Segmenting and Targeting Markets Chapter 8 Segmenting and Targeting Markets Chapter 8 Segmenting and Targeting Markets MKTG10 Lamb, Hair, and McDaniel © 2016 Cengage Learning. All Rights Reserved.

© 2016 Cengage Learning. All Rights Reserved. Chapter 8 Segmenting and Targeting Markets LEARNING OUTCOMES 8-1 Describe the characteristics of markets and market segments 8-2 Explain the importance of market segmentation 8-3 Discuss the criteria for successful market segmentation 8-4 Describe the bases commonly used to segment consumer markets 8-5 Describe the bases for segmenting business markets © 2016 Cengage Learning. All Rights Reserved.

© 2016 Cengage Learning. All Rights Reserved. Chapter 8 Segmenting and Targeting Markets LEARNING OUTCOMES 8-6 List the steps involved in segmenting markets 8-7 Discuss alternative strategies for selecting target markets 8-8 Explain how CRM can be used as a targeting tool 8-9 Explain how and why firms implement positioning strategies and how product differentiation plays a role © 2016 Cengage Learning. All Rights Reserved.

Markets and Market Segments 8-1 Chapter 8 Segmenting and Targeting Markets Markets and Market Segments 8-1 Describe the characteristics of markets and market segments © 2016 Cengage Learning. All Rights Reserved.

Characteristics of a Market Chapter 8 Segmenting and Targeting Markets Characteristics of a Market All markets share several characteristics: They are composed of people or organizations. These people or organizations have wants and needs that can be satisfied by particular product categories. They have the ability to buy the products they seek. They are willing to exchange their resources, usually money or credit, for desired products. A group of people that lacks any one of these characteristics is NOT a market. Notes: The term market means different things to different people. We are all familiar with the supermarket, stock market, labor market, fish market, and flea market. All these types of markets share several characteristics. In sum, a market is (1) people or organizations with (2) needs or wants and with (3) the ability and (4) the willingness to buy. © 2016 Cengage Learning. All Rights Reserved.

© 2016 Cengage Learning. All Rights Reserved. Chapter 8 Segmenting and Targeting Markets Market Segmentation Market Segment 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. Notes: Within a market, a market segment is a subgroup of people or organizations with one or more characteristics that cause them to have similar product needs. Market segmentation is the division of a market into meaningful, relatively similar, and identifiable segments or groups. © 2016 Cengage Learning. All Rights Reserved.

Explain the importance of market segmentation Chapter 8 Segmenting and Targeting Markets The Importance of Market Segmentation 8-2 Explain the importance of market segmentation © 2016 Cengage Learning. All Rights Reserved.

The Importance of Market Segmentation Chapter 8 Segmenting and Targeting Markets The Importance of Market Segmentation 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. Notes: Until the 1960s, market segmentation was not used extensively. Consider Coca-Cola with its one product aimed at the entire soft drink market. Today over a dozen different products are marketed by the company to different market segments. Market segmentation plays a key role in the marketing strategy of organizations, leading to competitive advantage. The benefits are described on this slide. Discussion/Team Activity: Discuss how Coca-Cola’s product lines fit the needs of different market segments. Name different fashion retailers and identify their marketing segmentation strategies. © 2016 Cengage Learning. All Rights Reserved.

Discuss criteria for successful market segmentation Chapter 8 Segmenting and Targeting Markets Criteria for Successful Segmentation 8-3 Discuss criteria for successful market segmentation © 2016 Cengage Learning. All Rights Reserved.

Criteria for Segmentation Chapter 8 Segmenting and Targeting Markets Criteria for Segmentation 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. Notes: Markets are segmented for three reasons: Segmentation enables the identification of groups of customers with similar needs, and the analysis of the buying behavior of these groups. Segmentation provides information for the specific matching of the design of marketing mixes with the characteristics of the segment. Segmentation helps marketers satisfy customers wants and needs while meeting the organization’s objectives. A segmentation scheme must produce segments that meet the four basic criteria as defined above. © 2016 Cengage Learning. All Rights Reserved.

Describe the bases commonly used to segment consumer markets Chapter 8 Segmenting and Targeting Markets Bases for Segmenting Consumer Markets 8-4 Describe the bases commonly used to segment consumer markets © 2016 Cengage Learning. All Rights Reserved.

Bases for Segmentation Chapter 8 Segmenting and Targeting Markets Bases for Segmentation Usage Rate Benefits Sought Psychographics Demographics Geography Notes: One or more of the characteristics listed above is used to segment markets. They are described on subsequent slides. © 2016 Cengage Learning. All Rights Reserved.

Geographic Segmentation Chapter 8 Segmenting and Targeting Markets Geographic Segmentation Region of the country or world Market size Market density Climate Notes: Geographic segmentation of markets is based on the region, market size, market density (number of people within a unit of land), or climate. © 2016 Cengage Learning. All Rights Reserved.

