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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 1
MKTG
Designed byAmy McGuire, B-books, Ltd.
Prepared byDana Freeman, B-books, Ltd.
Lamb, Hair, McDaniel 2009-2010
7CHAPTERSegmenting and Targeting Markets
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 2
Learning Outcomes
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
Describe the bases for segmenting business markets
LO1
LO2
LO3
LO4
LO5
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 3
Learning Outcomes
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
LO6
LO7
LO8
LO9
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 4
Describe the characteristics of markets and
market segments
Market SegmentationMarket SegmentationLO1
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 5
LO1
A Market Is...
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.
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 6
Market Segmentation(OLCHS Café Example)
LO1
Market (n.)Market (n.)
MarketSegment (n.)
MarketSegment (n.)
MarketSegmentation (v.)
MarketSegmentation (v.)
People or organizations with needs or wants and the ability and willingness to buy.
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.
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.
The process of dividing a market into meaningful, relatively similar, identifiable segments or groups.
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 7
The Concept of Market Segmentation
LO1
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 8
Explain the importance
of market segmentation
The Importance of Market SegmentationThe Importance of Market SegmentationLO2
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 9
The Importance of Market Segmentation
LO2
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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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 10
REVIEW LEARNING OUTCOMELO2
The Importance of Market Segmentation
Marketsegmentation
More precise definition of customers needs and wants
More accurate marketing objectives
Improved resource allocation
Better marketing results
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 11
Discuss criteria for successful market
segmentation
Criteria for Successful SegmentationCriteria for Successful SegmentationLO3
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 12
Criteria for Segmentation
LO3
Substantiality
Identifiabilityand 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 (boys and girls with conditioner)
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 13
REVIEW LEARNING OUTCOMELO3
Usefulsegment?
Substantial Identifiable and measurable Accessible Responsive
Then, yes: Useful segmentation scheme
Successful Market Segmentation
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 14
Describe the bases commonly used
to segment consumer markets
Bases for Segmenting Bases for Segmenting Consumer MarketsConsumer Markets
LO4
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 15
LO4
Bases for Segmenting Consumer Markets
SegmentationBases
SegmentationBases
Characteristics of individuals,
groups, or organizations used
to divide a total market into
segments. (variables)
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Chapter 7 Copyright ©2010Cengage Learning Inc. All rights reserved 16
Bases for SegmentationLO4
Usage RateUsage Rate
Benefits SoughtBenefits Sought
PsychographicsPsychographics
DemographicsDemographics
GeographyGeography
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 17
Geographic Segmentation
LO4
Region of the country or world
Market size
Market density
Climate
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 18
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
LO4
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 19
Demographic Segmentation
LO4
AgeAge
GenderGender
IncomeIncome
Ethnic backgroundEthnic background
Family life cycleFamily life cycle
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 20
Ethnic Segmentation
LO4
Largest ethnic markets are: Hispanic Americans African Americans Asian Americans
Will comprise 1/3 of U.S. population by 2010 with buying power of $1 trillion annually
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 21
Family Life Cycle
LO4
Age
MaritalStatus Children
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 22
Family Life Cycle
LO4
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 23
Psychographic Segmentation
LO4
PsychographicSegmentation
PsychographicSegmentation
Market segmentation on the basis
of personality, motives, lifestyles,
and geodemographics. (beer vs.
wine)
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 24
Bases for Psychographic Segmentation
LO4
PersonalityPersonality
MotivesMotives
LifestylesLifestyles
GeodemographicsGeodemographics
Online
http://www.marthastewart.com http://www.goodhousekeeping.com
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 25
Lifestyle Segmentation
LO4
How time is spent Importance of things around them Beliefs Socioeconomic
characteristics
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 26
Geodemographic Segmentation
LO4
Segmenting potential customers into neighborhood lifestyle categories.
Combines geographic, demographic, and lifestyle segmentation.
Segmenting potential customers into neighborhood lifestyle categories.
Combines geographic, demographic, and lifestyle segmentation.
GeodemographicSegmentation
GeodemographicSegmentation
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 27
Benefit Segmentation
LO4
The process of grouping
customers into market segments
according to the benefits they
seek from the product. (Michigan
cottage)
Benefit Segmentation
Benefit Segmentation
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 28
Benefit Segmentation
LO4
Usage-RateSegmentation
Usage-RateSegmentation
Dividing a market by the amount
of product bought or consumed.
Dividing a market by the amount
of product bought or consumed.
