chapter 7

Market Segmentation and Target MarketsMarket Segmentation and Target Markets

Harcourt, Inc.

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ObjectivesObjectives

Understand the concepts: market, Understand the concepts: market, segmentation, and target marketssegmentation, and target markets

Learn the advantages and Learn the advantages and disadvantages of target marketingdisadvantages of target marketing

Explain the steps in target market Explain the steps in target market selectionselection

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Discuss segmentation criteria, Discuss segmentation criteria, strategies, bases, and information strategies, bases, and information sourcessources

Understand market profiling and Understand market profiling and positioning strategiespositioning strategies

Discuss differences for business Discuss differences for business and international marketingand international marketing

ObjectivesObjectives

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What is a market?What is a market?

Individuals or organizations Individuals or organizations who:who: Are willing, able, and capable of Are willing, able, and capable of

purchasing a firm’s productpurchasing a firm’s product Segmentation is critical because Segmentation is critical because

demand is often heterogeneousdemand is often heterogeneous

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What is market segmentation?What is market segmentation?

Market SegmentationMarket Segmentation Process of dividing a large Process of dividing a large

market into smaller target market into smaller target markets, or customer groups markets, or customer groups with similar needs and/or with similar needs and/or desiresdesires

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Market SegmentationMarket Segmentation

Mass Market

Niche Micro-marketing The

Individual

Personal-izationMicro-

marketingNicheStandardized Marketing

Mix

Continuum of Market Segmentation Size

Continuum of Market Segmentation Size

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Target MarketingTarget Marketing

AdvantagesAdvantages Easier analysis of potential and actual Easier analysis of potential and actual

consumersconsumers Tailoring of products to marketTailoring of products to market Assessment of demand potentialAssessment of demand potential Identify competing productsIdentify competing products Increased sales effectiveness and cost Increased sales effectiveness and cost

efficienciesefficiencies Product positioning and easy identification Product positioning and easy identification

of opportunitiesof opportunities

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Target MarketingTarget Marketing

DisadvantagesDisadvantages Increased marketing costsIncreased marketing costs Personalization can become Personalization can become

burdensome to manageburdensome to manage Faux segmentation may be viewed Faux segmentation may be viewed

cynicallycynically Narrow segmentation can impact Narrow segmentation can impact

brand loyaltybrand loyalty Ethics and stereotyping issuesEthics and stereotyping issues

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Target Market SelectionTarget Market Selection

Identify Total MarketIdentify Total Market

Determine Need for Determine Need for SegmentationSegmentation

Determine Bases for Determine Bases for SegmentationSegmentation

Profile Each Selected Profile Each Selected SegmentSegment

Assess Potential Assess Potential Profitability of Segment Profitability of Segment

and Select Target Segmentand Select Target Segment

Select Positioning Select Positioning StrategyStrategy

Develop and Implement Develop and Implement Appropriate Marketing MixAppropriate Marketing Mix

Monitor, Evaluate and Monitor, Evaluate and ControlControl

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Market CriteriaMarket Criteria

Segmentable markets are:Segmentable markets are: HeterogeneousHeterogeneous MeasurableMeasurable SubstantialSubstantial ActionableActionable

• Companies must be able to respond to preferences with an appropriate marketing mix

AccessibleAccessible• Market must be efficiently reachable

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External FactorsExternal Factors

Stage in product life cycleStage in product life cycle CompetitionCompetition Product specific issuesProduct specific issues Market for the productMarket for the product

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Segmentation VariablesSegmentation Variables

Situation Situation SegmentationSegmentation

Psychographic Psychographic

SegmentationSegmentation

Geographic Geographic SegmentationSegmentation

Behavior/UsageBehavior/Usage SegmentationSegmentation

Demographic Demographic SegmentationSegmentation

Benefits-SoughtBenefits-Sought SegmentationSegmentation

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FamilyFamilyFamilyFamily

Income LevelIncome LevelIncome LevelIncome Level

EthnicityEthnicityEthnicityEthnicityEducationEducationEducationEducation

AgeAgeAgeAge

Demographic SegmentationDemographic Segmentation

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Demographic SegmentationDemographic Segmentation

AgeAge Some products Some products

are marketed to are marketed to specific age specific age groupsgroups

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Demographic SegmentationDemographic Segmentation

AgeAge Some products Some products

are marketed to are marketed to specific age specific age groupsgroups

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Demographic SegmentationDemographic Segmentation

Income LevelIncome Level Some products Some products

are marketed to are marketed to consumers with consumers with different income different income levelslevels

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Demographic SegmentationDemographic Segmentation

Income LevelIncome Level Some products Some products

are marketed to are marketed to consumers with consumers with different income different income levelslevels

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Demographic SegmentationDemographic Segmentation

Hal Riney and Hal Riney and PartnersPartners

Bartles and JamesBartles and James

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Demographic SegmentationDemographic Segmentation

FamilyFamily Some products are Some products are

marketed to marketed to consumers with consumers with special family special family considerationconsideration

• Family Life Cycle

• Bachelor, marriage, married with children, retired, etc.

