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Chapter 7
Market Segmentation and Targeting
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© 2001
by The
McGraw-Hill
Inc.
rights
reserved.
Copyright
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by The
McGraw-Hill Companies,
Companies, Inc.
All All
rights
reserved.
Objectives
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Define and explain market segmentation, target markets,
and product differentiation and positioning
Understand the criteria used for evaluating the likely
success of a segmentation strategy
Know the role of market segmentation in the
development of marketing strategies and programs
Describe the issues involved in product and brand
positioning
Understand the alternative bases for segmenting
consumer and business-to-business markets
Evaluate alternative approaches for pursuing
segmentation strategies
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Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Market Segmentation
Market segmentation divides a market into subsets of
prospective customers who behave in the same way,
have similar wants, or have similar characteristics that
relate to purchase behavior.
 Market segmentation explains differences among
groups of consumers who share similar characteristics
and turn these differences into an advantage.
 Market segmentation lets a firm develop products and
strategies to appeal to the preferences and unique
needs of specific groups of customers.
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Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Market Segmentation
 It
is useful for both new ventures and mature
brands but its not always appropriate
 If overall market is so small that marketing to a
portion of it is not profitable, then
segmentation is not useful
 When the brand is dominant in the market and
draws its appeal from all segments, then
segmentation is not useful
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Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Target Markets
Targeting:
Selecting which segments in a market
are appropriate to focus on and
designing the means of reaching them.
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Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Product Differentiation
 Product
differentiation exists when a firm’s
offerings differ or are perceived to differ from
those of competing firms on any attribute.
 Marketers attempt to position a product or
service in customers’ minds to convince
customers that the product has unique and
desirable characteristics.
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Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Product Positioning
Developing an overall image for a product or
brand by designing a marketing program,
including the product mix, that a market
segment will perceive as desirable.
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Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Criteria of Effective Segmentation
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Successful execution of a segmentation strategy depends on:
Measurability: reflects the degree to which the size and
purchasing power of segments can be assessed.
Accessibility: describes the degree to which a firm can reach
intended target segments efficiently.
Substantialness: refers to the degree to which identified target
segments are large enough or have sufficient sales and profit
potential to warrant unique or separate marketing programs.
Durability: refers to stability of segments – how do segments
react as the products mature.
Differential responsiveness: refers to the extent to which
segments exhibit different responses to different marketing
mixes.
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Satisfying Segmentation Criteria
By satisfying the above criteria:
 A company can choose segments that can be described
in managerially useful terms (measurability);
 That can utilize its communication and distribution
channels (accessibility);
 That are sufficient in profit potential (substantialness);
 That will persist for some reasonable period (durability)
and;
 That vary in their reactions to different marketing efforts
(differential responsiveness).
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Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Developing Market Segmentation Strategy
Define
overall
product
market in
which
company
operates
Determine
desired
positioning
and
marketing
mix to
achieve
desired
position
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Identify
distinguishing
characteristics
of segments or
bases for
segmentation
Select target
markets
Describe
segments
Evaluate
approaches
for potential
& likely
success
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Bases for Segmentation
 Demographics
 Geographics
 Psychographics
and Lifestyles
 Benefit segmentation
 Economic segmentation
 International segmentation
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Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Segmentation Strategies
Undifferentiated Strategy: Marketing a single product
using a single promotional mix for the entire market;
most often used early in the life of a product category.
 Differentiated Strategy: Under differentiated strategy a
firm uses different strategies for most or a large number
of different segments.
 Concentrated Strategy: A firm pursues a concentrated
strategy when it seeks a large share of just a few
profitable segments, perhaps only one, of the total
market.
 Counter-segmentation Strategy: Combining segments
to appeal to a broad range of consumers.
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Factors Influencing Segmentation Strategy
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If consumers are not sensitive to product differences, an
undifferentiated strategy is appropriate.
If firm sells to an overall product market with many different
segments, a differentiated or concentrated approach is a better
choice.
For new products concentrated strategy is best.
If firms’ interest is to develop primary demand, an
undifferentiated strategy is appropriate.
In later stages of a product’s life, large firms tend to pursue a
differentiated segmentation strategy.
A firm adopting and undifferentiated approach or pursuing only
the largest segments may well invite substantial competition.
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Estimating Segment Potentials
To estimate market potential and likely sales, the firm
should distinguish between firm and industry
potentials and between forecasts of the best possible
result and expected results.
 Market Potential: is the maximum amount of
industry sales possible for a product or service for a
specific period.
 Market Forecast: is a function of the amount of
marketing expenditures put forth by all companies
competing in that market.
 Sales Potential: is the maximum amount of sales of a
specific firm can obtain for a specified time period.
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Developing Forecasts
There are a number of methods for
forecasting sales:
 Survey of buyers’ intentions
 Expert opinion
 Composite of sales force estimates
 Trend analysis
 Market tests
 Statistical demand analysis
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Positioning
Positioning:
Designing a marketing program, including
the product mix, that is consistent with how
the company wants its products or
services to be perceived.
Repositioning:
When a firm wants to shift consumer
opinions about an existing brand.
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Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.