1. Dhruv Grewal Michael Levy
Marketing
Chapter 8
Segmentation, Targeting, and Positioning
Dhruv Grewal
Michael Levy

2. © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Garnier Fructis
Appeals to natural/organic segment
Top 10 best selling shampoos
Market leader in conditioner
Firms constantly look to increase the markets for their products by getting current consumers to consume more, obtaining new consumers for current products, offering new products to current consumers, or entering an entirely new market. To use these strategies, firms must understand customers in the various markets; L’Oreal identified a group of customers whose needs were not being met and offered an effective solution.
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3. Segmentation Targeting Positioning Process
Previous chapters addressed how to plan marketing strategy; this chapter focuses on how firms use that strategy to identify the target markets they will serve.
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4. Step 1: Establish Overall Strategy or Objectives
Consistent with mission statement
Derived from mission and current state
Remind students that any strategy must be consistent with the firm’s mission statement and be based on the current assessments from SWOT analyses
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5. Segmentation Strategy
Ask students: What is an example of a mass market product: It must use the same marketing mix in all markets.
Answer: There are very few mass market products. Even commodity goods such as flour now get differentiated.
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6. Test Your Knowledge
Which of the following products is most likely to use an undifferentiated segmentation strategy?
A) shoes
B) jewelry
C) cereal
D) flour
Answer: D

7. Dealing with Fragmentation
How are firms dealing with the fragmentation of the media market?

8. Case in Point: McDonald’s
How to reach consumers in light of the diminishing mass audience.
Challenge
Answer
Results
Shift funding from television advertising from 2/3 to 1/3 of the budget. Buy alternative media targeted to specific audiences.
New mix includes: Ads on Foot Locker’s in store video to reach young men, ads in O Magazine and Marie Claire to target women, closed circuit sports programs to the Hispanic market. According to McDonald’s CMO “We are a big marketer not a mass marketer.”
McDonald’s is a good example of a firm with high levels of standardization, which is accurate with regard to its processes. However, when it comes to marketing, McDonald’s absolutely does not consider itself a mass marketer; rather, it works very hard to identify and understand the needs of its individual customer segments. As a result, the company has moved to more specialized media communications instead of the more mass-oriented television channel.

9. Segmentation Strategy (continued)
Differentiated segmentation strategy
Concentrated segmentation strategy
Micromarketing
For different products, consumers fall in different segments.
Ask students: What are examples of products that use differentiated, concentrated, and micromarketing segmentation strategies?
 Differentiated = Coca Cola
Concentrated = Helena Rubenstein or Clinique
Microtargeting = Financial Services Providers  
What are examples of products
that use differentiated, concentrated,
and micromarketing segmentation
strategies?
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10. Step 2: Describe Segments
This slide introduces the following slides.
Group activity: Divide the class into groups. Have them choose either a manufacturer or national retailer. Have them describe their segmentation strategy and then evaluate whether or not it is the best segmentation strategy for that firm.
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11. Geographic Segmentation
Country
Region
State
City
Neighborhood
Geographic information software (GIS) aids in such segmentation. Many firms use regional brands of popular products. When Dunkin’ Donuts introduced soup to its menu, it included New England Clam Chowder which appealed to northeastern consumers, but franchisees in Texas objected to this choice. Understanding regional preferences can define a company’s success—or failure.
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12. Test Your Knowledge
Geographic segmentation is most useful for companies whose products satisfy needs that vary by __________.
A) gender
B) region
C) age
D) nationality
Answer: B

13. Geographic Expansion
How can firms successfully change a regional brand into a national brand?

14. Case in Point: Federated Department Stores Big Risk
Challenge
Answer
Results
How to integrate well established and beloved local retail brands into one national brand, Macy’s, without alienating the current customers?
Figure out what aspect of the current brands are important to customers and keep those while stressing the value created by the 800 stores Macy’s stores throughout the U.S.
The recent move by Federated Department Stores to consolidate all of its regional brands into two national brands was met with some skepticism. Many well-established and beloved regional brands had become synonymous with their region, such as Marshall Field’s in Chicago or Filene’s in Boston. Would customers in these areas accept a Macy’s name? Discuss the challenge of taking a regional brand and making it national.
In Chicago, keep Fields Frango mints, in Boston keeping Filene’s annual tree lighting ceremony. Also by keeping popular store brands while up scaling other brands.

