Chapter 8
Identifying Market
Segments and Targets
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Copyright © 2003 Prentice-Hall, Inc.
Key points for Chapter 8
1. Mass marketing
2. Micromarketing
 Segmentation marketing
 Niche marketing
3. Demographic segmentation
4. Psychographic segmentation
5. Behavioral Variables
 Benefits
 Loyalty Status
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Copyright © 2003 Prentice-Hall, Inc.
Key points for Chapter 8
6. Steps in Segmentation process
7. Effective segmentation criteria
8. Evaluating and selecting market segments
9. Differentiated marketing costs
10. Ethical choice of market targets
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Levels of Market Segmentation
 Mass Marketing
 Mass production, mass distribution, mass promotion
 Segment Marketing
 Differentiated marketing
 Niche Marketing
 Concentrated marketing
 Local Marketing
 Local customer groups
 Individual Marketing
 Customization
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Segment Marketing
 Market segment
 A group of customers who share a similar set of
needs and wants
 Flexible market offering
 Not everyone wants exactly the same thing
 Naked solution
 Basic product & service elements only
 Discretionary options
 Extra product & service elements for an
additional charge
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Niche Marketing
 Niche: a more narrowly defined group seeking
distinct mix of benefits
 Marketers identify niches by dividing a
segment into subsegments
 Characteristics of a Niche
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Customers have a distinct set of needs and wants
Customers are willing to pay a premium
Niche is not likely to attract major competitors
Nicher gains economies through specialization
Niche has size, profit, and growth potential
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Niche Marketing
 Samples of successful global niches. Hidden
Champions
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Tetra Food: 80% of feeds for tropical fish market
Hohner: 85% of world harmonica market
Becher: 50% of world oversized umbrella market
Steiner Optical: 80% of world’ military field glasses
market
 Internet niches:
 Choose a hard-to-find product that customers do
not need to see and touch
 www.ostrichonline.com: Over 20,000 clients in over
125 countries
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Local Marketing
 Targeting the needs and wants of local
customer groups.
 Local marketing is also called grassroots
marketing concentrated on getting as close and
personally relevant to local customers as
possible.
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Individual Marketing
 Tailoring products and marketing programs to the
needs and preferences of the individual customers;
One-to-one marketing, Customized marketing
 Mass-customization
 Meeting each customer’s requirement on a mass
basis
 Choiceboard
 Menu of attributes, components, prices, and
delivery options offered by an online seller
 Customerization:
 Customers design a product by selecting their
preferences from the choiceboard
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Bases for Segmenting Consumer
Markets
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Geographic Segmentation
Demographic Segmentation
Psychographic Segmentation
Behavioral Segmentation
Table 8.1 Major Segmentation Variables
for Consumer Markets
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Geographic Segmentation
 Dividing the market into different geographical
units such as
 Nations, Regions, States, Counties, Cities,
Neighborhoods, Census tract (average 4,000
between 1,500 to 8,000 persons)
 Combine geographic data with demographic
data
 Clarita, Inc.’s geoclustering called PRIZM
(Potential Rating Index by Zip Markets)
 Inhabitants in the PRIZM Cluster
 Similar lives, cars, jobs, magazines
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Demographic Segmentation
 Dividing the market into groups on the basis of
variables such as
 Age and Life-Cycle Stage
 Consumers ‘ wants change with age & lifcy-cycle
 Life Stage
 Different life stage like marriage, divorce, second
marriage
 Gender
 Different preferences in clothing, hairstyling,
cosmetics, magazine, etc.
 Women control or influence over 80% of purchases
of consumer goods and services, 75% new homes
and 60% new cars. These numbers challenged.
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Demographic Segmentation
 Gender
 WSJ’s 4/23/11:
 Futures Company on 4,000 American 16 or older
 Women: 37%, primary and 85%, shared
responsibility
 Men: 31%, primary and 84%, shared
responsibility
 Boston Consulting Group’s online survey in 2008
 Women: 73%, Men: 61%
 Living alone households and both can influence
purchasing decisions
 80% by women, not creditable figure. More
researches needed.
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Demographic Segmentation
 Income
 Auto, Boat, clothing, cosmetics, and travel
 Hour-glass shaped market
 Generation
 Differ in music, movies, politics, etc from
different experiences
 Social Class
 Differ in auto, clothing, home furnishing, leisure
activity, reading habit and retailer
 Social classes of the U.S. on p.152
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Psychographic Segmentation
 Dividing buyers into different groups based on
psychological/personality traits, lifestyle or
values
 SRI Consulting Business Intelligence’s
(www.sric-bi.com) VALS™ Segments
 Places U.S. adult consumers into one of eight
segments based on their responses to the VALS
questionnaire
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The VALS Segmentation System: An 8-Part
Typology (Fig. 8.1)
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VALS™ Segments
 Consumer Motivation (the horizontal dimension) and
Consumer Resources (the vertical dimension)
 Motivation
 Motivated by Ideals guided by principles.
 Motivated by Achievement to demonstrate
success to their peers.
 Motivated by Self-Expression for social or
physical activity, variety, and risk.
