1. Segmentation and Targeting
Professor Chip Besio
Cox School of Business
Southern Methodist University

2. What Are Markets? Aggregates of people, With the ability to buy,
The willingness to buy,
The authority to buy.

3. Two Types of Markets Consumer Markets Business Markets
Individuals or households who benefit directly by consumption, rather than to make a profit or to achieve Industrial Markets
Business Markets
Companies or organizations who purchase for resale, use in production, or use in operations, including both profit-oriented and not-for-profit organizations.

4. What Is Market Segmentation?
Market segmentation is the subdividing of a market into distinct subsets, where any subset may conceivably be selected as a marketing target to be reached with a distinct marketing mix

5. Everyone Wants Something Different
Segmentation Dilemma
MASS MARKETING
Economies of Scale
CUSTOMIZATION
Everyone Wants Something Different

6. Market segmentation—linking market needs to an organization’s marketing program

7. Segmentation Criteria
I. Customer Characteristics
II. Benefits Sought
III. Customer Behaviors

8. Customer Characteristics DEMOGRAPHICS
Consumer Markets:
Gender
Age
Income
Dual income family
Industrial Markets:
NAICS code
Size of company

9. Customer Characteristics PSYCHOGRAPHICS
Consumer Markets:
Environmentally-conscious
Value and lifestyles
VALS (1978); VALS 2 (1989)
Distinct patterns based on attitudes and values
Business Markets:
Corporate culture
Purchasing orientation

10. Customer Characteristics GEOGRAPHY
Regional Segmentation
Zip Clustering
Distinct marketing strategies created for similar types of neighborhoods stretched across the nation
Examples include PRIZM, Market Metrics

11. Segmentation variables and breakdowns for U.S. consumer markets

12. Benefit Segmentation WHAT BENEFIT DO YOU WANT?
Rationale - The benefits people are seeking in consuming a given product are the true reasons for the existence of segments
Example - Toothpaste
Cavity prevention (e.g., Crest)
Fresh breath (e.g., Aquafresh)
White teeth (e.g., Rembrandt)

13. Behavior Segmentation USAGE BEHAVIORS
Volume of usage
Heavy users, moderate users, light users and nonusers
80/20 rule
Brand usage
Increase usage among users
Get users of competing brand to switch
Get nonusers to start
Usage occasion

14. Patronage of fast-food restaurants by adults 18 years and older: Simmons Market Research Bureau NCS/NHCS Spring 2008 Adult Full-Year Choices System Crosstabulation Report

15. Comparison of various kinds of users and nonusers for Wendy’s, Burger King, and McDonald’s fast-food restaurants

16. What Is “Targeting” a Market Segment?
“You can’t be all things to all people”
Therefore, companies typically focus on one or more segments and orient their marketing activities to those (potential) customers 29

17. Which Are the “Good” Segments to Target?
The most attractive market segments are:
Large
Growing
and have:
High purchase volume
High margins
High customer value 30

18. Which Are the “Good” Segments to Target?
However, the most attractive segments are frequently already well-served and so are highly competitive
… so you must also consider:
Number and strength of competitors
Ease of entry into the segment
Company’s current positioning

19. Targeting Dilemma - Segment Attractiveness
SEGMENT VALUE
More Opportunity
COMPETITION
More Companies Compete for Valuable Segments

20. Which Are the “Good” Segments to Target?
Additional considerations for targeting:
Customers are addressable - you can reach them
The company is capable of building a marketing program to target them

21. Targeting Examples of successful targeting:
Wal-Mart - Value-conscious shoppers that do not want to worry about short-term sales
Lexus - People with high disposable income who value reliability and service, as well as prestige and luxury
Cray - Price insensitive computer users that require maximum computing power
Dupont - Less price-sensitive innovators in the use of plastics (skim pricing)

22. The five key steps in segmenting and targeting markets link market needs of customers to the organization’s marketing program

23. Market-product grid showing how different Reebok shoes reach segments of customers with different needs

24. Benefits (+) and drawbacks (-) of a firm’s market-product strategies