Chapter 7 market segmentation and targeting
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Chapter 7 Market Segmentation and Targeting. Professor Jason C. H. Chen, Ph.D. School of Business Administration Gonzaga University Spokane, WA 99223 [email protected] After studying this chapter you should be able to:.

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Chapter 7 market segmentation and targeting

Chapter 7 Market Segmentation and Targeting

Professor Jason C. H. Chen, Ph.D.

School of Business Administration

Gonzaga University

Spokane, WA 99223

[email protected]


After studying this chapter you should be able to

After studying this chapter you should be able to:

  • Define and explain market segmentation, target markets, and product differentiation and positioning.

  • Understand the criteria used for evaluating the likely success of a segmentation strategy.

  • Know the role of market segmentation in the development of marketing strategies and programs.


Chapter 7 market segmentation and targeting

After studying this chapter you should be able to:

  • Describe the issues involved in product and brand positioning.

  • Understand the alternative bases for segmenting consumer and business-to-business markets.

  • Evaluate alternative approaches for pursuing segmentation strategies.


Opening vignette

OPENING VIGNETTE

WWW.SRIC-BI.COM

  • What does the VALS topology accomplish?

  • What does new service does VALS offer?

Two Cases for this chapter (Making Marketing Decisions ):

Case 7-1: PRIZM by Claritas: You Are Where You Live

Case 7-2: Marriott International: “Suite Deals”


Chapter 7 market segmentation and targeting

Focusing Marketing Strategy and

Evaluating Marketing Opportunities

Opportunities to be turned Into

marketing strategies and plans

Evaluating Opportunities

Focusing marketing

Strategy

S.W.O.T

Analysis

Develop product market

Screening criteria

Defining generic

markets and

product-markets

Targeting

and

Segmentation

Positioning

and

Differentiation

Company

mission,

objectives,

resources

Competitor

analysis

Trends in external

environment:

Technological,

Economic,

Political & Legal

Cultural & Social


Chapter 7 market segmentation and targeting

A Marketing Strategy – showing the 4 P’s of a

Marketing Mix

Product

Place

Price

Promotion

C


Chapter 7 market segmentation and targeting

Product

Place

Price

Promotion

C

Overview of Marketing Strategy Planning Process

Narrowing down to focused strategy with quantitative and qualitative screening criteria

Customers

Needs and other

Segmenting

Dimensions

S.

W.

O.

T.

Segmentation &

Targeting

Company

Objectives

&

Resources

Segmentation &

Positioning

Competitors

Current

&

Prospective

External Market Environment

Technologies Political and Legal Cultural and Social Economic


Chapter 7 market segmentation and targeting

Feedback of Results

Strategy

How to cope with a dynamic environment, capitalizing on opportunities and handling threats… How to adopt and integrated systems orientation… How to be a market driven organization = STRATEGIC PLANNING

Mission Statement (Marketing Concept Orientation)

Company-Wide Level

Objectives and Goals

Impact of Competition and other Environmental Items

Grand Strategy

Marketing Strategy and Tactics

Target Market (Segments, Position)

Marketing Mix

P P P P

Offering to the Market


Chapter 7 market segmentation and targeting

Organization’s

Single

Marketing Mix

Organization’s

Several

Marketing Mixes

Organization’s

Single

Marketing Mix

A

D

F

Segment

Segment

Segment

Segment

Mass Market

A B C D E

A B C D E F

MARKETING STRATEGY

MASS MARKET

STRATEGY

MULTISEGMENT

STRATEGY

CONCENTRATION

STRATEGY


Market segmentation

Market Segmentation:

Divides a market into subsets of prospective customers who behave in the same way, have similar wants, or have similar characteristics that relate to purchase.

Intermarket Segments:

Well-defined, similar clusters of customers across national boundaries.

Market Segmentation


Target markets

Target Markets

  • Targeting:

    • Selecting which segments in a market

    • are appropriate to focus on and

    • designing the means of reaching them.


Narrowing down target markets

Select target marketing approach

Segmenting into possible target markets

Narrowing down to specific product-market

Narrowing down target markets

Single target marketing approach

All

customer

needs

Some

generic

market

One

broad-

product

market

Homogenous

(narrow)

product-

markets

Multiple target marketing approach

Combined target marketing approach


Product differentiation

Product Differentiation

  • Product Differentiation:

    • Exists when a firm’s offerings differ or are perceived to differ from those of competing firms on any attribute, including price.


