1. McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.

2. Explain what market segmentation is and when to use it. LO1 Identify the five steps involved in segmenting and targeting markets. Recognize the factors used to segment consumer and organizational markets. LO3 LO2 LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 9, YOU SHOULD BE ABLE TO: 9-2

3. Develop a market-product grid to identify a target market and recommend resulting actions. Explain how marketing managers position products in the marketplace. LO4 LO5 LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 9, YOU SHOULD BE ABLE TO: Describe three approaches to developing a sales forecast for an organization. LO6 9-3

4.  A Clear Market Segmentation Strategy  A Boring, Lightening-Fast Home Page  Blue-Ribbon Customer Service ZAPPOS.COM: “THE SERVICE COMPANY THAT JUST HAPPENS TO SELL SHOES…” 9-4

5. WHY SEGMENT MARKETS? WHAT MARKET SEGMENTATION MEANS LO1  Product Differentiation Product Differentiation  Market Segmentation Market Segmentation  Market Segments Market Segments  Segmentation: Linking Needs to Actions  The Zappos Segmentation Strategy 9-5

6. FIGURE 9-1 FIGURE 9-1 Market segmentation links market needs to an organization’s marketing program through marketing mix actions 9-6

7. WHY SEGMENT MARKETS? WHEN AND HOW TO SEGMENT MARKETS LO1  One-Size-Fits-All Mass Markets No Longer Exist  One Product and Multiple Market Segments  Multiple Products and Multiple Market Segments 9-7

8. Street & Smith’s Baseball What market segmentation strategy? LO1 9-8

9. Harry Potter What market segmentation strategy? LO1 9-9

10. Ann Taylor and Ann Taylor Loft What is the danger of a two-segment strategy? LO1 9-10

11. WHY SEGMENT MARKETS? WHEN AND HOW TO SEGMENT MARKETS LO1  Segments of One: Mass Customization Customer Relationship Management (CRM) Mass Customization Build-to-Order (BTO) 9-11

12. WHY SEGMENT MARKETS? WHEN AND HOW TO SEGMENT MARKETS LO1  The Segmentation Tradeoff: CRM vs. Synergies Synergy Customer Value Cannibalization 9-12

13. FIGURE 9-2 FIGURE 9-2 The five key steps in segmenting and targeting markets that link market needs to a firm’s marketing program 9-13

14. STEPS IN SEGMENTING AND TARGETING MARKETS STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS LO3  Criteria to Use in Forming the Segments Simplicity and Cost-Effectiveness of Assigning Potential Buyers to Segments Potential for Increased Profit Similarity of Needs of Potential Buyers Within a Segment Potential of a Marketing Action to Reach a Segment Difference of Needs of Buyers Among Segments 9-14

15. FIGURE 9-3 FIGURE 9-3 Segmentation bases, variables, and breakdowns for U.S. consumer markets 9-15

16. STEPS IN SEGMENTING AND TARGETING MARKETS STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS LO3  Ways to Segment Consumer Markets Geographic Segmentation 9-16

17. STEPS IN SEGMENTING AND TARGETING MARKETS STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS LO3  Ways to Segment Consumer Markets Demographic Segmentation 9-17

18. STEPS IN SEGMENTING AND TARGETING MARKETS STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS LO3  Ways to Segment Consumer Markets Psychographic Segmentation 9-18

19. STEPS IN SEGMENTING AND TARGETING MARKETS STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS LO3  Ways to Segment Consumer Markets Behavioral Segmentation  Usage Rate or Frequency Marketing Usage Rate or Frequency Marketing  Product Features  80/20 Rule 80/20 Rule 9-19

20. FIGURE 9-4 FIGURE 9-4 Patronage of fast-food restaurants by adults 18 years and older Source: Simmons Market Research Bureau, NCS/NHCS Spring 2007 Adult Full Year Choice Systems Crosstabulation Report: Visits within the Past 30 Days 9-20

21. FIGURE 9-5 FIGURE 9-5 Comparison of various kinds of users and nonusers for Wendy’s, Burger King, and McDonald’s fast-food restaurants Source: Simmons Market Research Bureau, NCS/NHCS Spring 2007 Adult Full Year Choice Systems Crosstabulation Report: Visits within the Past 30 Days 9-21

22. STEPS IN SEGMENTING AND TARGETING MARKETS STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS LO3  Behavioral Variables to Use in Forming Segments Students Nonstudents  Dorms, Sororities, & Fraternities  Faculty & Staff  Apartments  Day Commuters  Night Commuters  Residents in Area  Workers in Area 9-22

23. FIGURE 9-6 FIGURE 9-6 Segmentation bases, variables, and breakdowns for U.S. organizational markets 9-23

24. STEPS IN SEGMENTING AND TARGETING MARKETS STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS LO3  Ways to Segment Organizational Markets  Statistical Areas Geographic Segmentation 9-24

25. STEPS IN SEGMENTING AND TARGETING MARKETS STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS LO3  NAICS Code/Number of Employees  Ways to Segment Organizational Markets Demographic Segmentation 9-25

