Chapter 8 Marketing

SUBSTANTIALITY

A segment must be large enough to warrant developing and maintaining a special marketing mix. This criterion does not necessarily mean that a segment must have many potential customers. For example, marketers of custom-designed homes and business buildings, commercial airplanes, and large computer systems typically develop marketing programs tailored to each potential customer's needs. In most cases, however, a market segment needs many potential customers to make commercial sense. In the 1980s, home banking failed because not enough people owned personal computers. Today, a larger number of people own computers, and home banking is a thriving industry.

SELECT SEGMENTATION DESCRIPTORS:

After choosing one or more bases, the marketer must select the segmentation descriptors. Descriptors identify the specific segmentation variables to use. For example, if a company selects demographics as a basis of segmentation, it may use age, occupation, and income as descriptors. A company that selects usage-rate segmentation needs to decide whether to go after heavy users, nonusers, or light users.

steps in segmenting a market: SELECT A MARKET OR PRODUCT CATEGORY FOR STUDY:

Define the overall market or product category to be studied. It may be a market in which the firm already competes, a new but related market or product category, or a totally new market.

demographic segmentation

Marketers often segment markets on the basis of demographic information because it is widely available and often related to consumers' buying and consuming behavior. Some common bases of demographic segmentation are age, gender, income, ethnic background, and family life cycle.

for successful segmentation

Marketers segment markets for three important reasons. First, segmentation enables marketers to identify groups of customers with similar needs and to analyze the characteristics and buying behavior of these groups. Second, segmentation provides marketers with information to help them design marketing mixes specifically matched with the characteristics and desires of one or more segments. Third, segmentation is consistent with the marketing concept of satisfying customer wants and needs while meeting the organization's objectives.

Age segmentation

Marketers use a variety of terms to refer to different age groups. Examples include newborns, infants, young children, tweens, Generation Y (also called Millennials), Generation X, baby boomers, and seniors. Age segmentation can be an important tool, as a brief exploration of the market potential of several age segments illustrates.

RESPONSIVENESS:

Markets can be segmented using any criteria that seem logical. Unless one market segment responds to a marketing mix differently than other segments, however, that segment need not be treated separately. For instance, if all customers are equally price conscious about a product, there is no need to offer high-, medium-, and low-priced versions to different segments.

IDENTIFIABILITY AND MEASURABILITY:

Segments must be identifiable and their size measurable. Data about the population within geographic boundaries, the number of people in various age categories, and other social and demographic characteristics are often easy to get, and they provide fairly concrete measures of segment size. Suppose that a social service agency wants to identify segments by their readiness to participate in a drug and alcohol program or in prenatal care. Unless the agency can measure how many people are willing, indifferent, or unwilling to participate, it will have trouble gauging whether there are enough people to justify setting up the service.

SELECT MARKETS:

Selecting markets is not a part of but a natural outcome of the segmentation process. It is a major decision that influences and often directly determines the firm's marketing mix. This topic is examined in greater detail later in this chapter.

ACCESSIBILITY:

The firm must be able to reach members of targeted segments with customized marketing mixes. Some market segments are hard to reach—for example, senior citizens (especially those with reading or hearing disabilities), individuals who don't speak English, and the illiterate.

DESIGN, IMPLEMENT, AND MAINTAIN APPROPRIATE MARKETING MIXES:

The marketing mix has been described as product, place (distribution), promotion, and pricing strategies intended to bring about a mutually satisfying exchange relationship with a market.

PROFILE AND ANALYZE SEGMENTS:

The profile should include the segments' size, expected growth, purchase frequency, current brand usage, brand loyalty, and long-term sales and profit potential. This information can then be used to rank potential market segments by profit opportunity, risk, consistency with organizational mission and objectives, and other factors important to the firm.

CHOOSE A BASIS OR BASES FOR SEGMENTING THE MARKET:

This step requires managerial insight, creativity, and market knowledge. There are no scientific procedures for selecting segmentation variables. However, a successful segmentation scheme must produce segments that meet the four basic criteria discussed earlier in this chapter.

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

undifferentiated targeting strategy

a marketing approach that views the market as one big market with no individual segments and thus uses a single marketing mix

Perceptual mapping

a means of displaying or graphing, in two or more dimensions, the location of products, brands, or groups of products in customers' minds

positioning

a process that influences potential customers' overall perception of a brand, product line, or organization in general. Position is the place a product, brand, or group of products occupies in consumers' minds relative to competing offerings. Consumer goods marketers are particularly concerned with positioning. Coca-Cola has multiple cola brands, each positioned to target a different market. For example, Coca-Cola Zero is positioned on its bold taste and zero calories, Caffeine Free Coca-Cola is positioned as a no-caffeine alternative, and Tab is positioned as a cola drink for dieters. [Footnote] Positioning assumes that consumers compare products on the basis of important features. Marketing efforts that emphasize irrelevant features are therefore likely to misfire. For example, Crystal Pepsi and a clear version of Coca-Cola's Tab failed because consumers perceived the "clear" positioning as more of a marketing gimmick than a benefit.

family life cycle (FLC)

a series of stages determined by a combination of age, marital status, and the presence or absence of children

cannibalization

a situation that occurs when sales of a new product cut into sales of a firm's existing products

concentrated targeting strategy

a strategy used to select one segment of a market for targeting marketing efforts

optimizers

business customers who consider numerous suppliers (both familiar and unfamiliar), solicit bids, and study all proposals carefully before selecting one

repositioning

changing consumers' perceptions of a brand in relation to competing brands

Usage-rate segmentation

divides a market by the amount of product bought or consumed. Categories vary with the product, but they are likely to include some combination of the following: former users, potential users, first-time users, light or irregular users, medium users, and heavy users. Segmenting by usage rate enables marketers to focus their efforts on heavy users or to develop multiple marketing mixes aimed at different segments. Because heavy users often account for a sizable portion of all product sales, some marketers focus on the heavy-user segment.

usage-rate segmentation

dividing a market by the amount of product bought or consumed

The 80/20 principle

holds that 20 percent of all customers generate 80 percent of the demand. Although the percentages usually are not exact, the general idea often holds true

. Psycho graphic segmentation

includes personality, motives, lifestyles, demographics

Benefit segmentation

is the process of grouping customers into market segments according to the benefits they seek from the product. Most types of market segmentation are based on the assumption that this variable and customers' needs are related. Benefit segmentation is different because it groups potential customers on the basis of their needs or wants rather than on some other characteristic, such as age or gender. The snack-food market, for example, can be divided into six benefit segments: nutritional snackers, weight watchers, guilty snackers, party snackers, indiscriminate snackers, and economical snackers.

Market segmentation

plays a key role in the marketing strategy of almost all successful organizations and is a powerful marketing tool for several reasons. Most important, nearly all markets include groups of people or organizations with different product needs and preferences. Market segmentation helps marketers define customer needs and wants more precisely. Because market segments differ in size and potential, segmentation helps decision makers to more accurately define marketing objectives and better allocate resources. In turn, performance can be better evaluated when objectives are more precise.

Geographic segmentation

refers to segmenting markets by region of a country or the world, market size, market density, or climate. Market density means the number of people within a unit of land, such as a census tract. Climate is commonly used for geographic segmentation because of its dramatic impact on residents' needs and purchasing behavior. Snowblowers, water and snow skis, clothing, and air-conditioning and heating systems are products with varying appeal, depending on climate.

demographic segmentation

segmenting markets by age, gender, income, ethnic background, and family life cycle

benefit segmentation

the process of grouping customers into market segments according to the benefits they seek from the product