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Lamb, Hair, and McDaniel

Chapter 8

Segmenting and Targeting Markets

Chapter 8 Segmenting and Targeting Markets

Describe the characteristics
of markets and market segments

Markets and

Market Segments

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Chapter 8 Segmenting and Targeting Markets

Characteristics of a Market

All markets share several characteristics:

They are composed of people or organizations.
These people or organizations have wants and needs that can be satisfied by particular product categories.
They have the ability to buy the products they seek.
They are willing to exchange their resources, usually money or credit, for desired products.

A group of people that lacks any one of these characteristics is NOT a market.

Chapter 8 Segmenting and Targeting Markets

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. In sum, a market is (1) people or organizations with (2) needs or wants and with (3) the ability and (4) the willingness to buy.

Market Segmentation

Market

Segment

Market

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.

Chapter 8 Segmenting and Targeting Markets

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.

The Concept of Market Segmentation

Chapter 8 Segmenting and Targeting Markets

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.

Explain the importance
of market segmentation

The Importance of

Market Segmentation

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Chapter 8 Segmenting and Targeting Markets

The Importance of Market Segmentation

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.

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.

Chapter 8 Segmenting and Targeting Markets

Discuss criteria for
successful market
segmentation

Criteria for Successful

Segmentation

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Chapter 8 Segmenting and Targeting Markets

Why Market Segmentation?

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.

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.

Chapter 8 Segmenting and Targeting Markets

Describe the bases
commonly used

to segment
consumer markets

Bases for Segmenting

Consumer Markets

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Chapter 8 Segmenting and Targeting Markets

Bases for Segmentation

Usage Rate

Benefits Sought

Psychographics

Demographics

Geography

Chapter 8 Segmenting and Targeting Markets

Notes:

One or more of the characteristics listed above is used to segment markets. They are described on subsequent slides.

Geographic Segmentation

Region of the country or world

Market size

Market density

Climate

Chapter 8 Segmenting and Targeting Markets

Notes:

Geographic segmentation of markets is based on the region, market size, market density (number of people within a unit of land), or climate.

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 8 Segmenting and Targeting Markets

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.

Demographic Segmentation

Age

Gender

Income

Ethnic background

Family life cycle

Chapter 8 Segmenting and Targeting Markets

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.

Age Segmentation

Tweens
Teens
Millennials
Generation X
Baby Boomers
The War Generation
The Great Depression Generation

Marketers can segment markets by age using cohorts:

Chapter 8 Segmenting and Targeting Markets

Gender Segmentation

Women make 85 percent of consumers goods purchases annually.
Women tend to view money and wealth differently than men do. They don’t seek to accumulate money, but see it as a way to care for their families, improve their lives, and find security. Thus, financial advisors need to use different strategies to appeal to women.
Marketers of products such as clothing and cosmetics still segment markets by gender, and many of these marketers are going after the less-traditional male market.

Notes:

Women tend to view money and wealth differently than men do. They don’t seek to accumulate money, but see it as a way to care for their families, improve their lives, and find security. Thus, financial advisors need to use different strategies to appeal to women.

Chapter 8 Segmenting and Targeting Markets

Income Segmentation

Income level influences consumers’ wants and determines their buying power.
Retailers can appeal to:

Low-income

High-income

Both

Chapter 8 Segmenting and Targeting Markets

Ethnic Segmentation

The three largest ethnic groups in the United States are:

Hispanic Americans

African Americans

Asian Americans

To meet the needs and wants of expanding ethnic populations, some companies make products geared toward specific ethnic groups.

Chapter 8 Segmenting and Targeting Markets

Notes:

In the past, ethnic groups in the United States were expected to conform to a homogenized, Anglo-centric ideal. Increasing numbers of ethnic minorities and increased buying power have changed this.

Family Life Cycle

The family life cycle is a series of stages determined by a combination of age, marital status, and the presence or absence of children.

Chapter 8 Segmenting and Targeting Markets

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 family life cycle is a series of stages determined by a combination of age, marital status, and the presence or absence of children.

