CHAPTER
IDENTIFYING
MARKET
SEGMENTS
AND TARGETS
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-1
AFTER READING THIS CHAPTER
YOU SHOULD BE ABLE TO:
1. Explain what market segmentation is
and when to use it.
2. Identify the five steps involved in
segmenting and targeting markets.
3. Recognize the different factors used to
segment consumer and organizational
markets.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-2
AFTER READING THIS CHAPTER
YOU SHOULD BE ABLE TO:
4. Know how to develop a market-product
grid to identify a target market and
recommend resulting actions.
5. Explain how marketing managers
position products in the marketplace.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-3
SNEAKERS MARKETING WARS: JAY-Z,
YAO MING, AND A “SWOOSHLESS”
NIKE LINE FOR WAL-MART
• How Do You
Stand Out on
“Sneaker Walls”?
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-4
SNEAKERS MARKETING WARS: JAY-Z,
YAO MING, AND A “SWOOSHLESS”
NIKE LINE FOR WAL-MART
• New Segments
and Strategies
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-5
SNEAKERS MARKETING WARS: JAY-Z,
YAO MING, AND A “SWOOSHLESS”
NIKE LINE FOR WAL-MART
• Competitive Trends
 Age Segments
 Gender Segments
 Price Segments
 Sport Segments
 Lifestyle Segments
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-6
WHY SEGMENT MARKETS?
• What Market Segmentation Means
 Market Segmentation
 Market Segments
 Product Differentiation
 Segmentation: Linking Needs to Actions
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-7
FIGURE 9-1 Market segmentation—linking
market needs to an organization’s marketing
program
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Slide 9-8
WHY SEGMENT MARKETS?
• What Market Segmentation Means
 How Reebok’s Segmentation Strategy
Developed
 Using Market-Product Grids
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Slide 9-9
FIGURE 9-2 Market-product grid showing
how different Reebok shoes reach segments
of customers with different needs
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-10
WHY SEGMENT MARKETS?
• When to Segment Markets
 Examples of Successful Market Segmentation
• Customer Relationship Management (CRM)
• Mass Customization
• Build-to-Order (BTO)
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-11
Street & Smith’s Baseball
What product/market segmentation strategy?
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Slide 9-12
Harry Potter
What product/market segmentation strategy?
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Slide 9-13
WHY SEGMENT MARKETS?
• When to Segment Markets
 The Segmentation Trade-Off:
CRM versus Synergy
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Slide 9-14
Ann Taylor & Ann Taylor Loft
What is the danger of a two-segment strategy?
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-15
Concept Check
1. Market segmentation involves
aggregating prospective buyers into
groups that have two key
characteristics. What are they?
A: The groups should (1) have common
needs and (2) respond similarly to a
marketing action.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-16
Concept Check
2. When should a firm segment its
markets?
A: A firm goes to the trouble and
expense of segmenting its markets
when this will increase its sales,
profit, and return on investment.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-17
FIGURE 9-3 The five key steps in
segmenting and targeting markets link
market needs of customers to the
organization’s marketing program
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-18
STEPS IN SEGMENTING AND
TARGETING MARKETS
• Step 1: Group Potential Buyers into
Segments
 Criteria to Use in Forming the Segments
• Potential for Increased Profit
• Similarity of Needs of Buyers within a Segment
• Difference of Needs of Buyers Among Segments
• Potential of a Marketing Action to Reach a Segment
• Simplicity and Cost of Assigning Buyers to Segments
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-19
STEPS IN SEGMENTING AND
TARGETING MARKETS
• Step 1: Group Potential Buyers into
Segments
 Ways to Segment Consumer Markets
• Customer Characteristics
 Geographic: Region
 Demographic: Household
 Psychographic: Lifestyle
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-20
STEPS IN SEGMENTING AND
TARGETING MARKETS
• Step 1: Group Potential Buyers into
Segments
 Ways to Segment Consumer Markets
• Buying Situations
 Benefits Sought: Product Features
 Usage/Patronage: Usage Rate
• Frequency Marketing
• 80/20 Rule
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-21
FIGURE 9-B Segmentation variables and
breakdowns for U.S. consumer markets
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Slide 9-22
Mac-Gray MicroFridge
What benefits sought and
what consumer market segments targeted?
