1 chapter 8: segmenting and targeting markets prepared by david ferrell, b-books, ltd. designed by...
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1
Chapter 8: Segmenting and Targeting Markets
Prepared by David Ferrell, B-books, Ltd.
Designed by Eric Brengle, B-books, Ltd.
Copyright 2012 by Cengage Learning Inc. All Rights Reserved
Learning Outcomes
2
Describe the characteristics of markets
and market segments
Explain the importance of market segmentation
Discuss criteria for successful market segmentation
Describe the bases commonly used to segment consumer markets
LO1
LO2
LO3
LO4
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Learning Outcomes
3
Describe the bases for segmenting business markets
List the steps involved in segmenting markets
Discuss alternative strategies for selecting target markets
Explain one-to-one marketing
Explain how and why firms implement positioning strategies and how product differentiation plays a role
LO5
LO6
LO7
LO9
LO8
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Market Segmentation
4
Describe the characteristics of markets
and market segments.
LO1
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(1) people or organizations with
(2) needs or wants, and with
(3) the ability and
(4) the willingness to buy.
A group of people that lacks any one of these characteristics is not a market.
A Market Is...
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Market Segmentation
6
Market- People or organizations with needs or wants and the ability and
willingness to buy.
Market Segment- A subgroup of peopleor organizations sharing one or more
characteristics that cause them to havesimilar product needs.
Market Segmentation- The process ofdividing a market into meaningful,
relatively similar, identifiable segmentsor groups.
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The Concept of Market Segmentation
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8 8
Review Learning OutcomeMarket Segmentation
LO1
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The Importance of Market Segmentation
9
Explain the importance of market segmentation.
LO2
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The Importance of Market Segmentation
10
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.
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Review Learning OutcomeThe Importance of Market Segmentation
11
LO2
Marketsegmentation
More precise definition of customers needs and wants
More accurate marketing objectives
Improved resource allocation
Better marketing results
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Criteria for Successful Segmentation
12
Discuss criteria for successful market
segmentation.
LO3
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Criteria for Segmentation
13
SubstantialitySegment must be large
enough to warrant a special marketing mix.
Identifiabilityand
Measurability
Segments must be identifiable and their size measurable.
AccessibilityMembers of targeted segments
must be reachable with marketing mix.
ResponsivenessUnless segment responds to a marketing mix differently, no separate treatment is needed.
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Review Learning OutcomeSuccessful Market Segmentation
14
LO3
Usefulsegment?
Substantial Identifiable and measurable Accessible Responsive
Then, yes: Useful segmentation
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Bases for Segmenting Consumer Markets
15
Describe the bases commonly used to
segment consumer markets.
LO4
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Bases for Segmenting Consumer Markets
16
Segmentation Bases - Characteristics
of individuals, groups, or organizations
used to divide a total market into
segments (variables).
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Bases for Segmentation
17
Usage RateUsage Rate
Benefits SoughtBenefits Sought
PsychographicsPsychographics
DemographicsDemographics
GeographyGeography
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Geographic Segmentation
• Region of the country or world
• Market size
• Market density
• Climate
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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 competition19Copyright 2012 by Cengage Learning Inc. All Rights Reserved
Demographic Segmentation
20
AgeAge
GenderGender
IncomeIncome
Ethnic backgroundEthnic background
Family life cycleFamily life cycle
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Gender Segmentation
• In U.S., women…– Handle 75% of family finances– Influence 80% of consumer purchases – Make purchase decisions about variety
of goods and services• New cars, hardware stores, electronics, etc.
• Other brands that have targeted men are trying to target women– Gillette razors, Rogaine baldness
remedy, Nike, Reebok, etc.
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Income Segmentation
• Income – popular demographic variable for segmenting markets
• According to Nielsen study, affluent households (earning more than $100k/ year) are twice as likely to shop at warehouses
• Price-sensitive consumers– P & G
• Bounty Basic paper towels• Charmin Basic bath tissue
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Ethnic Segmentation
• Largest ethnic markets are:
– Hispanic Americans– African Americans– Asian Americans
• Will comprise 1/3 of U.S. population by 2010
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Family Life Cycle
24
Age
MaritalStatus Children
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Family Life Cycle
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Psychographic Segmentation
26
Psychographic Segmentation- Market
segmentation on the basis of
personality, motives, lifestyles,
and demographics.
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Bases for Psychographic Segmentation
27
PersonalityPersonality
MotivesMotives
LifestylesLifestyles
GeodemographicsGeodemographics
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Lifestyle Segmentation
• How time is spent
• Importance of things around them
• Beliefs
• Socioeconomic characteristics
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Geodemographic Segmentation
29
Geodemographic Segmentation -
Segmenting potential customers into
neighborhood lifestyle categories.
Combines geographic, demographic,
and lifestyle segmentation
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Benefit Segmentation
30
Benefit segmentation- The process of
grouping customers into market
segments according to the benefits
they seek from the past.
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Usage-Rate Segmentation
31
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.
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Review Learning OutcomeBases for Segmenting Consumer Markets
32
LO4
Geography Demographics Psychographics Benefits Usage Rate
• Region• Market size• Market
density• Climate
• Age• Gender• Income• Race/ethnicity• Family life
cycle
• Personality• Motives• Lifestyle• Geodemo-
graphics
• Benefitssought
• Former• Potential• 1st time• Light or
irregular• Medium• Heavy
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Bases for Segmenting Business Markets
33
Describe the bases for segmenting
business markets.
