Lamb, Hair, McDaniel
MKTG2007-2008
7
CHAPTER
Segmenting and
Targeting Markets
Designed by
Amy McGuire, B-books, Ltd.
Chapter 7
Prepared by
Deborah Baker, Texas Christian University
Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved
1
Learning Outcomes
LO1
Describe the characteristics of
markets and market segments
LO2
Explain the importance of market segmentation
LO3
Discuss criteria for successful market
segmentation
LO4
Describe the bases commonly used to segment
consumer markets
LO5
Describe the bases for segmenting business
markets
Chapter 7
Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved
2
Learning Outcomes
LO6
List the steps involved in segmenting markets
LO7
Discuss alternative strategies for selecting
target markets
LO8
Explain one-to-one marketing
LO9
Explain how and why firms implement
positioning strategies and how product
differentiation plays a role
Chapter 7
Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved
3
LO1
Market Segmentation
Describe the
characteristics
of markets and
market segments
Chapter 7
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4
A Market Is...
1) people or organizations with
2) needs or wants, and with
3) the ability and
4) the willingness to buy.
A group of people that lacks any one of these
characteristics is not a market.
LO1
Chapter 7
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5
Market Segmentation
Targeting “everyone” is:
•Expensive
•Wasteful
•Nearly impossible
Teenagers
A more sensible approach:
•Identify smaller segments
who are most likely to
consider your brand
(segmentation) and target
them with specifically
designed MC messages
Chapter 7
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6
7-6
Market Segmentation
Market
Market
Segment
People or organizations with needs or wants
and the ability and willingness to buy.
A subgroup of people or organizations sharing
one or more characteristics that cause them to
have similar product needs.
The process of dividing a market into
Market
meaningful, relatively similar, identifiable
Segmentation segments or groups.
LO1
Chapter 7
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7
The Market Segmentation Process
Market Segmentation
1. Identify people with
shared needs and
characteristics
Chapter 7
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8
The Market Segmentation Process
Market
Segmentation
1. Identify people with
shared needs and
characteristics
2. Aggregate these
groups into market
segments according to
their mutual interest in the
product’s utility
Chapter 7
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9
7-9
The Concept of Market
Segmentation
LO1
Chapter 7
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10
LO2
The Importance of Market
Segmentation
Explain the
importance
of market
segmentation
Chapter 7
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11
The Importance of
Market Segmentation
 Markets have a variety of
product needs and preferences
 Marketers can better
define customer needs
 Decision makers can define
objectives and allocate
resources more accurately
LO2
Chapter 7
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12
LO2 REVIEW LEARNING OUTCOME
The Importance of Market
Segmentation
Market
segmentation
More precise
definition of
customers needs
and wants
More accurate
marketing
objectives
Improved
resource
allocation
Better marketing
results
Chapter 7
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13
LO3
Criteria for Successful
Segmentation
Discuss criteria for
successful market
segmentation
Chapter 7
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14
Criteria for Segmentation
Substantiality
Segment must be large enough to
warrant a special marketing mix.
Identifiability
and Measurability
Segments must be identifiable and
their size measurable.
Accessibility
Members of targeted segments must
be reachable with marketing mix.
Responsiveness
Unless segment responds to a
marketing mix differently, no separate
treatment is needed.
LO3
Chapter 7
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15
LO3 REVIEW LEARNING OUTCOME
Successful Market Segmentation
Useful
segment?




Substantial
Identifiable and measurable
Accessible
Responsive
Then, yes: Useful segmentation scheme
Chapter 7
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16
LO4
Bases for Segmenting
Consumer Markets
Describe the bases
commonly used
to segment
consumer markets
Chapter 7
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17
Bases for Segmenting
Consumer Markets
Segmentation
Bases
Characteristics of individuals,
groups, or organizations used
to divide a total market into
segments. (variables)
LO4
Chapter 7
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18
LO4 Bases for Segmentation
Geography
Demographics
Psychographics
Benefits Sought
Usage Rate
Chapter 7
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19
Geographic Segmentation
 Region of the country or world
 Market size
 Market density
 Climate
LO4
Chapter 7
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20
Geography - Community
Chapter 7
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21 7-21
Geography- Climate
Chapter 7
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22 7-22
Geography - Region
Chapter 7
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23
Benefits of
Regional Segmentation