15. Demographic Segmentation
Most common segmentation strategy
U.S. Census excellent source of segmentation data
The U.S. Census Bureau provides one of the most important marketing research tools: Census data, which offer a rich, free source of information about various consumers that, suggests segmentation possibilities.
On the Census Bureau Web site, walk students through the information available about the zip code in which your university is located.
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16. Psychographic Segmentation
Self-values
Self-concept
Lifestyles
Not just businesses segment their customers; segmentation also helps organizations that counsel drug addicts or other at-risk groups. Recall the discussion during the last presidential election about “soccer moms”—middle-class, educated, married women concerned about various threats to their children. This segment responded positively to tough anti-terrorism messages.
Group Activity: Divide students into groups. Have each choose a product/service they like. Have them describe that product/service in terms of psychographics
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17. Adding Value 8.1: Segmenting the Asthma Patient Market by Lifestyle
Similar segmentation has been applied to cancer patients, especially those who use or do not use sunscreen. A recent study also examined college females and concluded that those who use versus do not use tanning salons vary in their perceptions of risk versus social reward. That is, for some, the risk of future skin cancer gets offset by the benefit of the immediate social reward of being tan.
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VALS Framework
Click on the VALS hyperlink and take the survey as a class.
Group activity: Students complete the VALS survey individually, and then bring their completed survey to class. Ask students: Why might you fall into similar categories? Who fell into different categories?
For example, few business students likely belong to the Believers category, but art majors very well may.
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Benefit Segmentation
Health
Hedonic
Educational
Individuality or self-expression
Group activity: Have students identify products that provide each type of benefit. How else might these products be segmented?
This activity provides a good opportunity to remind students that products exist in multiple segments, just as consumers do. Different motives lead different consumers to purchase the same product.
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20. Geodemographic Segmentation
Click on the Clartias link and conduct the “You Are Where You Live” exercise with the zip codes of the students’ hometowns. Ask students: Describe your neighborhood. How accurately does the site depict your hometown?
Claritas “You Are Where You Live”

21. Test Your Knowledge
Which of the following tools is widely used for geodemographic segmentation?
A) PRIZM
B) LSAT
C) GNP
D) LIMRA
Answer: A

22. Finding Where to Live
How can geodemographic segmentation be used to help consumers find the perfect place to live?

23. Case in Point: Neighborhood Scout
Challenge
Answer
Results
To help homebuyers find the perfect neighborhood for their needs.
Use geodemographic segmentation to identify the neighborhoods that most closely match their needs and wants.
This Web site represents an excellent application of lifestyle segmentation. It allows home buyers to identify neighborhoods that match their particular lifestyles and needs.
A patented neighborhood search engine with 70,000 subscribers and more than 1 million people who have used the service.

24. Loyalty Segmentation Much cheaper to keep an existing customer
Lifetime value
Firms encourage loyalty in various ways, such as airline mileage or hotel point reward programs.
Ask students: Are you a loyal buyer of any single product, to the extent that you refuse to purchase a substitute?
Students may refer to soft drinks, but true brand loyalty is extremely rare.
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25. Using Multiple Segmentation Methods
Data such as LIMRA can identify the type of segments The demographic data can identify the type of people in a segment, how firms might reach these people through the media or other selling vehicles, and how profitable the segments may be.  For instance, “Worker Bees” who self-employed, over 40, and have relatively high incomes.  The lifestyle data then can be used to help design products and promotional messages that are relevant to this group. For example, the owners of a retirement community may wish to study how this group envisions retirement. How can they adapt their concept and their marketing mix to appeal to this group?
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26. Step 3: Evaluate Segment Attractiveness
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Identifiable
Who is in their market?
Are the segments unique?
Does each segment require a unique marketing mix?
These women would appear in the same segment if the segmentation variable were gender but in individual segments based on race or lifestyle. They also may be in different geographic or income segments, for example.
Discussion question
When would these women all be in the same segment? When would they be in different segments?
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Substantial
Size matters
Too small and it is insignificant
Not profitable
Just because a firm can find a market does not necessarily mean it represents a good market. But size in terms of number of people is not the only consideration; despite its small size, the market for the original Hummer was incredibly profitable, and therefore was substantial
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29. Reachable Persuasive communication Distribution
The Internet has enabled more people to be reached more easily, but various areas around the world simply cannot be served because they aren’t accessible to marketing messages or because there isn’t adequate distribution. Ask students: What types of media influence they way they shop? The answer may lead to an interesting discussion about how difficult it is to reach Generation Y customers either because they don’t participate in traditional media such as newspapers or because they are skeptical about being influenced by commercial messages.
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Responsive
Customers must:
React positively to firm’s offering
Move toward the firms products/services
Accept the firm’s value proposition
Group activity: Develop a list of potential products for Nike. Ask students: Are any of the following acceptable: cologne, deodorant, toothpaste, or hair gel. Why or why not? What about Nike towels, sheets, or pajamas? What differences can you identify between these two types of product categories?
Discussion question
Nike is very successful at selling sports related goods. Would consumers accept personal care products from Nike? Why or why not?
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31. Profitable
Segment profitability = Segment size x Segment adoption percentage x Purchase behavior x Profit margin percentage – Fixed costs,
where
Segment size = Number of people in the segment
Segment adoption percentage = Percentage of customers in the segment who are likely to adopt the product
Purchase behavior = Purchase price x number of times the customer would buy the product/service during a given time period.
A hot segment today may not last long enough to make it worth investment. Many firms are investigating when and how much to invest in the Millennial/GenY generational cohort. Firms in financial services and housing understand that it provides a new potential market, but the debt levels this segment carries makes it difficult to target effectively.  
Profit margin percentage = ((Selling price – variable costs) ÷ selling price).
Fixed costs = Fixed costs (e.g., advertising expenditure).
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32. Profitable Segments Segment size = 60 million (<15 yrs)
Segmentation Adoption Percentage = 35%
Purchase Behavior = $500 x 1 time purchase
Profit margin % = 10%
Fixed Cost = $50M
Children under 15 represent a very profitable market segment as this example illustrates.
The segment would generate approximately $1000M.
Is this segment profitable?

