Chapter 7 - Market Segmentation

Targeting

occurs when marketers evaluate each market segment and determine which segments present the most attractive opportunity to maximize sales. The segments selected are the firm's target markets.

Step 2: Clearly Define Your Competitive Advantage

Great marketers understand competitive advantage and why consumers buy their firm's goods and services. They know that consumers must have a clear answer to the question, "Why should I buy this product?" If a marketer cannot clearly establish an answer to this question in the mind of the consumer, the product may not realize its full potential.

Regional segmentation

divides consumers into groups whose needs and wants extend across the region or several countries. Firms will often use this when they want to capitalize on the financial savings of global segmentation but still adjust for local customs and culture.

Geographic Segmentation

divides markets into groups such as nations, regions, states, and neighborhoods. Marketers pay special attention to local variations in the types of goods and services offered in different geographic regions.

Lifestyle segmentation

divides people into groups based on their opinions and the interests and activities they pursue.

perceptual map

A perceptual map provides a valuable tool for understanding competitors' positions in the marketplace. A perceptual map creates a visual picture of product locations in consumers' minds.

demographic segmentation

Age and gender are the most commonly used demographic variables because they are often the easiest to identify. For example, a marketer does not have to be very skilled to recognize whether someone is young or old.

Growth Potential

Typically, the higher the future growth rate, the more attractive the segment is.

Price/quality relationship

Customers are often attracted to firms that offer them the same product quality as other stores, but at a more affordable price. Walmart is a great example of a low-cost retailer that has successfully positioned itself using a price/quality relationship strategy. Because of its thousands of stores globally, it can negotiate bulk discounts from wholesalers and keep its distribution costs low. These cost savings translate into low selling prices for goods with which rivals cannot compete. Shoppers know that Walmart offers the lowest prices, so they choose to shop there. This in turn enhances Walmart's brand, which only improves its competitive advantage.

Psychographic Segmentation

Demographic characteristics such as age, gender, income, marital status, and family size give us multiple ways to segment markets. Within each of those demographic profiles, consumers can have very different psychological or personality traits that influence their purchasing behavior.

Differentiable

Dividing the market into segments does no good if all the segments respond the same to different marketing strategies. Effective segmentation requires that the segments must be able to be differentiated.

Population Shifts

Finally, geographic segmentation can be a valuable tool for understanding population changes across different regions. In the U.S., the population is calculated by census every 10 years. (The number of members each state has in the U.S. House of Representatives is determined by population, following the census.)

Step 1: Analyze Competitors' Positions

First, firms must understand the position competitors have taken in the marketplace. Positioning does not occur in isolation, and it is important for marketers to have a realistic view of how customers perceive competitive offerings.

Gender

Gender is a valuable segmentation variable, for products ranging from clothing to soft drinks to medications. Marketers are expanding beyond traditional gender segmentation as new trends shift marketing dollars away from male- or female-oriented marketing, to try to appeal to multiple genders. For example, marketers for home improvement store Lowe's recognized that women were becoming an increasingly large part of their customer base but were largely being ignored by their promotional strategies. In an effort to target female consumers, Lowe's introduced a new line of Martha Stewart products and other home decor items.

Income

Income provides marketers with a valuable segmentation tool, because it affects consumers' ability to buy goods and services. Of course, marketers can successfully define the needs and wants of customers at all income levels and design appropriate marketing strategies.

Strategic Fit

Marketers should work to ensure that the target markets selected fit with what the organization is and wants to be, as defined in its mission statement. The SWOT analysis provides an excellent framework to determine if a firm will be successful targeting a specific segment.

Attributes

Often a product will have multiple attributes that create a unique position in the market. Marketers should evaluate those attributes that put its product in a special category of value to the customer. Successful attributes might include leadership, heritage, product manufacturing process, or the coolness factor. For example, Nike continued to have sales success marketing the Air Jordan line of shoes years after Michael Jordan retired from sports. The coolness factor of the shoes is an attribute that creates a unique position in the marketplace and resonates with consumers across generations.