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Slide 9-23
FIGURE 9-C Patronage of fast-food
restaurants by adults 18 years and older:
Simmons Market Research Bureau
NCS/NHCS Spring 2004 Adult Full-Year
Choices System Crosstabulation Report
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-24
FIGURE 9-4 Comparison of various kinds
of users and nonusers for Wendy’s,
Burger King, and McDonald’s fast-food
restaurants
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-25
STEPS IN SEGMENTING AND
TARGETING MARKETS
• Step 1: Group Potential Buyers into
Segments
 Variables to use in Forming Segments
• Students in Dorms
• Faculty/Staff
• Students in Apartments
• People Living in Area
• Day Commuters
• People Working in Area
• Night Commuters
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-26
STEPS IN SEGMENTING AND
TARGETING MARKETS
• Step 1: Group Potential Buyers into
Segments
 Ways to Segment Organizational Markets
• Customer Characteristics
 Geographic: Statistical Area
 Demographic: NAICS Code
 Demographic: Number of Employees
 Benefits Sought: Product Features
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-27
FIGURE 9-D Segmentation variables and
breakdowns for U.S. organizational markets
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Slide 9-28
Xerox WorkCenter C2424
What variables are used to
segment organizational markets?
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Slide 9-29
Concept Check
1. The process of segmenting and
targeting markets is a bridge between
what two marketing activities?
A: identifying market needs and taking
marketing actions
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-30
Concept Check
2. What are two main ways to segment
consumer and organizational
markets?
A: customer characteristics and buying
situations
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-31
STEPS IN SEGMENTING AND
TARGETING MARKETS
• Step 2: Group Products to be Sold
into Categories
• Step 3: Develop a Market-Product Grid
and Estimate Size of Markets
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-32
FIGURE 9-5 Selecting a target market for
your Wendy’s fast-food restaurant next to an
urban university (target market is shaded)
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-33
STEPS IN SEGMENTING AND
TARGETING MARKETS
• Step 4: Select Target Markets
 Criteria to Use in Picking the Target Segments
• Market Size
• Cost of Reaching Segment
• Compatibility with the
Organization’s Objectives
• Competitive Position
and Resources
• Expected Growth
 Choose the Segments
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-34
STEPS IN SEGMENTING AND
TARGETING MARKETS
• Step 5: Take Marketing Actions to Reach
Target Markets
 Your Wendy’s Segmentation Strategy
• Day Commuters
• Between-Meal Snacks
• Dinner to Night Students
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Slide 9-35
Wendy’s
How can Wendy’s target different market
segments with different advertising programs?
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Slide 9-36
FIGURE 9-6 Advertising actions to reach
specific student segments
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Slide 9-37
STEPS IN SEGMENTING AND
TARGETING MARKETS
• Step 5: Take Marketing Actions to Reach
Target Markets
 Apple’s Ever-Changing Segmentation
Strategy
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-38
Apple Computer (1977–Today)
How have Apple’s product lines and market
segmentation strategies changed?
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-39
STEPS IN SEGMENTING AND
TARGETING MARKETS
• Market-Product Synergies: A Balancing
Act
 Marketing Synergies
 Product Synergies
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-40
FIGURE 9-E Benefits (+) and drawbacks (-)
of a firm’s market-product strategies
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Slide 9-41
Concept Check
1. What are some criteria used to decide
which segments to choose for
targets?
A: These criteria include market size,
expected growth, competitive position,
cost of reaching the segment, and
compatibility with the organization’s
objectives and resources.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-42
Concept Check
2. In a market-product grid, what factor
is estimated or measured for each of
the cells?
A: Each cell in the grid can show the
estimated market size of a given
product sold to a specific market
segment.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-43
Concept Check
3. What is the difference between marketing
synergies and product synergies in a
market-product grid?
A: Marketing synergies run horizontally across a
market-product grid. Each row represents an
opportunity for efficiency in the marketing
efforts to a market segment. Product synergies
run vertically down the market-product grid.
Each column represents an opportunity for
efficiency in research and development (R&D)
and production.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-44
POSITIONING THE PRODUCT
• Product Positioning Using Perceptual
Maps
 Identify Important Attributes for a
Product Class
 Judgments of Existing Brands on These
Important Attributes
 Ratings of an “Ideal” Brand’s Attributes
 Perceptual Map
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-45
Chocolate Milk
How can dairies put more “zip” into sales?