New ways to generate sales in sluggish and
competitive markets
Scanner data allow assessment of best selling
brands in region
Regional brands appeal to
local preferences
Quicker reaction to
competition
LO4
Chapter 7
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24
Demographic Segmentation
Age
Gender
Income
Ethnic background
LO4
Chapter 7
Family life cycle
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25
Gender
Chapter 7
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26 7-26
Demographic segmentation: Heavy usage patterns of
various age groups
Chapter 7
McGraw-Hill/Irwin
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27 7-27
Ethnic Segmentation
 Largest ethnic markets are:
 Hispanic Americans
 African Americans
 Asian Americans
 Will comprise 1/3 of U.S. population by
2010
with buying power of $1 trillion annually
LO4
Chapter 7
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28
Products target Hispanics
Chapter 7
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29 7-29
Family Life Cycle
Age
Marital
Status
Children
LO4
Chapter 7
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30
Family Life Cycle
LO4
Chapter 7
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31
Psychographic Segmentation
Psychographic
Segmentation
Market segmentation on the basis
of personality, motives, lifestyles,
and geodemographics.
LO4
Chapter 7
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32
Bases for Psychographic
Segmentation
Personality
Motives
Lifestyles
Geodemographics
LO4
http://www.marthastewart.com http://www.goodhousekeeping.com
Online
Chapter 7
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33
Lifestyle Segmentation




