Insert Chapter Picture Here Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 1 Designed by Eric Brengle B-books, Ltd. CHAPTER 7 Segmenting and Targeting Markets Prepared by Deborah Baker Texas Christian University Marketing Lamb, Hair, McDaniel 9

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 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 LO I LO 2 LO 3 LO 4

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 3 Learning Outcomes 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 Explain how and why firms implement positioning strategies and how product differentiation plays a role LO 5 LO 6 LO 7 LO 9 LO 8

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

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 5 LO I (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. A Market Is...

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 6 Market Segmentation LO I Market People or organizations with needs or wants and the ability and willingness to buy. Market Segment Market Segment A subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs. Market Segmentation Market Segmentation The process of dividing a market into meaningful, relatively similar, identifiable segments or groups.

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

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 8 Explain the importance of market segmentation The Importance of Market Segmentation LO 2

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 9 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 The Importance of Market Segmentation

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 10 REVIEW LEARNING OUTCOME The Importance of Market Segmentation LO 2 Market segmentation More precise definition of customers needs and wants More accurate marketing objectives Improved resource allocation Better marketing results

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 11 Discuss criteria for successful market segmentation Criteria for Successful Segmentation LO 3

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 12 LO 3 Substantiality Segment must be large enough to warrant a special marketing mix. Identifiability and Measurability Segments must be identifiable and their size measurable. Accessibility Members of targeted segments must be reachable with marketing mix. Responsiveness Unless segment responds to a marketing mix differently, no separate treatment is needed. Criteria for Segmentation

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 13 REVIEW LEARNING OUTCOME Successful Market Segmentation LO 3 Useful segment?  Substantial  Identifiable and measurable  Accessible  Responsive Then, yes: Useful segmentation scheme

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 14 Describe the bases commonly used to segment consumer markets Bases for Segmenting Consumer Markets LO 4

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 15 LO 4 Segmentation Bases Characteristics of individuals, groups, or organizations used to divide a total market into segments. (variables) Bases for Segmenting Consumer Markets

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 16 LO 4 Usage Rate Benefits Sought Psychographics Demographics Geography Bases for Segmentation

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 17 LO 4 Geographic Segmentation  Region of the country or world  Market size  Market density  Climate

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 18 LO 4  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 Benefits of Regional Segmentation

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 19 LO 4 Demographic Segmentation Age Gender Income Ethnic background Family life cycle

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 20 LO 4 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

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 21 LO 4 Age Marital Status Children Family Life Cycle

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 22 LO 4 Family Life Cycle

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 23 LO 4 Psychographic Segmentation Market segmentation on the basis of personality, motives, lifestyles, and geodemographics.

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 24 LO 4 Personality Motives Lifestyles Geodemographics Online Bases for Psychographic Segmentation

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 25 LO 4 Lifestyle Segmentation  How time is spent  Importance of things around them  Beliefs  Socioeconomic characteristics

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 Biz Flix The Breakfast The Breakfast Club 26 LO 4

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 27 LO 4 Geodemographic Segmentation Geodemographic Segmentation Geodemographic Segmentation Segmenting potential customers into neighborhood lifestyle categories. Combines geographic, demographic, and lifestyle segmentation.

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 28 LO 4 Benefit Segmentation Benefit Segmentation Benefit Segmentation The process of grouping customers into market segments according to the benefits they seek from the product.

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 29 LO 4 Benefit 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.

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 30 LO 4 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.

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 31 REVIEW LEARNING OUTCOME Bases for Segmenting Consumer Markets LO 4 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

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 32 Describe the bases for segmenting business markets Bases for Segmenting Business Markets LO 5

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 33 LO 5 Bases for Segmenting Business Markets Company Characteristics Company Characteristics Buying Processes Buying Processes Producers Resellers Government Institutions

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 34 LO 5 Company Characteristics Bases for Segmenting Business Markets  Geographic location  Type of company  Company size  Volume of purchase  Product use

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 35 LO 5 Buyer Characteristics 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.

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 36 LO 5 Demographic characteristics Decision style Tolerance for risk Confidence level Job responsibilities Buyer Characteristics

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 37 REVIEW LEARNING OUTCOME Segmenting Business Markets LO 5 Producers Resellers Institutions Governments Buying Process Company Characteristics

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 38 List the steps involved in segmenting markets Steps in Segmenting a Market LO 6

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 39 REVIEW LEARNING OUTCOME Steps in Segmenting Markets LO 6 Select a market for study Choose bases for segmen- tation Select descriptors Profile and analyze segments Select target markets Design, implement, maintain marketing mix

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 40 Discuss alternative strategies for selecting target markets Strategies for Selecting Target Markets LO 7

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 41 Target Market LO 7 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. Strategies for Selecting Target Markets

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 42 LO 7 Concentrated Strategy Undifferentiated Strategy Multisegment Strategy Strategies for Selecting Target Markets

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 43 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.

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 44 LO 7 Undifferentiated Strategy Undifferentiated Targeting Strategy Advantage:  Potential savings on production and marketing costs Disadvantages:  Unimaginative product offerings  Company more susceptible to competition

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 45 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.

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 46 LO 7 Concentrated Targeting Strategy Concentrated Strategy Advantages:  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

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 47 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.

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 48 LO 7 Multisegment Targeting Strategy Multisegment Strategy Advantages:  Greater financial success  Economies of scale Disadvantages:  High costs  Cannibalization

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 49 LO 7  Product design costs  Production costs  Promotion costs  Inventory costs  Marketing research costs  Management costs  Cannibalization Costs of Multisegment Targeting

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 50 LO 7 Cannibalization Situation that occurs when sales of a new product cut into sales of a firm’s existing products.

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 51 REVIEW LEARNING OUTCOME Alternatives for Selecting Target Markets LO 7 UndifferentiatedMultisegmentConcentrated

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 52 Explain one-to-one marketing One-to-One Marketing LO 8

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 53 LO 8 One-to-One Marketing One-to-One Marketing One-to-One Marketing An individualized marketing method that utilizes customer information to build long-term, personalized, and profitable relationships with each customer.

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 54 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

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 55 LO 8 One-to-One Marketing Trends 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.

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 56 REVIEW LEARNING OUTCOME One-to-One Marketing LO 8

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 57 Explain how and why firms implement positioning strategies and how product differentiation plays a role Positioning LO 9

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 58 Positioning LO 9 Positioning Developing a specific marketing mix to influence potential customers’ overall perception of a brand, product line, or organization in general.

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 59 LO 9 Positioning of Procter & Gamble Detergents BrandPositioningMarket Share TideTough, powerful cleaning31.1% CheerTough cleaning, color protection8.2% BoldDetergent plus fabric softener2.9% GainSunshine scent and odor-removing formula2.6% EraStain treatment and stain removal2.2% DashValue brand1.8% OxydolBleach-boosted formula, whitening1.4% SoloDetergent and fabric softener in liquid form1.2% DreftOutstanding cleaning for baby clothes, safe1.0% Ivory SnowFabric & skin safety on baby clothes0.7% ArielTough cleaner, aimed at Hispanic market0.1%

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 60 LO 9 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

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 61 Product Differentiation 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.

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 62 Perceptual Mapping Perceptual Mapping LO 9 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.

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 63 Perceptual Mapping LO 9

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 64 Positioning Bases LO 9 Attribute Price and Quality Use or Application Product User Product Class Competitor Emotion

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 65 Repositioning LO 9 Repositioning Changing consumers’ perceptions of a brand in relation to competing brands.

Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved Chapter 7 66 REVIEW LEARNING OUTCOME Positioning and Product Differentiation LO 9