From mass marketing to mass customization

From Mass Marketing to Mass Customization

  • Mass Customization:

    • Complex manufactured products made to order.


Is market segmentation appropriate

Is Market Segmentation Appropriate?

  • Frequently use approaches for a sustainable marketing strategy (company)

    • Developing brand-line extensions

    • Repositioning the product for additional uses

    • Identifying the needs of a particular segment, or segments

    • Developing marketing strategies for each

  • When the segmentation strategy is not useful

    • When the overall market is so small that marketing to a portion of it is not profitable

    • When the brand is dominant in the market and draws its appeal from all segments


Chapter 7 market segmentation and targeting

structure/

culture

competition

Business landscape

Internal/

External

Consistent

fulfill

Analysis

(Porter, SWOT)

future positioning

Finance

Management

Process

H/R

Technology

Corporate strategy

  • Positioning on product/market

  • Differentiation/choice of competitive advantage

Business strategy

  • Competitive posture

  • Industry characteristics,

  • Market growth,

  • Demand characteristics,

  • Barrier of entry,etc.

Functional strategy

Essentials for a Sustainable Enterprise

Value propositions

1. Business model

2. Core competencies

Strategic intent

Strategy

Positioning

3. Execution

IT Role?

N


Criteria for effective segmentation

Criteria for Effective Segmentation

Five Criteria:

  • Measurability

  • Accessibility

  • Substantialness

  • Durability

  • Differential Responsiveness


Stages in developing market segmentation strategies

Stages in Developing Market Segmentation Strategies


Chapter 7 market segmentation and targeting

Stages in Developing Market

Segmentation Strategies

Exhibit 7-2

Develop a market segmentation strategy

Define overall

product market

in which

company

operates

Identify

distinguishing

characteristics

of segments or

bases for

segmentation

Describe

segments

Evaluate

approaches for

potential &

likely success

Select target

market

Determine

desired

positioning and

then develop

marketing mix

to achieve

desired position

2

3

4

5

6

1


Four basic types of opportunities

Exhibit 3-2

Four Basic Types of Opportunities

© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin—for use only with Basic Marketing


Chapter 7 market segmentation and targeting

Four Basic Types of Opportunities

Present products

New products

Market

penetration

Product

development

Present markets

Market

development

Diversification

New markets


Examples of different types of opportunities

Examples of Different Types of Opportunities

  • Market Penetration

    • Arm & Hammer promotes new uses of its baking soda

  • Market Development

    • Marriott Hotels target families for weekend "get-aways" to rent rooms filled by business travelers during the week

  • Product Development

    • Microsoft develops a new version of its Windows operating system to appeal to the people who bought an earlier version but now want more features

  • Diversification

    • RJR, the cigarette producer, adds baked goods to its product line to appeal to new customers


Bases for segmentation

Bases for Segmentation

  • Demographics

  • Geographics

  • Psychographics & Lifestyles

  • Benefit Segmentation

  • Economic Segmentation

  • International Segmentation


Chapter 7 market segmentation and targeting

Segmentation Variables

Geographics

Nation/Region State/Region City/Neighborhood

Climate/Terrain Population density Market density

Age

Gender

Income

Buying Power

Expenditure patterns

Occupation

Education

Race or nationality

Family life cycle

Social class

Potential

Consumer

Segments

Personality

Lifestyle

Demographics

Psychographics

Decisions

Amount of usage

Type of usage

Brand loyalty

Benefits sought

Behavioral


Chapter 7 market segmentation and targeting

Demographic Dimensions

  • Important operational dimensions for understanding market segments and developing marketing mixes

    • Much good data is available

  • Important for determining size of consumer target markets

    • Is the market substantial?

