C H A P T E R

7
Market Segmentation and Targeting
2007 The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/Irwin

Learning Objectives
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.

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Acxiom
Acxiom is a world leader in consumer information and information management. The company offers its clients the ability to effectively analyze their customer base. Acxiom makes it easy for firms to keep their best customers by building knowledge about what customers like and how best to communicate with them.
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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. The overall market for a product consists of segments of customers who vary in their responses to different marketing mix offerings.

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Understanding Segmentation
Understanding market segmentation is important:

Slow market growth has fostered more competition, increasing the need to identify target markets Social and economic forces have produced customers with varied and sophisticated needs, tastes, and lifestyles. Technological advances make it possible for marketers to devise marketing programs that focus efficiently on precisely defined segments of the market. Minority buyers do not necessarily adopt the social and economic habits of the mainstream. 40% of US residents identify with some segment or niche group other than the historical marketing mainstream.
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Intermarket Segments
International marketing may be based on the cultivation of intermarket segments, which are well-defined, similar clusters of customers across national boundaries. This view of segmentation allows firms to develop marketing programs and offerings for each identified segment on a global basis.

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Target Markets
Market segmentation lets a firm tailor or develop products and strategies to appeal to the preferences and unique needs of specific groups of customers. These groups are typically referred to as target markets: groups of consumers or organizations with whom a firm wants to create marketing exchanges. Targeting involves selecting which segments in a market are appropriate to focus on and designing the means of reaching them.

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Product Differentiation
Product differentiation exists when a firms offerings differ or are perceived to differ from those of competing firms on any attribute, including price. A product differentiation strategy positions a product within the market. Marketers attempt to position a product or service in customers mindsto convince customers the product has unique and desirable characteristics.
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Mass Customization
Among the most notable changes in this century has been the shift from mass marketing to mass customization. Companies like Dell Computers have proved that complex manufactured products can be made to order. Now companies throughout the world have embraced mass customization in an attempt to satisfy the diverse needs of their customers and to provide unique value.
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Criteria for Effective Segmentation

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.

Measurability

Accessibility

Substantialness refers to the degree to Substantialness which identified target segments are large enough or have sufficient sales and profit potential to warrant unique or separate marketing programs.
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Criteria for Effective Segmentation

Durability has to do with stability of segmentswhether distinctions between segments will diminish or disappear as the product category or the markets themselves mature.

Durability

Differential responsiveness refers to the Differential Responsiveness extent to which market segments exhibit

different responses to different marketing mixes.

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Developing a Segmentation Strategy

Stages required in the development of a market segmentation strategy are summarized below. The organizations core business determines the product or service market in which it operates.
Exhibit 7-2

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Developing a Segmentation Strategy

Stages required in the development of a market segmentation strategy are summarized below. The organizations core business determines the product or service market in which it operates.
Exhibit 7-2

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Consumer Segmentation Bases

User-Related
Demographics Social class

Behavioral
Benefits Usage

Culture
Geographic Lifestyle and psychographic
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Price or promotional sensitivity

Buying situation Economic
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Business to Business Segmentation Bases User-Related

Customer size Geographic location Organizational structure Stage of buying process

Behavioral
End use Usage

Product/service application
Economic

Attitude toward vendor

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Bases for Segmentation

For consumer marketing, demographic Demographics segments are particularly significant. Some products are targeted for teenagers and others for the elderly; others are designed for young couples just beginning a family. Geographic differences are sometimes important in the development of marketing strategies. For example, cellular phone marketers use geographic analyses to evaluate their distribution effectiveness.

Geographics

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Bases for Segmentation (cont)

Psychographics Psychographic or lifestyle research attempts to segment customers according to & Lifestyle
their activities, interests, and opinions. By tapping into a consumers preferences and learning where her/his passions lie, firms increase the reception of their messages.

Benefit segmentation enhances the design Benefit and marketing of a product to meet Segmentation expressed consumer needs for quality, service, or unique features. In fact, benefit segmentation is most consistent with assumption of demand variation between segments.
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Bases for Segmentation (cont)

Firms are increasingly segmenting their Economic customers based on the profit potential Segmentation associated with individual accounts. Such economic segmentation occurs in both consumer marketing situations and business-to-business competitive markets.

International Segmentation is an important part of Segmentation international marketing as well. Firms can

employ oneor some combinationof three approaches: single standardized strategy, customized strategies, or intermarket segments.

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Combining Bases of Segmentation

Below is one way a firm might combine consumer characteristics to decide on a market segmentation strategy.
Exhibit 7-5

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Segmentation Strategies
A company adopts an undifferentiated strategy when it markets a single product using a single communication and distribution mix for the mass market.

Undifferentiated

Differentiated

At the other end of the scale is the differentiated strategy, under which a firm uses different strategies for most or a large number of different segments.

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Segmentation Strategies
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.

Concentrated

Countersegmentation

Countersegmentation is an alternative strategy to traditional segmentation approaches. It involves combining market segments and assumes an increasing consumer willingness to accept fewer product and service variations for lower prices.
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Estimating Segment Potential

Steps firms can use to estimate potential for a segment:

Set time period of interest. Define product level. Specify segment characteristics or bases. Identify geographic market boundaries. Make assumptions about marketing environment (uncontrollable factors such as competitive activity). Make assumptions about companys own marketing efforts and programs (controllable factors). Make estimates of market potential, industry sales, and company sales
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Developing Forecasts
Qualitative Procedures
Survey of Buyers intentions Expert Opinions Composite of Sales Forces estimates

Quantitative Methods
Trend Analysis Market Tests Statistical Demand Analysis

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Targeting Market Segments

To select target segments, the firm must consider:

The segments potential sales volume and profits. Competition currently selling to the segments. The firms abilities and objectives.

Positioning a product or service involves designing a marketing program that is consistent with how the company wants its products or services to be perceived. Repositioning, called for when a firm wants to shift consumer opinions about an existing brand, requires development of new marketing programs.

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Perceptual Maps
Exhibit 7-10

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Micromarketing
Micromarketing frequently combines census and demographic data to identify clusters of households that share similar consumption patterns. Micromarketing enhances the effectiveness of marketing efforts by enabling marketers to

Identify potential markets for direct selling through mail and telemarketing campaigns. Profile their customers by matching them to demographic and lifestyle clusters. Learn which areas offer the greatest potential in site selection for new stores or offices. Tailor their advertising themes and plan their media.
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Summary
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.

Bearden Marketing 5th Ed

7-27

2007 The McGraw-Hill Companies, Inc. All rights reserved.