Ch. 7 Target Marketing Strategy:
Selecting and Entering a Market
 Market fragmentation:
– The creation of many consumer groups due to
the diversity of their needs and wants
 Target marketing strategy:
– Dividing the total market into different segments based
on customer characteristics, selecting one or more
segments, and developing products to meet those
segments’ needs
– Also known as STP (segmentation, targeting, and positioning)
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Steps in the Target Marketing Process: STP
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Goals of Segmentation
 Why?
– Effectiveness
– Efficiency
– Better meets consumer needs
 What makes a good segmentation outcome?
– p. 213, “Without real differences in consumer needs,
firms might as well use a mass-marketing strategy.”
– Differentiate groups based on what and why they buy
 Exercise: Bicycles
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Steps in the Target Marketing Process
Step 1: Segmentation
 Segmentation:
– The process of dividing a larger market into smaller
pieces based on one or more meaningful shared
characteristics
 Segmentation variables (“bases”):
– Dimensions that divide the total market into fairly
homogeneous groups, each with different needs and
preferences
– Segmentation variables include:
• Demographics—size, age, gender, ethnic group, income,
education, occupation, family structure
• Psychographics—psychological, values and lifestyles, and AIO
factors
• Behavior-based variables – usage rate, usage occasion, product
benefits
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Demographic Dimensions
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Age
Gender
Occupation
Family structure
Income and social class
Race and ethnicity
Geography
Segmenting by Demographics:
Age: Generational Marketing
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Children
Tweens
Teens
Generation Y: born between 1977 – ?
(also referred to as Millennials)
 Generation X: born between 1965 - 1976
 Baby Boomers: born between 1946 - 1964
 Older consumers
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Segmenting by Demographics:
Gender & Other
 Many products appeal solely or more to one
gender than the other
 Family Structure
 Income
 Social Class
 Race and Ethnicity
– African Americans
– Asian Americans
– Hispanic Americans
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Segmenting by Geography
 Geodemography:
– combines Geography with demographics
(*and psychographics*)
– Claritas, PRIZM, etc.
– Example: Children’s World prospect targeting
 Geocoding:
– Customizes web advertising so people who
log on in different places see ad banners for
local businesses
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Missoula, MT 59802's
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Most common PRIZM NE Segments are:
47 City Startups
56 Crossroads Villagers
53 Mobility Blues
44 New Beginnings
60 Park Bench Seniors
Potential Issues: Mistargeting
– Karen’s experience in Denver
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Segmenting by Psychographics
 Psychographics:
– Segments formed on the basis of values and
lifestyles (VALs) and shared activities,
interests, and opinions (AIOs).
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Segmenting by Behavior
 Segments consumers based on how they act
toward, feel about, or use a specific product
category
– 80/20 rule: 20 percent of purchasers account for
80 percent of a product’s sales
• Heavy, medium, light users & nonusers of a product
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Segmenting by Behavior (Cont.)
 User status:
– Heavy, medium, and light users and nonusers of a
product
 Usage occasions
– Segments on the basis of different occasions when
customers buy or use various products
• Shoes, watches
 Benefit segmentation (not explicit in text)
– Segments on the basis of the specific benefits different
customers desire when purchasing in a product category:
• OJ example p. 211: added vitamins/calcium vs. pulp vs. no sugar
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Segmenting Business-toBusiness Markets
 North American Industry Classification
System (NAICS)
– Issues with accuracy
– Inaccuracy example: candles categorized as part of
petroleum, oil, and gas industry
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Steps in the Target Marketing Process
Step 2: Targeting
 Targeting:
– Marketers evaluate the attractiveness of each
potential segment and decide in which
segment(s) they will invest resources toward
om attempt to convert them into customers
– The customer group(s) selected are referred
to as the target market
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Developing Segment Profiles
 A profile is a description of the “typical”
customer in a segment.
– Might include information on demographics,
location, lifestyle, and product-usage frequency
 Some creatives (creative team in ad agency
or internal agency) create a “person” that
represents the target market and write ads
as if writing to that person specifically
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Evaluation of Market Segments
 A viable target segment should:
– Have members with similar product needs
and wants
– Be measurable in size and purchasing power
– Be large enough to be profitable
– Be reachable by marketing communications
– Be one that the marketer’s company has the
strengths and capabilities to adequately
serve well
Also consider:
* growth rates by segment
* competition by segment
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Select a Target Marketing Strategy
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Choosing a Targeting Strategy
 Undifferentiated targeting strategy
– Appealing to the total market without regard to
specific segments
– “Mass marketing”
– Commodities, often non-profit / “social” marketing
causes, limited marketing budget, lack or knowledge
 Differentiated targeting strategy
– Developing one or more products for each of several
customer groups
• Example: Honda (or any major automaker)
– Developing different advertising strategies
(message/media) for different customer groups (but
offering the same product)
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• Example: Johnson’s Baby Shampoo
Choosing a Targeting Strategy
 Concentrated (“niche) target marketing strategy
– Offering one or more products to a single segment
• Example: niche automaker like Rolls Royce or Ferrari
 Custom marketing strategy
– Tailoring specific products to individual customers
• Example: custom tailored suits
– Common in personal and professional services
• Example: dentistry, website design
– Mass customization
• Modifying a basic good or service that is “mass produced” to
meet the specific needs of an individual
Example: Vistaprint
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Step 3: Positioning
 What is positioning?
– Developing the (a) image of the product (b) in the
mind of the customer (c) relative to competition on (d)
important attributes (either objective or subjective)
 Brand personality
– A distinctive image that captures the brand’s
character and benefits
 Repositioning
– Create a new position to respond to market changes
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• Example: Revitaling 40 year old brand, Old Spice, with
the “Smell Like a Man” campaign
• http://www.dandad.org/en/old-spice-response-campaign/
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Steps in Developing a
Positioning Strategy
 Analyze competitors’ positions
 Offer a good or service with a competitive
advantage (also called point of differentiation)
 Finalize the marketing mix by matching mix
elements to the selected segment
 Evaluate target market’s responses and
modify strategies as needed
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Positioning Tool: Perceptual Map*
 A research technique marketers use to identify
where products/brands are “located” in
consumers’ minds (i.e. how they are perceived)
 Statistical method:
– multi-dimensional scaling
– pair-wise similarity judgments
 A 2-dimensional “product” space
– the dimensions are attributes of the product
• objective or subjective
– products are the evoked set
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Example of Perceptual Map - 1
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Example of Perceptual Map - 2
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Four Steps in
One-to-One Marketing
 Identify customers and get to know them in
as much detail as possible
 Differentiate customers by their needs and
value to the company
 Interact with customers; find ways to
improve cost efficiency and the
effectiveness of the interaction
 Customize some aspect of the products you
offer each customer
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CRM: A New Perspective
on an Old Problem
 CRM systems use computers, software,
databases, and the Internet to capture
information at each touchpoint
– Touchpoints are any direct interface between
customers and a company (online, by phone, in
person, etc.)
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Characteristics of CRM
 Share of customer (vs. share of market):
focus on retention and loyalty (vs.
acquisition of new customers)
– 7 to 10 times more expensive to acquire a new
customer and retain an existing one
 Lifetime value of the customer – aka
customer equity
 Focus on high-value customers
– tiers/categories
 Personalize/customize
– one-to-one marketing
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