33. Test Your Knowledge
Which of the following factors would be most useful in determining whether or not a product will be profitable?
A) the region where the consumer lives
B) the inflation rate
C) the defection rate
D) the speed of the distribution factors
Answer: C

34. Step 4: Selecting a Target Market
Meet Connie, marketing manager for a denim company
Has to choose a new target market
for the firms new line of jeans.
Both the consumers pictured wear
jeans.
How does she choose?
For Connie the choice will be based on which segment of jean buyers would be most responsive to the value proposition of the new jean line. If the product is designed as a fashion jean with the latest styling and colors then the young woman might represent the best target market. However if the product line is a functional jean, designed to be used for work and features a more durable fabric then the man may represent the best target market
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35. Step 5: Identify and Develop Positioning Strategy
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36. Test Your Knowledge
Positioning strategies generally focus on either how the product or service affects the consumer or how it is _______________.
A) better than the previous year’s product line
B) advertised on the Internet
C) better than competitors’ products and services
D) positioned relative to the company mission statement
Answer: C

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Value
Consider Grandpa Tony, now retired:
He knows the price of everything he has ever bought.
He clips the newspaper coupons.
He goes to multiple stores to get the best price.
He is willing to pay more for quality.
He trusts brand names.
Discussion question
Selling to Grandpa Tony and the millions of other value-conscious consumers is not easy. Firms like Wal-Mart use an everyday low price (EDLP) strategy to stress how a dollar can go further in their stores. Other firms position themselves as reasonably priced with outstanding quality and selection (e.g., Target).
How can marketers appeal to price sensitive customers like Grandpa Tony?
The relationship of price to quality
Different consumers = different value
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38. Salient Attributes Focus on the attributes that are most important
Consider Selia, college Freshman.
Reasons for her college choice:
Close to home.
Good academic reputation.
Good financial aid package.
Did we mention cute guys?
Like Selia, many students develop a list of salient attributes when choosing a college. These lists often include price, but price might not be the most important attribute in the purchase decision.
Group activity: Develop a list of the salient attributes you used to choose a college. How well did this university meet the criteria on your list? Compare lists to determine how your school positioned itself to appeal to the various attributes you desired.
Discussion question
Focus on the attributes that are most important
Vary by target market
What were the salient attributes of your college choice?
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39. Can be used as a positioning tool
Symbol
Can be used as a positioning tool
Ask student: What commercial symbols are salient to you? Do you feel positively or negatively toward these firms based on their commercial symbol
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40. Competition Position against a specific competitor
Position against an entire product classification
Firms that lack market leadership often position themselves in contrast with the leader to demonstrate that they offer the same (or better) service and quality. Motel 6 used quirky commercials to poke fun at its low budget approach but still point out that it offered the same services as more expensive hotels.
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41. Entrepreneurial Marketing 8.1: Tom and Tom The Juice Guys
Desire to re-create a fruit beverage from Spain
Use only top quality ingredients
Positioned as a quality, natural juice beverage
Eventually expanded to teas, etc.
Annual net sales in 2002 $59 million
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42. Positioning Strategies
Determine consumers’ perceptions and evaluations of the product or service in relation to competitors’.
2. Identify competitors’ positions.
3. Determine consumer preferences.
This slide provides the steps necessary to develop the positioning map on the next slide. Switch back and forth on these two slides to explain the positioning map.
Go to the Positioning Toolkit on the OLC. Walk students through the positioning exercise.
4. Select the position.
5. Monitor the positioning strategy.
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Perceptual Maps
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Repositioning
Volcano Maker
Cleaner
Disposal
Freshener
Baking Ingredient
Tooth Cleaner
Baking soda is an excellent example of a product that has experienced many repositioning in the marketplace. The periodic introduction of new uses causes consumers to redefine why they might need baking soda.
Refrigerator Freshener
Stain Remover
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Chapter 8 Glossary
Concentrated segmentation strategy: When an organization selects a single, primary target market and focuses all its energies on providing a product to fit that market’s needs.
Differentiated segmentation strategy: When firms target several market segments with a different offering for each.
Lifestyles: How we live our lives to achieve goals.
Micromarketing: When a firm tailors a product or service to suit an individual customer’s wants or needs.
Psychographic segmentation: Segmenting method that delves into how consumers describe themselves.
Self-concept: The image people have of themselves.
Self-values: Goals for life, not just the goals one wants to accomplish in a day. In this context, they refer to overriding desires that drive how a person lives his or her life.
Undifferentiated segmentation strategy (mass marketing): Single strategy for everyone because everyone is considered a potential user of the product or service, being provided the same benefits.
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