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Chapter 8 Themes for Class Discussion

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2 Chapter 8 Themes for Class Discussion
Market Segmentation and Target Marketing McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

3 What’s a market segment?
A group of individuals or organizations (i.e., buyers) having the willingness and ability to buy goods and services to satisfy a class of want or need What’s a market segment? A group of potential customers in a market who share similar wants and needs that are different from the wants and needs of consumers in other segments

4 Why should we segment markets and target certain segments
Why should we segment markets and target certain segments? Are there benefits in doing so? Are there drawbacks? Segmentation is important because markets are rarely homogeneous in benefits wanted, purchase rates, and price and promotion elasticities, and their response rates to products and marketing programs differ. Variation among market segments in product preferences, size and growth in demand, media habits, and competitive structures further affect the differences and response rates. Market segmentation has become increasingly important in the development of marketing strategies for the following reasons. Population growth has slowed, and more product-markets are maturing. This sparks more intense competition as firms seek growth via gains in market share as well as in an increase in brand extensions. E.g., Haagen Dazs Bailey’s ice cream, Colgate toothbrushes Such social and economic forces as expanding disposable incomes, higher educational levels, and more awareness of the world have produced customers with more varied and sophisticated needs, tastes, and lifestyles than ever before. This has led to an outpouring of goods and services that compete with one another for the opportunity of satisfying some group of consumers. There is an increasingly important trend toward microsegmentation, in which extremely small segments are targeted. Many marketing organizations have made it easier to implement sharply focused marketing programs by more sharply targeting their own services. Benefits of market segmentation: It identifies opportunities for new product development. It helps in the design of marketing programs that are most effective for reaching homogeneous groups of customers. It improves the strategic allocation of marketing resources. Drawbacks of market segmentation: Potential customers who do not fit into the target segment are missed. The newest mobile phones offer games and music players, because they target the youth segment, but in the process, they ignore the over 55 market, who have a large disposable income. Marketers may misjudge who their target market is, which could result in product failure or poor sales.

5 How should market segments be defined? Three good ways to do it.
Who the customers are Where they are How they behave Ask, for each approach, “What tools do we have to define segments this way? Can you think of examples of markets typically segmented this way?” Who? Demographic descriptors (age, income, gender, education, etc.): cereal, clothing, cosmetics, some magazines Where? Geographic descriptors: suntan lotion, snow blowers, trade areas for retail stores How they behave? Benefits sought: bicycles of various types, computers of various types Product usage: key accounts among organizational buyers Lifestyle/psychographics: health clubs, automobiles/convertibles Social class: jewelry, automobiles

6 Do these same approaches apply to organizational markets? Examples?
Who? Demographic descriptors: company age, size, etc. Example: different software versions for small and large businesses. Where? Geographic descriptors: Example: B2B Websites in different languages to reach different geographical markets. How they behave? Benefits sought by different industries: Example: software tailored to different vertical markets. Product usage: Example: treating key accounts among organizational buyers differently Lifestyle/psychographics: Example: marketing corporate wellness programs/corporate health club memberships to different kinds of firms Social class: Example: company vehicles differ for different job levels

7 Exhibit 8.5 Steps in Constructing a Market-Attractiveness/Competitive-Position Matrix for Evaluating Potential Target Markets 1. Choose criteria to measure market attractiveness and competitive position. 2. Weight market attractiveness and competitive position factors to reflect their relative importance. 3. Assess the current position of each potential target market on each factor. What have we learned to date in this course that can contribute to the steps shown here? Macro trends analysis Competitor analysis Consumer and org buyer behavior Marketing research to gather relevant data 4. Project the future position of each market based on expected environmental, customer, and competitive trends 5. Evaluate implications of possible future changes for business strategies and resources requirements. 7

8 A Useful Tool for Assessing Market Segments: Segment Rating Chart
WEIGHT RATING (0-10) TOTAL Market attractiveness factors Customer needs and behavior .5 10 5.0 Segment size and growth rate .3 7 2.1 Macro trends .2 8 1.6 Total: Market attractiveness 1.0 8.7 Competitive position factors Opportunity for competitive advantage .6 4.2 Capabilities and resources 5 Industry attractiveness 1.4 Total: Competitive position 6.6 Where does the necessary data come from to support the factor ratings? Primary and secondary marketing research Analytical frameworks from earlier chapters

9 How should we decide which segments to target?
Market Attractiveness High (8-10) l Moderate (4-7) Low (0-3) How can these factors be assessed? Market attractiveness factors Customer needs and behavior: unmet needs? Segment size and growth rate Macro trends Competitive position factors Opportunities for competitive advantage Capabilities and resources Industry attractiveness Low (0-3) Moderate (4-7) High (8-10) Company’s Competitive Position l = Market attractiveness and competitive position of distance runners segment

10 Market Attractiveness
Exhibit 8.9 Implications of Alternative Positions Within the Market-Attractiveness/Competitive-Position Matrix for Target Market Selection, Strategic Objectives, and Resource Allocation Competitive Position Weak Medium Strong Build selectively: Spec. in limited strengths Seek to overcome weak. Withdraw if indications of sustainable growth are lacking Desirable Potential Target Invest to build: Challenge for leadership Build selectively on strengths Reinforce vulnerable areas Desirable Potential Target Protect position: Invest to grow at max. digestible rate Concentrate on maintaining strength High Limited expansion or harvest: Look for ways to expand w/out high risk; otherwise min. invest. and focus operations Desirable Potential Target Build selectively: Emphasize profitability by increasing productivity Build up ability to counter competition Manage for earnings: Protect existing strengths Invest to improve position only in areas where risk is low Med. Market Attractiveness Depending on where your product is in the product life-cycle, different strategies are used to achieve the maximum potential for the product. Divest: Sell when possible to maximize cash value Meantime, cut fixed costs & avoid further investment Manage for earnings: Protect position Minimize investment Protect and refocus: Defend strengths Seek ways to increase current earnings without speeding market’s decline Low Sources: Adapted from George S. Day, Analysis for Strategic Market Decisions (St. Paul: West, 1986), p. 204; D. F. Abell and J. S. Hammond, Strategic Market Planning Problems and Analytical Approaches (Englewood Cliffs, NJ: Prentice Hall, 1979); and S. J. Robinson, R. E. Hitchens, and D. P. Wade, “The Directional Policy Matrix: Tool for Strategic Planning,” Long Range Planning 11 (1978), pp 14

11 What targeting strategies are available? When should each be used?
Niche-market strategy Mass-market strategy Growth-market strategy Niche-market strategy One or more segments with substantial number of customers seeking somewhat specialized benefits from a product or service Strategy is designed to avoid direct competition with larger firms that are pursuing bigger segments Mass-market strategy Ignore any segment differences and design a single product-and-marketing program that will appeal to the largest number of consumers Objective of strategy is to capture sufficient volume to gain economies of scale and a cost advantage Favored by larger business units or by those whose parent corporation provides substantial support A second approach to the mass market is to design separate products and marketing programs for the differing segments Growth-market strategy Often target one or more fast-growth segments A strategy often favored by smaller competitors to avoid direct confrontations with larger firms while building volume and share


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