ch7,

Chapter 7 Market Segmentation and Targeting Professor Jason C. H. Chen, Ph.D. School of Business Administration Gonzaga University Spokane, WA 99223 [email_address]

After studying this chapter you should be able to:
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.
After studying this chapter you should be able to:

OPENING VIGNETTE
WWW.SRIC-BI.COM
What does the VALS topology accomplish?
What does new service does VALS offer?
Two Cases for this chapter (Making Marketing Decisions ): Case 7-1 : PRIZM by Claritas: You Are Where You Live Case 7-2 : Marriott International: “Suite Deals”

Focusing Marketing Strategy and Evaluating Marketing Opportunities Opportunities to be turned Into marketing strategies and plans Develop product market Screening criteria Focusing marketing Strategy S.W.O.T Analysis Defining generic markets and product-markets Targeting and Segmentation Positioning and Differentiation Company mission, objectives, resources Competitor analysis Trends in external environment: Technological, Economic, Political & Legal Cultural & Social Evaluating Opportunities

A Marketing Strategy – showing the 4 P’s of a Marketing Mix C Place Product Price Promotion

Overview of Marketing Strategy Planning Process External Market Environment Technologies Political and Legal Cultural and Social Economic Narrowing down to focused strategy with quantitative and qualitative screening criteria Customers Needs and other Segmenting Dimensions Company Objectives & Resources Competitors Current & Prospective Segmentation & Positioning Segmentation & Targeting S. W. O. T. Place Product Price Promotion C

Strategy How to cope with a dynamic environment, capitalizing on opportunities and handling threats… How to adopt and integrated systems orientation… How to be a market driven organization = STRATEGIC PLANNING Mission Statement (Marketing Concept Orientation) Objectives and Goals Grand Strategy Marketing Strategy and Tactics Target Market (Segments, Position) Marketing Mix P P P P Offering to the Market Impact of Competition and other Environmental Items Company-Wide Level Feedback of Results

MASS MARKET STRATEGY MULTISEGMENT STRATEGY CONCENTRATION STRATEGY MARKETING STRATEGY Organization’s Single Marketing Mix Mass Market Organization’s Single Marketing Mix Segment A B C D E Organization’s Several Marketing Mixes A D F Segment Segment Segment A B C D E F

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.
Intermarket Segments:
Well-defined, similar clusters of customers across national boundaries.

Target Markets
Targeting:
Selecting which segments in a market
are appropriate to focus on and
designing the means of reaching them.

Narrowing down target markets Single target marketing approach Multiple target marketing approach Combined target marketing approach All customer needs Some generic market One broad- product market Homogenous (narrow) product- markets Select target marketing approach Segmenting into possible target markets Narrowing down to specific product-market

Product Differentiation
Product Differentiation:
Exists when a firm’s offerings differ or are perceived to differ from those of competing firms on any attribute, including price.

From Mass Marketing to Mass Customization
Mass Customization:
Complex manufactured products made to order.

Is Market Segmentation Appropriate?
Frequently use approaches for a sustainable marketing strategy (company)
Developing brand-line extensions
Repositioning the product for additional uses
Identifying the needs of a particular segment, or segments
Developing marketing strategies for each
When the segmentation strategy is not useful
When the overall market is so small that marketing to a portion of it is not profitable
When the brand is dominant in the market and draws its appeal from all segments

Value propositions 1. Business model 2. Core competencies Strategic intent Strategy IT Role? N Essentials for a Sustainable Enterprise Positioning 3. Execution competition structure/ culture Finance Management Process H/R Technology …
Positioning on product/market
Differentiation/choice of competitive advantage
Competitive posture
Industry characteristics ，
Market growth ，
Demand characteristics ，
Barrier of entry ， etc.
fulfill Consistent Analysis (Porter, SWOT ) Corporate strategy Business strategy Functional strategy Business landscape Internal/ External future positioning

Criteria for Effective Segmentation
Five Criteria:
Measurability
Accessibility
Substantialness
Durability
Differential Responsiveness