8.1

Family Life Cycle

Chapter 8 Segmenting and Targeting Markets

Psychographic
Segmentation

Market segmentation on the basis of personality, motives, lifestyles, and geodemographics.

Chapter 8 Segmenting and Targeting Markets

Notes:

Demographics provide the skeleton, but psychographics add meat to the bones.

Bases for Psychographic
Segmentation

Personality

Motives

Lifestyles

Geodemographics

Chapter 8 Segmenting and Targeting Markets

Personality and Motive Segmentation

Reflects a person’s traits, attitudes, and habits.

Personality

Motives

Marketers might appeal to emotional, rational, or status motives, among others.

Lifestyle Segmentation

How time is spent – Work, camping, sporting events, opera?

Importance of things around them

Beliefs – Being thrifty, companies that are green.

Socioeconomic characteristics – Income and education

Chapter 8 Segmenting and Targeting Markets

Geodemographic Segmentation

Segmenting potential customers into

neighborhood lifestyle categories.

Combines geographic, demographic, and lifestyle segmentation.

Geodemographic segmentation helps marketers develop marketing programs tailored to prospective buyers who live in small geographic regions, such as neighborhoods, or who have very specific lifestyle and demographic characteristics.

Chapter 8 Segmenting and Targeting Markets

Benefit Segmentation

The process of grouping customers into market segments according to the benefits they seek from the product.

1. 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.

2. Customer profiles can be developed by examining demographic information associated with people seeking certain benefits.

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.

Chapter 8 Segmenting and Targeting Markets

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.

Describe the bases for segmenting
business markets

Bases for Segmenting
Business Markets

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Chapter 8 Segmenting and Targeting Markets

Bases for Segmenting Business Markets

Company

Characteristics

Buying

Processes

Chapter 8 Segmenting and Targeting Markets

Notes:

The business market consists of four segments: producers, resellers, government, and institutions.
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.

Company Characteristics

Important segmentation variables:

Geographic location

Type of company

Company size

Product use

Chapter 8 Segmenting and Targeting Markets

Buying Processes

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.

Chapter 8 Segmenting and Targeting Markets

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.

Buyer Characteristics

Demographic characteristics

Decision style

Tolerance for risk

Confidence level

Job responsibilities

Chapter 8 Segmenting and Targeting Markets

Notes:

The personal characteristics of the buyers influence their buying behavior and offer a viable basis for segmenting some business markets.

List the steps involved in segmenting markets

Steps in

Segmenting a Market

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Chapter 8 Segmenting and Targeting Markets

Markets are dynamic, so it is important that companies proactively monitor their segmentation strategies over time.

Steps in Segmenting Markets

Chapter 8 Segmenting and Targeting Markets

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 markets

6. Designing, implementing, and maintaining appropriate marketing mixes

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.

Discuss alternative strategies for selecting target markets

Strategies for Selecting
Target Markets

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Chapter 8 Segmenting and Targeting 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.

Chapter 8 Segmenting and Targeting Markets

Strategies for Selecting Target Markets

Concentrated

Strategy

Undifferentiated

Strategy

Multisegment

Strategy

Chapter 8 Segmenting and Targeting Markets

A marketing approach that views the market as one big market with no individual segments and thus
uses a single
marketing mix.

Undifferentiated Targeting Strategy

Chapter 8 Segmenting and Targeting Markets

Notes:

An undifferentiated targeting strategy is essentially a mass-market philosophy—viewing the market as one big market and using one marketing mix.
The first firm in an industry sometimes uses an undifferentiated targeting strategy. With no competition, the firm may not need to tailor marketing mixes to the preferences of market segments.
Too often, an undifferentiated strategy emerges by default rather than by design, reflecting a failure to consider the advantages of a segmented approach. The result is often sterile, unimaginative product offerings that have little appeal to anyone.

Undifferentiated Targeting Strategy

An undifferentiated targeting strategy is essentially a mass-market philosophy—viewing the market as one big market and using one marketing mix.

