Segmenting & Targeting MarketsStrategic MarketingChapter 7210 - 234

Characteristics of Markets & Market Segments A Market is

Comprised of people or organizations (Consumer or Business) Have needs, abilities, and willingness to buy

Markets have market segments

A Market Segment consists of a subgroup of people who share one or more common characteristic that causes them to have similar product needs Theoretically anything can be grouped together Market segmentation is only valuable if the group is meaningful to the marketer

The marketing mix is tailored to the market segment defined

Copyright ©2009, Cengage Learning. All rights reserved Chapter 7

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LOIThe Concept of Market Segmentation

Market Segmentation Market Segmentation helps marketers define customer needs and wants

more precisely

Segments differ in size & potential so companies look at particular segments and determine more accurate marketing objectives

Accurate marketing objectives lead to: Improved allocation of resources Better marketing results

Market Segmentation Review Market Segmentation accomplishes the following:

Identify specific groups that you can analyze characteristics & buying behavior of

Design marketing mixes specific to segmented groups

Allows you to meet customer needs & wants while meeting company objectives

Market Segmentation To be useful, a segmentation scheme must produce segments that meet four basic

criteria:

Sustainability Needs to be large enough to matter. Not enough potential; it wont last.

Identifiability & Measurability Need to be able to identify the group being targeted & its size Easy to determine amount of people in certain subgroups; not easy to determine willingness or interest

Accessibility Important to devise marketing mixes that allow your segments to access your product Seniors citizens, Disabled, Language deficient, etc…don’t access information or products as easily as everyone

else

Responsiveness If the majority of customers respond positively to a marketing mix; then creating a separate marketing mix

strategy for “unresponsive” group may not be necessary

Market Segmentation Bases Segmentation Bases (Variables)

Characteristics of individuals, groups, or organizations used to divide a total market into segments

Marketers choose “bases” that are Substantial Identifiable Measurable Accessible Responsive

Market Segmentation One Base or Variable is not as precise but is simple and easy

Multiple variables allows for precision but Is Harder to use Usable secondary resources are less likely The size of group gets smaller

Current trend is to use more variables then less variables

Market Segmentation Examples One Variable

Segment a population based on gender

Multiple Variable Gender Age Race Education Marital status Geographics Interests

Market Segmentation Most Common Variables used to segment markets

Geography Demographics Psychographics Benefits Sought Usage Rate(s)

Geographics Segment by:

Region Country World Market size Market density

# of people within a unit of land

Climate Important because purchasing needs vary based on weather conditions

Why Segment with Geographics? 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

Examples of Geogrpahic Marketing

Restaurants offering menu items that reflect local taste interest Cracker Barrel & McDonald’s alters menu to

reflect local tastes Menu in south is different than menu in Northeast

Miller Lite developed a True to Texas Marketing Campaign

Magazines like Midwest or Southwest Living

Pepsi packaging products based on NFL Cities

Examples of Geogrpahics: Local Retailers

Demographic Segmentation Demographic Segmentation

Easy to obtain demographic information

Correlates to consumer buying Age Gender Income Ethnic Background Family Life Cycle

Age Demographics

Gender Segmentation Facts About Female Consumers

75% of Family Finances 51% of new electronics sold 75% over-the-counter drugs 65% of new cars

Companies are realizing that women buy more than packaged goods

Ace Hardware: 42% of customers are female who spend 30% -

40% more than men per visit Wider, well-lit aisles, clear signage, instructions on

product use.

Gender Segmentation

Income Segmentation Income segmentation tells

marketers what consumers can afford

Segment by wants & buying power

Examples: Housing Clothing Automobiles Food

Income

Ethnic Segmentation In the past marketers would present ads as anglo-centric

White all-American family Mass marketing approach

In large part this occurred because the majority of the population fit this mold

1970’s a shift in culture started Ethnic Foods started to be introduced into stores Roles in music, movies, & politics became more prominent

As population of minorities increases so does marketing efforts towards them A lot of marketers are choosing to target urban areas versus specific ethnic groups

LaRaza:

Hispanic Rights

Organization

Ethnic Segmentation AdsGeely Automobile Holdings Ltd Pantene Pro-V

Family Life-Cycle Segmentation Family Life Cycle is a series of stages determined by a combination of age,

marital status, & presence or absence of children

46% of households are maintained by unmarried men or women

102 unmarried Americans over the age of 18 240.144 million people living in the United States over the age of 18

A families needs, income, resources, & expenditures differ at each stage of the life cycle

Copyright ©2009, Cengage Learning. All rights reserved Chapter 7

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LO4 Family Life Cycle

Life Cycle Buying Habits

Targeting Age, Marital Status & Children Factor

Psychographic Factors

Psychographic Segmentation Psychographics is segmenting based on

Personality Motives

Emotional: Caring for others Rational: Appeals to economy, Reliability, & Dependability Status-Related: Customers want to look a certain way

Lifestyle: Way consumers spend their time Importance of things around them Beliefs Socioeconomic Factors: Income & Education

Explorers, Achievers, Builders, & Masters Geodemographics: Combines geographic, demographic, & lifestyle segments

Claritas PRIZM Lifestyle Softwarehttp://

www.claritas.com/MyBestSegments/Default.jsp?ID=30&pageName=Segment%2BExplorer

28277: Market Segmentation

85365: Market Segmentation

Psychographic Ads

Benefit Segmentation Benefit Segmentation:

Process of grouping customers into market segments according to the benefits they seek from a product

Segmentation typically connects variables to needs If you are this age, living in this city, & you like to do….then this is the product you want

Benefit segmentation is different because it is based on their needs and wants Advertises the benefit of a product

Start with a product and break it down into the benefits it offers Healthy product, Better tasting, Low price, etc….

