2. LO 1 Describe the characteristics of markets and market segments LO 2 Explain the importance of market segmentation LO 3 Discuss criteria for successful market segmentation LO 4 Describe the bases commonly used to segment consumer markets LO 5 Describe the bases for segmenting business markets Learning Outcomes
3. LO 6 List the steps involved in segmenting markets LO 7 Discuss alternative strategies for selecting target markets LO 8 Explain one-to-one marketing LO 9 Explain how and why firms implement positioning strategies and how product differentiation plays a role Learning Outcomes
6. Market Segmentation LO 1 Market 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.
8. The Importance of Market Segmentation Explain the importance of market segmentation LO 2
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10. Criteria for Successful Segmentation Discuss criteria for successful market segmentation LO 3
11. Criteria for Segmentation LO 3 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.
12. Bases for Segmenting Consumer Markets Describe the bases commonly used to segment consumer markets LO 4
13. Bases for Segmentation LO 4 Usage Rate Benefits Sought Psychographics Demographics Geography
20. Psychographic Segmentation Psychographic Segmentation LO 4 Market segmentation on the basis of personality, motives, lifestyles, and geodemographics.
21. Bases for Psychographic Segmentation LO 4 Personality Motives Lifestyles Geodemographics Online http://www.marthastewart.com http://www.goodhousekeeping.com
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23. Geodemographic Segmentation Segmenting potential customers into neighborhood lifestyle categories. Combines geographic, demographic, and lifestyle segmentation. Geodemographic Segmentation LO 4
24. Benefit Segmentation LO 4 The process of grouping customers into market segments according to the benefits they seek from the product. Benefit Segmentation
25. Usage-Rate Segmentation LO 4 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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27. Economic Crisis and Shifting Targets Beyond 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. LO 4
28. Bases for Segmenting Business Markets Describe the bases for segmenting business markets LO 5
29. Bases for Segmenting Business Markets Company Characteristics Buying Processes LO 5 Producers Resellers Government Institutions
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31. Buyer Characteristics LO 5 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.
32. Buyer Characteristics LO 5 Demographic characteristics Decision style Tolerance for risk Confidence level Job responsibilities
33. Steps in Segmenting a Market List the steps involved in segmenting markets LO 6
34. Steps in Segmenting Markets Select a market for study Choose bases for segmen-tation Select descriptors Profile and analyze segments Select target markets Design, implement, maintain marketing 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). LO 6
35. Strategies for Selecting Target Markets Discuss alternative strategies for selecting target markets LO 7
36. Strategies for Selecting Target Markets 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. LO 7 Target Market
37. Strategies for Selecting Target Markets LO 7 Concentrated Strategy Undifferentiated Strategy Multisegment Strategy
38. 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. LO 7
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40. Concentrated Targeting Strategy A strategy used to select one segment of a market for targeting marketing efforts. Niche One segment of a market. LO 7 Concentrated Targeting Strategy
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42. Multisegment Targeting Strategy A strategy that chooses two or more well-defined market segments and develops a distinct marketing mix for each. LO 7 Multisegment Targeting Strategy
47. One-to-One Marketing LO 8 Information-Intensive Long-Term One-to-One Marketing is... Individualized Cost Reduction Has a Goal of… Customer Loyalty Increased Revenue Personalized Customer Retention
48.
49. Positioning Explain how and why firms implement positioning strategies and how product differentiation plays a role LO 9
50. Positioning Developing a specific marketing mix to influence potential customers’ overall perception of a brand, product line, or organization in general. LO 9
51. LO 9 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
52.
53. 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! LO 9
54. Perceptual Mapping LO 9 A means of displaying or graphing, in two or more dimensions, the location of products, brands, or groups of products in customers’ minds.
55. Positioning Bases LO 9 Attribute Price and Quality Use or Application Product User Product Class Competitor Emotion
56. Repositioning LO 9 Changing consumers’ perceptions of a brand in relation to competing brands.
Chapter 8 Segmenting and Targeting Markets Marketing cannot be accomplished in isolation. Even though the marketing function resides with marketers, the concept of marketing must permeate the entire organization.
