C H A P T E RC H A P T E R

© 2007 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Market Segmentationand Targeting

Market Segmentationand Targeting

7

7-2 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Bearden Marketing 5th Ed

Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

After studying this chapter, you should be able to: Define and explain market segmentation, target markets,

and product differentiation and positioning. Understand the criteria used for evaluating the likely

success of a segmentation strategy. Know the role of market segmentation in the development

of marketing strategies and programs. Describe the issues involved in product and brand

positioning. Understand the alternative bases for segmenting consumer

and business-to-business markets. Evaluate alternative approaches for pursuing segmentation

strategies.

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AcxiomAcxiomAcxiomAcxiom

Acxiom is a world leader in consumer information and information management. The company offers its clients the ability to effectively analyze their customer base. Acxiom makes it easy for firms to keep their best customers by building knowledge about what customers like and how best to communicate with them.

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Market SegmentationMarket SegmentationMarket SegmentationMarket Segmentation

Market segmentation divides a market into subsets of prospective customers who behave in the same way, have similar wants, or have similar characteristics that relate to purchase behavior. The overall market for a product consists of segments of customers who vary in their responses to different marketing mix offerings.

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Understanding SegmentationUnderstanding SegmentationUnderstanding SegmentationUnderstanding Segmentation

Understanding market segmentation is important: Slow market growth has fostered more competition,

increasing the need to identify target markets Social and economic forces have produced customers

with varied and sophisticated needs, tastes, and lifestyles. Technological advances make it possible for marketers to

devise marketing programs that focus efficiently on precisely defined segments of the market.

Minority buyers do not necessarily adopt the social and economic habits of the mainstream.

40% of US residents identify with some segment or niche group other than the historical “marketing mainstream.”

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Intermarket SegmentsIntermarket SegmentsIntermarket SegmentsIntermarket Segments

International marketing may be based on the cultivation of intermarket segments, which are well-defined, similar clusters of customers across national boundaries. This view of segmentation allows firms to develop marketing programs and offerings for each identified segment on a global basis.

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Target MarketsTarget MarketsTarget MarketsTarget Markets

Market segmentation lets a firm tailor or develop products and strategies to appeal to the preferences and unique needs of specific groups of customers.

These groups are typically referred to as target markets: groups of consumers or organizations with whom a firm wants to create marketing exchanges.

Targeting involves selecting which segments in a market are appropriate to focus on and designing the means of reaching them.

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Product DifferentiationProduct DifferentiationProduct DifferentiationProduct Differentiation

Product differentiation exists when a firm’s offerings differ or are perceived to differ from those of competing firms on any attribute, including price.

A product differentiation strategy positions a product within the market.

Marketers attempt to position a product or service in customers’ minds—to convince customers the product has unique and desirable characteristics.

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Mass CustomizationMass CustomizationMass CustomizationMass Customization

Among the most notable changes in this century has been the shift from mass marketing to mass customization.

Companies like Dell Computers have proved that complex manufactured products can be made to order.

Now companies throughout the world have embraced mass customization in an attempt to satisfy the diverse needs of their customers and to provide unique value.

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AccessibilityAccessibilityAccessibility describes the degree to which

a firm can reach intended target segments efficiently.

MeasurabilityMeasurabilityMeasurability reflects the degree to which

the size and purchasing power of segments can be assessed.

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Criteria for Effective SegmentationCriteria for Effective SegmentationCriteria for Effective SegmentationCriteria for Effective Segmentation

SubstantialnessSubstantialnessSubstantialness refers to the degree to

which identified target segments are large enough or have sufficient sales and profit potential to warrant unique or separate marketing programs.

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DurabilityDurability Durability has to do with stability of segments—whether distinctions between segments will diminish or disappear as the product category or the markets themselves mature.

Criteria for Effective SegmentationCriteria for Effective SegmentationCriteria for Effective SegmentationCriteria for Effective Segmentation

DifferentialDifferentialResponsivenessResponsiveness

Differential responsiveness refers to the extent to which market segments exhibit different responses to different marketing mixes.

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Developing a Segmentation StrategyDeveloping a Segmentation StrategyDeveloping a Segmentation StrategyDeveloping a Segmentation Strategy

Stages required in the development of a market segmentation strategy are summarized below. The organization’s core business determines the product or service market in which it operates.

Exhibit 7-2

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Developing a Segmentation StrategyDeveloping a Segmentation StrategyDeveloping a Segmentation StrategyDeveloping a Segmentation Strategy

Stages required in the development of a market segmentation strategy are summarized below. The organization’s core business determines the product or service market in which it operates.

Exhibit 7-2

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Consumer Segmentation BasesConsumer Segmentation BasesConsumer Segmentation BasesConsumer Segmentation Bases

User-RelatedUser-Related

• DemographicsDemographics

• Social classSocial class

• CultureCulture

• GeographicGeographic

• Lifestyle and Lifestyle and psychographicpsychographic

BehavioralBehavioral

• BenefitsBenefits

• UsageUsage

• Price or promotional Price or promotional sensitivitysensitivity

• Buying situationBuying situation

• EconomicEconomic

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Business to Business Segmentation BasesBusiness to Business Segmentation BasesBusiness to Business Segmentation BasesBusiness to Business Segmentation Bases

• Customer sizeCustomer size

• Geographic locationGeographic location

• Organizational structureOrganizational structure

• Stage of buying processStage of buying process

• Attitude toward vendorAttitude toward vendor

• End useEnd use

• UsageUsage

• Product/service Product/service applicationapplication

• EconomicEconomic

User-RelatedUser-Related BehavioralBehavioral

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GeographicsGeographicsGeographic differences are sometimes important in the development of marketing strategies. For example, cellular phone marketers use geographic analyses toevaluate their distribution effectiveness.