The first firm in an industry sometimes uses an undifferentiated targeting strategy. With no competition, the firm may not need to tailor marketing mixes to the preferences of market segments.

Too often, an undifferentiated strategy emerges by default rather than by design, reflecting a failure to consider the advantages of a segmented approach. The result is often sterile, unimaginative product offerings that have little appeal to anyone.

Chapter 8 Segmenting and Targeting Markets

Advantage:

Potential savings on production and marketing costs

Disadvantages:

Unimaginative product offerings
Company more susceptible to competition

Undifferentiated Targeting Strategy

Undifferentiated

Strategy

Chapter 8 Segmenting and Targeting Markets

Notes:

Marketers of commodity products, such as flour and sugar, are 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.

Concentrated
Targeting Strategy

A strategy used to select one segment of a market for targeting marketing efforts.

Niche
One segment

of a market.

Concentrated Targeting Strategy

Because the firm is appealing to a single segment, it can concentrate on understanding the needs, motives, and satisfactions of that segment’s members and on developing and maintaining a highly specialized marketing mix.

Chapter 8 Segmenting and Targeting Markets

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 Targeting Strategy

Rolex, Porsche, Starbucks, Enterprise

Concentrated

Strategy

Chapter 8 Segmenting and Targeting Markets

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: Rolex, Porsche, Orvis, Starbucks, AOL, and Enterprise Rent-A-Car.

Multisegment Targeting Strategy

A strategy that chooses two or more well-defined market segments and develops a distinct marketing mix for each.

P&G offers 18 different laundry detergents targeting a different segment of the market

Chapter 8 Segmenting and Targeting Markets

Advantage:

Greater financial success

Economies of scale

Disadvantages:

Higher costs

Cannibalization

Multisegment Targeting Strategy

Multisegment

Strategy

Chapter 8 Segmenting and Targeting Markets

Product design costs

Production costs

Promotion costs

Inventory costs

Marketing research costs

Management costs

Cannibalization

Costs of Multisegment Targeting Strategy

Chapter 8 Segmenting and Targeting Markets

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.

Explain how CRM can be used as a targeting tool

CRM as a Targeting Tool

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Chapter 8 Segmenting and Targeting Markets

CRM

Chapter 8 Segmenting and Targeting Markets

CRM Trends

Chapter 8 Segmenting and Targeting Markets

Notes:

These four major trends illustrate why CRM 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 CRM cannot be ignored.

Explain how and why firms implement positioning strategies and how product differentiation
plays a role

Positioning

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Chapter 8 Segmenting and Targeting Markets

Positioning

Developing a specific marketing mix to influence potential customers’ overall perception or a brand, product line, or organization in general.

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.

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

Chapter 8 Segmenting and Targeting Markets

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.

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

Chapter 8 Segmenting and Targeting Markets

Product Differentiation

A positioning strategy that some firms use to distinguish their products from those of competitors.

Chapter 8 Segmenting and Targeting Markets

Notes:

One positioning strategy that many firms use to distinguish their products from competitors is based on product differentiation. The distinctions between products can be either real or perceived.

Perceptual
Mapping

A means of displaying or graphing, in two or more dimensions, the location of products, brands, or groups of products in customers’ minds.

Chapter 8 Segmenting and Targeting Markets

Positioning Bases

Attribute

Price and Quality

Use or Application

Product User

Product Class

Competitor

Emotion

Chapter 8 Segmenting and Targeting Markets

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.

Positioning Bases

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.

Chapter 8 Segmenting and Targeting Markets

Repositioning

Changing consumers’ perceptions of a brand in relation to competing brands.

Chapter 8 Segmenting and Targeting Markets

Notes:

Products are repositioned to sustain growth in slow markets or to correct positioning mistakes.

Discussion/Team Activity:

As giant Walmart expands into the supermarket industry, what repositioning strategies should its competitors consider? How would you compete with the low-price position of Walmart?