Demographic Segmentation Chapter 8 Segmenting and Targeting Markets Demographic Segmentation Age Gender Income Ethnic background Family life cycle Notes: Demographic information is widely available and often related to consumer behavior and buying. Some common bases are age, gender, income, ethnic background, and family life cycle. © 2016 Cengage Learning. All Rights Reserved.

© 2016 Cengage Learning. All Rights Reserved. Chapter 8 Segmenting and Targeting Markets Age Segmentation Marketers can segment markets by age using cohorts: Tweens Teens Millennials Generation X Baby Boomers The War Generation The Great Depression Generation © 2016 Cengage Learning. All Rights Reserved.

© 2016 Cengage Learning. All Rights Reserved. Chapter 8 Segmenting and Targeting Markets Gender Segmentation Women make 85 percent of consumers goods purchases annually. Marketers of products such as clothing and cosmetics still segment markets by gender, and many of these marketers are going after the less-traditional male market. Notes: Women tend to view money and wealth differently than men do. They don’t seek to accumulate money, but see it as a way to care for their families, improve their lives, and find security. Thus, financial advisors need to use different strategies to appeal to women. © 2016 Cengage Learning. All Rights Reserved.

© 2016 Cengage Learning. All Rights Reserved. Chapter 8 Segmenting and Targeting Markets Income Segmentation Income level influences consumers’ wants and determines their buying power. Retailers can appeal to: Low-income High-income Both © 2016 Cengage Learning. All Rights Reserved.

© 2016 Cengage Learning. All Rights Reserved. Chapter 8 Segmenting and Targeting Markets Ethnic Segmentation The three largest ethnic groups in the United States are: Hispanic Americans African Americans Asian Americans To meet the needs and wants of expanding ethnic populations, some companies make products geared toward specific ethnic groups. Notes: In the past, ethnic groups in the United States were expected to conform to a homogenized, Anglo-centric ideal. Increasing numbers of ethnic minorities and increased buying power have changed this. © 2016 Cengage Learning. All Rights Reserved.

© 2016 Cengage Learning. All Rights Reserved. Family Life Cycle Chapter 8 Segmenting and Targeting Markets Age Children Marital Status Notes: Consumption patterns among people of the same age and gender differ because they are in different stages of the family life cycle stage. The family life cycle is a series of stages determined by a combination of age, marital status, and the presence or absence of children. © 2016 Cengage Learning. All Rights Reserved.

Psychographic Segmentation Chapter 8 Segmenting and Targeting Markets Psychographic Segmentation Market segmentation on the basis of personality, motives, lifestyles, and geodemographics. Notes: Demographics provide the skeleton, but psychographics add meat to the bones. © 2016 Cengage Learning. All Rights Reserved.

Bases for Psychographic Segmentation Chapter 8 Segmenting and Targeting Markets Bases for Psychographic Segmentation Personality Motives Lifestyles Geodemographics © 2016 Cengage Learning. All Rights Reserved.

Personality and Motive Segmentation Reflects a person’s traits, attitudes, and habits. Motives Notes: Personality reflects a person’s traits, attitudes, and habits. Consider the personality types that describe segmented Porsche buyers. Motives: Carmakers might appeal to customers with status-related motives, whereas baby products appeal to emotional motives. Marketers might appeal to emotional, rational, or status motives, among others. © 2016 Cengage Learning. All Rights Reserved.

Lifestyle Segmentation Chapter 8 Segmenting and Targeting Markets Lifestyle Segmentation How time is spent Importance of things around them Beliefs Socioeconomic characteristics Notes: Lifestyle segmentation divides people into groups according to how time is spent, the importance of things around them, beliefs, and socioeconomic characteristics such as income and education. © 2016 Cengage Learning. All Rights Reserved.

Geodemographic Segmentation Chapter 8 Segmenting and Targeting Markets Geodemographic Segmentation Segmenting potential customers into neighborhood lifestyle categories. Combines geographic, demographic, and lifestyle segmentation. Notes: Geodemographic segmentation helps marketers develop marketing programs tailored to prospective buyers who live in small geographic regions, such as neighborhoods, or who have very specific lifestyle and demographic characteristics. © 2016 Cengage Learning. All Rights Reserved.

© 2016 Cengage Learning. All Rights Reserved. Chapter 8 Segmenting and Targeting Markets Benefit Segmentation The process of grouping customers into market segments according to the benefits they seek from the product. Notes: 1. Benefit segmentation is different from other segmentation bases because it groups potential customers on the basis of their needs and wants instead of some other characteristic. 2. Customer profiles can be developed by examining demographic information associated with people seeking certain benefits. © 2016 Cengage Learning. All Rights Reserved.