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Slide 9-46
FIGURE 9-7 Your challenge as a marketing
manager: Try to position chocolate milk to
make it more appealing to adults
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-47
POSITIONING THE PRODUCT
• Product Positioning Using Perceptual
Maps
 Positioning Chocolate Milk for Adults
• Finding a New Position for Chocolate Milk
in the Minds of Adults: Nutrition
• Packaging “Adult” Chocolate Milk
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-48
FIGURE 9-8 A perceptual map to suggest a
strategy for positioning chocolate milk to
reach adults
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-49
Concept Check
1. What is product positioning?
A: Product positioning refers to the
place an offering occupies in
consumers’ minds on important
attributes relative to competitive
offerings.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-50
Concept Check
2. Why do marketers use perceptual
maps in product positioning
decisions?
A: 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.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-51
GOING ONLINE
APPLE’S LATEST
MARKET-PRODUCT
STRATEGIES
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Slide 9-52
Going Online
1. Access the Apple History website.
Identify the new and remaining
markets Apple has targeted with new
and existing products compared to
those described in the text and the
Marketing NewsNet.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-53
Going Online
2. Can Apple survive as a niche PC
marketer like BMW has with autos?
Why or why not?
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-54
VIDEO CASE 9
NOKIA: A PHONE
FOR EVERY SEGMENT
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Slide 9-55
VIDEO CASE 9
Nokia
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Slide 9-56
VIDEO CASE 9
Nokia
1. Why has segmentation been a
successful marketing strategy for
Nokia?
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-57
VIDEO CASE 9
Nokia
2. What customer characteristics were
used by mobile phone marketers
during the industry’s early stages of
growth? Which customer
characteristics and segmentation
variables does Nokia use?
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-58
VIDEO CASE 9
Nokia
3. Create a market-product grid for
Nokia today. What potential new
markets could you add to the grid?
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-59
SUPPLEMENTAL
LECTURE NOTE 9-1
MARKET SEGMENTATION IN
PRACTICE: WHAT KIND OF
PILLOW DO YOU NEED?
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-60
FIGURE 9-A Market-product grid showing
the size of markets for pillows for three
different segments of sleepers
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Slide 9-61
SUPPLEMENTAL
LECTURE NOTE 9-2
MARKET-PRODUCT
SYNERGIES
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Slide 9-62
FIGURE 9-F Market-product grid of
alternative strategies for a lawnmower
manufacturer
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Slide 9-63
IN-CLASS ACTIVITY 9-1
INTERPRETING CENSUS DATA
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Slide 9-64
U.S. Census 2000 Promotional Video
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Slide 9-65
Census 2000 Short Form
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Slide 9-66
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Slide 9-67
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Slide 9-68
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American Community Survey Video
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Slide 9-70
American Community Survey Form
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Slide 9-71
IN-CLASS ACTIVITY 9-2
PRODUCT CATEGORIZATION
TO IDENTIFY
PRODCUT GROUPS
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Slide 9-72
IN-CLASS ACTIVITY 9-3
PRODUCT POSITIONING FOR
CONSUMERS AND RETAILERS
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Slide 9-73
3M Post-it® Notes TV ad
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Slide 9-74
3M Post-it® Flag Highlighter Invention
+ =
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Slide 9-75
3M Post-it® Flag Highlighter
Colors and Packages
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Slide 9-76
3M Post-it® Flag Highlighter
Front and Back of Package
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Slide 9-77
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Slide 9-78
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Slide 9-79
Market Segmentation
Market segmentation involves
aggregating prospective buyers into
groups that (1) have common needs and
(2) will respond similarly to a marketing
action.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-80
Market Segments
Market segments are the relatively
homogeneous groups of prospective
buyers that result from the market
segmentation process.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-81
Product Differentiation
Product differentiation is a strategy that
involves a firm’s using different
marketing mix activities to help
consumers perceive the product as being
different and better than competing
products.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-82
Market-Product Grid
A market-product grid is a framework
to relate the market segments of potential
buyers to products offered or potential
marketing actions by the firm.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-83
Synergy
Synergy is the increased customer value
achieved through performing
organizational functions more efficiently.
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Slide 9-84
Usage Rate
Usage rate is the quantity consumed or
patronage (store visits) during a specific
period of time.
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Slide 9-85
80/20 Rule
The 80/20 rule is a concept that suggests
80 percent of a firm’s sales are obtained
from 20 percent of its customers.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-86
Product Positioning
Product positioning refers to the place
an offering occupies in consumers’ minds
on important attributes relative to
competitive products.
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Slide 9-87
Perceptual Map
A perceptual map is a means of
displaying or graphing in two dimensions
the location of products or brands in the
minds of consumers to enable a manager
to see how consumers perceive competing
products or brands relative to its own and
then take marketing actions.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Slide 9-88