How time is spent
Importance of things around them
Beliefs
Socioeconomic
characteristics
LO4
Chapter 7
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34
Psychographic Segmentation
Values and
Lifestyles
Typology
(VALS)
http://www.sric-bi.com/VALS/
Chapter 7
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35
Biz Flix
LO4
Chapter 7
The Breakfast
Club
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36
Geodemographic Segmentation
Geodemographic
Segmentation
Segmenting potential customers into
neighborhood lifestyle categories.
LO4
Chapter 7
Combines geographic, demographic,
and lifestyle segmentation.
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37
PRIZM
• PRIZM (Potential Rating Index by Zip Market):
– Classifies every U.S. Zip Code into one of 62 categories
– Rankings in terms of income, home value, and
occupation on a ZQ (Zip Quality) Scale
– Categories range from most affluent “Blue-Blood
Estates” to the least well-off “Public Assistance”
– Different clusters exhibit different consumption
patterns
Prizm
Chapter 7
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38
PRIZM Clusters
Young Digerati are the nation's
tech-savvy singles and couples
living in fashionable
neighborhoods on the urban
fringe. Affluent, highly educated
and ethnically mixed, Young
Digerati communities are
typically filled with trendy
apartments and condos, fitness
clubs, clothing boutiques,
casual restaurants and all types
of bars—from juice to coffee to
microbrew.
Chapter 7
The steady rise of older,
healthier Americans over the
past decade has produced
one important by-product:
middle-class, home-owning
suburbanites who are aging in
place rather than moving to
retirement communities. Gray
Power reflects this trend, a
segment of older, midscale
singles and couples who live
in quiet comfort.
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39
PRIZM Clusters
01 Upper Crust
15 Pools & Patios
29 American Dreams
43 Heartlanders
57 Old Milltowns
02 Blue Blood Estates
16 Bohemian Mix
30 Suburban Sprawl
44 New Beginnings
03 Movers & Shakers
17 Beltway Boomers
31 Urban Achievers
45 Blue Highways
58 Back Country
Folks
59 Urban Elders
18 Kids & Cul-de-Sacs
32 New
Homesteaders
46 Old Glories
04 Young Digerati
05 Country Squires
19 Home Sweet Home
06 Winner's Circle
20 Fast-Track Families
07 Money & Brains
21 Gray Power
08 Executive Suites
22 Young Influentials
50 Kid Country,
35 Boomtown Singles USA
23 Greenbelt Sports
36 Blue-Chip Blues
24 Up-and-Comers
37 Mayberry-ville
09 Big Fish, Small Pond
10 Second City Elite
25 Country Casuals
11 God's Country
26 The Cosmopolitans
12 Brite Lites, Li'l City
27 Middleburg Managers
13 Upward Bound
33 Big Sky Families
34 White Picket
Fences
38 Simple Pleasures
39 Domestic Duos
40 Close-In Couples
41 Sunset City Blues
28 Traditional Times
14 New Empty Nests
Chapter 7
42 Red, White &
Blues
47 City Startups
48 Young & Rustic
60 Park Bench
Seniors
49 American
Classics
61 City Roots
51 Shotguns &
Pickups
52 Suburban
Pioneers
62 Hometown
Retired
63 Family Thrifts
64 Bedrock
America
53 Mobility Blues
54 Multi-Culti
Mosaic
55 Golden Ponds
56 Crossroads
Villagers
Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved
65 Big City Blues
66 Low-Rise
Living
67 Unclassified
40
PRIZM
• Branchburg, NJ 08876's most common
PRIZM NE Segments are:
• Boomtown Singles
• Country Squires
• God’s Country
• Middleberg Managers
• Up–and-Comers
http://www.claritas.com/MyBestSegments/Default.jsp?I
D=30&SubID=&pageName=Segment%2BLook-up
Chapter 7
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41
A Comparison of Two PRIZM Clusters
Chapter 7
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42
Benefit Segmentation
Benefit
Segmentation
The process of grouping customers
into market segments according to the
benefits they seek from the product.
LO4
Chapter 7
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43
Benefit Segmentation
Usage-Rate
Segmentation
Dividing a market by the amount
of product bought or consumed.
80/20
Principle
A principle holding that 20
percent of all customers generate
80 percent of the demand.
LO4
Chapter 7
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44
Beyond the Book
LO4 Example of Usage-Rate
Chapter 7
 Verizon, Sprint Nextel and others allow consumers
with standard contracts to access the Internet via
cellular high-speed services.
 Some customers’ service is being cancelled because
they are using excessive network capacity.
 Sprint and Cingular Wireless
charge based on usage: the
amount of data bits they
wirelessly transfer each
month.
SOURCE: Amol Sharma and Dionne Searcey, “Cell
Carriers to Web Customers: Use Us, but Not too Much,”
Wall Street Journal, May 11, 2006, B1.
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45
Example of Benefit
Tropicana
Essentials targets
consumers who
want extra
vitamins and no
sodium
Chapter 7
7-46
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46
LO4 REVIEW LEARNING OUTCOME
Bases for Segmenting
Consumer Markets
Geography
• Region
• Market size
• Market
density
• Climate
Chapter 7
Demographics
•
•
•
•
•
Age
Gender
Income
Race/ethnicity
Family life
cycle
Psychographics
•
•
•
•
Personality
Motives
Lifestyle
Geodemographics
Benefits
• Benefits
sought
Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved
Usage Rate
•
•
•
•
Former
Potential
1st time
Light or
irregular
• Medium
• Heavy
47
LO5
Bases for Segmenting
Business Markets
Describe the bases
for segmenting
business markets
Chapter 7
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48
LO5
Bases for Segmenting
Business Markets
Producers
Resellers
Government
Institutions
Company
Characteristics
Chapter 7
Buying
Processes
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49
LO5
Bases for Segmenting
Business Markets
Company Characteristics
 Geographic location
 Type of company
 Company size
 Volume of purchase
 Product use
Chapter 7
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50
LO5 Buyer Characteristics
Chapter 7
Satisficers
Business customers who place an order
with the first familiar supplier to satisfy
product and delivery requirements.
Optimizers
Business customers who consider
numerous suppliers, both familiar and
unfamiliar, solicit bids, and study all
proposals carefully before selecting one.
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51
LO5 Buyer Characteristics
Demographic characteristics
Decision style
Tolerance for risk
Confidence level
Job responsibilities
Chapter 7
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52
LO5 REVIEW LEARNING OUTCOME
Segmenting Business Markets
Company Characteristics
Producers
Resellers
Governments Institutions
Buying Process
Chapter 7
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53
LO6
Steps in Segmenting
a Market
List the steps
involved in
segmenting markets
Chapter 7
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54
LO6 REVIEW LEARNING OUTCOME
Steps in Segmenting Markets
Select
a market
for
study
Chapter 7
Choose
bases
for
segmentation
Select
descriptors
Profile
and
analyze
segments
Select
target
markets
Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved
Design,
implement,
maintain
marketing
mix
55
LO7
Strategies for Selecting
Target Markets
Discuss alternative
strategies for
selecting target
markets
Chapter 7
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56
LO7
Strategies for Selecting
Target Markets
Target
Market
Chapter 7
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.
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57
LO7
Strategies for Selecting
Target Markets
Undifferentiated
Strategy
Chapter 7
Concentrated
Strategy
Multisegment
Strategy
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58
Undifferentiated
Targeting Strategy
Undifferentiated
Targeting
Strategy
A marketing approach that
views the market as one big
market with no individual
segments and thus
requires a single
marketing mix.
LO7
Chapter 7
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59
Undifferentiated
Targeting Strategy
Advantage:
 Potential savings on production
and marketing costs
Disadvantages:
 Unimaginative product offerings
Undifferentiated
Strategy
 Company more susceptible to
competition
LO7
Chapter 7
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60
Concentrated
Targeting Strategy
Concentrated
Targeting Strategy
A strategy used to select one
segment of a market for
targeting marketing efforts.
Niche
One segment of a
market.
LO7
Chapter 7
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61
Concentrated
Targeting Strategy
Advantage:




