Market Segmentation and Targeting Strategies in Consumer and Business Markets

Millennials

75.4 million people born between 1980 and 1994 who are idealistic, pragmatic, and the most technology-proficient generation.

Volume of Purchase

A commonly used basis for business segmentation categorized as heavy, moderate, or light.

Positioning Statement

A declaration that outlines how a product is unique and why it is the best option for a target market.

Assumption of Undifferentiated Targeting

A firm that adopts an undifferentiated targeting strategy assumes that individual customers have similar needs that can be met with a common marketing mix.

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.

Multiple-variable segmentation

A method that uses more variables to segment markets, providing more precision than single-variable segmentation.

Personality

A person's traits, attitudes, and habits.

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.

Substantiality

A segment must be large enough to warrant developing and maintaining a special marketing mix.

Family Life Cycle (FLC)

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

Multisegment Targeting

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.

Marketing Concept Alignment

Aligns with the marketing concept of satisfying customer wants and needs while meeting the organization's objectives.

Advantages of Concentrated Targeting

Allows a firm to concentrate on understanding the needs, motives, and satisfaction of that segment's members.

Secondary Target Market

An additional group of consumers that a product may also appeal to.

Market Profile

An analysis of segments that includes size, expected growth, purchase frequency, brand usage, loyalty, and profit potential.

Positioning Assumptions

Assumes that consumers compare products on the basis of important features.

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.

Geodemographics

Categories based on a combination of neighborhood, lifestyle, and other demographic variables.

Repositioning

Changing consumers' perceptions of a brand in relation to competing brands.

Segmentation Variables

Characteristics of individuals, groups, or organizations used for segmentation.

Climate in geographic segmentation

Commonly used for geographic segmentation due to its dramatic impact on residents' needs and purchasing behavior.

Buying Processes

Companies can segment some business markets by ranking key purchasing criteria, such as price, quality, technical support, and service.

Family Life-Cycle Segmentation

Consumption patterns among people of the same age and gender may differ because they are in different stages of the family life cycle.

Choice of Segmentation Bases

Crucial, because an inappropriate segmentation strategy may lead to lost sales and missed profit opportunities.

Identifiability and Measurability

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, providing fairly concrete measures of segment size.

Customer Personas

Detailed profiles of prototypical customers based on market segmentation.

Usage-Rate Segmentation

Dividing a market by the amount of product bought or consumed.

Motives

Emotions and desires that can drive purchasing decisions.

Reasons for Market Segmentation

Enables marketers to identify groups of customers with similar needs and to analyze the characteristics and buying behavior of these groups.

Company Characteristics

Examples include geographic location, type of company, company size, and product use.

Positioning Bases

Firms use a variety of bases for positioning, including product user, attribute, product class, price and quality, competitor, use or application, and emotion.

Segmentation Criteria

Four basic criteria that segments must meet: needs or wants, ability to buy, willingness to buy, and identifiable segments.

Defining Marketing Objectives

Helps decision makers more accurately define marketing objectives and better allocate resources.

Customer Needs and Wants

Helps marketers define customer needs and wants more precisely.

Key to Effective Segmentation

Identify bases that will produce substantial, measurable, and accessible segments that exhibit different response patterns to marketing mixes.

Disadvantages of Concentrated Targeting

If chosen segment is too small or if it shrinks or changes, the firm may suffer negative consequences.

Silent Generation

Individuals born before 1946 who tend to be cautious, hardworking, and disciplined.

Baby Boomers

Individuals born between 1946 and 1964 who outspend the average consumer in nearly every product category.

Generation Xers

Individuals born between 1965 and 1979 who are often caught between supporting aging parents and young children.

Generation Z

Individuals born from 1995 to 2015 who want to work for their success and believe brands need to be real.

Disadvantages of multiple-variable segmentation

It is often harder to use, usable secondary data are less likely to be available, and as the number of segmentation bases increases, the size of individual segments decreases.

Understanding Customer Lifestyles

Leads to a deeper understanding of customer lifestyles, values, jobs to be done, need states, and buying occasions.

Segmentation Bases

Marketers use one or more segmentation bases, or variables, to divide a total market into segments.

Responsiveness

Markets can be segmented using any criteria that seem logical; unless one market segment responds to a marketing mix differently than other segments, that segment need not be treated separately.

Disadvantages of Multisegment Targeting

May involve higher costs for product design, production, promotion, inventory, marketing research, and management.

Benefits of Multisegment Targeting

May lead to greater sales volume, higher profits, larger market share, and economies of scale in manufacturing and marketing.

Observable Variables

Measurable characteristics that vary between market segments.

Niche

One segment of a market.

Market

People or organizations with needs or wants and the ability and willingness to buy.

Importance of Market Segmentation

Plays a key role in the marketing strategy of almost all successful organizations.

Advantages of Undifferentiated Targeting

Potential for saving on production and marketing because only one item is produced; marketing costs may be lower.

Disadvantages of Undifferentiated Targeting

Potentially sterile, unimaginative product offerings that have little appeal to anyone; makes the company more susceptible to competition.

Designing Marketing Mixes

Provides marketers with information to help them design marketing mixes specifically matched with the characteristics and desires of one or more segments.

Market density

Refers to the number of people within a unit of land, such as a census tract.

Age segmentation

Refers to the practice of marketers using various terms to categorize different age groups.

Positioning Requirements

Requires assessing the positions occupied by competing products, determining the important dimensions underlying these positions, and choosing a position that will have the greatest impact.

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, lifestyles, and geodemographics.

Reasons for Repositioning

Sometimes products or companies are repositioned to sustain growth in slow markets or to correct positioning mistakes.

Segmentation Descriptors

Specific variables used to identify and define market segments.

Demographics

Statistical data relating to the population and particular groups within it, including age, income, gender, and education.

Marketing Mix

The combination of product, price, place, and promotion strategies used to market a product.

Competitive Frame

The context in which a product is compared to its competitors.

Price Sensitivity

The degree to which the price of a product affects consumers' purchasing behaviors.

Accessibility

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

Usage Rate

The frequency with which consumers use a product.

Primary Target Market

The main group of consumers that a product is aimed at.

Geographic Area

The physical location where consumers reside, which can influence market segmentation.

Position

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

Internal Marketing

The practice of promoting a company's objectives, products, and services to its employees.

Income segmentation

The practice of segmenting markets based on income level, which influences consumers' wants and determines their buying power.

Gender segmentation

The practice of targeting consumers based on gender, where women drive 70 to 80 percent of purchases of consumer goods each year.

Dynamic Segmentation

The process of adjusting market segments based on changing consumer behaviors and needs.

Target Market Selection

The process of deciding which market segments to focus on for marketing efforts.

Market Segmentation

The process of dividing a market into distinct subsets of consumers with common needs or characteristics.

Benefit Segmentation

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

Segment Profile

The profile should include the segments' size, expected growth, purchase frequency, current brand usage, brand loyalty, and long-term sales and profit potential.

Benefits Sought

The specific advantages or value that customers look for in a product.

Positioning

The strategy of defining how a product is perceived in the minds of consumers relative to competing products.

Psychographics

The study of consumers based on their lifestyles, values, goals, interests, attitudes, and opinions.

Lifestyles

The way people spend their time, the importance of the things around them, their beliefs, and socioeconomic characteristics.

Ethnic Segmentation

To meet the needs and wants of expanding ethnic populations, some companies make products geared toward specific ethnic groups.

Psychographic Variables

Variables that include personality, motives, lifestyles, and geodemographics.