Stages in Developing Market Segmentation Strategies

Stages in Developing Market Segmentation Strategies Exhibit 7-2 Develop a market segmentation strategy Define overall product market in which company operates Identify distinguishing characteristics of segments or bases for segmentation Describe segments Evaluate approaches for potential & likely success Select target market Determine desired positioning and then develop marketing mix to achieve desired position 1 2 3 4 5 6

Market penetration Market development Diversification Product development Present products New products Present markets New markets Four Basic Types of Opportunities

Examples of Different Types of Opportunities
Market Penetration
Arm & Hammer promotes new uses of its baking soda
Market Development
Marriott Hotels target families for weekend "get-aways" to rent rooms filled by business travelers during the week
Product Development
Microsoft develops a new version of its Windows operating system to appeal to the people who bought an earlier version but now want more features
Diversification
RJR, the cigarette producer, adds baked goods to its product line to appeal to new customers

Bases for Segmentation
Demographics
Geographics
Psychographics & Lifestyles
Benefit Segmentation
Economic Segmentation
International Segmentation

Behavioral Geographics Demographics Psychographics Personality Lifestyle Age Gender Income Buying Power Expenditure patterns Occupation Education Race or nationality Family life cycle Social class Decisions Amount of usage Type of usage Brand loyalty Benefits sought Nation/Region State/Region City/Neighborhood Climate/Terrain Population density Market density Segmentation Variables Potential Consumer Segments

Demographic Dimensions
Important operational dimensions for understanding market segments and developing marketing mixes
Much good data is available
Important for determining size of consumer target markets
Is the market substantial?
Seeing demographic trends helps identify opportunities
Shifts in age distribution
Geographic growth/decline

Map of United States Showing Population by State (all figures in thousands)

Percent Change in Population by State

Changes in the U.S. Birthrate, 1935-2005

Age Distribution
Average age is increasing
But there is a big teen cycle on the way
Post World War II "Baby Boomers“
Still a big, influential group
50 and older group to grow dramatically in next decade

MyGeneration ad

Population Distribution (and Percent Growth Rate) by Age Groups for Different 10-Year Periods)

Median Family Income Over Time (in 1999 dollars)

Percent of Total Income Going to Different Income Groups in 1999

Income Distribution
Growth in real income has slowed down
Middle income groups in U.S. enjoy real choices
U.S. distribution like Canada, Western Europe, Japan, Australia, New Zealand
Higher income groups still have much of the spending power
Top 20% income group has over 47 percent of total income!
Bottom 20% income group has only about 4 percent!

Types of Income
DISPOSABLE INCOME
Income that is left after taxes
DISCRETIONARY INCOME
What is left of disposable income after paying for "necessities"

Age Age of children In the household Marital status FAMILY LIFE CYCLE FACTORS Family cycle factors

Middle-age divorced without children Middle-age married without children Middle-age married with children Middle-age divorced with children Middle-age divorced without dependent children Middle-age divorced without children Young married with children * Young married without children * Young single * Middle-age married without dependent children Older Married * Older Unmarried * Young divorced without children * Usual flow Recycled flow * Tradition family flow Stages in Modern Family Life Cycles

Psychological (intra-personal) Variables
Motivation
Perception
Learning
Attitudes and beliefs
Personality
Lifestyle (psychographics)

Possible Needs Motivating a Person to Some Action

CONSUMER LIFESTYLES Interests Opinions Activities PSYCHOGRAPHICS Psychographics

Lifestyle Dimensions (and some related demographic dimensions)

Six Betty Crocker pictures, 1936-2000 (The original Betty, 1936) (1965) (1972) (Betty Crocker 2000) (1980) (1986)

Social (intra-personal) Influences on Consumers © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin—for use only with Basic Marketing
Family
Reference groups
Social class
Culture and subculture

Characteristics and Attitudes of Middle and Lower Classes © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin—for use only with Basic Marketing
Middle classes
Plan and save for the future
Analyze alternatives
Understand how the world works
Feel they have opportunities
Willing to take risks
Confident about decision making
Want long-run quality or value
Lower classes
Live for the present
"Feel" what is "best"
Have simplistic ideas about how things work
Feel controlled by the world
"Play it safe"
Want help with decision making
Want short-run satisfaction

