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Chapter 8Chapter 8
Market Segmentation, Targeting, and
Positioning
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Chapter ObjectivesChapter Objectives1. Identify the essential components of a market.2. Outline the role of market segmentation in developing a
marketing strategy.3. Describe the criteria necessary for effective segmentation.4. Explain each of the four bases for segmenting consumer
markets.5. Identify the steps in the market segmentation process.6. Discuss four basic strategies for reaching target markets.7. Summarize the types of positioning strategies.8. Explain the reasons for positioning and repositioning
products.
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Selecting a Target MarketSelecting a Target Market Before a marketing mix strategy can be
implemented, the marketer must identify, evaluate, and select a target market.Market:Market: people or institutions with
sufficient purchasing power, authority, and willingness to buy
Target market:Target market: specific segment of consumers most likely to purchase a particular product
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Types of MarketsTypes of Markets Consumer products:Consumer products: goods or
services purchased by an ultimate consumer for personal use
Business products:Business products: goods or services purchased for use either directly or indirectly in the production of other goods and services for resale
The key to classification is to identify the purchaser and the reasons for buying the goods.
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KC MasterpieceProduct Targeted at
Selected Consumers
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Cattlemen’sProduct Targeted at
the Business Market: Comes in 1 and 5 Gallon Containers. Introduced more than 40 years ago to meet the special needs of foodservice operators
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The Role of Market SegmentationThe Role of Market Segmentation Market Segmentation:Market Segmentation: division of the total
market into smaller, relatively homogeneous groups
No single marketing mix can satisfy everyone. Therefore, separate marketing mixes should be used for different market segments.
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Tom’s of MaineTargeting a Specific
Marketing Segment
Which segment?
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Criteria for Effective SegmentationCriteria for Effective Segmentation Market segmentation cannot be used in all
cases. To be effective, segmentation must meet the following basic requirements.The market segments must be measurable
in terms of both purchasing power and size.
Marketers must be able to effectively promote to and serve a market segment.
Market segments must be sufficiently large to be potentially profitable.
The number of segments must match the firm’s capabilities.
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Segmenting Consumer MarketsSegmenting Consumer Markets Geographic Segmentation:Geographic Segmentation: Dividing an
overall market into homogeneous groups on the basis of their locationsDoes not ensure that all consumers in a
location will make the same buying decision.
Help in identifying some general patterns.
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PampersThis ad is an
example of geographic segmentation.
When visiting the web site look for the different countries Pampers markets to.
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Crunch Fitness CentersUsing
Geographic Segmentation
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Using Geographic SegmentationUsing Geographic Segmentation Demand for some goods and services can
vary according to the geographic region Most major brands get 40-80 percent of their
sales from what are called core regions Climate is another important segmentation
factorNorthern consumers, for example, eat
more soup than SouthernersSoutherners use more chlorine for their
swimming pools than Northern residents
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KubotaSegmentation by
Residence Location
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Segmenting Consumer MarketsSegmenting Consumer Markets Demographic segmentation:Demographic segmentation:
dividing consumer groups according to characteristics such as sex, age, income, occupation, education, household size, and stage in the family life cycle
A primary source for demographic data andUnited States is the Bureau of Census
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Segmenting by genderSegmenting by genderMarketers must ensure that traditional
assumptions are not falseOther firms start by targeting one gender
and then switch to bothTo some companies market successfully to
both genders
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Segmenting by age Segmenting by age Many firms identify
market segments on the basis of age
Products are often designed to meet the specific needs of certain age groups
Examples: baby food and denture cream. Dole: Developing a Product Specifically for Children
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Segmenting by ageSegmenting by ageSociologists attribute different
consumer needs and wants among various age groups to the cohort effect
Cohort effect is a tendency among members of a generation to be influenced and drawn together by significant events occurring during their key formative years, roughly 17 to 22 years of age
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BoomersBoomers—People born from 1946 until 1965. Nearly 42 percent of U.S. adults were born in this period. Values of this age group were influenced both by the Vietnam War and the career-driven era. Baby boomers over the age of 50 will have a total disposable income of $1 trillion.
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SeniorsSeniors—By 2025, Americans who are over age 65 will make up nearly 20 percent of the population. The current median age is now 35.2 years, up from 32.8 years a decade ago. The average life expectancy in the U.S. is 74 for men and to age 79 for women. In the U.S., heads of households aged 55-plus control about three-quarters of the country’s total financial assets.
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Ethnic Group Ethnic Group SegmentationSegmentationCensus Bureau
projects that by 2050, nearly half of the population of the US will belong to nonwhite minority groups.
The three largest and fastest-growing racial/ethnic groups in the US are African Americans, Hispanics, and Asian Americans.
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Family Life Cycle Family Life Cycle Stages SegmentationStages SegmentationThe process of family
formation and dissolution.
The underlying theme is that life stage, not age per se, is the primary determinant of many consumer purchases.
Today, the average woman gives birth to two children .
She usually has her children at a later age—about 35.