VALS Network

Perhaps the most commonly used psychographic segmentation tool is the VALS™ framework. It classifies U.S. and Canadian adults (age 18 years and older) into 8 psychographic groups, on the basis of responses to 34 attitudinal and 4 demographic questions. The groups are Innovators, Thinkers, Believers, Achievers, Strivers, Experiencers, Makers, and Survivors. VALS measures two dimensions: primary motivation and resources. The ways in which motivation and resources combine explain different behaviors among consumer groups.

Customer Convenience

Segmenting by geography also allows marketers to capitalize on convenience to the customer. Cracker Barrel Old Country Store®, for example, has developed a successful restaurant and retail business across the United States by locating its stores in convenient geographic locations. A major component of Cracker Barrel's marketing strategy has been to place locations along interstate highways.

collegehumor.com

Several carriers, including AirTran, have taken advantage of college-aged consumers' familiarity with social media by posting videos on

B2B Demographic Segmentation

The main B2B demographic variables include industry, size of the organization, and ownership structure. Segmenting by industry is an important first step that helps marketers determine which sectors of the economy might be most valuable to their business.

Level of Competition

The more intense the competition within a segment, the less attractive it is to marketers.

Substantial

The segments must be large enough for the firm to make a profit by serving them. For example, designing a cereal for people who are over 100 years of age or athletic shoes for people who wear larger than a size 24 shoe are not viable options; the market for each product is not substantial enough for the firm to make sustainable profits.

Market segments

are the relatively homogeneous groups of consumers that result from the segmentation process. There are over 7 billion people in the world with different needs and wants that are impossible to attract with a single marketing mix. Market segmentation plays an important role in the success of almost every organization in the U.S. and throughout the world.

Behavioral segmentation

categorizes consumers according to how they behave with or act toward products. Behavioral segmentation variables include occasions (e.g., a wedding or business trip), loyalty, and usage rate.

positioning statement

consists of a succinct description of the core target market to which a product is directed and a compelling picture of how the firm wants that core market to view the product. A successful positioning statement should clearly reflect the steps of the positioning process, including the competitive advantages of the product. However, positioning statements should also be short.

Positioning

consists of the activities a firm undertakes to create a certain perception of its product in the eyes of the target market. It assumes that consumers compare goods and services on the basis of their benefits. Positioning often takes into account the identity of the organization and where it fits relative to the competition. Successful positioning involves all of the marketing mix elements (price, product, promotion, and place).

Global segmentation

identifies a group of consumers with common needs and wants that spans the entire globe. Firms use global segmentation when they believe they can identify such groups. Global segmentation usually results in Page 233market segments made up of young people, those who have more money to spend, or those with access to the Internet.

Unique segmentation

identifies a group of consumers with similar needs and wants only within one country. If a firm wants to completely localize, it may choose to target a particular segment within one country. For example, the National Football League chose a unique segmentation strategy to market American football to British fans. The league's tactics included an exuberant street party with a marching band. It also posted on its U.K. website new digital content such as a "Rookie's Guide" to football and animated videos explaining the rules.

target market

is the group of customers toward which an organization has decided to direct its marketing efforts.

www.census.gov

provides marketers with information such as the net worth and asset ownership of households segmented by race, education, age, and occupation. Small businesses and other organizations that have a very limited marketing research budget find such free information a valuable tool.

undifferentiated targeting

strategy approaches the marketplace as one large segment. The major advantage of this type of mass-marketing strategy is the potential savings in developing and marketing the product. Because the firm doesn't segment the market further, it can approach all consumers with the same product offering and marketing mix.

Repositioning

involves reestablishing a product's position in response to changes in the marketplace. Dr Pepper Snapple Group, the Sunkist brand's licensee for soda in the U.S., initiated a repositioning strategy aimed at trend-savvy teens and young adults. The soda brand now utilizes YouTube and Facebook platforms to promote its products.

