CHAPTER 8 - SEGMENTING AND TARGETING MARKETS

*Key Concept: Discuss the criteria for successful market segmentation. Successful market segmentation depends on four basic criteria:

(1)a market segment must be substantial and have enough potential customers to be viable (2)a market segment must be identifiable and measurable (3)members of a market segment must be accessible to marketing efforts (4)a market segment must respond to particular marketing efforts in a way that distinguishes it from other segments.

market

(people or organizations) with (needs or wants) and (the ability) and (willingness to buy)

Consumer goods companies take a regional approach to marketing for four reasons.

1) many firms need to find new ways to generate sales because of sluggish and intensely competitive markets. 2) computerized checkout stations with scanners give retailers an accurate assessment of which brands sell best in their region. 3) many packaged-goods manufacturers are introducing new regional brands intended to appeal to local preferences. 4) a more regional approach allows consumer goods companies to react more quickly to competition

*Key concept: Describe the characteristics of markets and market segments.

A market is composed of individuals or organizations with the ability and willingness to make purchases to fulfill their needs or wants. A market segment is a group of individuals or organizations with similar product needs as a result of one or more common characteristics.

substantiality

A segment must be large enough to warrant developing and maintaining a special marketing mix. market segment needs many potential customers to make commercial sense

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.

*Key Concept: Explain the importance of market segmentation.

Before the 1960s, few businesses targeted specific market segments. Today, segmentation is a crucial marketing strategy for nearly all successful organizations. Market segmentation enables marketers to tailor marketing mixes to meet the needs of particular population segments. Segmentation helps marketers identify consumer needs and preferences, areas of declining demand, and new marketing opportunities.

Key Concept: Describe the bases for segmenting business markets.

Business markets can be segmented on two general bases. First, businesses may segment markets based on company characteristics, such as customers' geographic location, type of company, company size, and product use. Second, companies may segment customers based on the buying processes those customers use.

Key Concept: Explain how CRM can be used as a targeting tool.

Companies that successfully implement CRM tend to customize the goods and services offered to their customers based on data generated through interactions between carefully defined groups of customers and the company. CRM relies on four things to be successful: personalization, time savings, loyalty, and technology. Although mass marketing will probably continue to be used, the advantages of CRM cannot be ignored.

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.

*Key Concept: Describe the bases commonly used to segment consumer markets.

Five bases are commonly used for segmenting consumer markets. Geographic segmentation is based on region, size, density, and climate characteristics. Demographic segmentation is based on age, gender, income level, ethnicity, and family life cycle characteristics. Psychographic segmentation includes personality, motives, and lifestyle characteristics. Benefits sought is a type of segmentation that identifies customers according to the benefits they seek in a product. Finally, usage segmentation divides a market by the amount of product purchased or consumed.

motives

Marketers of baby products and life insurance appeal to consumers' emotional motives—namely, to care for their loved ones. Using appeals to economy, reliability, and dependability, carmakers like Subaru and Suzuki target customers with rational motives. Carmakers like Mercedes-Benz, Jaguar, and Cadillac appeal to customers with status-related motives.

Key Concept: Discuss alternative strategies for selecting target markets.

Marketers select target markets using three different strategies: undifferentiated targeting, concentrated targeting, and multisegment targeting. An undifferentiated targeting strategy assumes that all members of a market have similar needs that can be met with a single marketing mix. A concentrated targeting strategy focuses all marketing efforts on a single market segment. Multisegment targeting is a strategy that uses two or more marketing mixes to target two or more market segments.

*age segmentation

Marketers use a variety of terms to refer to different age groups.

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.

*Key Concept: Explain how and why firms implement positioning strategies and how product differentiation plays a role.

Positioning is used to influence consumer perceptions of a particular brand, product line, or organization in relation to competitors. The term position refers to the place that the offering occupies in consumers' minds. To establish a unique position, many firms use product differentiation, emphasizing the real or perceived differences between competing offerings. Products may be differentiated on the basis of attribute, price and quality, use or application, product user, product class, competitor, or emotion. Some firms, instead of using product differentiation, position their products as being similar to competing products or brands. Sometimes products or companies are repositioned in order to sustain growth in slow markets or to correct positioning mistakes.

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

*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.

*Key concept: List the steps involved in segmenting markets.

Six steps are involved when segmenting markets: (1)selecting a market or product category for study; (2)choosing a basis or bases for segmenting the market; (3)selecting segmentation descriptors; (4)profiling and evaluating segments; (5)selecting target markets; and (6)designing, implementing, and maintaining appropriate marketing mixes.

accessibility

The firm must be able to reach members of targeted segments with customized marketing mixes.

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

product differentiation

a positioning strategy that some firms use to distinguish their products from those of competitors

80/20 principle

a principle holding that 20 percent of all customers generate 80 percent of the demand

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

*positioning developing

a specific marketing mix to influence potential customers' overall perception of a brand, product line, or organization in general

multisegment targeting strategy

a strategy that chooses two or more well-defined market segments and develops a distinct marketing mix for each

concentrated targeting strategy

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

market segment

a subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs

*concentrated targeting

advantages: Concentration of resources, Can better meet the needs of a narrowly defined segment, Allows some small firms to better compete with larger firms, Strong positioning disadvantages: Segments too small or changing and Large competitors may more effectively market to niche segment

multisegment targeting

advantages: Greater financial success and Economies of scale in producing/marketing disadvantages: High costs and Cannibalization

undifferentiated targeting

advantages: Potential savings on production/ marketing costs disadvantages: Unimaginative product offerings and Company more susceptible to competition

variables

aka segmentation bases

optimizers

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

satisficers

business customers who place an order with the first familiar supplier to satisfy product and delivery requirements

*repositioning

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

segmentation bases

characteristics of individuals, groups, or organizations

*Market segmentation helps marketers define

customer needs and wants more precisely.

lifestyles

divides people into groups according to the way they spend their time, the importance of the things around them, their beliefs, and socioeconomic characteristics such as income and education

*usage-rate segmentation

dividing a market by the amount of product bought or consumed

*income segmentation

income level influences consumers' wants and determines their buying power.

The choice of segmentation bases is crucial because an inappropriate segmentation strategy may lead to

lost sales and missed profit opportunities.

*Because market segments differ in size and potential, segmentation helps decision makers to

more accurately define marketing objectives and better allocate resources

niche

one segment of a market

personality

reflects a person's traits, attitudes, and habits. Clothing is the ultimate personality descriptor.

*demographic segmentation

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

*geographic segmentation

segmenting markets by region of a country or the world, market size, market density, or climate

*psychographic segmentation

segmenting markets on the basis of personality, motives, life-styles, and geodemographics

*geodemographic segmentation

segmenting potential customers into neighborhood lifestyle categories

The key is to identify bases that will produce

substantial, measurable, and accessible segments that exhibit different response patterns to marketing mixes

To be useful, a segmentation scheme must produce segments that meet four basic criteria:

substantiality identifiability and measurability accessibility responsiveness

*Market segmentation plays a key role in

the marketing strategy of almost all successful organizations.

*position

the place a product, brand, or group of products occupies in consumers' minds relative to competing offerings

*market segmentation

the process of dividing a market into meaningful, relatively similar, and identifiable segments or groups The purpose of market segmentation is to enable the marketer to tailor marketing mixes to meet the needs of one or more specific segments.

*benefit segmentation

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

*gender segmentation

women tend to buy more than men.