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Segmenting by household typeSegmenting by household typeThe “traditional family” has declined over the yearsSingle-parent families, single-person households, and
non-family group households have more than doubled during the same time
Non-traditional households make likely buyers of single-serving and convenience foods
DINKs, dual-income childless couples, are big buyers of gourmet foods, luxury items, and travel
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Engel’s laws:Engel’s laws: three general statements based on his studies on the impact of household income changes on consumer spending behavior
According to Engle, as family income increases: A smaller percentage of expenditures go
for food The percentage spent on housing and
household operations and clothing remains constant
The percentage spent on other items (such as recreation and education) increases
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JaguarSegmentation
based on income
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Psychographic Segmentation Psychographic Segmentation Divides a population into groups that have
similar psychological characteristics, values, and lifestyles
Lifestyle: people’s decisions about how to live their daily lives, including family, job, social, and consumer activities
The most common method for developing psychographic profiles of a population is to conduct a large-scale survey: VALS and VALS 2. “Values and Lifestyles”
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Principle OrientedPrinciple Oriented Status Status OrientedOriented
FULFILLEDFULFILLED11%11%
BELIEVERSBELIEVERS16%16%
ACTUALIZERSACTUALIZERS8%8%
ACHIEVERSACHIEVERS13%13%
STRIVERSSTRIVERS13%13%
STRUGGLERSSTRUGGLERS12%12%
Abundant ResourcesAbundant Resources
Minimal ResourcesMinimal Resources
Action OrientedAction Oriented
EXPERIENCERSEXPERIENCERS12%12%
MAKERSMAKERS13%13%
VALS 2 VALS 2 - - NetworkNetwork
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Segmenting Consumer MarketsSegmenting Consumer Markets
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Product-related segmentation:Product-related segmentation: dividing a consumer population into homogeneous groups based on characteristics of their relationships to the product
Can take the form of segmenting based on:Benefits that people seek when they buyUsage rates for a productConsumers’ brand loyalty toward a product
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BenefitsBenefitsFocuses on the
attributes that people seek in a good or service and the benefits that they expect to receive from that good or service
Groups consumers into segments based on what they want a product to do for them
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EclipseSegmenting by
Benefits Sought
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Usage RatesUsage RatesSegmenting by grouping people according
to the amounts of a product that they buy and use
Markets often divided into heavy-user, moderate-user, and light-user segments
The 80/20 principle (“Praedo’s Law”) holds that a big percentage of a product’s revenues (roughly 80%) comes from a relative small, loyal percentage (around 20%) of total customers
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Brand LoyaltyBrand LoyaltySegmenting consumers grouped according
to the strength of brand loyalty felt toward a product
A practical example of this would be the frequent flyer programs of airlines and many hotels
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The Market Segmentation ProcessThe Market Segmentation Process
Stage I: Identify Segmentation Process
Stage II: Develop Relevant Profile
Stage III: Forecast Market Potential
Stage IV: Forecast Market Share
Stage V: Select Specific Segment
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Stage I: Identify Segmentation ProcessStage I: Identify Segmentation ProcessMarketers follow two methods to determine
the bases on which to identify markets:Segments are predefined by managers
based on their observation of the behavioral and demographic characteristics of likely users
Segments are defined by asking customers which attributes are important and then clustering the responses
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Stage II: Develop Relevant ProfileStage II: Develop Relevant ProfileNext, marketers seek further
understanding of the consumer in each promising segment
Must develop a profile of the typical consumer and each segment
Helps to accurately match consumer needs with the firm’s marketing offers
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Stage III: Forecast Market PotentialStage III: Forecast Market PotentialMarket segmentation and market
opportunity analysis combine to produce a forecast of market potential within each segment
Defines a preliminary “go or no-go” decision since the sales potential in each segment must justify resources devoted to further analysis
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Stage IV: Forecast Market ShareStage IV: Forecast Market ShareThe next step is to forecast the
firm’s probable market shareCompetitors’ positions in targeted
segments must be analyzedA specific marketing strategy must
be designed to serve the targeted segments
The firm determines the expected level of resources it must commit to tap the potential demand in each segment
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Stage V: Select Specific SegmentStage V: Select Specific SegmentThe preceding information, analysis, and
forecasts allow management to assess the potential for achieving company goals and to justify committing resources in developing one or more segments
Marketers also weigh more than monetary costs and benefits at this stage
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Strategies for ReachingStrategies for ReachingTarget MarketsTarget Markets
Undifferentiated Marketing
Differentiated Marketing
Concentrated Marketing
Micromarketing
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Undifferentiated marketing:Undifferentiated marketing: when a firm produces only one product or product line and promotes it to all customers with a single marketing mixSometimes called mass marketingMuch more common in the past
Undifferentiated Marketing
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Differentiated marketing:Differentiated marketing: when a firm produces numerous products and promotes them with a different marketing mix designed to satisfy smaller segmentsTends to raise costsFirms may be forced to practice
differentiated marketing to remain competitive
Differentiated Marketing
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Differentiated MarketingProcter and Gamble
Practicing Differentiated Marketing
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LunchablesUsing a
Differentiated Marketing Strategy
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Concentrated marketing (niche Concentrated marketing (niche marketing):marketing): when a firm commits all of its marketing resources to serve a single market segmentAttractive to small firms with limited
resources and to firms offering highly specialized goods and services
Concentrated Marketing
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Micromarketing:Micromarketing: involves targeting potential customers at a very basic level, such as by ZIP code, specific occupation, lifestyle, or individual householdThe Internet may allow
marketers to make micromarketing even more effective
GeneSolutions targeting a specific occupation
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Selecting and Executing a StrategySelecting and Executing a StrategyNo single, best choice strategy suits all
firmsDeterminants of a market-specific strategy:
Company resourcesProduct homogeneityStage in the product life-cycleCompetitors’ strategy