNING OUTCOME Segmenting Business Markets Company Characteristics Producers Governments Resellers Institutions Buying Process 35 Chapter 7 Copyright ©2008 by South-Western. a division of Thomson Learning.

All rights reserved 36 .LO6 Steps in Segmenting a Market List the steps involved in segmenting markets Chapter 7 Copyright ©2008 by South-Western. a division of Thomson Learning.

All rights reserved 37 . implement.LO6 REVIEW LEARNING OUTCOME Steps in Segmenting Markets Select a market for study Choose bases for segmentation Select descriptors Profile and analyze segments Select target markets Design. a division of Thomson Learning. maintain marketing mix 1 2 3 4 5 6 Chapter 7 Copyright ©2008 by South-Western.

LO7 Strategies for Selecting Target Markets Discuss alternative strategies for selecting target markets Chapter 7 Copyright ©2008 by South-Western. a division of Thomson Learning. All rights reserved 38 .

implements.LO7 Strategies for Selecting Target Markets Target Market A group of people or organizations for which an organization designs. All rights reserved 39 . a division of Thomson Learning. resulting in mutually satisfying exchanges. Chapter 7 Copyright ©2008 by South-Western. and maintains a marketing mix intended to meet the needs of that group.

All rights reserved 40 .LO7 Strategies for Selecting Target Markets Undifferentiated Strategy Concentrated Strategy Multisegment Strategy Chapter 7 Copyright ©2008 by South-Western. a division of Thomson Learning.

LO7 Undifferentiated Targeting Strategy Undifferentiated Targeting Strategy A marketing approach that views the market as one big market with no individual segments and thus requires a single marketing mix. All rights reserved 41 . a division of Thomson Learning. Chapter 7 Copyright ©2008 by South-Western.

All rights reserved 42 .LO7 Undifferentiated Targeting Strategy Advantage: Potential savings on production and marketing costs Disadvantages: Unimaginative product offerings Undifferentiated Strategy Company more susceptible to competition Chapter 7 Copyright ©2008 by South-Western. a division of Thomson Learning.

a division of Thomson Learning. Niche One segment of a market.LO7 Concentrated Targeting Strategy Concentrated Targeting Strategy A strategy used to select one segment of a market for targeting marketing efforts. All rights reserved 43 . Chapter 7 Copyright ©2008 by South-Western.

All rights reserved 44 . or changing Large competitors may market to niche segment Chapter 7 Copyright ©2008 by South-Western. a division of Thomson Learning.LO7 Concentrated Targeting Strategy Advantages: Concentration of resources Meets narrowly defined segment Small firms can compete Strong positioning Disadvantages: Concentrated Strategy Segments too small.

All rights reserved 45 .LO7 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. Chapter 7 Copyright ©2008 by South-Western. a division of Thomson Learning.

All rights reserved 46 . a division of Thomson Learning.LO7 Multisegment Targeting Strategy Advantages: Greater financial success Economies of scale Disadvantages: High costs Cannibalization Multisegment Strategy Chapter 7 Copyright ©2008 by South-Western.

LO7 Costs of Multisegment Targeting Product design costs Production costs Promotion costs Inventory costs Marketing research costs Management costs Cannibalization Chapter 7 Copyright ©2008 by South-Western. All rights reserved 47 . a division of Thomson Learning.

All rights reserved 48 . a division of Thomson Learning. Chapter 7 Copyright ©2008 by South-Western.LO7 Cannibalization Cannibalization Situation that occurs when sales of a new product cut into sales of a firm’s existing products.

LO7 REVIEW LEARNING OUTCOME Alternatives for Selecting Target Markets Undifferentiated Multisegment Concentrated Chapter 7 Copyright ©2008 by South-Western. All rights reserved 49 . a division of Thomson Learning.

LO8 One-to-One Marketing Explain one-to-one marketing Chapter 7 Copyright ©2008 by South-Western. All rights reserved 50 . a division of Thomson Learning.

