McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.
LEARNING OBJECTIVES (LO)
AFTER READING CHAPTER 9, YOU SHOULD BE ABLE TO:
LO1
Explain what market segmentation is
and when to use it.
LO2
Identify the five steps involved in
segmenting and targeting markets.
LO3
Recognize the factors used to segment
consumer and organizational markets.
9-2
LEARNING OBJECTIVES (LO)
AFTER READING CHAPTER 9, YOU SHOULD BE ABLE TO:
LO4
Develop a market-product grid
to identify a target market and
recommend resulting actions.
LO5
Explain how marketing managers
position products in the marketplace.
LO6
Describe three approaches to
developing a sales forecast for
an organization.
9-3
ZAPPOS.COM: “THE SERVICE COMPANY
THAT JUST HAPPENS TO SELL SHOES…”

A Clear Market
Segmentation
Strategy

A Boring,
Lightening-Fast
Home Page

Blue-Ribbon
Customer Service
9-4
LO1
WHY SEGMENT MARKETS?
WHAT MARKET SEGMENTATION MEANS

Market Segmentation

Market Segments

Product Differentiation

Segmentation: Linking Needs to Actions

The Zappos Segmentation Strategy
9-5
FIGURE 9-1 Market segmentation links
market needs to an organization’s marketing
program through marketing mix actions
9-6
LO1
WHY SEGMENT MARKETS?
WHEN AND HOW TO SEGMENT MARKETS

One-Size-Fits-All Mass Markets
No Longer Exist

One Product and
Multiple Market Segments

Multiple Products and
Multiple Market Segments
9-7
LO1
Street & Smith’s Baseball
What market segmentation strategy?
9-8
LO1
Harry Potter
What market segmentation strategy?
9-9
LO1
Ann Taylor and Ann Taylor Loft
What is the danger of a two-segment strategy?
9-10
LO1
WHY SEGMENT MARKETS?
WHEN AND HOW TO SEGMENT MARKETS

Segments of One: Mass Customization
• Customer Relationship Management (CRM)
• Mass Customization
• Build-to-Order (BTO)
9-11
LO1
WHY SEGMENT MARKETS?
WHEN AND HOW TO SEGMENT MARKETS

The Segmentation Tradeoff:
CRM vs. Synergies
• Synergy
• Customer Value
• Cannibalization
9-12
FIGURE 9-2 The five key steps in
segmenting and targeting markets that link
market needs to a firm’s marketing program
9-13
LO3

STEPS IN SEGMENTING AND TARGETING MARKETS
STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS
Criteria to Use in Forming the Segments
• Simplicity and Cost-Effectiveness of Assigning
Potential Buyers to Segments
• Potential for Increased Profit
• Similarity of Needs of Potential Buyers
Within a Segment
• Difference of Needs of Buyers Among Segments
• Potential of a Marketing Action to Reach
a Segment
9-14
FIGURE 9-3 Segmentation bases, variables,
and breakdowns for U.S. consumer markets
9-15
LO3
STEPS IN SEGMENTING AND TARGETING MARKETS

STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS
Ways to Segment Consumer Markets
• Geographic Segmentation
9-16
LO3
STEPS IN SEGMENTING AND TARGETING MARKETS

STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS
Ways to Segment Consumer Markets
• Demographic Segmentation
9-17
LO3
STEPS IN SEGMENTING AND TARGETING MARKETS

STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS
Ways to Segment Consumer Markets
• Psychographic Segmentation
9-18
LO3
STEPS IN SEGMENTING AND TARGETING MARKETS

STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS
Ways to Segment Consumer Markets
• Behavioral Segmentation
 Product Features
 Usage Rate or Frequency Marketing
 80/20 Rule
9-19
FIGURE 9-4 Patronage of fast-food
restaurants by adults 18 years and older
Source: Simmons Market Research Bureau, NCS/NHCS Spring 2007 Adult Full Year Choice Systems
Crosstabulation Report: Visits within the Past 30 Days
9-20
FIGURE 9-5 Comparison of various kinds of
users and nonusers for Wendy’s, Burger
King, and McDonald’s fast-food restaurants
Source: Simmons Market Research Bureau, NCS/NHCS Spring 2007 Adult Full Year Choice Systems
Crosstabulation Report: Visits within the Past 30 Days
9-21
LO3

STEPS IN SEGMENTING AND TARGETING MARKETS
STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS
Behavioral Variables to Use
in Forming Segments
• Students
 Dorms, Sororities,
& Fraternities
 Day Commuters
 Apartments
 Night Commuters
• Nonstudents
 Faculty & Staff
 Workers in Area
 Residents in Area
9-22
FIGURE 9-6 Segmentation bases, variables,
and breakdowns for U.S. organizational
markets
9-23
LO3
STEPS IN SEGMENTING AND TARGETING MARKETS

STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS
Ways to Segment
Organizational Markets
• Geographic Segmentation
 Statistical Areas
9-24
LO3
STEPS IN SEGMENTING AND TARGETING MARKETS

STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS
Ways to Segment
Organizational Markets
• Demographic Segmentation
 NAICS Code/Number of Employees
9-25
LO3
STEPS IN SEGMENTING AND TARGETING MARKETS

STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS
Ways to Segment
Organizational Markets
• Behavioral Segmentation
 Usage Rate
9-26
LO3
STEPS IN SEGMENTING AND TARGETING MARKETS
STEP 2: GROUP PRODUCTS INTO CATEGORIES

Individual Wendy’s Products

Groupings of Wendy’s Products: Meals
• Breakfast
• Dinner
• Lunch
• After
Dinner
Snack
• Between
Meal Snack
9-27
FIGURE 9-7 Wendy’s new products and
innovations target specific market segments
based on a customer’s gender, needs, or
university affiliation
9-28
STEPS IN SEGMENTING AND TARGETING MARKETS
LO4

STEP 3: DEVELOP A MARKET-PRODUCT GRID AND
ESTIMATE THE SIZE OF MARKETS
Market-Product Grid
• Forming a Market-Product Grid
• Estimating Market Sizes
9-29
FIGURE 9-8 Selecting a target market for
your Wendy’s fast-food restaurant next to an
urban university (target market is shaded)
9-30
LO4
STEPS IN SEGMENTING AND TARGETING MARKETS

STEP 4: SELECT TARGET MARKETS
Criteria to Use in Selecting
Target Markets
• Two Types of Criteria
 Those That Divide a Market into Segments
 Those That Actually Pick the Target Segments
9-31
LO4

STEPS IN SEGMENTING AND TARGETING MARKETS
STEP 4: SELECT TARGET MARKETS
Criteria to Use in Selecting Target Markets
• Market Size
• Expected Growth
• Competitive Position
• Cost of Reaching Segment
• Compatibility with Organizational
Goals and Resources
9-32
GOING ONLINE
Zestimates from Zillow
9-33
LO4
STEPS IN SEGMENTING AND TARGETING MARKETS

STEP 4: SELECT TARGET MARKETS
Choose the Products & Segments
• No Breakfast
• Four Student Segments Only
9-34
STEPS IN SEGMENTING AND TARGETING MARKETS
LO4

STEP 5: TAKE MARKETING ACTIONS TO
REACH TARGET MARKETS
Immediate Wendy’s Segmentation Strategy
• Day Commuters
• Between-Meal Snacks
• Dinners to Night Commuters

Future Strategies for Wendy’s
9-35
FIGURE 9-9 Advertising actions to reach
specific student segments (an entire market
segment vs. a narrow niche)
9-36
STEPS IN SEGMENTING AND TARGETING MARKETS
LO4
STEP 5: TAKE MARKETING ACTIONS TO
REACH TARGET MARKETS

Apple’s Ever-Changing Segmentation Strategy

Market-Product Synergies: A Balancing Act
• Marketing Synergies
• Product Synergies
9-37
MARKETING MATTERS
Apple’s Segmentation Strategy—
Camp Runamok No Longer
9-38
POSITIONING THE PRODUCT
LO5

Product Positioning

Product Repositioning

Two Approaches to Product Positioning
• Head-to-Head Positioning
• Differentiation Positioning
9-39
LO5
POSITIONING THE PRODUCT

Writing a Positioning Statement

Product Positioning
• Identify Important Attributes for a
Product Class
• Judgments of Existing Brands on
These Important Attributes
• Ratings of an Ideal Product’s or
Brand’s Attributes
9-40
LO5
POSITIONING THE PRODUCT

Perceptual Map

Repositioning Chocolate Milk for Adults
9-41
FIGURE 9-10 A perceptual map of the
location of beverages in the minds of
American adults
9-42
FIGURE 9-11 The strategy American dairies
used to reposition chocolate milk to reach
adults
9-43
LO6
SALES FORECASTING TECHNIQUES

Market Potential

Industry Potential

Sales Forecast

Company Forecast
9-44
LO6

SALES FORECASTING TECHNIQUES
Judgments of the Decision Maker
• Direct Forecast
• Lost-Horse Forecast

Surveys of Knowledgeable Groups
• Survey of Buyers’ Intentions Forecast
• Salesforce Survey Forecast
9-45
LO6