80/20Principle
80/20Principle
A principle holding that 20
percent of all customers generate
80 percent of the demand.
A principle holding that 20
percent of all customers generate
80 percent of the demand.
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 29
REVIEW LEARNING OUTCOMELO4
Bases for Segmenting Consumer Markets
Geography Demographics Psychographics Benefits Usage Rate
• Climate• Geodemo-
graphics
• Benefitssought
• Heavy
• Region• Market size• Market density
• Age• Gender• Income• Race/ethnicity• Family life cycle
• Personality• Motives• Lifestyle
• Former• Potential• 1st time• Light or irregular• Medium
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Chapter 7 Copyright ©2010Cengage Learning Inc. All rights reserved 30
Economic Crisis and Shifting Targets
LO4B
eyond
the
Book
In an economy with a depressed housing market and equity losses, many boomers now face an uncertain retirement income and must reprioritize their spending.
A recent survey revealed that boomers are likely to cut spending on clothing, personal care, home furnishings, and travel, so companies in those sectors may need to shift their focus to a target demographic segment with better growth prospects.
Source: David Court, The Downturn’s new rules for marketers,” mckinseyquarterly.com, December 2008.
The high spending rates of the baby boom generation have made them a sought-after and profitable customer segment in the U.S., Japan, and Western Europe. But boomers were often borrowing against the “wealth effect” of real estate appreciation and the equity gains from retirement accounts.
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 31
Describe the bases for segmenting
business markets
Bases for Segmenting Bases for Segmenting Business MarketsBusiness Markets
LO5
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 32
Bases for Segmenting Business Markets
LO5
CompanyCharacteristics
CompanyCharacteristics
BuyingProcesses
BuyingProcesses
ProducersProducers
ResellersResellers
GovernmentGovernment
InstitutionsInstitutions
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 33
Bases for Segmenting Business Markets
LO5
Company Characteristics
Geographic location
Type of company
Company size
Volume of purchase
Product use
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 34
Buyer CharacteristicsLO5
SatisficersSatisficersBusiness customers who place an order
with the first familiar supplier to satisfy
product and delivery requirements.
Business customers who place an order
with the first familiar supplier to satisfy
product and delivery requirements.
OptimizersOptimizersBusiness customers who consider
numerous suppliers, both familiar and
unfamiliar, solicit bids, and study all
proposals carefully before selecting one.
Business customers who consider
numerous suppliers, both familiar and
unfamiliar, solicit bids, and study all
proposals carefully before selecting one.
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 35
Buyer CharacteristicsLO5
Demographic characteristicsDemographic characteristics
Decision styleDecision style
Tolerance for riskTolerance for risk
Confidence levelConfidence level
Job responsibilitiesJob responsibilities
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 36
REVIEW LEARNING OUTCOMELO5
Segmenting Business Markets
Producers Resellers
InstitutionsGovernments
Buying Process
Company Characteristics
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 37
List the steps involved in segmenting
markets
Steps in Segmenting Steps in Segmenting a Marketa Market
LO6
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 38
REVIEW LEARNING OUTCOMELO6
Steps in Segmenting Markets
Select a market
for study
Choosebases
for segmen-
tation
Selectdescriptors
Profileand
analyzesegments
Selecttarget
markets
Design,implement,
maintainmarketing
mix
1 2 3 4 5 6
Note that steps 5 and 6 are actually marketing activities that follow market segmentation (steps 1 through 4).
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 39
Discuss alternative strategies for
selecting target markets
Strategies for Selecting Strategies for Selecting Target MarketsTarget Markets
LO7
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Chapter 7 Copyright ©2010Cengage Learning Inc. All rights reserved 40
Strategies for Selecting Target Markets
LO7
TargetMarketTargetMarket
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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Chapter 7 Copyright ©2010Cengage Learning Inc. All rights reserved 41
Strategies for Selecting Target Markets
LO7
ConcentratedStrategy
UndifferentiatedStrategy
MultisegmentStrategy
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 42
Undifferentiated Targeting Strategy
LO7
UndifferentiatedTargetingStrategy
UndifferentiatedTargetingStrategy
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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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 43
LO7
UndifferentiatedStrategy
Advantage:
Potential savings on production and marketing costs
Disadvantages:
Unimaginative product offerings
Company more susceptible to competition
Undifferentiated Targeting Strategy
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 44
Concentrated Targeting Strategy
LO7
ConcentratedTargeting Strategy
A strategy used to select one
segment of a market for
targeting marketing efforts.