26. STEPS IN SEGMENTING AND TARGETING MARKETS STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS LO3  Usage Rate Behavioral Segmentation  Ways to Segment Organizational Markets 9-26

27. STEPS IN SEGMENTING AND TARGETING MARKETS STEP 2: GROUP PRODUCTS INTO CATEGORIES LO3  Individual Wendy’s Products Breakfast  Groupings of Wendy’s Products: Meals Lunch Between Meal Snack Dinner After Dinner Snack 9-27

28. FIGURE 9-7 FIGURE 9-7 Wendy’s new products and innovations target specific market segments based on a customer’s gender, needs, or university affiliation 9-28

29. STEPS IN SEGMENTING AND TARGETING MARKETS STEP 3: DEVELOP A MARKET-PRODUCT GRID AND ESTIMATE THE SIZE OF MARKETS LO4  Market-Product Grid Market-Product Grid Forming a Market-Product Grid Estimating Market Sizes 9-29

30. FIGURE 9-8 FIGURE 9-8 Selecting a target market for your Wendy’s fast-food restaurant next to an urban university (target market is shaded) 9-30

31. STEPS IN SEGMENTING AND TARGETING MARKETS STEP 4: SELECT TARGET MARKETS LO4  Criteria to Use in Selecting Target Markets  Those That Divide a Market into Segments Two Types of Criteria  Those That Actually Pick the Target Segments 9-31

32. STEPS IN SEGMENTING AND TARGETING MARKETS STEP 4: SELECT TARGET MARKETS LO4  Criteria to Use in Selecting Target Markets Market Size Expected Growth Competitive Position Cost of Reaching Segment Compatibility with Organizational Goals and Resources 9-32

33. GOING ONLINE Zestimates from Zillow 9-33

34. STEPS IN SEGMENTING AND TARGETING MARKETS STEP 4: SELECT TARGET MARKETS LO4  Choose the Products & Segments No Breakfast Four Student Segments Only 9-34

35. STEPS IN SEGMENTING AND TARGETING MARKETS STEP 5: TAKE MARKETING ACTIONS TO REACH TARGET MARKETS LO4  Immediate Wendy’s Segmentation Strategy Day Commuters Between-Meal Snacks Dinners to Night Commuters  Future Strategies for Wendy’s 9-35

36. FIGURE 9-9 FIGURE 9-9 Advertising actions to reach specific student segments (an entire market segment vs. a narrow niche) 9-36

37. STEPS IN SEGMENTING AND TARGETING MARKETS STEP 5: TAKE MARKETING ACTIONS TO REACH TARGET MARKETS LO4  Apple’s Ever-Changing Segmentation Strategy Marketing Synergies  Market-Product Synergies: A Balancing Act Product Synergies 9-37

38. MARKETING MATTERS Apple’s Segmentation Strategy— Camp Runamok No Longer 9-38

39. POSITIONING THE PRODUCT LO5  Product Positioning Product Positioning Head-to-Head Positioning  Product Repositioning Product Repositioning  Two Approaches to Product Positioning Differentiation Positioning 9-39

40. POSITIONING THE PRODUCT LO5  Writing a Positioning Statement Identify Important Attributes for a Product Class  Product Positioning Judgments of Existing Brands on These Important Attributes Ratings of an Ideal Product’s or Brand’s Attributes 9-40

41. POSITIONING THE PRODUCT LO5  Perceptual Map Perceptual Map  Repositioning Chocolate Milk for Adults 9-41

42. FIGURE 9-10 FIGURE 9-10 A perceptual map of the location of beverages in the minds of American adults 9-42

43. FIGURE 9-11 FIGURE 9-11 The strategy American dairies used to reposition chocolate milk to reach adults 9-43

44. SALES FORECASTING TECHNIQUES LO6  Market Potential Market Potential  Industry Potential Industry Potential  Sales Forecast Sales Forecast  Company Forecast Company Forecast 9-44

45. SALES FORECASTING TECHNIQUES LO6  Judgments of the Decision Maker  Surveys of Knowledgeable Groups Direct Forecast Lost-Horse Forecast Survey of Buyers’ Intentions Forecast Salesforce Survey Forecast 9-45

46. SALES FORECASTING TECHNIQUES LO6  Statistical Methods Trend Extrapolation Linear Trend Extrapolation 9-46

47. FIGURE 9-12 FIGURE 9-12 Linear trend extrapolation of sales revenues at Xerox (made at the start of 2000) 9-47

48. ROLLERBLADE: SKATES TO GO WHERE YOU WANT TO GO VIDEO CASE 9 9-48

49. VIDEO CASE 9 ROLLERBLADE 1. What trends in the environmental forces (social, economic, technological, competitive, and regulatory) (a) work for and (b) work against Rollerblade’s potential growth in the twenty-first century? 9-49