SALES FORECASTING TECHNIQUES
Statistical Methods
• Trend Extrapolation
• Linear Trend Extrapolation
9-46
FIGURE 9-12 Linear trend extrapolation of
sales revenues at Xerox (made at the start
of 2000)
9-47
VIDEO CASE 9
ROLLERBLADE: SKATES TO GO
WHERE YOU WANT TO GO
9-48
VIDEO CASE 9
ROLLERBLADE
1. What trends in the environmental
forces (social, economic,
technological, competitive, and
regulatory) (a) work for and
(b) work against Rollerblade’s
potential growth in the twenty-first
century?
9-49
VIDEO CASE 9
ROLLERBLADE
2. Compare the likely marketing
goals for Rollerblade (a) in 1986
when Rollerblade was launched
and (b) today.
9-50
VIDEO CASE 9
ROLLERBLADE
3. What kind of focused
communication and promotion
actions might Rollerblade take to
reach the (a) Fitness/ Recreation
and (b) Junior market segments?
For some starting ideas, visit
www.rollerblade.com.
9-51
VIDEO CASE 9
ROLLERBLADE
4. In searching for global markets
to enter, (a) what are some
criteria that Rollerblade should
use to select countries to enter,
and (b) what three or four
countries meet these criteria best
and are the most likely
candidates?
9-52
SUPPLEMENTAL
LECTURE NOTE 9-1
MARKET SEGMENTATION
IN PRACTICE: WHAT KIND
OF PILLOW DO YOU NEED?
9-53
FIGURE 9-A Market-product grid showing
the size of markets for pillows for three
different segments of sleepers
9-54
SUPPLEMENTAL
LECTURE NOTE 9-2
TWO BASIC APPROACHES
TO FORECASTING
9-55
FIGURE 9-B Top-down forecast: Survey of
Buying Power
9-56
FIGURE 9-C Build-up forecast: Apple’s four
major product lines
9-57
IN-CLASS ACTIVITY 9-1
HONEY NUT CHEERIOS®
MILK ‘N CEREAL BAR:
IDENTIFYING PRODUCT
GROUPS
9-58
Honey Nut Cheerios® Milk ‘N Cereal Bar
9-59
IN-CLASS ACTIVITY 9-2
3M POST-IT®
FLAG HIGHLIGHTER:
PRODUCT POSITIONING FOR
CONSUMERS AND RETAILERS
9-60
3M Post-it® Notes TV Ad
QuickTime™ and a
YUV420 codec decompressor
are needed to see this picture.
9-61
3M Post-it® Flag Highlighter Invention
+ =
9-62
3M Post-it® Flag Highlighter Colors and Packages
9-63
3M Post-it® Flag Highlighter Package
(Front and Back)
9-64
9-65
9-66
Market Segmentation
Market segmentation involves
aggregating prospective buyers
into groups, or segments, that
(1) have common needs and
(2) will respond similarly to a
marketing action.
9-67
Market Segments
Market segments are the
relatively homogeneous groups
of prospective buyers that result
from the market segmentation
process.
9-68
Product Differentiation
Product differentiation is a
marketing strategy that involves
a firm using different marketing
mix activities to help consumers
perceive the product as being
different and better than
competing products.
9-69
Synergy
Synergy is the increased
customer value achieved
through performing organizational
functions more efficiently.
9-70
Usage Rate
Usage rate is the quantity
consumed or patronage (store
visits) during a specific period.
Also called frequency marketing.
9-71
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.
9-72
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 an
organization.
9-73
Product Positioning
Product positioning is the
place an offering occupies in
consumers’ minds on important
attributes relative to competitive
products.
9-74
Product Repositioning
Product repositioning involves
changing the place an offering
occupies in consumers’ minds
relative to competitive products.
9-75
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 and then take
marketing actions.
9-76
Market Potential
Market potential is the maximum
total sales of a product by all firms
to a segment during a specified
time period under specified
environmental conditions and
marketing efforts of the firms.
Also called industry potential.
9-77
Industry Potential
Industry potential is the
maximum total sales of a product
by all firms to a segment during
a specified time period under
specified environmental conditions
and marketing efforts of the firms.
Also called market potential.
9-78
Sales Forecast
A sales forecast consists of the
total sales of a product that a firm
expects to sell during a specified
time period under specified
environmental conditions and its
own marketing efforts. Also
called a company forecast.
9-79
Company Forecast
A company forecast consists of
the total sales of a product that a
firm expects to sell during a
specified time period under
specified environmental conditions
and its own marketing efforts.
Also called a sales forecast.
9-80
Direct Forecast
A direct forecast consists of
estimating the value to be
forecast without any intervening
steps.
9-81
Lost-Horse Forecast
A lost-horse forecast consists
of making a forecast using the
last known value and modifying it
according to positive or negative
factors expected in the future.
9-82
Survey of
Buyers’ Intentions Forecast
A survey of buyers’ intentions
forecast consists of asking
prospective customers if they are
likely to buy the product during
some future time period.
9-83
Salesforce Survey Forecast
A salesforce survey forecast
consists of asking the firm’s
salespeople to estimate sales
during a coming period.
9-84
Trend Extrapolation
Trend extrapolation involves
extending a pattern observed in
past data into the future.
9-85
Linear Trend Extrapolation
Linear trend extrapolation
involves using a straight line to
extend a pattern observed in
past data into the future.
9-86