Usage-Rate Segmentation Chapter 8 Segmenting and Targeting Markets Usage-Rate Segmentation 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. The following categories are usually seen: former users, potential users, first time users, light users, and heavy users. Marketers usually focus on heavy users. Notes: Most segmentation is based on the assumption that the selected variable(s) and customers’ needs are related. On the other hand, benefit segmentation groups potential customers on the basis of their needs or wants only. Segmenting by usage rate enables marketers to focus efforts on heavy users or to develop multiple marketing mixes aimed at different segments. The focus of marketing is often on the heavy-user segment, based on the 80/20 principle. Discussion/Team Activity: What programs do companies use to develop customers into heavy users? The list should include airline frequent flyer programs and in-store coupon dispensing. © 2016 Cengage Learning. All Rights Reserved.

Discuss alternative strategies for selecting target markets Chapter 8 Segmenting and Targeting Markets Strategies for Selecting Target Markets 8-7 Discuss alternative strategies for selecting target markets © 2016 Cengage Learning. All Rights Reserved.

© 2016 Cengage Learning. All Rights Reserved. Chapter 8 Segmenting and Targeting 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. Notes: Market segmentation is the first step in determining whom to approach about buying a product. The next task is to choose one or more target markets. A target market is a group of people or organizations for which the organization designs, implements, and maintains a marketing mix to meet that group’s needs. Because most markets will include customers with different lifestyles, backgrounds, and income levels, it is unlikely that a single marketing mix will attract all segments of the market. © 2016 Cengage Learning. All Rights Reserved.

Strategies for Selecting Target Markets Chapter 8 Segmenting and Targeting Markets Strategies for Selecting Target Markets Concentrated Strategy Undifferentiated Multisegment Notes: The three general strategies for selecting target markets are undifferentiated, concentrated, and multisegment targeting. © 2016 Cengage Learning. All Rights Reserved.

Undifferentiated Targeting Strategy Chapter 8 Segmenting and Targeting Markets Undifferentiated Targeting Strategy A marketing approach that views the market as one big market with no individual segments and thus uses a single marketing mix. Notes: An undifferentiated targeting strategy is essentially a mass-market philosophy—viewing the market as one big market and using one marketing mix. The first firm in an industry sometimes uses an undifferentiated targeting strategy. With no competition, the firm may not need to tailor marketing mixes to the preferences of market segments. Too often, an undifferentiated strategy emerges by default rather than by design, reflecting a failure to consider the advantages of a segmented approach. The result is often sterile, unimaginative product offerings that have little appeal to anyone. © 2016 Cengage Learning. All Rights Reserved.

Undifferentiated Targeting Strategy Chapter 8 Segmenting and Targeting Markets Undifferentiated Targeting Strategy Undifferentiated Strategy Advantage: Potential savings on production and marketing costs Disadvantages: Unimaginative product offerings Company more susceptible to competition Notes: Marketers of commodity products, such as flour and sugar, are likely to use this strategy. Even toilet tissue manufacturers have different segments—both industrial and consumer—and adopt different marketing mixes for different segments. Additionally, small stores in small towns with no competition may offer one marketing mix and be successful. © 2016 Cengage Learning. All Rights Reserved.

Concentrated Targeting Strategy Chapter 8 Segmenting and Targeting Markets Concentrated Targeting Strategy Concentrated Targeting Strategy A strategy used to select one segment of a market for targeting marketing efforts. Niche One segment of a market. Notes: With a concentrated targeting strategy, a firm selects a niche for targeting its marketing efforts. Because the firm is appealing to a single segment, it can concentrate on understanding the needs, motives, and satisfactions of that segment’s members and on developing and maintaining a highly specialized marketing mix. © 2016 Cengage Learning. All Rights Reserved.

Concentrated Targeting Strategy Chapter 8 Segmenting and Targeting Markets Concentrated Targeting 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 Strategy Notes: A concentrated strategy of focusing on a narrow market is sometimes more profitable than spreading resources over several different segments. A concentrated strategy often enables small firms to compete effectively with much larger firms. However, a concentrated strategy can also be disastrous for a firm that is not successful in its narrowly defined target market. Discussion/Team Activity: Identify firms that have adopted a niche strategy. Examples: Rolex, Porsche, Orvis, Starbucks, AOL, and Enterprise Rent-A-Car. © 2016 Cengage Learning. All Rights Reserved.

Multisegment Targeting Strategy Chapter 8 Segmenting and Targeting Markets Multisegment Targeting Strategy A strategy that chooses two or more well-defined market segments and develops a distinct marketing mix for each. Notes: A firm that chooses to serve two or more well-defined market segments and develops a distinct marketing mix for each has a multisegment targeting strategy. For example, P&G offers 18 different laundry detergents, each targeting a different segment of the market. © 2016 Cengage Learning. All Rights Reserved.

