Identifying Market Segments &

Targets

Why Segment Markets?

• Businesses want to respond better to the wants and needs of groups of potential buyers– This increases sales and in turn, profits– One size does not fit all

Why Segment Markets?What It Means To Segment

• Prospective buyers are placed into groups– Groups with common needs– Those that will act the same when exposed to

a marketing action

• Market segments are the relatively homogeneous groups of prospective buyers that result from the market segmentation process

Why Segment Markets?What It Means To Segment

• Because there are different segments, companies use the strategy of product differentiation– Firm uses different marketing mix activities to

get consumers to think their product is better than the competition

– Can be physical or nonphysical features

Why Segment Markets?When To Segment Markets

• When a company thinks that segmenting customers will increase sales, profits, and return on invest, it should segment

Why Segment Markets?When To Segment Markets

• Uses of Market Segments– One product, multiple market segments– Multiple products, multiple market segments– Mass customization

One Product, Multiple Market Segments

• The company has 1 product/service and sells it to two or more segments

• Avoids extra costs in development, research, engineering, manufacturing

• Extra costs in promotion, distribution (expensive, but not as expensive as creating a different product)

• Movies– Same movie, different ads for different

segments– Divine Secrets of the Ya-Ya Sisterhood

One Product, Multiple Market Segments

From Glamour magazine

From Maxim magazine

• Athletic Shoes New Balance Website– Expensive to have so many styles, but better

serves customers

• High-End/Low-End– Banana Republic/Old Navy

Timberland Website

Multiple Products, Multiple Market Segments

• Every person is unique, so tailor product to fit each person Nike Website

Timberland Website

Mass Customization

Steps To Segment and Targeting Markets

• Step #1: Group Potential Buyers into Segments

• Step #2: Group Products to be Sold into Categories

• Step #3: Develop a Market-product Grid and Estimate Size of Market

• Step #4: Select Target Market• Step #5: Take Marketing Actions to Reach

Target Market

Steps To Segment and Targeting MarketsStep #1: Group Buyers into Segments

• Segmenting Basics– Potential for increased profits

• If you can’t increase profits by segmenting, then don’t segment

– Similarity of needs of potential buyers within a segment• Potential buyers need to be similar in terms

of wants/needs• Use same advertising media

Steps To Segment and Targeting MarketsStep #1: Group Buyers into Segments

• Segmenting Basics– Difference of needs and buyers among

segments• By segmenting customers, costs of

marketing increases; if costs are more than potential sales, create less segments

– Potential of a marketing action to reach a segment• If you can’t develop a marketing plan to

reach a segment, don’t segment

Steps To Segment and Targeting MarketsStep #1: Group Buyers into Segments

• Segmenting Basics– Simplicity and cost of assigning potential

buyers to segments• Managers have to see potential buyers

characteristics and assign them to a segment

Steps To Segment and Targeting MarketsStep #1: Group Buyers into Segments

Ways to Segment Consumer Markets

Customer Characteristics

• Geographic Characteristics (Region)– Campbell’s nacho cheese

• Too hot for eastern US, not hot enough for western and southwestern US

– Cheerwine – “It’s A Carolina Thing”– Sun-Drop

Steps To Segment and Targeting MarketsStep #1: Group Buyers into Segments

Ways to Segment Consumer Markets

Customer Characteristics

• Demographic Characteristics– Includes age, sex, family size, education,

income, social class• BMW• Virginia Slims• Pillsbury biscuits or family size packages

Steps To Segment and Targeting MarketsStep #1: Group Buyers into Segments

Ways to Segment Consumer Markets

Customer Characteristics

• Psychographic Characteristics (Lifestyle)– Assumes that if you live a certain way, so do

your neighbors– Colorado, Montana more ranches, large

trucks/trailers

Steps To Segment and Targeting MarketsStep #1: Group Buyers into Segments

Ways to Segment Consumer Markets

Buying Situations• Benefits Sought (Product Features)

– What’s important to customers– Develop products and ads to focus on this

• Usage/Patronage– Usage rate is the quantity consumed or visits to a

store in a certain time frame– Frequent fliers– Usage rate sometimes called 80/20

Steps To Segment and Targeting MarketsStep #2: Group Products Into Categories

• Make sure the right product is marketed to right segment– Sears

• Craftsman catalogs– J.C. Penney

• Home, clothing, baby catalogs

Steps To Segment and Targeting MarketsStep #3: Develop Market-Product Grid

• Relates market segments of potential buyers to products offered or potential marketing actions by company

• Potential market segments are the rows

• Potential product lines are the columns

• Each cell can show estimated market size of product sold to that specific segment

Steps To Segment and Targeting MarketsStep #3: Develop Market-Product Grid

Steps To Segment and Targeting MarketsStep #4: Select Target Markets

• Target market segments can’t be too narrow, won’t have high sales potential

• Target market segments can’t be too broad, spend too much on marketing efforts

Steps To Segment and Targeting MarketsStep #4: Select Target Markets

How do you select target market segments?

• Market Size– Estimate size by using marketing research

• Estimated Growth– How much growth could occur?

• Competitive Position– A lot of current competition? Future?

Steps To Segment and Targeting MarketsStep #4: Select Target Markets

How do you select target market segments?

• Cost of Reaching Segments– Don’t spend tons of money trying to reach a

segment that you’ll never reach

• Compatibility with Organization’s Objectives and Resources

Steps To Segment and Targeting MarketsStep #5: Take Marketing Action

• Develop a marketing plan

• Evaluate marketing activities– Drop or design new activities based on

evaluations

Steps To Segment and Targeting MarketsStep #5: Take Marketing Action

• Positioning the Product– Product Positioning

• The place an offering occupies in customers minds on important attributes relative to competitive products

– Product Repositioning• Changing the place an offering occupies in

customers minds on important attributes relative to competitive products

Product Positioning

• Approaches to Product Positioning

– Head to Head Positioning• Directly placing your product with similar

products of competitors–Ex: Coca-Cola vs. Pepsi

– Differentiation Positioning• Seeking a less competitive, smaller market

niche in which to place a brand• Don’t want to compete with your own products

–Ex: Applebee’s Carside To Go

• Based on perceptions of customers

• Need to know the following about customers:– Identification of important attributes for a

product– Judgments of these attributes from existing

brands– Ratings of an ideal brand’s attributes

Product Positioning

• A perceptual map can be created from these data– Means of displaying or graphing in two

dimensions the location of products or brands in the minds of customers to see how your product stacks up to other brands

Product Positioning

Product Positioning – Perceptual Map