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VALS™ Segments
 Resources
 Further classified into those with high
resources and low resources
 Innovators: Consumers with very high
resources
 Survivors: Consumers with very low
resources
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VALS™ Segments
Three Groups with High Resources
 Thinkers: Motivated by Ideals
 Achievers: Motivated by Achievement
 Experiencers: Motivated by Self-Expression
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VALS™ Segments
Three Groups with Low Resources
 Believers: Motivated by Ideals
 Strivers: Motivated by Achievement
 Makers: Motivated by Self-Expression
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Behavioral Segmentation
 Dividing buyers into groups based on
buyers’ knowledge of & attitude toward,
use of or response to a product
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Behavioral Variables
 Occasions
 Consumers are divided according to the occasions when
they develop a need for a product, purchase or use a
product
 Expand product usage in other occasions than current
occasions
 Extend gift-giving to other occasions of the year
 Benefits
 Classified according to the benefits they seek from the
product
 Convenience, quality, price, prestige, or quick service
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Behavioral Variables
 User Status
 Segmented according to their user status
 Nonusers, ex-users, potential users, first-time
users, and regular users
 Usage Rate
 Segmented according to their usage rate
 Light users, medium users, and heavy users
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Behavioral Variables
 Loyalty Status
 Devided according to the degree of their loyalty to
specific brands, stores or companies
 Hard-core loyals: Buy one brand all the time
 Split loyals: Loyal to two or three brands
 Shifting loyals: Shift from one brand to another
 Switchers:Show no loyalty to any brand
 By studying
 its hard-core loyals, the firm can identify its
product’s strength
 its split loyals, the firm can pinpoint which brands
are most competitive with its own brand
 its shifting loyals, the firm can learn about its
marketing weaknesses
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Behavioral Variables
 Buyer-Readiness Stage
 Segmented according to their stage of readiness
to buy a product
 Unware of, aware of, informed of , interested
in, or ready to buy the product
 Attitude
 Classified according to their attitude toward a
firm’s product
 Enthusiastic, positive, indifferent, negative, or
hostile
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Targeting Multiple
Segments
 Companies start marketing to one
segment, then expand to others
 Many shoppers are cross-shoppers and
cannot be neatly pigeonholed into one
segment
 Shoppers of luxury goods also shop at
discount stores
8-26
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Market Targeting
 Effective Segmentation Criteria for
Market Targeting
 Evaluating and Selecting the Market
Segments for Market Targeting
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Effective Segmentation Criteria for
Market Targeting
 Measurable
 Size, purchasing power, characteristics of the
segments
 Substantial
 Large and profitable enough to serve
 Accessible
 Can effectively reached and served
 Differentiable
 Distinct and respond differently
 Actionable
 Effective programs can be formulated for attracting
and serving the segments
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Evaluating and Selecting the Market
Segments for Market Targeting
 Evaluating the Market Segments
Segment’s overall attractiveness on size, growth,
profitability, economy of scale, and degree of risk.
Company’s objectives, competences, and resources
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Five Patterns of Target Market
Selection: Fig. 8.4
 Single-Segment Concentration
 Concentrating on one segment
 Strong knowledge of segment’s needs and operating
economies
 High risks
 Selective Specialization
 Specializing in a number of segments
 Has the advantage of diversifying the firm’s risks
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Five Patterns of Target Market
Selection: Fig. 8.4
 Product Specialization
 Specializes in a certain product sold to several
different market segments
 Can build a strong reputation in the specific product
area
 Strong vulnerability
 The product may be supplemented or become
obsolete by an entirely new technology
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Five Patterns of Target Market
Selection: Fig. 8.4
 Market Specialization
 Specializes in serving many needs of a particular
customer group
 Can gain a strong reputation in serving a specific
customer group
 Customer group can downsize or shrink
 Full Market Coverage
 Serve all customer groups with all the products they
might need.
 Only very large firms can do
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Differentiated Marketing Costs
 Differentiated marketing creates more total
sales than undifferentiated marketing, but also
increases the costs
 Product modification cost
 Manufacturing cost
 Administrative cost
 Inventory cost
 Promotion cost
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Additional Considerations for Market
Targeting
 Segment-by-Segment Invasion
 Wise to enter one segment at a time
 Do not reveal to competitors what segments the firm
will move into next.
 Pepsi moved into grocery market, then vending machine
market, then fast food market against Coca-Cola
 Toyota: small cars (Corolla, Corona), midsize cars (Camry,
Avalon), luxury cars (Lexus)
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Figure 8.5: Segment-by-Segment Invasion
Plan of Company C
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Additional Considerations for
Market Targeting
 Ethical Choice of Market Targets
 Unethical targeting: Taking unfair advantage of
vulnerable groups; Children, inter-city poor people
 Sugared breakfast cereals targeted children
 Cool menthol cigarettes targeted black youth 16-25
 Colt 45 malt liquor(beer) with 6.0% alcohol targeted
blacks (Budweiser 5.0%, Bud Light 4.2%)
 McDonald’s happy meals with toy targeted children
 Some good targeting
 Colgate’s Junior Toothpaste designed to get children to
brush longer and more often
 Issue not who is targeted but rather how and for
what
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