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Functions Of AdvertisingFunctions Of Advertising

The Martin AgencyThe Martin Agency

KinderCareKinderCare

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Demographic SegmentationDemographic Segmentation

FamilyFamily Some products are Some products are

marketed to marketed to consumers with consumers with special family special family considerationconsideration

• Family Life Cycle

• Bachelor, marriage, married with children, retired, etc.

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Demographic SegmentationDemographic Segmentation

EducationEducation Some products are Some products are

marketed to marketed to consumers with consumers with certain educational certain educational levelslevels

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Demographic SegmentationDemographic Segmentation

EthnicityEthnicity Some products are Some products are

marketed to marketed to consumers from consumers from specific ethnic specific ethnic backgroundsbackgrounds

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Demographic SegmentationDemographic Segmentation

EthnicityEthnicity Some products are Some products are

marketed to marketed to consumers from consumers from specific ethnic specific ethnic backgroundsbackgrounds

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Segmentation VariablesSegmentation Variables

Situation Situation SegmentationSegmentation

Psychographic Psychographic

SegmentationSegmentation

Geographic Geographic SegmentationSegmentation

Behavior/UsageBehavior/Usage SegmentationSegmentation

Demographic Demographic SegmentationSegmentation

Benefits-SoughtBenefits-Sought SegmentationSegmentation

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Geographic SegmentationGeographic Segmentation

When an organization localizes its When an organization localizes its marketing efforts to accommodate the marketing efforts to accommodate the unique needs of specific geographic unique needs of specific geographic regionsregions

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Geographic SegmentationGeographic Segmentation

When an organization localizes its When an organization localizes its marketing efforts to accommodate the marketing efforts to accommodate the unique needs of specific geographic unique needs of specific geographic regionsregions

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Geographic SegmentationGeographic Segmentation

Metropolitan Statistical AreasMetropolitan Statistical Areas An urbanized area of 50,000 and a total An urbanized area of 50,000 and a total

metropolitan area population of at least metropolitan area population of at least 100,000100,000• Charlottesville, Virginia

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Geographic SegmentationGeographic Segmentation

Primary Metropolitan Statistical Primary Metropolitan Statistical AreasAreas An urbanized county or cluster of An urbanized county or cluster of

counties with a population of more counties with a population of more than 1 millionthan 1 million• Gary/Hammond, Indiana

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Geographic SegmentationGeographic Segmentation

Consolidated Metropolitan Consolidated Metropolitan Statistical AreaStatistical Area A metropolitan area that includes at A metropolitan area that includes at

least two PMSAsleast two PMSAs• Baltimore, Maryland and Washington,

D.C.

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Segmenting Consumer MarketsSegmenting Consumer Markets

Situation Situation SegmentationSegmentation

Psychographic Psychographic

SegmentationSegmentation

Geographic Geographic SegmentationSegmentation

Behavior/UsageBehavior/Usage SegmentationSegmentation

Demographic Demographic SegmentationSegmentation

Benefits-SoughtBenefits-Sought SegmentationSegmentation

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Psychographic SegmentationPsychographic Segmentation

Grouping customers together Grouping customers together based on social class, based on social class, lifestyles and psychological lifestyles and psychological characteristics (attitudes, characteristics (attitudes, interests and opinions)interests and opinions)

PRIZM analysis from ClaritasPRIZM analysis from Claritas

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Segmenting Consumer MarketsSegmenting Consumer Markets

Situation Situation SegmentationSegmentation

Psychographic Psychographic

SegmentationSegmentation

Geographic Geographic SegmentationSegmentation

Behavior/UsageBehavior/Usage SegmentationSegmentation

Demographic Demographic SegmentationSegmentation

Benefits-SoughtBenefits-Sought SegmentationSegmentation

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Benefits-Sought SegmentationBenefits-Sought Segmentation

Markets can be Markets can be segmented based segmented based on the benefits that on the benefits that consumers desire consumers desire from using a from using a specific productspecific product

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Benefits-Sought SegmentationBenefits-Sought Segmentation

Bozell, IncorporatedBozell, Incorporated

American Pork American Pork CouncilCouncil

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Segmenting Consumer MarketsSegmenting Consumer Markets

Situation Situation SegmentationSegmentation

Psychographic Psychographic

SegmentationSegmentation

Geographic Geographic SegmentationSegmentation

Behavior/UsageBehavior/Usage SegmentationSegmentation

Demographic Demographic SegmentationSegmentation

Benefits-SoughtBenefits-Sought SegmentationSegmentation

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Situation SegmentationSituation Segmentation

