Segmentation and Targeting
Professor Chip Besio
Cox School of Business
Southern Methodist University
What Are Markets?
 Aggregates
 With
of people,
the ability to buy,
 The
willingness to buy,
 The
authority to buy.
Two Types of Markets

Consumer Markets
– Individuals or households who benefit directly
by consumption, rather than to make a profit or
to achieve Industrial Markets

Industrial Markets
– Companies or organizations who purchase for
resale, use in production, or use in operations,
including both profit-oriented and not-for-profit
organizations.
What Is Market
Segmentation?
Market segmentation is the
subdividing of a market into
distinct subsets, where any subset
may conceivably be selected as a
marketing target to be reached
with a distinct marketing mix
Segmentation Dilemma
MASS MARKETING
Economies of Scale
CUSTOMIZATION
Everyone Wants
Something Different
Market segmentation—linking market needs
to an organization’s marketing program
Segmentation Criteria
I. Customer Characteristics
II. Benefits Sought
III. Customer Behaviors
Customer Characteristics
DEMOGRAPHICS
Consumer Markets:
–
–
–
–
Gender
Age
Income
Dual income family
Industrial Markets:
– NAIC code
– Size of company
Customer Characteristics
PSYCHOGRAPHICS
Consumer Markets:
– Environmentally-conscious
– Value and lifestyles
VALS (1978); VALS 2 (1989)
Distinct patterns based on attitudes and values
Industrial Markets:
– Corporate culture
– Purchasing orientation
Customer Characteristics
GEOGRAPHY
Regional Segmentation
Zip Clustering
– Distinct marketing strategies created for
similar types of neighborhoods stretched
across the nation
– Examples include PRIZM, Market Metrics
Segmentation variables and breakdowns for
U.S. consumer markets
Benefit Segmentation
WHAT BENEFIT DO YOU WANT?
Rationale - The benefits people are
seeking in consuming a given product
are the true reasons for the existence of
segments
Example - Toothpaste
– Cavity prevention (e.g., Crest)
– Fresh breath (e.g., Aquafresh)
– White teeth (e.g., Rembrandt)
Behavior Segmentation
USAGE BEHAVIORS
Volume of usage
– Heavy users, moderate users, light users and
nonusers
– 80/20 rule
Brand usage
– Increase usage among users
– Get users of competing brand to switch
– Get nonusers to start
Usage occasion
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
Comparison of various kinds of users and
nonusers for Wendy’s, Burger King, and
McDonald’s fast-food restaurants
What Is “Targeting” a Market
Segment?
“You can’t be all things to all people”

Therefore, companies typically focus
on one or more segments and orient
their marketing activities to those
(potential) customers
Which Are the “Good”
Segments to Target?
The most attractive market segments are:
 Large
 Growing
and have:
 High purchase volume
 High margins
 High customer value
Which Are the “Good”
Segments to Target?
However, the most attractive segments are
frequently already well-served and so are
highly competitive
… so you must also consider:
 Number and strength of competitors
 Ease of entry into the segment
 Company’s current positioning
Targeting Dilemma - Segment
Attractiveness
SEGMENT VALUE
More Opportunity
COMPETITION
More Companies
Compete for Valuable
Segments
Which Are the “Good”
Segments to Target?
Additional considerations for targeting:
 Customers are addressable - you can
reach them
 The company is capable of building a
marketing program to target them
Targeting
 Examples of successful targeting:
– Wal-Mart - Value-conscious shoppers that
do not want to worry about short-term sales
– Lexus - People with high disposable income
who value reliability and service, as well as
prestige and luxury
– Cray - Price insensitive computer users that
require maximum computing power
– Dupont - Less price-sensitive innovators in
the use of plastics (skim pricing)
The five key steps in segmenting and
targeting markets link market needs of
customers to the organization’s marketing
program
Market-product grid showing how different
Reebok shoes reach segments of customers
with different needs
Benefits (+) and drawbacks (-) of a firm’s
market-product strategies