Market Segmentation. Chapter 8 Segmenting and Targeting Markets. Learning Outcomes. Learning Outcomes. Market Segmentation. A Market Is...

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1 Learning Outcomes Segmenting and Targeting Markets CHAPTER 8 Designed by Eric Brengle B-books, Ltd. Marketing 10 Lamb, Hair, McDaniel Prepared by Amit Shah Frostburg State University LO I LO 2 LO 3 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 1 2 Learning Outcomes LO I Market LO 5 LO 6 LO 8 Describe the bases for segmenting business markets List the steps involved in segmenting markets Discuss alternative strategies for selecting target markets Explain one-to-one marketing Describe the characteristics of markets and market segments Explain how and why firms implement positioning strategies and how product differentiation plays a role 3 4 A Market Is... LO I Market (1) people or organizations with (2) needs or wants, and with (3) the ability and (4) the willingness to buy. Market Market Segment 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 group of people that lacks any one of these characteristics is not a market. LO I Market The process of dividing a market into meaningful, relatively similar, identifiable segments or groups

2 LO I The Concept of Market LO 2 The Importance of Market Explain the importance of market segmentation 7 8 LO 2 The Importance of Market LO 2 The Importance of Market Markets have a variety of product needs and preferences. Market segmentation More precise definition of customers needs and wants More accurate marketing objectives Marketers can better define customer needs. Improved resource allocation Decision makers can define objectives and allocate resources more accurately. Better marketing results 9 10 LO 3 Criteria for Successful LO 3 Criteria for Substantiality Segment must be large enough to warrant a special marketing mix. Discuss criteria for successful market segmentation Identifiability and Measurability Accessibility Responsiveness 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

3 LO 3 Successful Market Bases for Segmenting Consumer Markets Useful segment? Substantial Identifiable and measurable Accessible Responsive Then, yes: Useful segmentation scheme Describe the bases commonly used to segment consumer markets Bases for Segmenting Consumer Markets Bases for Bases Characteristics of individuals, groups, or organizations used to divide a total market into segments. (variables) Geography Demographics Psychographics Benefits Sought Usage Rate Geographic Benefits of Regional Region of the country or world Market size Market density Climate 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

4 Demographic Gender Age Gender Income Ethnic background Family life cycle In U.S., women handle 75% of family finances Influence 80% of consumer purchases Make purchase decisions about variety of goods and services New cars, hardware stores, electronics, etc. Other brands that have targeted men are trying to target women Gillette razors, Rogaine baldness remedy, Nike, Reebok, etc Income Ethnic Income popular demographic variable for segmenting markets According to Nielsen study Affluent households (earning more than $100k/ year) twice as likely to shop at warehouses Lexus catering to wealthy customers Price-sensitive consumers P & G Bounty Basic paper towels Charmin Basic bath tissue 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 Family Life Cycle Family Life Cycle Age Marital Status Children

5 Psychographic Psychographic Market segmentation on the basis of personality, motives, lifestyles, and geodemographics. Bases for Psychographic Personality Motives Lifestyles Geodemographics Lifestyle Geodemographic How time is spent Importance of things around them Beliefs Socioeconomic characteristics Geodemographic Segmenting potential customers into neighborhood lifestyle categories. Combines geographic, demographic, and lifestyle segmentation Benefit Benefit Benefit The process of grouping customers into market segments according to the benefits they seek from the product. Usage-Rate 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

6 Bases for Segmenting Consumer Markets LO 6 Steps in Segmenting a Market Geography Demographics Psychographics Benefits Usage Rate Region Market size Market density Climate Age Gender Income Race/ethnicity Family life cycle Personality Motives Lifestyle Geodemographics Benefits sought Former Potential 1 st time Light or irregular Medium Heavy List the steps involved in segmenting markets LO 6 Steps in Segmenting Markets Strategies for Selecting Target Markets Select a market for study Choose bases for segmentation Select descriptors Profile and analyze segments Select target markets Design, implement, maintain marketing mix Discuss alternative strategies for selecting target markets Strategies for Selecting Target Markets Strategies for Selecting Target Markets Target Market 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. Undifferentiated Concentrated Multisegment

7 Undifferentiated Targeting Undifferentiated Targeting Undifferentiated Targeting A marketing approach that views the market as one big market with no individual segments and thus requires a single marketing mix. Advantage: Potential savings on production and marketing costs Disadvantages: Unimaginative product offerings Undifferentiated Company more susceptible to competition Concentrated Targeting Concentrated Targeting Concentrated Targeting A strategy used to select one segment of a market for targeting marketing efforts. Advantages: Concentration of resources Meets narrowly defined segment Small firms can compete Strong positioning Niche One segment of a market. Concentrated Disadvantages: Segments too small, or changing Large competitors may market to niche segment Multisegment Targeting Multisegment Targeting Multisegment Targeting A strategy that chooses two or more well-defined market segments and develops a distinct marketing mix for each. Multisegment Advantages: Greater financial success Economies of scale Disadvantages: High costs Cannibalization

8 Costs of Multisegment Targeting Cannibalization Product design costs Production costs Promotion costs Inventory costs Cannibalization Situation that occurs when sales of a new product cut into sales of a firm s existing products. Marketing research costs Management costs Cannibalization Alternatives for Selecting Target Markets LO 8 One-to-One Marketing Undifferentiated Multisegment Concentrated Explain one-to-one marketing LO 8 One-to-One Marketing LO 8 One-to-One Marketing Trends One-to-One Marketing An individualized marketing method that utilizes customer information to build long-term, personalized, and profitable relationships with each customer. 1. One-size-fits all marketing no longer effective 2. Direct and personal marketing will grow to meet needs of busy consumers. 3. Consumers will be loyal to companies that have earned and reinforced their loyalty. 4. Mass-media approaches will decline as technology allows better customer tracking

9 LO 8 One-to-One Marketing Positioning Explain how and why firms implement positioning strategies and how product differentiation plays a role Positioning Positioning Developing a specific marketing mix to influence potential customers overall perception of a brand, product line, or organization in general. Positioning of Procter & Gamble Detergents Brand Positioning Market Share 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 Product Differentiation 1. Assess the positions occupied by competing products 2. Determine the dimensions underlying these positions Product Differentiation A positioning strategy that some firms use to distinguish their products from those of competitors. 3. Choose a market position where marketing efforts will have the greatest impact Distinctions can be real or perceived

10 Perceptual Mapping Perceptual Mapping Perceptual Mapping A means of displaying or graphing, in two or more dimensions, the location of products, brands, or groups of products in customers minds Positioning Bases Repositioning Attribute Price and Quality Use or Application Product User Product Class Competitor Emotion Repositioning Changing consumers perceptions of a brand in relation to competing brands Positioning and Product Differentiation 59 10