Purchase situation or occasionPurchase situation or occasion Physical surroundingsPhysical surroundings Social surroundingsSocial surroundings Temporal perspectiveTemporal perspective

• How much time to make a purchase? Task definitionTask definition Pre-purchase attitudePre-purchase attitude

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Segmenting Consumer MarketsSegmenting Consumer Markets

Situation Situation SegmentationSegmentation

Psychographic Psychographic

SegmentationSegmentation

Geographic Geographic SegmentationSegmentation

Behavior/UsageBehavior/Usage SegmentationSegmentation

Demographic Demographic SegmentationSegmentation

Benefits-SoughtBenefits-Sought SegmentationSegmentation

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Light Users

80%

Light Users

80%Heavy Users

20%

Heavy Users

20%

Behavior/Usage SegmentationBehavior/Usage Segmentation

Markets can be segmented by how often or how Markets can be segmented by how often or how heavily consumers use a specific productheavily consumers use a specific product 80/20 Principle - 80% of revenue generated by 20% 80/20 Principle - 80% of revenue generated by 20%

of customersof customers

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Segmentation DataSegmentation Data

Internal sourcesInternal sources In-house customer and marketing databasesIn-house customer and marketing databases Data mine to explore patterns and Data mine to explore patterns and

relationships in collected datarelationships in collected data External sourcesExternal sources

Lists of catalog/magazine subscribersLists of catalog/magazine subscribers U.S. Census informationU.S. Census information Mediamark, CACI Marketing Systems, etc.Mediamark, CACI Marketing Systems, etc.

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Positioning StrategyPositioning Strategy

Differentiation Differentiation through:through: Price/quality - Price/quality -

emphasize value emphasize value in terms of in terms of quality, price, or quality, price, or bothboth

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Positioning StrategyPositioning Strategy

Differentiation Differentiation through:through: Product attributes - Product attributes -

characteristics as a characteristics as a positioning basepositioning base

Product usage - Product usage - positioning based positioning based on a products on a products typical usetypical use

Differentiation Differentiation through:through: Symbol - use of a Symbol - use of a

symbol or icon to symbol or icon to position a product position a product in the consumer in the consumer consciousnessconsciousness

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Positioning StrategyPositioning Strategy

Differentiation Differentiation through:through: Product user - the Product user - the

typical user of a typical user of a productproduct

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Positioning StrategyPositioning Strategy

Differentiation Differentiation through:through: Product class - Product class -

positioning against positioning against another type of another type of product or product product or product classclass

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Positioning StrategyPositioning Strategy

Differentiation Differentiation through:through: Competition - Competition -

comparisons to a comparisons to a product’s product’s competition competition (directly or (directly or indirectly)indirectly)

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Segmenting Business MarketsSegmenting Business Markets

DemographicsDemographics Industry size, growth potential, etc.Industry size, growth potential, etc.

Operating CharacteristicsOperating Characteristics Technology, brand-user status, etc.Technology, brand-user status, etc.

Purchasing ApproachesPurchasing Approaches Purchasing policies, size of orders, Purchasing policies, size of orders,

etc.etc.

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Segmenting Business MarketsSegmenting Business Markets

Product Use or Usage SituationProduct Use or Usage Situation The way the product will be used The way the product will be used

and customer service levels and customer service levels requiredrequired

Situational FactorsSituational Factors Urgency, special product usesUrgency, special product uses

Buyer’s Personal CharacteristicsBuyer’s Personal Characteristics

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Segmenting Global MarketsSegmenting Global Markets

EconomicEconomic Stage of development in a host Stage of development in a host

countrycountry Political/LegalPolitical/Legal

Regulations and lawsRegulations and laws CulturalCultural

Language barriers, differences in Language barriers, differences in consumer customsconsumer customs

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Segmenting Global MarketsSegmenting Global Markets

Some segments transcend Some segments transcend national bordersnational borders Rich around the worldRich around the world Older and comfortableOlder and comfortable Indulged kidsIndulged kids Emerging middle classEmerging middle class Women employed outside the Women employed outside the

househouse

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Market SegmentationMarket Segmentation

DifferentiatedDifferentiated ConcentratedConcentrated UndifferentiatedUndifferentiated

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Differentiated MarketingDifferentiated Marketing

Differentiated Differentiated MarketingMarketing An organization An organization

targets multiple targets multiple market market segments and segments and develops develops segment segment specific mixesspecific mixes

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Concentrated MarketingConcentrated Marketing

Concentrated Concentrated MarketingMarketing When an When an

organization organization concentrates its concentrates its marketing marketing efforts on a efforts on a smaller smaller segment of a segment of a larger marketlarger market

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Undifferentiated MarketingUndifferentiated Marketing

Undifferentiated Undifferentiated MarketingMarketing An organization An organization

develops one develops one strategy strategy appropriate for appropriate for all members of all members of the total marketthe total market