Exhibit 7-5 A two stage segmentation example Combining Bases of Market Segmentation Stage 1 Initial segmentation Stage 2 Supplemental segmentation descriptors Managerial decisions Usage: Heavy vs. Light Demographics: Income & Education Lifestyles Advertising Content (conservative, youthful, appeals, & messages) Media Selection (magazines & TV programs)

MASS MARKET STRATEGY MULTISEGMENT STRATEGY CONCENTRATION STRATEGY MARKETING STRATEGY Organization’s Single Marketing Mix Mass Market Organization’s Single Marketing Mix Segment A B C D E Organization’s Several Marketing Mixes A D F Segment Segment Segment A B C D E F

PORTER’S FIVE COMPETITIVE FORCES MODEL Threats Bargaining power N Internal Forces 1.customer focus 2.communication 3.core competencies 4.complexity 5.quality THE FIRM TRADITIONAL COMPETITORS NEW MARKET ENTRANTS SUPPLIERS SUBSTITUTE PRODUCTS & SERVICES CUSTOMERS

Porter’s Generic Strategy Framework – 3 Strategies for achieving Competitive Advantage Competitive Mechanism Overall Cost Leadership Focus Differentiation Industrywide (Broad Target) Particular Segment only (Narrow Target) Competitive Scope Lower Cost Position Uniqueness Perceived by Customer N

Segmentation Strategies Undifferentiated Strategy Differentiated Strategy Concentrated Strategy

Countersegmentation Strategy
Countersegmentation:
An alternative strategy to traditional segmentation approaches.
Combines market segments
Consumers accept lower price over variety

Factors Influencing Segmentation Strategy
Size and type of the market
Competitive factors
Product-related factors:
Stage in the product life cycle.
Degree to which the product may be varied or modified.
Firm’s size and financial position

Estimating Segment Potentials
Set time period of interest.
Define product level.
Specify segment characteristics or bases.
Identify geographic market boundaries.
Make assumptions about the marketing environment.
Make assumptions about company’s own marketing efforts and programs (controllable factors).
Make estimates of market potential, industry sales, and company sales.

Firm and Market Potentials and Forecasts Industry Level Firm Level Best Possible Results Expected Results for Given Strategy Market Potential Market Forecast Sales Potential Sales Forecast

Developing Forecasts
Qualitative Procedures:
Survey of Buyers’ Intentions
Expert Opinion
Composite of Salesforce Estimates
Quantitative Methods:
Trend Analysis
Market Tests
Statistical Demand Analysis

Targeting Market Segments
To select target segments, the firm must consider:
The segment’s potential sales volume and profits.
Competition currently selling to the segments.
The firm’s abilities and objectives.

Cost Leadership Business Strategies and its Competitive Advantage Cost Focus Differentiation Differentiation Focus Industrywide (Broad Target) Particular Segment only (Narrow Target) Competitive Scope Competitive Mechanism Lower Cost Position Uniqueness Perceived by Customer Industrial economy Knowledge-based economy Innovation Alliance Growth

Positioning
Repositioning:
When a firm wants to shift consumer
opinions about an existing brand.
Positioning:
Designing a marketing program, including
the product mix, that is consistent with how
the company wants its products or
services to be perceived.

Perceptual Maps
Perceptual Maps:
Spatial representations of consumer perceptions of products or brands, are often used to evaluate brand positions in a market.
Diet Pepsi
Pepsi Cola
RC Cola
Dr Pepper
Diet Sprite
Diet 7-Up
7-Up
Sprite
Orange Crush
Coke Classic
Conservative Expressive High price Low price

Generic market definition Product- market definition Customer (user) needs Customer types Geographical area Product type (good and/or service) Relationship between Generic and Product-Market Definitions

Micromarketing
Micromarketing:
Combines Census and
Demographic data to identify
clusters of households
that share similar
consumption patterns.

Micromarketing
Enhances the effectiveness of marketing efforts by:
Identifying potential markets for direct selling through mail and telemarketing campaigns.
Profiling customers by matching them to demographic and lifestyle clusters.
Learning which areas offer the greatest potential in site selection for new stores or offices.
Tailoring advertising themes and planning media.

Market Segmentation and Ethics
Advertising to Children
Harmful Products
Privacy Issues
Product Proliferation

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by Shelly38 on May 12, 2010

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