Chapter 5 Market Segmentation Key Terms Marketing Segmentation

Chapter 5 Market Segmentation Key Terms Marketing Segmentation, Post Hoc Segmentation, Priori Segmentation, Benefit Segmentation, Psychographic Segmentation, Vertical Dimension, Horizontal Dimension, Geodemographic Segmentation, Positioning Map, Marketing Mix Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved

Understanding Market Segmentation • Based on the idea that a single product item can seldom meet the needs and wants of all consumers • Viable market – One that can be profitably served by a firm • Market segmentation can be defined as the process of dividing a market into groups of similar consumers and selecting the most appropriate group(s) for the firm to serve • Target market – Group or market segment that a company selects to focus on Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved

Understanding Market Segmentation A Model of the Market Segmentation Process Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved

Understanding Market Segmentation • Delineate the firm’s current situation • Intended to be a reminder of tasks to be performed prior to marketing planning • Determine consumer needs and wants • • • Successful marketing strategies depend on meeting consumer needs and wants Industry within which firm operates specifies boundaries of firm’s need satisfaction activities At a strategic level, need and wants usually are translated into more operational concepts Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved

Dimensions for Market Division Three important questions to be considered are Should the segmentation be a priori or a post hoc? How does one determine the relevant dimensions or bases to use for segmentation? What are some bases for segmenting consumer and organizational buyer markets? Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved

A Priori versus Post Hoc Segmentation • A priori segmentation – An approach where the marketing manager has decided on the appropriate basis for segmentation in advance of doing any research on a market • Post hoc segmentation – An approach in which people are grouped into segments on the basis of research findings Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved

Relevance of Segmentation Dimensions • At least some initial dimensions can be determined from • • • Previous research Purchase trends Managerial judgment • Consideration and research of sought benefits are a strongly recommended approach Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved

Bases for Segmentation Useful Segmentation Bases for Consumer Markets Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved

Bases for Segmentation Useful Segmentation Bases for Consumer Markets Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved

Bases for Segmentation Useful Segmentation Bases for Organizational Buyer Markets Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved

Bases for Segmentation • Benefit segmentation – Focuses on benefits sought by consumers • Is a market-oriented approach • Psychographic segmentation – Focuses on consumer lifestyles • • • Lifestyles are measured on the bases of activities, interests and opinions (AIO) of consumers Best-known type of segmentation is VALSTM (“values and lifestyles”) Product of SRI Consulting Business Intelligence Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved

Bases for Segmentation VALS™ Framework and Segments Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved

Bases for Segmentation Toothpaste Market Benefit Segments Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved

Bases for Segmentation • Geodemographic Segmentation – Identifies specific households in a market by focusing on local neighborhood geography • PRIZM NE – Potential Ranking Index by ZIP Markets – New Evolution • • Assumes that consumers in particular neighborhoods are similar in many respects and that the best prospects are those who actually use a product Classifies every U. S. neighborhood into a total of 66 distinct segments Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved

Develop Product Positioning • Positioning can be achieved through any one of these strategies • • • Superiority to competitive products on one or more product attributes Positioned by use or application Positioned in terms of particular types of users Positioned relative to a product class Positioned directly against particular competitors • Position mapping – Visual depiction of customer perceptions of competitive products, brands, or models Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved

Positioning Map for Automobiles Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved

Market Segmentation Strategies • Firm may decide to do the following • • Not to enter the market To segment but to be a mass marketer Market is so small that it is not profitable to market to one portion of it Heavy users comprise such a large proportion of sales that they are the only relevant target Product is a dominant brand, and targeting to a few segments is not beneficial To market to one segment To market to more than one segment and design a separate marketing mix for each Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved

Market Segmentation Strategies Criteria to base a firm’s segmentation strategy decisions are Measurable – Firm must be capable of measuring its size and characteristics Meaningful – Large enough to deliver sufficient sales and growth potential Marketable – Can be reached and served in an efficient manner Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved

Market Segmentation Strategies Selecting Target Markets: Some Questions Marketing Managers Should Answer Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved

Market Segmentation Strategies Selecting Target Markets: Some Questions Marketing Managers Should Answer Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved

Design Marketing Mix Strategy • Selection of target market and designing the market should go hand in hand • Marketing mix decisions should have already been carefully considered • Product positioning has many implications for promotion and channel distribution Mc. Graw-Hill/Irwin © 2009 The Mc. Graw-Hill Companies, All Rights Reserved