Concentration of resources
Meets narrowly defined segment
Small firms can compete
Strong positioning
Disadvantages:
Concentrated
7 Strategy
LO
Chapter 7
 Segments too small, or changing
 Large competitors may
market to niche segment
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62
Multisegment
Targeting Strategy
Multisegment
Targeting
Strategy
A strategy that chooses two or
more well-defined market
segments and develops a
distinct marketing
mix for each.
LO7
Chapter 7
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63
Multisegment
Targeting Strategy
Advantage:
 Greater financial success
 Economies of scale
Disadvantages:
 High costs
Multisegment
Strategy
 Cannibalization
LO7
Chapter 7
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64
Costs of
Multisegment Targeting
LO7
Chapter 7

Product design costs

Production costs

Promotion costs

Inventory costs

Marketing research costs

Management costs

Cannibalization
Multisegment
Strategy
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65
Cannibalization
Cannibalization
Situation that occurs when
sales of a new product cut into
sales of a firm’s existing
products.
LO7
Chapter 7
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66
LO7 REVIEW LEARNING OUTCOME
Alternatives for Selecting Target Markets
Undifferentiated
Chapter 7
Multisegment
Concentrated
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67
Approaches to
Targeting Markets
CONCENTRATED
Curves for Women, Gold’s Gym,
American Assoc. for Retired Persons)
UNDIFERENTIATED
(MASS MARKETING)
Wal-Mart
A
M
B
Market Strategy
DIFFERENTIATED
(Happy Meal, Big Mac, Chicken Salad)
Strategy A
C
CUSTOMIZED (1-to-1) MARKETING
(Personal Amenities for Ritz-Carlton
Loyals, BK Whopper, Custom Cars)
A
A
Strategy A
Strategy B
Strategy C
Chapter 7
B
B
Strategy B
C
Strategy C
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C
68
LO8
One-to-One Marketing
Explain one-to-one
marketing
Chapter 7
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69
One-to-One Marketing
One-to-One
Marketing
An individualized marketing
method that utilizes customer
information to build long-term,
personalized, and profitable
relationships with each customer.
LO8
Chapter 7
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70
One-to-One Marketing
One-to-One
Marketing is...
Has a Goal of…
Individualized
Cost Reduction
Information-Intensive
Customer Retention
Long-Term
Increased Revenue
Personalized
Customer Loyalty
LO8
Chapter 7
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71
One-to-One Marketing
Trends
One-size-fits all marketing no longer effective
Direct and personal marketing will grow to meet
needs of busy consumers.
Consumers will be loyal to companies that have
earned—and reinforced—their loyalty.
Mass-media approaches will decline as
technology allows better customer tracking.
LO8
Chapter 7
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72
LO8 REVIEW LEARNING OUTCOME
One-to-One Marketing
Chapter 7
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73
Custom Beauty Solutions
Chapter 7
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74
LO9
Positioning
Explain how and why
firms implement
positioning strategies
and how product
differentiation
plays a role
Chapter 7
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75
Positioning
Developing a specific
marketing mix to
influence potential
customers’ overall
perception of a brand,
product line, or
organization in
general.
LO9
Chapter 7
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76
LO9
Positioning of
Procter & Gamble
Detergents
Brand
Positioning
Market
Share
Tide
Tough, powerful cleaning
Cheer
Tough cleaning, color protection
8.2%
Bold
Detergent plus fabric softener
2.9%
Gain
Sunshine scent and odor-removing formula
2.6%
Era
Stain treatment and stain removal
2.2%
Dash
Value brand
1.8%
Oxydol
Bleach-boosted formula, whitening
1.4%
Solo
Detergent and fabric softener in liquid form
1.2%
Dreft
Outstanding cleaning for baby clothes, safe
1.0%
9
Ivory Snow
Fabric & skin safety on baby clothes
0.7%
Ariel
Tough cleaner, aimed at Hispanic market
0.1%
LO
Chapter 7
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31.1%
77
Effective
Positioning
1. Assess the positions occupied by
competing products
2. Determine the dimensions
underlying these positions
LO9
Chapter 7
3. Choose a market position where
marketing efforts will have the
greatest impact
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78
Product
Differentiation
A positioning strategy that
some firms use to distinguish
their products from those of
competitors.
Distinctions can be
real or perceived.
LO9
Chapter 7
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79
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.
LO9
Chapter 7
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80
Perceptual Map
7-817
Chapter
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81
Positioning
Bases
Attribute
Price and Quality
Use or Application
Product User
Product Class
Competitor
LO9
Chapter 7
Emotion
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82
Repositioning
Changing consumers’
perceptions of a brand in
relation to competing brands.
LO9
Chapter 7
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83
LO9 REVIEW LEARNING OUTCOME
Positioning and Product Differentiation
Chapter 7
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84