1. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 1 MKTG Lamb, Hair, McDaniel 2007-2008 7 CHAPTER Segmenting and Targeting Markets

2. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 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 Describe the bases for segmenting business markets LO 1 LO 2 LO 3 LO 4 LO 5

3. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 3 Learning Outcomes 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 6 LO 7 LO 8 LO 9

4. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 4 Describe the characteristics of markets and market segments Market Segmentation LO 1

5. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 5 LO 1 A Market Is... 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.

6. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 6 Market Segmentation LO 1 Market Segment Market Segment Market Segmentation Market Segmentation People or organizations with needs or wants and the ability and willingness to buy. A subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs. The process of dividing a market into meaningful, relatively similar, identifiable segments or groups.

7. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 7 The Concept of Market Segmentation LO 1

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

24. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 24 Bases for Psychographic Segmentation LO 4 Personality Motives Lifestyles Geodemographics Online http://www.marthastewart.comhttp://www.marthastewart.com http://www.goodhousekeeping.comhttp://www.goodhousekeeping.com

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

55. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 55 One-to-One Marketing LO 8  One-size-fits all marketing no longer effective  Direct and personal marketing will grow to meet needs of busy consumers.  Consumers will be loyal to companies that have earned—and reinforced—their loyalty.  Mass-media approaches will decline as technology allows better customer tracking. Trends

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

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

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

59. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 59 LO 9 0.7%Fabric & skin safety on baby clothesIvory Snow 0.1%Tough cleaner, aimed at Hispanic marketAriel 1.0%Outstanding cleaning for baby clothes, safeDreft 1.2%Detergent and fabric softener in liquid formSolo 1.4%Bleach-boosted formula, whiteningOxydol 1.8%Value brandDash 2.2%Stain treatment and stain removalEra 2.6%Sunshine scent and odor-removing formulaGain 2.9%Detergent plus fabric softenerBold 8.2%Tough cleaning, color protectionCheer 31.1%Tough, powerful cleaningTide Market Share PositioningBrand Positioning of Procter & Gamble Detergents LO 9

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

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

62. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 62 A means of displaying or graphing, in two or more dimensions, the location of products, brands, or groups of products in customers’ minds. LO 9 Perceptual Mapping

63. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 63 Attribute Price and Quality Use or Application Product User Product Class Competitor Emotion LO 9 Positioning Bases

64. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 64 Changing consumers’ perceptions of a brand in relation to competing brands. LO 9 Repositioning

65. Chapter 7Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved 65 REVIEW LEARNING OUTCOME LO 9 Positioning and Product Differentiation