Chapter 8 Segmenting and Targeting Markets
Chapter 8 Segmenting and Targeting Markets
Chapter 8 Segmenting and Targeting Markets
Chapter 8 Segmenting and Targeting Markets Notes: The term market means different things to different people. Consider supermarket, stock market, labor market, fish market, and flea market. All these types of markets share several characteristics. Markets are composed of people or organizations with needs and wants that can be satisfied by particular product categories. They have the ability to buy the products they seek, and are willing to exchange their resources for the desired products.
Chapter 8 Segmenting and Targeting Markets Notes: Within a market, a market segment is a subgroup of people or organizations with one or more common characteristics that cause them to have similar product needs. Market segmentation is the division of a market into meaningful, identifiable segments or groups.
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.
Chapter 8 Segmenting and Targeting Markets
Chapter 8 Segmenting and Targeting Markets Notes: 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. Discussion/Team Activity: Discuss how Coca-Cola’s product lines fit the needs of different market segments. Name different fashion retailers and identify their marketing segmentation strategies.
Chapter 8 Segmenting and Targeting Markets
Chapter 8 Segmenting and Targeting Markets Notes: 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. A segmentation scheme must produce segments that meet the four basic criteria as defined above.
Chapter 8 Segmenting and Targeting Markets
Chapter 8 Segmenting and Targeting Markets Notes: One or more of the characteristics listed above is used to segment markets and described on subsequent slides.
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.
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.
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. Consider age segmentation… There are about 20 million tweens (ages 9-12) in the U.S. This group spends over $20 billion per year. Retailers such as Limited Too and Abercrombie serve this market. Baby boomers (born between 1946 and 1964) represent more than $2 trillion in spending per year. There is marketing potential for products such as retirement properties, health and wellness products, automobiles with features for them, as well as other goods and services.
Chapter 8 Segmenting and Targeting Markets
Chapter 8 Segmenting and Targeting Markets Notes: Consumption patterns among people of the same age and gender differ because of differences in the family life cycle stage. The FLC 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: Exhibit 7.1 demonstrates both traditional and contemporary FLC patterns and shows how families’ needs, incomes, etc. differ at each stage. Discussion/Team Activity: Find examples of advertisements that target different stages of the family life cycle.
Chapter 8 Segmenting and Targeting Markets
Chapter 8 Segmenting and Targeting Markets Online Martha Stewart Living Good Housekeeping Use psychographic segmentation to classify the kinds of consumers who would be interested in the products offered by Martha Stewart and Good Housekeeping online. Notes: Demographic segmentation provides the “skeleton,” but psychographic segmentation adds “meat to the bones.” Personality reflects a person’s traits, attitudes, and habits. Consider the personality types that describe segmented Porsche buyers. Motives: Carmakers appeal to customers with status-related motives, whereas baby products appeal to emotional motives. Lifestyles and geodemographics are described on subsequent slides.
Chapter 8 Segmenting and Targeting Markets Notes: Lifestyle segmentation divides people into groups according to how time is spent, the importance of things around them, beliefs, and socioeconomic characteristics such as income and education. For example, a recent study of the women’s market divides women into four categories based on lifestyle distinctions: Explorers Achievers Builders Masters
Chapter 8 Segmenting and Targeting Markets
Chapter 8 Segmenting and Targeting Markets Notes: 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.
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.
Chapter 8 Segmenting and Targeting Markets Slide Animation: Five bases are commonly used for segmenting consumer markets: Geographic segmentation is based on region, size, density, and climate characteristics. Demographic segmentation is based on age, gender, income level, ethnicity, and family life-cycle characteristics. Psychographic segmentation includes personality, motives, and lifestyle characteristics. “ Benefits sought” is a type of segmentation that identifies customers according to the benefits they seek in a product. Finally, usage segmentation divides a market by the amount of product purchased or consumed.
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.
Chapter 8 Segmenting and Targeting Markets Notes: The business market consists of four segments: Producers Resellers Institutions Government
Chapter 8 Segmenting and Targeting Markets Notes: Company characteristics include geographic location, type of company, company size, and product use. Marketers may also segment customers on the basis of how they buy. Take, for example, key purchasing criteria, such as price, quality, technical support, and service. Personal characteristics of the buyers influence their buying behavior.
Chapter 8 Segmenting and Targeting Markets
Chapter 8 Segmenting and Targeting Markets Notes: The purchasing strategies of buyers provide useful segments. 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.