Chapter 7 Copyright ©2008 by South-Western. All rights reserved 51 . a division of Thomson Learning. and profitable relationships with each customer.LO8 One-to-One Marketing One-to-One Marketing An individualized marketing method that utilizes customer information to build long-term. personalized.

Has a Goal of… Individualized Information-Intensive Long-Term Personalized Cost Reduction Customer Retention Increased Revenue Customer Loyalty Chapter 7 Copyright ©2008 by South-Western.LO8 One-to-One Marketing One-to-One Marketing is. All rights reserved 52 ... a division of Thomson Learning.

One-to-One Marketing Trends 1. a division of Thomson Learning. Consumers will be loyal to companies that have earned—and reinforced—their loyalty. 4. One-size-fits all marketing no longer effective 2. Direct and personal marketing will grow to meet needs of busy consumers. Mass-media approaches will decline as technology allows better customer tracking. 3. All rights reserved LO8 53 . Chapter 7 Copyright ©2008 by South-Western.

LO8 REVIEW LEARNING OUTCOME One-to-One Marketing Chapter 7 Copyright ©2008 by South-Western. a division of Thomson Learning. All rights reserved 54 .

All rights reserved 55 .LO9 Positioning Explain how and why firms implement positioning strategies and how product differentiation plays a role Chapter 7 Copyright ©2008 by South-Western. a division of Thomson Learning.

Chapter 7 Copyright ©2008 by South-Western. All rights reserved 56 . a division of Thomson Learning. product line.LO9 Positioning Positioning Developing a specific marketing mix to influence potential customers’ overall perception of a brand. or organization in general.

LO9 Positioning of Procter & Gamble Detergents Brand Tide Cheer Bold Gain Era Dash Oxydol Solo Dreft Ivory Snow Ariel Positioning Tough. aimed at Hispanic market Market Share 31.2% 1. powerful cleaning Tough cleaning.9% 2. All rights reserved .1% 57 Chapter 7 Copyright ©2008 by South-Western. color protection Detergent plus fabric softener Sunshine scent and odor-removing formula Stain treatment and stain removal Value brand Bleach-boosted formula.8% 1. safe Fabric & skin safety on baby clothes Tough cleaner.4% 1.7% 0.6% 2. whitening Detergent and fabric softener in liquid form Outstanding cleaning for baby clothes. a division of Thomson Learning.2% 2.2% 1.1% 8.0% 0.

All rights reserved 58 . a division of Thomson Learning. 3. 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 2.LO9 1. Chapter 7 Copyright ©2008 by South-Western.

a division of Thomson Learning. Distinctions can be real or perceived. All rights reserved 59 . Chapter 7 Copyright ©2008 by South-Western.LO9 Product Differentiation A positioning strategy that Product Differentiation some firms use to distinguish their products from those of competitors.

in two or more dimensions. a division of Thomson Learning. brands. or groups of products in customers’ minds. All rights reserved 60 . the location of products.LO9 Perceptual Mapping Perceptual Mapping A means of displaying or graphing. Chapter 7 Copyright ©2008 by South-Western.

All rights reserved 61 . a division of Thomson Learning.Perceptual Mapping LO9 Chapter 7 Copyright ©2008 by South-Western.

LO9 Positioning Bases Attribute Price and Quality Use or Application Product User Product Class Competitor Emotion Chapter 7 Copyright ©2008 by South-Western. a division of Thomson Learning. All rights reserved 62 .

a division of Thomson Learning. All rights reserved 63 .LO9 Repositioning Repositioning Changing consumers’ perceptions of a brand in relation to competing brands. Chapter 7 Copyright ©2008 by South-Western.

a division of Thomson Learning. All rights reserved 64 .LO9 REVIEW LEARNING OUTCOME Positioning and Product Differentiation Chapter 7 Copyright ©2008 by South-Western.