Chapter 8 Identifying Market Segments and Targets 8-1
Key points for Chapter 8 1. Mass marketing 2. Micromarketing Segmentation marketing Niche marketing 3. Demographic segmentation 4. Psychographic segmentation 5. Behavioral Variables Benefits Loyalty Status 8-2
Key points for Chapter 8 6. Steps in Segmentation process 7. Effective segmentation criteria 8. Evaluating and selecting market segments 9. Differentiated marketing costs 10. Ethical choice of market targets 8-3
Levels of Market Segmentation Mass Marketing Mass production, mass distribution, mass promotion Segment Marketing Differentiated marketing Niche Marketing Concentrated marketing Local Marketing Local customer groups Individual Marketing Customization 8-4
Segment Marketing Market segment A group of customers who share a similar set of needs and wants Flexible market offering Not everyone wants exactly the same thing Naked solution Basic product & service elements only Discretionary options Extra product & service elements for an additional charge 8-5
Niche Marketing Niche: a more narrowly defined group seeking distinct mix of benefits Marketers identify niches by dividing a segment into subsegments Characteristics of a Niche Customers have a distinct set of needs and wants Customers are willing to pay a premium Niche is not likely to attract major competitors Nicher gains economies through specialization Niche has size, profit, and growth potential 8-6
Niche Marketing Samples of successful global niches. Hidden Champions Tetra Food: 80% of feeds for tropical fish market Hohner: 85% of world harmonica market Becher: 50% of world oversized umbrella market Steiner Optical: 80% of world military field glasses market Internet niches: Choose a hard-to-find product that customers do not need to see and touch www.ostrichonline.com: Over 20,000 clients in over 125 countries 8-7
Local Marketing Targeting the needs and wants of local customer groups. Local marketing is also called grassroots marketing concentrated on getting as close and personally relevant to local customers as possible. 8-8
Individual Marketing Tailoring products and marketing programs to the needs and preferences of the individual customers; One-to-one marketing, Customized marketing Mass-customization Meeting each customer s requirement on a mass basis Choiceboard Menu of attributes, components, prices, and delivery options offered by an online seller Customerization: Customers design a product by selecting their preferences from the choiceboard 8-9
Bases for Segmenting Consumer Markets Geographic Segmentation Demographic Segmentation Psychographic Segmentation Behavioral Segmentation Table 8.1 Major Segmentation Variables for Consumer Markets 8-10
Geographic Segmentation Dividing the market into different geographical units such as Nations, Regions, States, Counties, Cities, Neighborhoods, Census tract (average 4,000 between 1,500 to 8,000 persons) Combine geographic data with demographic data Clarita, Inc. s geoclustering called PRIZM (Potential Rating Index by Zip Markets) Inhabitants in the PRIZM Cluster Similar lives, cars, jobs, magazines 8-11
Demographic Segmentation Dividing the market into groups on the basis of variables such as Age and Life-Cycle Stage Consumers wants change with age & lifcy-cycle Life Stage Different life stage like marriage, divorce, second marriage Gender Different preferences in clothing, hairstyling, cosmetics, magazine, etc. Women control or influence over 80% of purchases of consumer goods and services, 75% new homes and 60% new cars. These numbers challenged. 8-12
Demographic Segmentation Gender WSJ s 4/23/11: Futures Company on 4,000 American 16 or older Women: 37%, primary and 85%, shared responsibility Men: 31%, primary and 84%, shared responsibility Boston Consulting Group s online survey in 2008 Women: 73%, Men: 61% Living alone households and both can influence purchasing decisions 80% by women, not creditable figure. More researches needed. 8-13
Demographic Segmentation Income Auto, Boat, clothing, cosmetics, and travel Hour-glass shaped market Generation Differ in music, movies, politics, etc from different experiences Social Class Differ in auto, clothing, home furnishing, leisure activity, reading habit and retailer Social classes of the U.S. on p.152 8-14
Psychographic Segmentation Dividing buyers into different groups based on psychological/personality traits, lifestyle or values SRI Consulting Business Intelligence s (www.sric-bi.com) VALS Segments Places U.S. adult consumers into one of eight segments based on their responses to the VALS questionnaire 8-15
The VALS Segmentation System: An 8-Part Typology (Fig. 8.1) 8-16
VALS Segments Consumer Motivation (the horizontal dimension) and Consumer Resources (the vertical dimension) Motivation Motivated by Ideals guided by principles. Motivated by Achievement to demonstrate success to their peers. Motivated by Self-Expression for social or physical activity, variety, and risk. 8-17
VALS Segments Resources Further classified into those with high resources and low resources Innovators: Consumers with very high resources Survivors: Consumers with very low resources 8-18