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.
Chapter 8 Segmenting and Targeting Markets
Chapter 8 Segmenting and Targeting Markets Slide Animation: The purpose of market segment 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 evaluating segments; (5) selecting target markets; and (6) designing, implementing, and maintaining appropriate marketing mixes. Note that steps 5 and 6 occur after the segmentation scheme is developed. 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.
Chapter 8 Segmenting and Targeting Markets
Chapter 8 Segmenting and Targeting Markets Notes: Market segmentation is the first step in determining whom to approach about buying a product. The next task is to choose one or more target markets. A target market is a group of people or organizations for which the organization creates a marketing mix to meet that group’s needs. Because most markets will include customers with different lifestyles, backgrounds, and income levels, it is unlikely that a single marketing mix will attract all segments of the market.
Chapter 8 Segmenting and Targeting Markets Notes: The three general strategies for selecting target markets are illustrated on this slide. A description of each follows.
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.
Chapter 8 Segmenting and Targeting Markets Notes: The first firm in an industry sometimes uses an undifferentiated strategy. Consider Coca-Cola when it had a single product and a single size of its original soft drink. Marketers of commodity products, such as flour and sugar, are also likely to use this strategy. Additionally, small stores in small towns with no competition may offer one marketing mix and be successful. Even toilet tissue manufacturers have different segments—both industrial and consumer--and adopt different marketing mixes for different segments.
Chapter 8 Segmenting and Targeting Markets Notes: 1. With a concentrated targeting strategy, a firm selects a niche for targeting its efforts.
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: watchmakers Patek Philippe, Rolex, and Breguet. Porsche, OshKosh B’Gosh, Orvis, Starbucks, AOL, and Enterprise Rent-A-Car.
Chapter 8 Segmenting and Targeting Markets
Chapter 8 Segmenting and Targeting Markets
Chapter 8 Segmenting and Targeting Markets Notes: Examples of multisegment targeting strategy include Best Buy, Gap, Wal-Mart. Discussion/Team Activity: Wal-Mart recently opened a pilot store in Plano, Texas, that stocks plasma TVs, fine jewelry, expensive wine, etc. Discuss ways that Wal-Mart can attract upper-end customers. What marketing mix would you suggest?
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.
Chapter 8 Segmenting and Targeting Markets
Chapter 8 Segmenting and Targeting Markets
Chapter 8 Segmenting and Targeting Markets Notes: Even though one-to-one marketing represents a huge commitment and a different way of thinking for marketers, it will grow. The trends shown on this slide illustrate why. Although mass marketing will continue to be used to create brand awareness or remind consumers of a product, the advantages of one-to-one marketing are strong.
Chapter 8 Segmenting and Targeting Markets
Chapter 8 Segmenting and Targeting Markets Notes: 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 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.
Chapter 8 Segmenting and Targeting Markets
Chapter 8 Segmenting and Targeting Markets
Chapter 8 Segmenting and Targeting Markets Notes: Exhibit 7.3 shows Levi’s brands and subbrands, based on price and fashion style. For permissions reasons, we are not able to display the visual electronically, but below is an activity you can do with your students as they work from their book. Discussion/Team Activity: What is the target market and marketplace perception of some of Levi’s brands? What are Levi’s strengths in the marketplace? What are Levi’s weaknesses? How can Levi’s use perceptual mapping to enhance its product strategy?
Chapter 8 Segmenting and Targeting Markets Notes: The following bases for positioning are used: Attribute: Association of a product with a product feature, an attribute, 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.
Chapter 8 Segmenting and Targeting Markets Notes: Products are repositioned to sustain growth in slow markets or to correct positioning mistakes A good example of repositioning was the National Pork Board’s campaign of “the other white meat.” Also, consider the expansion of Wal-Mart into the supermarket industry. A consultant predicts that two supermarkets will go out of business for every Wal-Mart superstore that opens in the U.S. Discussion/Team Activity: As giant Wal-Mart expands into the supermarket industry, what repositioning strategies should its competitors consider? How do you compete with the low-price position of Wal-Mart?
Chapter 8 Segmenting and Targeting Markets Notes: In this perceptual map for Cadillac, see how Cadillac is repositioning itself as a car for younger drivers.