50. VIDEO CASE 9 ROLLERBLADE 2. Compare the likely marketing goals for Rollerblade (a) in 1986 when Rollerblade was launched and (b) today. 9-50

51. VIDEO CASE 9 ROLLERBLADE 3. What kind of focused communication and promotion actions might Rollerblade take to reach the (a) Fitness/ Recreation and (b) Junior market segments? For some starting ideas, visit www.rollerblade.com. www.rollerblade.com. 9-51

52. VIDEO CASE 9 ROLLERBLADE 4. In searching for global markets to enter, (a) what are some criteria that Rollerblade should use to select countries to enter, and (b) what three or four countries meet these criteria best and are the most likely candidates? 9-52

53. MARKET SEGMENTATION IN PRACTICE: WHAT KIND OF PILLOW DO YOU NEED? SUPPLEMENTAL LECTURE NOTE 9-1 9-53

54. FIGURE 9-A FIGURE 9-A Market-product grid showing the size of markets for pillows for three different segments of sleepers 9-54

55. TWO BASIC APPROACHES TO FORECASTING SUPPLEMENTAL LECTURE NOTE 9-2 9-55

56. FIGURE 9-B FIGURE 9-B Top-down forecast: Survey of Buying Power 9-56

57. FIGURE 9-C FIGURE 9-C Build-up forecast: Apple’s four major product lines 9-57

58. HONEY NUT CHEERIOS ® MILK ‘N CEREAL BAR: IDENTIFYING PRODUCT GROUPS IN-CLASS ACTIVITY 9-1 9-58

59. Honey Nut Cheerios ® Milk ‘N Cereal Bar 9-59

60. 3M POST-IT ® FLAG HIGHLIGHTER: PRODUCT POSITIONING FOR CONSUMERS AND RETAILERS IN-CLASS ACTIVITY 9-2 9-60

61. 3M Post-it ® Notes TV Ad 9-61

62. + = 3M Post-it ® Flag Highlighter Invention 9-62

63. 3M Post-it ® Flag Highlighter Colors and Packages 9-63

64. 3M Post-it ® Flag Highlighter Package (Front and Back) 9-64

65. 9-65

66. 9-66

67. Market Segmentation Market segmentation involves aggregating prospective buyers into groups, or segments, that (1) have common needs and (2) will respond similarly to a marketing action. 9-67

68. Market Segments Market segments are the relatively homogeneous groups of prospective buyers that result from the market segmentation process. 9-68

69. Product Differentiation Product differentiation is a marketing strategy that involves a firm using different marketing mix activities to help consumers perceive the product as being different and better than competing products. 9-69

70. Synergy Synergy is the increased customer value achieved through performing organizational functions more efficiently. 9-70

71. Usage Rate Usage rate is the quantity consumed or patronage (store visits) during a specific period. Also called frequency marketing. 9-71

72. 80/20 Rule The 80/20 rule is a concept that suggests 80 percent of a firm’s sales are obtained from 20 percent of its customers. 9-72

73. Market-Product Grid A market-product grid is a framework to relate the market segments of potential buyers to products offered or potential marketing actions by an organization. 9-73

74. Product Positioning Product positioning is the place an offering occupies in consumers’ minds on important attributes relative to competitive products. 9-74

75. Product Repositioning Product repositioning involves changing the place an offering occupies in consumers’ minds relative to competitive products. 9-75

76. Perceptual Map A perceptual map is a means of displaying or graphing in two dimensions the location of products or brands in the minds of consumers to enable a manager to see how consumers perceive competing products or brands and then take marketing actions. 9-76

77. Market Potential Market potential is the maximum total sales of a product by all firms to a segment during a specified time period under specified environmental conditions and marketing efforts of the firms. Also called industry potential. 9-77

78. Industry Potential Industry potential is the maximum total sales of a product by all firms to a segment during a specified time period under specified environmental conditions and marketing efforts of the firms. Also called market potential. 9-78

79. Sales Forecast A sales forecast consists of the total sales of a product that a firm expects to sell during a specified time period under specified environmental conditions and its own marketing efforts. Also called a company forecast. 9-79

80. Company Forecast A company forecast consists of the total sales of a product that a firm expects to sell during a specified time period under specified environmental conditions and its own marketing efforts. Also called a sales forecast. 9-80

81. Direct Forecast A direct forecast consists of estimating the value to be forecast without any intervening steps. 9-81

82. Lost-Horse Forecast A lost-horse forecast consists of making a forecast using the last known value and modifying it according to positive or negative factors expected in the future. 9-82

83. Survey of Buyers’ Intentions Forecast A survey of buyers’ intentions forecast consists of asking prospective customers if they are likely to buy the product during some future time period. 9-83

84. Salesforce Survey Forecast A salesforce survey forecast consists of asking the firm’s salespeople to estimate sales during a coming period. 9-84

85. Trend Extrapolation Trend extrapolation involves extending a pattern observed in past data into the future. 9-85

86. Linear Trend Extrapolation Linear trend extrapolation involves using a straight line to extend a pattern observed in past data into the future. 9-86