Segmenting and Targeting Markets Chapter 6 Prepared by Deborah Baker Texas Christian University
Learning Objectives 1. Describe the characteristics of markets and market segments. 2. Explain the importance of market segmentation. 3. Discuss criteria for successful market segmentation.
Learning Objectives (continued) 4. Describe the bases commonly used to segment consumer markets. 5. Describe the bases for segmenting business markets. 6. List the steps involved in segmenting markets.
Learning Objectives (continued) 7. Discuss alternative strategies for selecting target markets. 8. Explain how and why firms implement positioning strategies and how product differentiation plays a role. 9. Discuss global market segmentation and targeting issues.
Learning Objective 1 On Line http://www.snipits.com http://www.cartoon-cuts.com http://www.kidscuts.com Describe the characteristics of markets and market segments.
Market People or organizations with needs or wants and the ability and willingness to buy Market Segment A subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs. Market Segmentation The process of dividing a market into meaningful, relatively similar, identifiable segments or groups. Market Segmentation 1
A Market is... 1 (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.
Learning Objective 2 Explain the importance of market segmentation.
The Importance of Market Segmentation 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 Competitive Advantage
Learning Objective 3 Discuss criteria for successful market segmentation.
Substantiality Segment must be large enough to warrant a special marketing mix. Identifiability Measurability Segments must be identifiable and their size measurable. Accessibility Members of targeted segments must be reachable with marketing mix. Responsiveness Unless segment responds to a marketing mix differently, no separate treatment is needed. Criteria for Segmentation 3
Learning Objective 4 Describe the bases commonly used to segment consumer markets.
Segmentation Bases 4 Characteristics of individuals, groups, or organizations used to divide a total market into segments. (variables)
Bases for Segmentation 4 On Line http://www.toofaced.com Geography Demographics Psychographics Benefits Sought Usage Rate
Geographic Segmentation 4 Segmenting markets by region of the country or world, market size, market density, or climate.
Geographic Segmentation 4 • Region of the country or world • Market size • Market density • Climate
Benefits of Regional Segmentation 4 • 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 • React more quickly to competition
Demographic Segmentation 4 Segmenting markets by age, gender, income, ethnic background, and family life cycle
Bases for Demographic Segmentation 4 • Age • Gender • Income • Ethnic background • Family Life Cycle
Ethnic Background 4 • Largest ethnic markets are: African-American Hispanic-American Asian-American • Will comprise 1/3 of U.S. population by 2010 with buying power of a trillion dollars
Age MaritalStatus Children Family Life Cycle 4
Psychographic Segmentation 4 Market segmentation on the basis of personality, motives, lifestyles, and geodemographics.
PsychographicSegmentation Personality Motives Lifestyles Geodemographics Bases for Psychographic Segmentation 4 On Line http://www.marthastewart.com http://www.goodhousekeeping.com
Lifestyle Segmentation 4 • How time is spent • Importance of things around them • Beliefs • Socioeconomic characteristics
Geodemographic Segmentation 4 On Line http://www.redenvelope.com Segmenting potential customers into neighborhood lifestyle categories. Combines geographic, demographic, and lifestyle segmentation.
Benefit Segmentation 4 The process of grouping customers into market segments according to the benefits they seek from the product.
Usage-Rate Segmentation 4 Dividing a market by the amount of product bought or consumed.
The 80/20 Principle 4 A principle holding that 20 percent of all customers generate 80 percent of the demand.
Learning Objective 5 Describe the bases for segmenting business markets.
Segmentation Bases Company Characteristics Customer Relationship Buying Processes Business Marketing Segmentation 5 On Line http://www.homedepot.com
Learning Objective 6 List the steps involved in segmenting markets.
Select a market for study Choosebasesfor segmen-tation Selectdescrip-tors Profileandanalyzesegments Selecttargetmarkets Design,imple-ment,maintainmktingmix Steps in Segmenting a Market 6
Learning Objective 7 Discuss alternative strategies for selecting target markets.
Target Market 7 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.
Undifferentiated Strategy Concentrated Strategy Multisegment Strategy Strategies for SelectingTarget Markets 7 On Line http://www.charlestongardens.com
Undifferentiated Targeting Strategy 7 Marketing approach that views the market as one big market with no individual segments and thus requires a single marketing mix.
Undifferentiated Targeting Strategy 7 • Advantages: • Potential savings on production and marketing costs Disadvantages: • Unimaginative product offerings • Company more susceptible to competition
Concentrated Targeting Strategy 7 A strategy used to select one segment of a market for targeting marketing efforts.
Niche 7 One segment of a market.
Concentrated Targeting Strategy 7 • Advantages: • 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
Multisegment Targeting Strategy 7 A strategy that chooses two or more well-defined market segments and develops a distinct marketing mix for each.
Multisegment Targeting Strategy 7 • Advantages: • Greater financial success • Economies of scale Disadvantages: • High costs • Cannibalization
Costs of Multisegment Targeting 7 • Product design costs • Production costs • Promotion costs • Inventory costs • Marketing research costs • Management costs • Cannibalization
Cannibalization 7 Situation that occurs when sales of a new product cut into sales of a firm’s existing products.
Learning Objective 8 Explain how and why firms implement positioning strategies and how product differentiation plays a role.
Positioning 8 Developing a specific marketing mix to influence potential customers’ overall perception of a brand, product line, or organization in general.