VALS Segments Three Groups with High Resources Thinkers: Motivated by Ideals Achievers: Motivated by Achievement Experiencers: Motivated by Self-Expression 8-19
VALS Segments Three Groups with Low Resources Believers: Motivated by Ideals Strivers: Motivated by Achievement Makers: Motivated by Self-Expression 8-20
Behavioral Segmentation Dividing buyers into groups based on buyers knowledge of & attitude toward, use of or response to a product 8-21
Behavioral Variables Occasions Consumers are divided according to the occasions when they develop a need for a product, purchase or use a product Expand product usage in other occasions than current occasions Extend gift-giving to other occasions of the year Benefits Classified according to the benefits they seek from the product Convenience, quality, price, prestige, or quick service 8-22
Behavioral Variables User Status Segmented according to their user status Nonusers, ex-users, potential users, first-time users, and regular users Usage Rate Segmented according to their usage rate Light users, medium users, and heavy users 8-23
Behavioral Variables Copyright 2003 Prentice-Hall, Inc. Loyalty Status Devided according to the degree of their loyalty to specific brands, stores or companies Hard-core loyals: Buy one brand all the time Split loyals: Loyal to two or three brands Shifting loyals: Shift from one brand to another Switchers:Show no loyalty to any brand By studying its hard-core loyals, the firm can identify its product s strength its split loyals, the firm can pinpoint which brands are most competitive with its own brand its shifting loyals, the firm can learn about its marketing weaknesses 8-24
Behavioral Variables Buyer-Readiness Stage Segmented according to their stage of readiness to buy a product Unware of, aware of, informed of, interested in, or ready to buy the product Attitude Classified according to their attitude toward a firm s product Enthusiastic, positive, indifferent, negative, or hostile 8-25
Targeting Multiple Segments Companies start marketing to one segment, then expand to others Many shoppers are cross-shoppers and cannot be neatly pigeonholed into one segment Shoppers of luxury goods also shop at discount stores 8-26
Market Targeting Effective Segmentation Criteria for Market Targeting Evaluating and Selecting the Market Segments for Market Targeting 8-27
Effective Segmentation Criteria for Market Targeting Measurable Size, purchasing power, characteristics of the segments Substantial Large and profitable enough to serve Accessible Can effectively reached and served Differentiable Distinct and respond differently Actionable Effective programs can be formulated for attracting and serving the segments 8-28
Evaluating and Selecting the Market Segments for Market Targeting Evaluating the Market Segments Segment s overall attractiveness on size, growth, profitability, economy of scale, and degree of risk. Company s objectives, competences, and resources 8-29
Five Patterns of Target Market Selection: Fig. 8.4 Single-Segment Concentration Concentrating on one segment Strong knowledge of segment s needs and operating economies High risks Selective Specialization Specializing in a number of segments Has the advantage of diversifying the firm s risks 8-30
Five Patterns of Target Market Selection: Fig. 8.4 Product Specialization Specializes in a certain product sold to several different market segments Can build a strong reputation in the specific product area Strong vulnerability The product may be supplemented or become obsolete by an entirely new technology 8-31
Five Patterns of Target Market Selection: Fig. 8.4 Market Specialization Specializes in serving many needs of a particular customer group Can gain a strong reputation in serving a specific customer group Customer group can downsize or shrink Full Market Coverage Serve all customer groups with all the products they might need. Only very large firms can do 8-32
Differentiated Marketing Costs Differentiated marketing creates more total sales than undifferentiated marketing, but also increases the costs Product modification cost Manufacturing cost Administrative cost Inventory cost Promotion cost 8-33
Additional Considerations for Market Targeting Segment-by-Segment Invasion Wise to enter one segment at a time Do not reveal to competitors what segments the firm will move into next. Pepsi moved into grocery market, then vending machine market, then fast food market against Coca-Cola Toyota: small cars (Corolla, Corona), midsize cars (Camry, Avalon), luxury cars (Lexus) 8-34 Copyright 2003 Prentice-Hall, Inc.
Figure 8.5: Segment-by-Segment Invasion Plan of Company C 8-35
Additional Considerations for Market Targeting Ethical Choice of Market Targets Unethical targeting: Taking unfair advantage of vulnerable groups; Children, inter-city poor people Sugared breakfast cereals targeted children Cool menthol cigarettes targeted black youth 16-25 Colt 45 malt liquor(beer) with 6.0% alcohol targeted blacks (Budweiser 5.0%, Bud Light 4.2%) McDonald s happy meals with toy targeted children Some good targeting Colgate s Junior Toothpaste designed to get children to brush longer and more often Issue not who is targeted but rather how and for what 8-36 Copyright 2003 Prentice-Hall, Inc.