Multisegment Targeting Strategy Chapter 8 Segmenting and Targeting Markets Multisegment Targeting Strategy Multisegment Strategy Advantage: Greater financial success Economies of scale Disadvantages: Higher costs Cannibalization Notes: Multisegment targeting offers many potential benefits to firms, including greater sales volume, higher profits, larger market share, and economies of scale in manufacturing and marketing. Yet it may also involve greater product design, production, promotion, inventory, marketing research, and management costs. Discussion/Team Activity: Walmart opened a pilot store in Plano, Texas, that stocks plasma TVs, fine jewelry, expensive wine, etc. Discuss ways that Walmart can attract upper-end customers. What marketing mix would you suggest? © 2016 Cengage Learning. All Rights Reserved.

Explain how CRM can be used as a targeting tool Chapter 8 Segmenting and Targeting Markets CRM as a Targeting Tool 8-8 Explain how CRM can be used as a targeting tool © 2016 Cengage Learning. All Rights Reserved.

© 2016 Cengage Learning. All Rights Reserved. Chapter 8 Segmenting and Targeting Markets CRM Recall from Chapter 1 that CRM entails tracking interactions with customers to optimize customer satisfaction and long-term company profits. Companies that successfully implement CRM tend to customize the goods and services offered to their customers based on data generated through interactions between carefully defined groups of customers and the company. © 2016 Cengage Learning. All Rights Reserved.

© 2016 Cengage Learning. All Rights Reserved. Chapter 8 Segmenting and Targeting Markets CRM Trends One-size-fits all marketing no longer relevant Direct and personal marketing efforts 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. Notes: These four major trends illustrate why CRM is likely to grow. Although mass marketing will continue to be used, especially to create brand awareness or remind consumers of a product, the advantages of CRM cannot be ignored. © 2016 Cengage Learning. All Rights Reserved.

© 2016 Cengage Learning. All Rights Reserved. Chapter 8 Segmenting and Targeting Markets Positioning 8-9 Explain how and why firms implement positioning strategies and how product differentiation plays a role © 2016 Cengage Learning. All Rights Reserved.

© 2016 Cengage Learning. All Rights Reserved. Chapter 8 Segmenting and Targeting Markets Positioning Developing a specific marketing mix to influence potential customers’ overall perception or a brand, product line, or organization in general. Notes: Position is the place a product, brand, or group of products occupies in consumers’ minds relative to competing offerings. Positioning assumes that consumers compare products on the basis of important features. Effective positioning requires assessing the positions occupied by competing products, determining the important dimensions underlying these positions, and choosing a position in the market where the marketing efforts will have the greatest impact. © 2016 Cengage Learning. All Rights Reserved.

Positioning of Procter & Gamble Detergents Chapter 8 Segmenting and Targeting Markets Positioning of Procter & Gamble Detergents Brand Positioning Tide Tough, powerful cleaning Cheer Tough cleaning, color protection Bold Detergent plus fabric softener Gain Sunshine scent and odor-removing formula Era Stan treatment and stain removal Dash Value brand Solo Detergent and fabric softener in liquid form Dreft Outstanding cleaning for baby clothes, safe Ivory Fabric and skin safety on baby clothes Ariel Tough cleaner, aimed at Hispanic market Notes: This slide compares the unique positions for Procter & Gamble’s laundry detergents. Discussion/Team Activity: Discuss specific advertisements for these detergents and how these ads illustrate the unique positions listed on this slide. Examine the positioning message of other product advertisements. © 2016 Cengage Learning. All Rights Reserved.

Effective Positioning Chapter 8 Segmenting and Targeting Markets Effective Positioning Assess the positions occupied by competing products Determine the dimensions underlying these positions Choose a market position where marketing efforts will have the greatest impact © 2016 Cengage Learning. All Rights Reserved.

© 2016 Cengage Learning. All Rights Reserved. Chapter 8 Segmenting and Targeting Markets Positioning Bases Attribute Price and Quality Use or Application Product User Product Class Competitor Emotion Notes: The following bases for positioning are used: Attribute: Association of a product with an attribute, a product feature, or customer benefit. Price and quality: High price as a symbol of quality, or low price as an indicator of value may be used to position a product. Use or application: Stressing use or applications. Product user: Positioning base focuses on a personality or type of user. Product class: Product is positioned as associated with a particular category of products. Competitor: Positioning against competitors is a part of any positioning strategy. Emotion: Positioning using emotion focuses on how the product makes customers feel. One or more positioning bases is often used. © 2016 Cengage Learning. All Rights Reserved.

Product Differentiation Chapter 8 Segmenting and Targeting Markets Product Differentiation A positioning strategy that some firms use to distinguish their products from those of competitors. Notes: One positioning strategy that many firms use to distinguish their products from competitors is based on product differentiation. The distinctions between products can be either real or perceived. © 2016 Cengage Learning. All Rights Reserved.