NicheOne segment of
a market. (Twilight books)
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 45
LO7
ConcentratedStrategy
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
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 46
MultisegmentTargeting Strategy
LO7
MultisegmentTargetingStrategy
A strategy that chooses
two or more well-defined
market segments and
develops a distinct
marketing
mix for each.
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Chapter 7 Copyright ©2010Cengage Learning Inc. All rights reserved 47
Multisegment TargetingB
eyond
the
Book
designer print or no print, cushioned or non-cushioned, scented or unscented, economy priced or luxury priced, and single, double, or triple roll. Fort Howard Corporation, the market share leader in industrial toilet paper, does not even sell to the consumer market.
{Standard Tissue} You might think a firm producing a standard product like toilet tissue would adopt an undifferentiated strategy. However, this market has industrial segments and consumer segments. Industrial buyers want an economical, single-ply product sold in boxes of a hundred rolls. The consumer market demands a more versatile product in smaller quantities. Within the consumer market, the product is differentiated with
LO7
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 48
LO7
MultisegmentStrategy
Advantage:
Greater financial success
Economies of scale
Disadvantages:
High costs
Cannibalization
MultisegmentTargeting Strategy
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 49
Costs of Multisegment Targeting
LO7
Product design costs
Production costs
Promotion costs
Inventory costs
Marketing research costs
Management costs
Cannibalization MultisegmentStrategy
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 50
Cannibalization
LO7
Situation that occurs when
sales of a new product cut into
sales of a firm’s existing
products. (Starbucks)
CannibalizationCannibalization
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 51
REVIEW LEARNING OUTCOMELO7
Alternatives for Selecting Target Markets
Undifferentiated Multisegment Concentrated
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 52
Explain one-to-one marketing
One-to-One MarketingOne-to-One MarketingLO8
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 53
One-to-One Marketing
LO8
One-to-OneMarketing (Ritz Carlton)
One-to-OneMarketing (Ritz Carlton)
An individualized marketing method that utilizes customer information to build long-term, personalized, and profitable relationships with each customer.
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 54
One-to-One Marketing
LO8
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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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 55
One-to-One Marketing
LO8
One-size-fits all marketing no longer effective
Direct and personal marketing will grow to meet needs of busy consumers.
Consumers will be loyal to companies that have earned—and reinforced—their loyalty.
Mass-media approaches will decline as technology allows better customer tracking.
TrendsTrends
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 56
REVIEW LEARNING OUTCOMELO8
One-to-One Marketing
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 57
Explain how and why firms implement
positioning strategies and how product
differentiation plays a role
PositioningPositioningLO9
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 58
LO9
Positioning
Developing a specific
marketing mix to
influence potential
customers’ overall
perception of a brand,
product line, or
organization in
general.
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 59
LO9 0.7%Fabric & skin safety on baby clothesIvory Snow
0.1%Tough cleaner, aimed at Hispanic marketAriel
1.0%Outstanding cleaning for baby clothes, safeDreft
1.2%Detergent and fabric softener in liquid formSolo
1.4%Bleach-boosted formula, whiteningOxydol
1.8%Value brandDash
2.2%Stain treatment and stain removalEra
2.6%Sunshine scent and odor-removing formulaGain
2.9%Detergent plus fabric softenerBold
8.2%Tough cleaning, color protectionCheer
31.1%Tough, powerful cleaningTide
MarketShare
PositioningBrand
Positioning of Procter & Gamble
DetergentsLO9
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 60
Effective Positioning
LO9
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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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 61
LO9
Product Differentiation
A positioning strategy that some firms use to distinguish their products from those of competitors.
Distinctions can be real or perceived.
Eat Fresh!
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 62
A means of displaying or
graphing, in two or more
dimensions, the location of
products, brands, or groups
of products in customers’
minds.
LO9
Perceptual Mapping
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 63
AttributeAttribute
Price and QualityPrice and Quality
Use or ApplicationUse or Application
Product UserProduct User
Product ClassProduct Class
CompetitorCompetitor
Emotion (ASPCA)Emotion (ASPCA)LO9
Positioning Bases
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 64
Changing consumers’
perceptions of a brand in
relation to competing brands.
LO9
Repositioning
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Chapter 7 Copyright ©2010 Cengage Learning Inc. All rights reserved 65
REVIEW LEARNING OUTCOMELO9
Positioning and Product Differentiation