Low Carb v. High Protein v. Energy

Usage-Rate Segmentation Usage-Rate Segmentation:

Dividing a market by the amount of product bought or consumed. Examples of markets:

Former users Potential users First-time users Light or irregular users Medium users Heavy users

Heavy users are the group most commonly marketed towards

Useage Rate Segmentation80/20 Principle

A principle holding that 20 percent of all customers generate 80 percent of the demand.

Time Warner Cable Example Fewer than 10% of its subscribers consume 75% of its bandwidth

The goal is to turn customers into heavy users Frequency & customer loyalty programs are designed around this concept

Useage Rate Ads

Cell Phone Use Useage Rate Ads

Bases for Segmenting Business Markets

Business Markets Business Market consists of four broad segments:

Producers Profit-oriented individuals & organizations that use purchased goods to produce other

products Examples: Construction, Manufacturing, Transportation, Finance, Real Estate, & Food Services

Resellers Wholesalers & Retailers Buy & resell products

Government Selling to Federal, Municipal, & Local officials. Most lucrative industry. Usually requires bids

Institutions Schools, churches, civic clubs, hospitals, unions, colleges, nonbusiness organizations, etc..

Business Market Segmentation The four types of business segments that are marketed towards are broken down by Company

Characteristics & Buying Process

Company Characteristics Geographic location

Vendors close by may have advantage because it is usually cheaper Type of company

Target companies specifically based on a company's particular need Company size

Larger companies may get different opportunities because they buy more Volume of purchase

Heavy, Moderate, or light users of a product Product use

Targeting a company based on what they are producing, purchasing & using

Business Buyer Characterisitcs Buying Process deals with how a company purchases products

Two main purchasing profiles that have been identified are:

Satisficers:Choosing what company to place an order with based on their ability to satisfy product & delivery requirements

Optimizers:Consider numerous suppliers (both familiar and unfamiliar), solicit bids, & study all proposals carefully before selecting one.

Buyer Characteristics Buyer characteristics can also be determined by

Demographic Characteristics

Decision-Style

Tolerance for risk

Confidence Level

Job responsibilities

Steps in Segmenting a Market

Steps in Segmenting a Market Select a market or product category for study

Can be a market they are currently in or a product category they are interested in joining

Anheuser-Busch looked at market closely before introducing Light Beers Anheuser-Busch looked at snack food market closely prior to introducing Eagle

Brand

Choose a “base” for segmenting the market Choosing between demographics, geographics, psychographics, usuage-rate, &

benefits sought Whatever segmentation is chosen must meet be sustainable, identifiable,

measurable, accessible & responsive

Steps in Segmenting a Market Select Segmentation Descriptors

After choosing segmentation bases; the marketer must choose a descriptor

Descriptors identify the specific segmentation variables being used

Example: Company selects demographics as its base; Descriptors could be

Age Gender Occupation Education Income

Steps in Segmenting a Market Profile & Analyze Segments

Profile includes the segments size, expected growth, purchase frequency, current brand usage, brand loyalty, & long-term sales and potential profit.

Allows firm to look at information and rank them according to potential Profit Opportunity Risk Consistency with organizational goals

Steps in Segmenting a Market Select Target Markets

Natural outcome of segmentation process Determines companies Marketing Mix

Design, Implement, & Maintain Appropriate Marketing Mixes Strategies created for:

Product Place Price Promotional

Market Segmentation Markets are dynamic

Dynamic = Changing

Classification is static Static = Consistent. No Change

Consumers will move in and out of the classifications so marketers have to make adjustments and proactively monitor their segmentation strategies People in classification will not always stay there If you target 21-35 year-olds a person can only be in that group at most for 15

years

Strategies for Selecting Target Markets A target market is a group of people for which an organization designs,

implements, and maintains a marketing mix intended to meet the needs of that group, resulting in mutually satisfying exchanges.

Most markets will include customers with different buying characterisitcs, lifestyles, backgrounds, & income levels; it is unlikely that a single marketing mix will attract all segments of the market

Example: Chevy sells cars that sell for $13,000 & for $60,000

Strategies for Selecting Target Markets The three general

strategies for selecting target markets are:

Undifferentiated

Concentrated

Multi-segment Targeting

Strategies for Selecting Target MarketsUndifferentiated Targeting

A marketing approach that views the market as one big market with no individual segments and thus requires a single marketing mix.