DemographicsDemographicsFor consumer marketing, demographic segments are particularly significant. Some products are targeted for teenagers and others for the elderly; others are designed for young couples just beginning a family.

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Bases for SegmentationBases for SegmentationBases for SegmentationBases for Segmentation

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BenefitBenefitSegmentationSegmentation

Benefit segmentation enhances the design and marketing of a product to meet expressed consumer needs for quality, service, or unique features. In fact, benefit segmentation is most consistent with assumption of demand variation between segments.

Psychographics Psychographics & Lifestyle& Lifestyle

Psychographic or lifestyle research attempts to segment customers according to their activities, interests, and opinions. By tapping into a consumer’s preferences and learning where her/his passions lie, firms increase the reception of their messages.

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Bases for Segmentation Bases for Segmentation (con’t)(con’t)Bases for Segmentation Bases for Segmentation (con’t)(con’t)

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EconomicEconomicSegmentationSegmentation

Firms are increasingly segmenting their customers based on the profit potential associated with individual accounts. Such economic segmentation occurs in both consumer marketing situations andbusiness-to-business competitive markets.

Bases for Segmentation Bases for Segmentation (con’t)(con’t)Bases for Segmentation Bases for Segmentation (con’t)(con’t)

InternationalInternationalSegmentationSegmentation

Segmentation is an important part of international marketing as well. Firms can employ one—or some combination—of three approaches: single standardized strategy, customized strategies, or intermarket segments.

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Combining Bases of SegmentationCombining Bases of SegmentationCombining Bases of SegmentationCombining Bases of Segmentation

Below is one way a firm might combine consumer characteristics to decide on a market segmentation strategy.Exhibit 7-5

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Segmentation StrategiesSegmentation StrategiesSegmentation StrategiesSegmentation Strategies

UndifferentiatedUndifferentiated

DifferentiatedDifferentiated

A company adopts an undifferentiated strategy when it markets a single product using a single communication and distribution mix for the mass market.

At the other end of the scale is the differentiated strategy, under which a firm uses different strategies for most or a large number of different segments.

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Segmentation StrategiesSegmentation StrategiesSegmentation StrategiesSegmentation Strategies

ConcentratedConcentratedA firm pursues a concentratedstrategy when it seeks a large share of just a few profitable segments, perhaps only one, of the total market.

Counter-Counter-segmentationsegmentation

Countersegmentation is an alternativestrategy to traditional segmentation approaches. It involves combining market segments and assumes an increasing consumer willingness to accept fewer product and service variations for lower prices.

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Estimating Segment PotentialEstimating Segment PotentialEstimating Segment PotentialEstimating Segment Potential

Steps firms can use to estimate potential for a segment: Set time period of interest. Define product level. Specify segment characteristics or bases. Identify geographic market boundaries. Make assumptions about marketing environment

(uncontrollable factors such as competitive activity). Make assumptions about company’s own marketing

efforts and programs (controllable factors). Make estimates of market potential, industry sales, and

company sales

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Developing ForecastsDeveloping ForecastsDeveloping ForecastsDeveloping Forecasts

QualitativeQualitativeProceduresProcedures

• Survey of Buyers’ Survey of Buyers’ intentionsintentions

• Expert OpinionsExpert Opinions

• Composite of Sales Composite of Sales Forces estimatesForces estimates

QuantitativeQuantitativeMethodsMethods

• Trend AnalysisTrend Analysis

• Market TestsMarket Tests

• Statistical Demand Statistical Demand AnalysisAnalysis

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Targeting Market SegmentsTargeting Market SegmentsTargeting Market SegmentsTargeting Market Segments

To select target segments, the firm must consider: The segment’s potential sales volume and profits. Competition currently selling to the segments. The firm’s abilities and objectives.

Positioning a product or service involves designing a marketing program that is consistent with how the company wants its products or services to be perceived.

Repositioning, called for when a firm wants to shift consumer opinions about an existing brand, requires development of new marketing programs.

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Perceptual MapsPerceptual MapsPerceptual MapsPerceptual Maps

Exhibit 7-10

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MicromarketingMicromarketingMicromarketingMicromarketing

Micromarketing frequently combines census and demographic data to identify clusters of households that share similar consumption patterns.

Micromarketing enhances the effectiveness of marketing efforts by enabling marketers to Identify potential markets for direct selling through mail

and telemarketing campaigns. Profile their customers by matching them to demographic

and lifestyle clusters. Learn which areas offer the greatest potential in site

selection for new stores or offices. Tailor their advertising themes and plan their media.

7-27 © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Bearden Marketing 5th Ed

SummarySummarySummarySummary

After studying this chapter, you should be able to: Define and explain market segmentation, target markets,

and product differentiation and positioning. Understand the criteria used for evaluating the likely

success of a segmentation strategy. Know the role of market segmentation in the development of

marketing strategies and programs. Describe the issues involved in product and brand

positioning. Understand the alternative bases for segmenting consumer

and business-to-business markets. Evaluate alternative approaches for pursuing segmentation

strategies.