CHAPTER 8: Identifying Market Segments and Targets

The existence of different market segments has caused firms to use a marketing strategy of

result = product differentiation.

What are market segments?

relatively homogeneous groups of prospective buyers.

When to Segment Markets?

A business firm goes to the trouble and expense of segmenting its markets when it expects that this will increase its sales, profit and return on investment.

Form Potential Buyers into Segments

A marketing manager should develop segments for a market that meet five main criteria: 1. Potential for increased profit 2. Similarity of needs of potential buyers within a segment 3. Difference of needs of buyers among segments. 4. Potential of a marketing action to reach a segment 5. Simplicity and cost of assigning potential buyers to segments.

Step 3: Develop a Market-Product Grid and Estimate Size of Markets

Developing a market-product grid means labelling the markets (or horizontal rows) and products (or vertical columns), as shown opposite. In addition, the size of the market in each cell (the market-product combination) must be estimated.

Why is it important to pick the right target market?

If it picks too narrow a group of segments, it may fail to reach the volume of sales and profits it needs. If it selects too broad a group of segments, it may spread its marketing efforts so thin that the extra expenses are more than the increased sales and profits.

Ways to Segment Organisational Markets?

Location. Exporters. Number of employees. Benefits sought.

Segmentation: Linking Needs to Actions

Market segmentation first stresses the importance of grouping people or organisations in a market according to the similarity of their needs and the benefits they are looking for in making a purchase. Second, such needs and benefits must be related to specific marketing actions the organisation can take. These actions may involve separate products or other aspects of the marketing mix such as price, advertising or personal selling activities, or distribution strategies. The process of segmenting a market and selecting specific segments as targets is the link between the various buyers' needs and the organisation's marketing program

Why do marketers use perceptual maps in product positioning decisions?

Marketers use perceptual maps to display in two dimensions the location of their and competing products or brands to see how consumers perceive them and then take marketing actions.

What is vital to to success in selecting target market segments and making marketing decisions?

Recognising opportunities for key synergies —that is, efficiencies—is vital to success in selecting target market segments and making marketing decisions.

What three types of data must companies collect from consumers in order to understand position and the preferences of customers?

The important attributes for a product class. Judgments of where existing products or brands are located on these attributes. The location of the firm's own product or brand on these attributes

What are the Steps in Segmenting and Targeting Markets?

The process of segmenting a market and then selecting and reaching the target segments is divided into five steps. Form Potential Buyers into Segments Form Products to Be Sold into Groups Develop a Market-Product Grid and Estimate Size of Markets Select Target Markets Take Marketing Actions to Reach Target Markets

The purpose of developing a market-product grid?

The purpose of developing a market-product grid is to trigger marketing actions to increase sales and profits.

Step 4: Select Target Markets

There are two different kinds of criteria in the market segmentation process: those to use in dividing the market into segments (discussed earlier) and those to use in actually picking the target segments.

What is product differentiation?

This strategy involves a firm using different marketing mix activities, such as product features and advertising, to help consumers perceive the product as being different and better than competing products.

Ways to Segment Consumer Markets

Two kinds of variables are generally used to segment consumer markets: (1) customer characteristics and (2) buying situations.

When NOT to segment markets?

When expenses are greater than the potentially increased sales from segmentation, a firm should not attempt to segment its market.

What are the groups called as a result of Market segmentation?

result = market segments

What are consumer characteristics?

demographics (gender, age, race, household size); geographic (region, city size); and socioeconomic variables (income, education, occupation). psychographic characteristics like personality (gregarious, introverted, compulsive) and lifestyle (consumer activities, interests, opinions) can be used.

Step 2: Form Products to Be Sold into Groups

finding a means of grouping the products you're selling into meaningful categories.

What are buying situations?

include benefits sought (product features, quality, service, warranty) and Usage (heavy user, light user, non-user).

What is Market Segmentation?

involves aggregating prospective buyers into groups that (1) have common needs and (2) will respond similarly to a marketing action.

What is the key to successful product differentiation and market segmentation strategies?

is finding the ideal balance between satisfying a customer's individual wants and achieving organisational synergy

Different forms of 'increased customer value'

more products, improved quality on existing products, lower prices, easier access to product through improved distribution, and so on.

What is Product positioning?

refers to the space an offering occupies in consumers' minds on important attributes relative to competitive offerings.

Why Segment Markets?

so it can respond more effectively to the wants of groups of potential buyers and thus increase its sales and profits.

What is organisational synergy?

the increased customer value achieved through performing organisational functions more efficiently.