1. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 1 MKTG Designed by Amy McGuire, B-books, Ltd. Prepared by Deborah Baker, Texas Christian University Lamb, Hair, McDaniel 2007-2008 7 CHAPTER Segmenting and Targeting Markets

2. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 2 Learning Outcomes 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 Describe the bases for segmenting business markets LO 1 LO 2 LO 3 LO 4 LO 5

3. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 3 Learning Outcomes List the steps involved in segmenting markets Discuss alternative strategies for selecting target markets Explain one-to-one marketing Explain how and why firms implement positioning strategies and how product differentiation plays a role LO 6 LO 7 LO 8 LO 9

4. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 4 Describe the characteristics of markets and market segments Market Segmentation LO 1

5. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 5 LO 1 A Market Is... 1) people or organizations with 2) needs or wants, and with 3) the ability and 4) the willingness to buy. A group of people that lacks any one of these characteristics is not a market.

6. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 6 Market Segmentation 7-6 Targeting “everyone” is: Expensive Wasteful Nearly impossible A more sensible approach: Identify smaller segments who are most likely to consider your brand (segmentation) and target them with specifically designed MC messages Teenagers

7. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 7 Market Segmentation LO 1 Market Segment Market Segment Market Segmentation Market Segmentation 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. The process of dividing a market into meaningful, relatively similar, identifiable segments or groups.

8. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 8 The Market Segmentation Process Market Segmentation 1. Identify people with shared needs and characteristics

9. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 9 The Market Segmentation Process 7-9 Market Segmentation 1. Identify people with shared needs and characteristics 2. Aggregate these groups into market segments according to their mutual interest in the product’s utility

10. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 10 The Concept of Market Segmentation LO 1

11. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 11 Explain the importance of market segmentation The Importance of Market Segmentation LO 2

12. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 12 The Importance of Market Segmentation LO 2  Markets have a variety of product needs and preferences  Marketers can better define customer needs  Decision makers can define objectives and allocate resources more accurately

13. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 13 REVIEW LEARNING OUTCOME LO 2 The Importance of Market Segmentation Market segmentation More precise definition of customers needs and wants More accurate marketing objectives Improved resource allocation Better marketing results

14. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 14 Discuss criteria for successful market segmentation Criteria for Successful Segmentation LO 3

15. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 15 Criteria for Segmentation LO 3 Substantiality Identifiability and Measurability Accessibility Responsiveness Segment must be large enough to warrant a special marketing mix. 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.

16. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 16 REVIEW LEARNING OUTCOME LO 3 Useful segment?  Substantial  Identifiable and measurable  Accessible  Responsive Then, yes: Useful segmentation scheme Successful Market Segmentation

17. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 17 Describe the bases commonly used to segment consumer markets Bases for Segmenting Consumer Markets LO 4

18. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 18 LO 4 Bases for Segmenting Consumer Markets Segmentation Bases Characteristics of individuals, groups, or organizations used to divide a total market into segments. (variables)

19. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 19 Bases for Segmentation LO 4 Usage Rate Benefits Sought Psychographics Demographics Geography

20. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 20 Geographic Segmentation  Region of the country or world  Market size  Market density  Climate LO 4

21. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 21 Geography - Community 7-21

22. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 22 Geography- Climate 7-22

23. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 23 Geography - Region

24. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 24 Benefits of Regional Segmentation  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 LO 4

25. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 25 Demographic Segmentation LO 4 Age Gender Income Ethnic background Family life cycle

26. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 26 7-26 Gender

27. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 27 Demographic segmentation: Heavy usage patterns of various age groups 7-27 McGraw-Hill/Irwin

28. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 28 Ethnic Segmentation  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 LO 4

29. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 29 Products target Hispanics 7-29

30. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 30 Family Life Cycle LO 4 Age Marital Status Children

31. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 31 Family Life Cycle LO 4

32. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 32 Psychographic Segmentation LO 4 Psychographic Segmentation Market segmentation on the basis of personality, motives, lifestyles, and geodemographics.

33. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 33 Bases for Psychographic Segmentation LO 4 Personality Motives Lifestyles Geodemographics Online http://www.marthastewart.comhttp://www.marthastewart.com http://www.goodhousekeeping.comhttp://www.goodhousekeeping.com

34. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 34 Lifestyle Segmentation  How time is spent  Importance of things around them  Beliefs  Socioeconomic characteristics LO 4

35. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 35 Psychographic Segmentation Values and Lifestyles Typology (VALS) http://www.sric-bi.com/VALS/

36. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 36 Biz Flix LO 4 The Breakfast Club

37. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 37 Geodemographic Segmentation LO 4 Segmenting potential customers into neighborhood lifestyle categories. Combines geographic, demographic, and lifestyle segmentation. Segmenting potential customers into neighborhood lifestyle categories. Combines geographic, demographic, and lifestyle segmentation. Geodemographic Segmentation Geodemographic Segmentation

38. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 38 PRIZM PRIZM (Potential Rating Index by Zip Market): – Classifies every U.S. Zip Code into one of 62 categories – Rankings in terms of income, home value, and occupation on a ZQ (Zip Quality) Scale – Categories range from most affluent “Blue-Blood Estates” to the least well-off “Public Assistance” – Different clusters exhibit different consumption patterns Prizm

39. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 39 PRIZM Clusters Young Digerati are the nation's tech-savvy singles and couples living in fashionable neighborhoods on the urban fringe. Affluent, highly educated and ethnically mixed, Young Digerati communities are typically filled with trendy apartments and condos, fitness clubs, clothing boutiques, casual restaurants and all types of bars—from juice to coffee to microbrew. The steady rise of older, healthier Americans over the past decade has produced one important by-product: middle-class, home-owning suburbanites who are aging in place rather than moving to retirement communities. Gray Power reflects this trend, a segment of older, midscale singles and couples who live in quiet comfort.

40. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 40 PRIZM Clusters 01 Upper Crust 02 Blue Blood Estates 03 Movers & Shakers 04 Young Digerati 05 Country Squires 06 Winner's Circle 07 Money & Brains 08 Executive Suites 09 Big Fish, Small Pond 10 Second City Elite 11 God's Country 12 Brite Lites, Li'l City 13 Upward Bound 14 New Empty Nests 15 Pools & Patios 16 Bohemian Mix 17 Beltway Boomers 18 Kids & Cul-de-Sacs 19 Home Sweet Home 20 Fast-Track Families 21 Gray Power 22 Young Influentials 23 Greenbelt Sports 24 Up-and-Comers 25 Country Casuals 26 The Cosmopolitans 27 Middleburg Managers 28 Traditional Times 29 American Dreams 30 Suburban Sprawl 31 Urban Achievers 32 New Homesteaders 33 Big Sky Families 34 White Picket Fences 35 Boomtown Singles 36 Blue-Chip Blues 37 Mayberry-ville 38 Simple Pleasures 39 Domestic Duos 40 Close-In Couples 41 Sunset City Blues 42 Red, White & Blues 43 Heartlanders 44 New Beginnings 45 Blue Highways 46 Old Glories 47 City Startups 48 Young & Rustic 49 American Classics 50 Kid Country, USA 51 Shotguns & Pickups 52 Suburban Pioneers 53 Mobility Blues 54 Multi-Culti Mosaic 55 Golden Ponds 56 Crossroads Villagers 57 Old Milltowns 58 Back Country Folks 59 Urban Elders 60 Park Bench Seniors 61 City Roots 62 Hometown Retired 63 Family Thrifts 64 Bedrock America 65 Big City Blues 66 Low-Rise Living 67 Unclassified

41. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 41 PRIZM Branchburg, NJ 08876's most common PRIZM NE Segments are: Boomtown Singles Country Squires God’s Country Middleberg Managers Up–and-Comers http://www.claritas.com/MyBestSegments/Default.jsp?I D=30&SubID=&pageName=Segment%2BLook-up

42. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 42 A Comparison of Two PRIZM Clusters

43. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 43 Benefit Segmentation LO 4 The process of grouping customers into market segments according to the benefits they seek from the product. Benefit Segmentation

44. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 44 Benefit Segmentation LO 4 Usage-Rate Segmentation 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.

45. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 45 LO 4 Beyond the Book Example of Usage-Rate  Verizon, Sprint Nextel and others allow consumers with standard contracts to access the Internet via cellular high-speed services.  Some customers’ service is being cancelled because they are using excessive network capacity.  Sprint and Cingular Wireless charge based on usage: the amount of data bits they wirelessly transfer each month. SOURCE: Amol Sharma and Dionne Searcey, “Cell Carriers to Web Customers: Use Us, but Not too Much,” Wall Street Journal, May 11, 2006, B1.

46. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 46 7-46 Example of Benefit Tropicana Essentials targets consumers who want extra vitamins and no sodium

47. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 47 REVIEW LEARNING OUTCOME LO 4 Bases for Segmenting Consumer Markets GeographyDemographicsPsychographicsBenefitsUsage Rate Region Market size Market density Climate Age Gender Income Race/ethnicity Family life cycle Personality Motives Lifestyle Geodemo- graphics Benefits sought Former Potential 1 st time Light or irregular Medium Heavy

48. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 48 Describe the bases for segmenting business markets Bases for Segmenting Business Markets LO 5

49. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 49 Bases for Segmenting Business Markets LO 5 Company Characteristics Company Characteristics Buying Processes Buying Processes Producers Resellers Government Institutions

50. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 50 Bases for Segmenting Business Markets LO 5 Company Characteristics  Geographic location  Type of company  Company size  Volume of purchase  Product use

51. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 51 Buyer Characteristics LO 5 Satisficers Business customers who place an order with the first familiar supplier to satisfy product and delivery requirements. Optimizers Business customers who consider numerous suppliers, both familiar and unfamiliar, solicit bids, and study all proposals carefully before selecting one.

52. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 52 Buyer Characteristics LO 5 Demographic characteristics Decision style Tolerance for risk Confidence level Job responsibilities

53. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 53 REVIEW LEARNING OUTCOME LO 5 Segmenting Business Markets Producers Resellers Institutions Governments Buying Process Company Characteristics

54. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 54 List the steps involved in segmenting markets Steps in Segmenting a Market LO 6

55. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 55 REVIEW LEARNING OUTCOME LO 6 Steps in Segmenting Markets Select a market for study Choose bases for segmen- tation Select descriptors Profile and analyze segments Select target markets Design, implement, maintain marketing mix

56. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 56 Discuss alternative strategies for selecting target markets Strategies for Selecting Target Markets LO 7

57. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 57 Strategies for Selecting Target Markets LO 7 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.

58. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 58 Strategies for Selecting Target Markets LO 7 Concentrated Strategy Undifferentiated Strategy Multisegment Strategy

59. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 59 Undifferentiated Targeting Strategy LO 7 Undifferentiated Targeting Strategy A marketing approach that views the market as one big market with no individual segments and thus requires a single marketing mix.

60. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 60 LO 7 Undifferentiated Strategy Advantage:  Potential savings on production and marketing costs Disadvantages:  Unimaginative product offerings  Company more susceptible to competition Undifferentiated Targeting Strategy

61. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 61 Concentrated Targeting Strategy LO 7 Concentrated Targeting Strategy A strategy used to select one segment of a market for targeting marketing efforts. Niche One segment of a market.

62. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 62 LO 7 Concentrated Strategy Advantage:  Concentration of resources  Meets narrowly defined segment  Small firms can compete  Strong positioning Disadvantages:  Segments too small, or changing  Large competitors may market to niche segment Concentrated Targeting Strategy

63. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 63 Multisegment Targeting Strategy LO 7 Multisegment Targeting Strategy A strategy that chooses two or more well-defined market segments and develops a distinct marketing mix for each.

64. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 64 LO 7 Multisegment Strategy Advantage:  Greater financial success  Economies of scale Disadvantages:  High costs  Cannibalization Multisegment Targeting Strategy

65. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 65 Costs of Multisegment Targeting LO 7  Product design costs  Production costs  Promotion costs  Inventory costs  Marketing research costs  Management costs  Cannibalization Multisegment Strategy

66. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 66 Cannibalization LO 7 Situation that occurs when sales of a new product cut into sales of a firm’s existing products. Cannibalization

67. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 67 REVIEW LEARNING OUTCOME LO 7 Alternatives for Selecting Target Markets UndifferentiatedMultisegmentConcentrated

68. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 68 Approaches to Targeting Markets Wal-MartM Strategy A Strategy C Strategy B C A B UNDIFERENTIATED (MASS MARKETING) DIFFERENTIATED (Happy Meal, Big Mac, Chicken Salad) Market Strategy B C A Curves for Women, Gold’s Gym, American Assoc. for Retired Persons) Strategy A Strategy B Strategy C A C B CUSTOMIZED (1-to-1) MARKETING (Personal Amenities for Ritz-Carlton Loyals, BK Whopper, Custom Cars) CONCENTRATED

69. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 69 Explain one-to-one marketing One-to-One Marketing LO 8

70. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 70 One-to-One Marketing LO 8 An individualized marketing method that utilizes customer information to build long-term, personalized, and profitable relationships with each customer. One-to-One Marketing One-to-One Marketing

71. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 71 One-to-One Marketing LO 8 Information-Intensive Long-Term One-to-One Marketing is... One-to-One Marketing is... Individualized Cost Reduction Has a Goal of… Customer Loyalty Increased Revenue Personalized Customer Retention

72. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 72 One-to-One Marketing LO 8  One-size-fits all marketing no longer effective  Direct and personal marketing will grow to meet needs of busy consumers.  Consumers will be loyal to companies that have earned—and reinforced—their loyalty.  Mass-media approaches will decline as technology allows better customer tracking. Trends

73. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 73 REVIEW LEARNING OUTCOME LO 8 One-to-One Marketing

74. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 74 7-74 Custom Beauty Solutions

75. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 75 Explain how and why firms implement positioning strategies and how product differentiation plays a role Positioning LO 9

76. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 76 LO 9 Positioning Developing a specific marketing mix to influence potential customers’ overall perception of a brand, product line, or organization in general.

77. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 77 LO 9 0.7%Fabric & skin safety on baby clothesIvory Snow 0.1%Tough cleaner, aimed at Hispanic marketAriel 1.0%Outstanding cleaning for baby clothes, safeDreft 1.2%Detergent and fabric softener in liquid formSolo 1.4%Bleach-boosted formula, whiteningOxydol 1.8%Value brandDash 2.2%Stain treatment and stain removalEra 2.6%Sunshine scent and odor-removing formulaGain 2.9%Detergent plus fabric softenerBold 8.2%Tough cleaning, color protectionCheer 31.1%Tough, powerful cleaningTide Market Share PositioningBrand Positioning of Procter & Gamble Detergents LO 9

78. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 78 Effective Positioning 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 LO 9

79. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 79 LO 9 Product Differentiation A positioning strategy that some firms use to distinguish their products from those of competitors. Distinctions can be real or perceived.

80. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 80 A means of displaying or graphing, in two or more dimensions, the location of products, brands, or groups of products in customers’ minds. LO 9 Perceptual Mapping

81. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 81 7-81 Perceptual Map

82. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 82 Attribute Price and Quality Use or Application Product User Product Class Competitor Emotion LO 9 Positioning Bases

83. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 83 Changing consumers’ perceptions of a brand in relation to competing brands. LO 9 Repositioning

84. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 84 REVIEW LEARNING OUTCOME LO 9 Positioning and Product Differentiation