Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Introduction to Marketing

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Chapter 8 Objectives 1.Understand the basic concepts and importance of segmenting and targeting markets. 2.Explain advantages and disadvantages of segmentation and target marketing.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Chapter 8 Objectives 3.Identify and explain the process of target-market selection, including criteria for segmentation, bases for segmentation, profiling market segments, and positioning.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Chapter 8 Objectives 4.Appreciate how segmenting business markets differs from segmenting consumer markets. 5.Identify special considerations in segmenting global markets.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Market Segmentation and Target Markets The focus of a successful marketing program is the customer. The process of understanding the customer and designing a specialized marketing mix for that customer is target marketing.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Markets and Target Marketing Market- any individual, group of individuals, or organizations willing, able, and capable of purchasing a firm’s product. Before a firm can effectively market its products to you, it must fully understand your needs and wants from that product. Objective 1

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Markets and Target Marketing Heterogeneous demand- different groups of customers have differing needs from specific products. Market Segmentation- the separation of markets into distinctive groups based on homogeneous (similar) characteristics. Objective 1

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Markets and Target Marketing Market Segment- a group of consumers that are alike based on some characteristics. Target Market- the specific group of customers toward which a firm directs its market efforts. Objective 1

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Markets and Target Marketing Target Marketing- the process of matching a specialized marketing mix with the needs of a specific market segment. Objective 1

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Target the Mass Market versus the Individual Consumer The options for the size of a market segment range from one mass market to one individual. Niche Marketing- the process of targeting a small market segment with a specific, specialized marketing mix. Objective 1

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Target the Mass Market versus the Individual Consumer Micromarketing- the process of targeting small, narrowly defined market segments. For example, the Target Corporation researches the demographic characteristics of consumers who live within three miles of a store, and then stocks merchandise that fits the neighborhood consumers’ needs. Objective 1

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Target the Mass Market versus the Individual Consumer On the individual consumer end of the continuum, a firm may decide to target individual consumers and personalize marketing efforts toward each. Objective 1

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Segmentation and Target Marketing There is a trend toward greater customization of marketing efforts to meet individual consumer needs. Segmentation and target marketing have advantages and disadvantages. Objective 2

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Advantages of Segmentation and Target Marketing Identification of the market allows a company to know whom to analyze in its efforts to better understand potential and actual consumers. A detailed analysis and understanding of the market allows a firm to develop and implement a marketing mix tailored to the specific needs of the market. Objective 2

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Advantages of Segmentation and Target Marketing Identification of the market allows a company to assess potential demand for its products. Knowing the market allows firms to identify competing products in their specific market, and develop responsive competitive positions. Objective 2

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Advantages of Segmentation and Target Marketing Targeting market segments with a marketing mix customized for specific market needs increases the likelihood of sales effectiveness and cost efficiencies in reaching the market. Objective 2

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Advantages of Segmentation and Target Marketing Defining and analyzing a target market allows a firm to position its products to the market based on assessed needs and preferences. Defining a target market allows a firm to identify opportunities. Objective 2

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Disadvantages of Segmentation and Target Marketing Targeting multiple markets generally increases marketing costs. Efforts toward personalization and individualization of markets can lead to proliferation of products that becomes overly burdensome and costly to manage. Objective 2

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Disadvantages of Segmentation and Target Marketing Efforts to overly segment markets into too small niches may be viewed cynically by the targeted individual, and negatively affect consumer response to marketing efforts. Efforts to personalize marketing efforts require that vast amounts of data about each consumer be collected and analyzed. Objective 2

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Disadvantages of Segmentation and Target Marketing Narrowly segmenting a market to target may actually prevent a product from developing brand loyalty. Target marketers have been widely criticized for unethical or stereotypical activities. Objective 2

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Disadvantages of Segmentation and Target Marketing The most public criticism of segmenting and target marketing comes from minority and consumer groups who claim that the practice of aiming potentially harmful products to disadvantaged or vulnerable markets is highly unethical. Objective 2

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Disadvantages of Segmentation and Target Marketing The process of segmenting and targeting markets is akin to stereotyping and has been criticized for that reason. Objective 2