LO5
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Bases for Segmenting Business Markets
34
CompanyCharacteristics
CompanyCharacteristics
BuyingProcesses
BuyingProcesses
ProducersProducers
ResellersResellers
GovernmentGovernment
InstitutionsInstitutions
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Bases for Segmenting Business Markets
35
Company Characteristics
Geographic location
Type of company
Company size
Volume of purchase
Product use
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Buyer Characteristics
36
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.
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Buyer Characteristics
37
Demographic characteristicsDemographic characteristics
Decision styleDecision style
Tolerance for riskTolerance for risk
Confidence levelConfidence level
Job responsibilitiesJob responsibilities
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Review Learning OutcomeSegmenting Business Markets
38
LO5
Producers Resellers
InstitutionsGovernments
Buying Process
Company Characteristics
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Steps in Segmenting a Market
39
List the steps involved in segmenting markets.
LO6
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Review Learning OutcomeSteps in Segmenting Markets
40
LO6
Select a market
for study
Choosebases
for segmen-
tation
Selectdescriptors
Profileand
analyzesegments
Selecttarget
markets
Design,implement,
maintainmarketing
mix
1 53 42 6
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Strategies for Selecting Target Markets
41
Discuss alternative strategies
for selecting target markets.
LO7
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Strategies for Selecting Target Markets
42
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.
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Strategies for Selecting Target Markets
43
ConcentratedStrategy
UndifferentiatedStrategy
MultisegmentStrategy
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Undifferentiated Targeting Strategy
44
A marketing approach that
views the market as one big
market with no individual
segments and thus requires
a single marketing mix.
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Undifferentiated Targeting Strategy
45
UndifferentiatedStrategy
Advantage:
Potential savings on production and marketing costs
Disadvantages:
Unimaginative product offerings
Company more susceptible to competition
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Concentrated Targeting Strategy
46
Concentrated Targeting Strategy –
A strategy used to select
one segment of a market
for targeting efforts.
Niche – One segment of a market.
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Concentrated Targeting Strategy
47
ConcentratedStrategy
Advantages: 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
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Multisegment Targeting Strategy
48
A strategy that chooses two or
more well-defined market
segments and develops a
distinct marketing mix for each.
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Multisegment Targeting Strategy
49
MultisegmentStrategy
Advantages: Greater financial success Economies of scale
Disadvantages: High costs Cannibalization
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Costs of Multisegment Targeting
50
Product design costs
Production costs
Promotion costs
Inventory costs
Marketing research costs
Management costs
Cannibalization
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Cannibalization
51
Situation that occurs when
sales of a new product cut into
a sales of a firm’s
existing products.
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Review Learning OutcomeAlternatives for Selecting Target Markets
52
LO7
Undifferentiated Multisegment Concentrated
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One-to-One Marketing
53
Explain one-to-one marketing.
LO8
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One-to-One Marketing
54
An individualized marketingmethod that utilizes customer information to build long-term,
personalized, and profitablerelationships with each
customer.
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One-to-One Marketing
55
Information-IntensiveInformation-Intensive
Long-TermLong-Term
One-to-OneMarketing is...One-to-One
Marketing is...
IndividualizedIndividualized Cost ReductionCost Reduction
Has a Goal of…Has a Goal of…
Customer LoyaltyCustomer Loyalty
Increased RevenueIncreased Revenue
PersonalizedPersonalized
Customer RetentionCustomer Retention
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One-to-One Marketing
1. One-size-fits all marketing no longer effective
2. Direct and personal marketing will grow to meet needs of busy consumers.
3. Consumers will be loyal to companies that have earned—and reinforced—their loyalty.
4. Mass-media approaches will decline as technology allows better customer tracking.
56
Trends
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Review Learning OutcomeOne-to-One Marketing
57
LO8
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Positioning
58
Explain how and why firms
implement positioning
strategies and how product
differentiation plays a role.
LO9
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Positioning
59
Developing a specific
marketing mix to influence
potential customers’
overall perception of a brand,
product line, or organization
in general.
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Positioning of Procter & Gamble Detergents
60
Brand Positioning MarketShare
Tide Tough, powerful cleaning 31.1%
Cheer Tough cleaning, color protection 8.2%
Bold Detergent plus fabric softener 2.9%
Gain Sunshine scent and odor-removing formula
2.6%
Era Stain treatment and stain removal 2.2%
Dash Value brand 1.8%
Oxydol Bleach-boosted formula, whitening 1.4%
Solo Detergent and fabric softener in liquid form
1.2%
Dreft Outstanding cleaning for baby clothes, safe
1.0%
Ivory Snow
Fabric & skin safety on baby clothes 0.7%
Ariel Tough cleaner, aimed at Hispanic market
0.1%
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Effective Positioning
1. Assess the positions occupied by competing products
2. Determine the dimensions underlying these positions
3. Choose a market position where marketing efforts will have the greatest impact
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Product Differentiation
62
A positioning strategy that some firms use to
distinguish their products from those of their competitors.
Distinctions can be real or perceived.
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Perceptual Mapping
63
A means of displaying or graphing, in two or more
dimensions, the location of products, brands, or groups
of products in customers’ minds.
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Perceptual Mapping
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Source: Based on Vanessa O’Connell, “Park Avenue Classic or Soho Trendy?” The Wall Street Journal, April 20, 2007, B1.
Positioning Bases
65
AttributeAttribute
Price and QualityPrice and Quality
Use or ApplicationUse or Application
Product UserProduct User
Product ClassProduct Class
CompetitorCompetitor
EmotionEmotion
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Repositioning
66
Changing perceptions of a brand in relation to competing brands.
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Review Learning Outcome Positioning and Product Differentiation
67
LO9
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