  • Seeing demographic trends helps identify opportunities

    • Shifts in age distribution

    • Geographic growth/decline


Chapter 7 market segmentation and targeting

Map of United States Showing Population by State (all figures in thousands)


Chapter 7 market segmentation and targeting

Percent Change in Population by State


Chapter 7 market segmentation and targeting

Changes in the U.S. Birthrate, 1935-2005


Age distribution

Age Distribution

  • Average age is increasing

  • But there is a big teen cycle on the way

  • Post World War II "Baby Boomers“

    • Still a big, influential group

  • 50 and older group to grow dramatically in next decade


Mygeneration ad

MyGeneration ad


Chapter 7 market segmentation and targeting

Population Distribution (and Percent Growth Rate) by Age Groups for Different 10-Year Periods)


Chapter 7 market segmentation and targeting

Median Family Income Over Time (in 1999 dollars)


Chapter 7 market segmentation and targeting

Percent of Total Income Going to DifferentIncome Groups in 1999


Income distribution

Income Distribution

  • Growth in real income has slowed down

  • Middle income groups in U.S. enjoy real choices

    • U.S. distribution like Canada, Western Europe, Japan, Australia, New Zealand

  • Higher income groups still have much of the spending power

    • Top 20% income group has over 47 percent of total income!

    • Bottom 20% income group has only about 4 percent!


Types of income

Types of Income

  • DISPOSABLE INCOME

    • Income that is left after taxes

  • DISCRETIONARY INCOME

    • What is left of disposable income after paying for "necessities"


Chapter 7 market segmentation and targeting

Family cycle factors

Marital status

FAMILY LIFE CYCLE

FACTORS

Age

Age of children

In the household


Chapter 7 market segmentation and targeting

Stages in Modern Family Life Cycles

Middle-age

divorced

without

children

Young

divorced

without

children *

Middle-age

married

without

children

Young

single *

Young

married

without

children *

Young

married

with

children *

Middle-age

married

with

children

Middle-age

married

without

dependent

children

Older

Married *

Older

Unmarried *

Middle-age

divorced

without

children

Middle-age

divorced

with

children

Middle-age

divorced

without

dependent

children

Usual flow

Recycled flow

* Tradition family flow


Psychological intra personal variables

Psychological (intra-personal) Variables

  • Motivation

  • Perception

  • Learning

  • Attitudes and beliefs

  • Personality

  • Lifestyle (psychographics)


Chapter 7 market segmentation and targeting

Possible Needs Motivating a Person to Some Action


Chapter 7 market segmentation and targeting

Psychographics

PSYCHOGRAPHICS

Activities

CONSUMER

LIFESTYLES

Interests

Opinions


Chapter 7 market segmentation and targeting

Lifestyle Dimensions (and some related demographic dimensions)


Six betty crocker pictures 1936 2000

Six Betty Crocker pictures, 1936-2000

(The original Betty, 1936)

(1965)

(1972)

(Betty Crocker 2000)

(1980)

(1986)


Social intra personal influences on consumers

Social (intra-personal) Influenceson Consumers

  • Family

  • Reference groups

  • Social class

  • Culture and subculture

© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin—for use only with Basic Marketing


Characteristics and attitudes of middle and lower classes

Characteristics and Attitudes of Middle and Lower Classes

  • Middle classes

    • Plan and save for the future

    • Analyze alternatives

    • Understand how theworld works

    • Feel they have opportunities

    • Willing to take risks

    • Confident about decision making

    • Want long-run qualityor value

  • Lower classes

    • Live for the present

    • "Feel" what is "best"

    • Have simplistic ideas about how things work

    • Feel controlled by the world

    • "Play it safe"

    • Want help with decision making

    • Want short-run satisfaction

© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin—for use only with Basic Marketing


Chapter 7 market segmentation and targeting

Combining Bases of Market

Segmentation

Exhibit 7-5

A two stage segmentation example

Stage 1

Initial

segmentation

Stage 2

Supplemental

segmentation descriptors

Managerial

decisions

Demographics:

Income & Education

Media Selection

(magazines &

TV programs)

Usage: Heavy

vs. Light

Lifestyles

Advertising Content

(conservative, youthful,

appeals, & messages)


Chapter 7 market segmentation and targeting

Organization’s

Single

Marketing Mix

Organization’s

Several

Marketing Mixes

Organization’s

Single

Marketing Mix

A

D

F

Segment

Segment

Segment

Segment

Mass Market

A B C D E

A B C D E F

MARKETING STRATEGY

MASS MARKET

STRATEGY

MULTISEGMENT

STRATEGY

CONCENTRATION

STRATEGY


Porter s five competitive forces model

NEW MARKET ENTRANTS

SUBSTITUTE PRODUCTS & SERVICES

TRADITIONAL COMPETITORS

THE FIRM

SUPPLIERS

CUSTOMERS

PORTER’S FIVE COMPETITIVE FORCES MODEL

Threats

Internal Forces

1.customer focus

2.communication

3.core competencies

4.complexity

5.quality

Bargaining power

N


Chapter 7 market segmentation and targeting

Porter’s Generic Strategy Framework –

3 Strategies for achieving Competitive Advantage

Uniqueness

Perceived by

Customer

Lower Cost

Position

Industrywide (Broad Target)