Requires a product that has little competition & no substitutes.

Examples of Product Segmented this way:

FlourSugar

Strategies for Selecting Target MarketsConcentrated Targeting

A strategy used to select one segment of a market for targeting marketing efforts.

Companies select a marketing niche to target and they focus on the needs, motives, & satisfactions of that group

Examples:Starbucks – Gourmet coffeeRolex – High priced watchOshKosh B’Gosh – Kids clothes

Strategies for Selecting Target MarketsMultisegment Targeting A strategy that chooses two or more

well-defined market segments and develops a distinct marketing mix for each.

Example:A College offering a variety of programsDay ProgramsMBA DegreesEvening programsWeekend programs

Multi-Segment Target Strategies A Business can choose to create a product that meets these

specific customer bases & descriptors

Different product for each classification

Businesses can also create promotional strategies geared towards each base Similar to consumer market Anheuser-Busch sells beer to different ethnic groups. Ad changes;

product doesn’t

Multisegment Targeting Product Design Costs Production Costs Promotion Costs Inventory Costs Marketing Research Costs Management Costs Cannibalization

Situation that occurs when sales of a new product cut into sales of a firm’s existing products.Example: Code Red Mountain Dew took away 25% of Mountain Dew Drinkers

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REVIEW LEARNING OUTCOMEAlternatives for Selecting Target Markets

Undifferentiated Multisegment Concentrated

One-to-One Marketing One-to-One Marketing is an individualized marketing method that

utilizes customer information to build long-term, personalized, and profitable relationships with each customer.

Goal is to sell multiple products to one customer Reduces customer retention costs Increases customer loyalty and revenue Provides a more focused marketing approach Personalized marketing that encourages communication between company &

consumer Allows for customized products to be made

One-to-One Marketing Four Trends Leading Towards One-to-One Marketing

1. One Size fits all approach to marketing no longer works. Customers want to be treated as individuals not as part of a large group

2. Direct and personal marketing will grow to meet needs of busy consumers. Takes less time for a consumer to make a purchasing decision

3. Consumers will be loyal to companies that have earned—and reinforced—their loyalty.

One-to-One marketing focuses on pleasing the firms best customers so they are happy

4. Mass-media approaches will decline as technology allows better customer tracking.

1. One-to-One marketing is more personalized and cost-effective with improved technology

PositioningPositioning

Developing a specific marketing mix to influence potential customers’ overall perception of a brand, product line, or organization in general.

PositionThe place a product, brand, or group of products occupies in consumers’ minds relative to company offerings

Companies assume that consumers compare products on the basis of important features. If features being emphasized are unimportant then consumer will not buy and brand will take a hit.

Consumer Goods marketers are extremely concerned with positioning.

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Positioning of Procter & Gamble Detergents

Brand Positioning MarketShare

Tide Tough, powerful cleaning 31.1%

Cheer Tough cleaning, color protection 8.2%

Bold Detergent plus fabric softener 2.9%

Gain Sunshine scent and odor-removing formula 2.6%

Era Stain treatment and stain removal 2.2%

Dash Value brand 1.8%

Oxydol Bleach-boosted formula, whitening 1.4%

Solo Detergent and fabric softener in liquid form 1.2%

Dreft Outstanding cleaning for baby clothes, safe 1.0%

Ivory Snow Fabric & skin safety on baby clothes 0.7%

Ariel Tough cleaner, aimed at Hispanic market 0.1%

Effective Positioning Effective Positioning Requires Companies to: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

Example:Campbell’s Select Soup is targeted towards upscale adults who are willing to try something new.

Positioning Strategy Product Differentiation is a positioning strategy that some firms use to distinguish their products from those of competitors. Distinction can either be real or perceived

Most consumer goods are very similar therefore their distinction is more perceived than real

Companies will try to make consumer believe that they really need the product being advertised

Occurs also when companies try to emulate other products

Product Differentiation Ads

Perceptual Mapping Perceptual Mapping is

a means of displaying or graphing, in two or more dimensions, the location of products, brands, or groups of products in customers’ minds.

Example is of Levi’s Jeans Sell to teens Sell to high-end

consumers

Positioning Methods Firms use a variety of variables to determining positioning approach:

Attribute: Product features & benefits Price & Quality: High Price = Quality; Low Price = Value Use or Application: Emphasize how a product can be used Product User: Personality or type of user is focused on. Product Class: Positioned in accordance to other products.

Can be done to compare or prove difference Competitor: Comparing products to their competitors.

In reality all companies do this on some level Emotion: Positioned based on how it makes the customer feel.

Multiple Positioning Methods

Each Product Positioning Approach is Used in the Got Milk Ad on right Product Attribute

Use or Application

Product User

Product Class

Competitor

Emotion

Repositioning Repositioning involves

changing consumers’ perceptions of a brand in relation to competing brands.

Grocery Stores v. Walmart

Every time a Walmart opens; two grocery stores close in that community

Harris Teeter does not position itself directly against Walmart