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. The Target Market Selection Process The target market selection process- the process of selecting a potential market, segmenting, analyzing, and profiling the market to better target it with a customized marketing mix. –A priori segmentation –Post hoc segmentation Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. The Target Market Selection Process A priori segmentation- occurs when variables for segmenting markets, such as age or income, are selected first, then customers are classified accordingly. Post hoc segmentation- involves the examination of existing customer data, then segmenting it to classify the customers into segments, or clusters, based on similarities of variables. Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. The Target Market Selection Process 1.Identify the total market 2.Determine need for segmentation 3.Determine basis for segmentation 4.Profile each selected segment 5.Assess potential profitability of segment and select target segment 6.Select positioning strategy 7.Develop and implement appropriate marketing mix 8.Monitor, evaluate, and control Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Identify the Total Market The first step in the target market selection process is to specifically define the total market of all potential customers for a product category. Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Determine Need for Segmentation For segmentation to be warranted, there must be differences with respect to customer needs or demands, potential product variations must be cost-effective, and implemented product differences must be apparent to customers. Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Determine Need for Segmentation Criteria for successful segmentation –Heterogeneous –Measurable –Substantial –Actionable –Accessible Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Determine Need for Segmentation Segmentation Strategy –Undifferentiated targeting strategy –Concentrated strategy –Differentiated strategy Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Determine Need for Segmentation External Factors that may affect the success of segmentation –Age of the product –Profitability –Market share –The competition –The product itself –The market Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Determine Bases for Segmentation Segmenting means dividing markets into homogenous groups based on similar characteristics or traits. To divide a market into segments, firms use segmentation variables that describe the characteristics of each part of the market. Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Determine Bases for Segmentation Most generally accepted bases for segmenting markets: –Demographics –Geographics –Psychographics –Benefits sought –Situation –Behavior or usage patterns Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Sources of Segmentation Data Information for segmenting markets may be obtained from internal or external sources. Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Sources of Segmentation Data Internal Database Sources –Data Mining External Database Sources –Spidering Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Profile Each Selected Segment Profile- a detailed picture of a market segment. The profile should paint a clear picture of the typical customer for the company’s product using all applicable segmentation variables. Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Assess Potential Profitability of Each Segment and Select Segments for Targeting Determine Forecast Demand Estimate Costs Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Select Positioning Strategy Key to developing the appropriate marketing mix is the positioning strategy of the product. Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Select Positioning Strategy Effective positioning means determining: 1.What consumers currently think about the product, especially in relation to competing products 2.What the marketer wants consumers to think about the product 3.Which positioning strategy will elevate the consumers’ current product image to the desired product image. Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Select Positioning Strategy Perceptual Mapping- creating a visual depiction about consumer perceptions of a product on two or more dimensions in relation to competitors. Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Select Positioning Strategy The positioning strategy must determine where a company wants to go and specify how to get there by positioning the product according to any of the following ways: –Price/Quality –Product Attributes –Product User –Product Usage –Product Class –Competition –Symbol Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Select Positioning Strategy Repositioning- the process of creating a new image about an existing product in consumers’ minds. Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Develop and Implement Appropriate Marketing Mix and Monitor, Evaluate, and Control The final steps are to develop and implement a marketing mix matched to the needs of the target market and evaluate and control the plan. This is done by developing a specific plan of action and timeline. Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Segmenting Business Markets Segmenting the business market can help a firm analyze the market, select the best markets for targeting, and manage marketing programs. Objective 4

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Segmenting Business Markets While the steps in the target market selection process are essentially the same for business markets, there are three major differences: –The purchasing process, which differs greatly from the household consumer market. –The use of different segment variables. –The differences in how the segmentation is implemented. Objective 4

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Segmenting Business Markets Segmentation variables used to segment business markets: –Demographics –Operating characteristics –Purchasing approaches –Product usage –Situational factors –Buyer’s personal characteristics Objective 4

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Segmenting Global Markets Increasingly, companies must reach out to foreign countries to prosper, as opportunities for domestic growth in many industries decline. Objective 5

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Segmenting Global Markets Global markets may be segmented based on: –Demographics –Geographics –Psychographics –Benefits sought –Situation –Usage –Economic –Legal/political –Cultural factors Objective 5