Niche marketing

involves targeting a large share of a small market segment. Firms that do niche marketing offer a unique product or specialization that is desirable to their targeted customers. Consumers of niche marketing products typically have very specialized needs and will pay higher prices to meet those needs.

Market segmentation

is the process of dividing a larger market into smaller groups, or market segments, based on meaningfully shared characteristics.

Age

Age is an especially valuable segmentation tool in areas such as food, housing, and health care. Older Americans spend significantly more in these areas than younger consumers. The median age for residents of the U.S. is the highest in the history of the country. Older consumers typically have two things that most of their younger counterparts do not: time and money. This large demographic group provides marketers with expanding market segments, representing billions of dollars in potential sales.

Application

Apple has had success with its iPad product, in part, because of the competitive advantage it has when it comes to the application and use of the product. As new versions of the iPad have been introduced, Apple has had success emphasizing exclusive services like FaceTime and iCloud to further differentiate the iPad from competitors. In addition, Apple reminds customers that its app store is still the largest store of its type with the highest security standards.

Business-to-Business Segmentation Bases

B2B firms generally segment their markets using different bases from those used in B2C markets. The three types of B2B segmentation bases are demographic, geographic, and behavioral. Although the names of these bases match those of the B2C bases discussed up to this point, they apply differently.

B2B Geographic Segmentation

B2B geographic variables are similar to consumer variables. They include things like country, region, state, and climate. Geographic segmentation allows marketers to group B2B customers by geography-related needs or headquarters location. Such segmentation can help B2B marketers allocate resources to the parts of the country or the world with the highest concentration of economic- or climate-driven need.

B2B Behavioral Segmentation

Behavioral segmentation might be the most beneficial variable to B2B marketers: It enables them to segment based on purchasing patterns, supplier requirements, and technological orientation. Purchasing patterns, such as the time of year contracts come up for bid, can be helpful in the segmentation process. Supplier requirements, which include things like whether the supplier has e-commerce functionality, can help marketers determine which segments' capabilities and technological orientation make them attractive.

Marital Status and Family Size

Marital status can be a helpful demographic segmentation tool. A company might discover that married individuals will pay higher prices than single individuals and promote certain products to that market. It might find that single customers purchase a certain product more frequently than married customers do and market that product to singles.

Accessible

Marketers must be able to reach and serve the segment. If the firm lacks the size, financial capital, expertise, or government permits to serve a certain market segment, all of the other criteria are irrelevant.

Actionable

Marketers should be able to develop strategies that can attract certain market segments to their firms' goods and services. A firm should be reasonably certain that its marketing mix can inform consumers about the product, how it adds value to the consumer, and ultimately how to purchase it.

Measurable

The size and purchasing power of the segment should be measurable and clearly identified. There's a popular saying in business that if you cannot measure something, you cannot manage it.

Market Size

The size of a market is an important geographic segmentation tool. IKEA marketers prefer to locate new stores in areas where at least 2 million people live within a 60-mile range.

Step 3: Evaluate Feedback

The third step in market positioning is constantly evaluating consumer feedback. Just as fashion styles change, consumer tastes for almost everything, including cars, food, and even educational learning formats, change.

Ties.com

is a successful Internet-based niche retail company. The business, which shares its name with its website, has been in operation since 1998.24 It focuses exclusively on men's neckties and related products. Fashion retailer Kathy Marrou founded the company, Page 237replacing her general clothing retail operation with one focused only on ties. The company has now added scarves to its lineup, to target a niche market of female consumers who are passionate about neckwear.

Differentiated targeting

occurs when an organization simultaneously pursues several different market segments, usually with a different customized strategy for each.

80/20 rule

which suggests that 20 percent of heavy users account for 80 percent of the total demand for a product. If firms can identify its heavy users, it is in a better position to create an effective marketing strategy to reach those consumers who contribute most to the firm's success.