Overall Cost Leadership

Differentiation

Competitive Scope

Particular Segment only (Narrow Target)

Focus

Competitive Mechanism

N


Segmentation strategies

Segmentation Strategies

Undifferentiated Strategy

Differentiated Strategy

Concentrated Strategy


Countersegmentation strategy

Countersegmentation Strategy

  • Countersegmentation:

    • An alternative strategy to traditional segmentation approaches.

      • Combines market segments

      • Consumers accept lower price over variety


Factors influencing segmentation strategy

Factors Influencing Segmentation Strategy

  • Size and type of the market

  • Competitive factors

  • Product-related factors:

    • Stage in the product life cycle.

    • Degree to which the product may be varied or modified.

  • Firm’s size and financial position


Estimating segment potentials

Estimating Segment Potentials

  • Set time period of interest.

  • Define product level.

  • Specify segment characteristics or bases.

  • Identify geographic market boundaries.

  • Make assumptions about the marketing environment.

  • Make assumptions about company’s own marketing efforts and programs (controllable factors).

  • Make estimates of market potential, industry sales, and company sales.


Firm and market potentials and forecasts

Firm and Market Potentials and Forecasts

Best Possible ResultsExpected Results for Given Strategy

Industry Level

Firm Level

Market PotentialMarket Forecast

Sales Potential Sales Forecast


Developing forecasts

Qualitative Procedures:

Survey of Buyers’ Intentions

Expert Opinion

Composite of Salesforce Estimates

Quantitative Methods:

Trend Analysis

Market Tests

Statistical Demand Analysis

Developing Forecasts


Targeting market segments

Targeting Market Segments

  • To select target segments, the firm must consider:

    • The segment’s potential sales volume and profits.

    • Competition currently selling to the segments.

    • The firm’s abilities and objectives.


Chapter 7 market segmentation and targeting

Business Strategies

and its Competitive Advantage

Uniqueness

Perceived by

Customer

Lower Cost

Position

Industrywide (Broad Target)

Cost Leadership

Differentiation

Alliance

Innovation

Growth

Competitive Scope

Particular Segment only (Narrow Target)

Cost Focus

Differentiation Focus

Knowledge-based economy

Industrial economy

Competitive Mechanism


Positioning

Positioning

  • Positioning:

    • Designing a marketing program, including

    • the product mix, that is consistent with how

    • the company wants its products or

    • services to be perceived.

  • Repositioning:

    • When a firm wants to shift consumer

    • opinions about an existing brand.


Perceptual maps

High price

  • Diet Sprite

  • Diet Pepsi

  • Diet 7-Up

  • Pepsi Cola

Conservative

Expressive

  • RC Cola

  • 7-Up

  • Sprite

  • Coke Classic

  • Dr Pepper

  • Orange Crush

Low price

Perceptual Maps

  • Perceptual Maps:

    • Spatial representations of consumer perceptions of products or brands, are often used to evaluate brand positions in a market.


Chapter 7 market segmentation and targeting

Relationship between Generic and

Product-Market Definitions

Generic

market

definition

Customer

(user) needs

Customer

types

Geographical

area

Product type

(good and/or service)

Product-

market

definition


Micromarketing

Micromarketing

  • Micromarketing:

    • Combines Censusand

    • Demographic data to identify

    • clusters of households

    • that share similar

    • consumption patterns.


Micromarketing1

Micromarketing

  • Enhances the effectiveness of marketing efforts by:

    • Identifying potential markets for direct selling through mail and telemarketing campaigns.

    • Profiling customers by matching them to demographic and lifestyle clusters.

    • Learning which areas offer the greatest potential in site selection for new stores or offices.

    • Tailoring advertising themes and planning media.


Market segmentation and ethics

Market Segmentation and Ethics

  • Advertising to Children

  • Harmful Products

  • Privacy Issues

  • Product Proliferation


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