Identifying Market Segments and Selecting Target Markets 1

Identifying Market Segments and Selecting Target Markets 1 Copyright © 2003 Prentice-Hall, Inc.

Kotler on Marketing “Don’t buy market share. Figure out how to earn it. ” What dose he mean ? ! 2 Copyright © 2003 Prentice-Hall, Inc.

Chapter Objectives § We focus on the following questions: § How can a company identify the segments that make up a market? § What criteria can a company use to choose the most attractive target markets? 3 Copyright © 2003 Prentice-Hall, Inc.

Target Marketing § Target marketing requires marketers to take three major steps: § Identify and profile distinct groups of buyers who differ in their needs and preferences (market segmentation). § Select one or more market segments to enter (market targeting). § For each target segment, establish and communicate the key distinctive benefit(s) of the company’s market offering (market positioning). 4 Copyright © 2003 Prentice-Hall, Inc.

Steps in Segmentation, argeting, and Positioning 6. Develop Marketing Mix for Each Target Segment 5. Develop Positioning for Each Target Segment 4. Select Target Segment(s) Market Targeting 3. Develop Measures of Segment Attractiveness 2. Develop Profiles of Resulting Segments 1. Identify Bases for Segmenting the Market Positioning Market Segmentation 5 Copyright © 2003 Prentice-Hall, Inc.

tep 1. Market Segmentation evels of Market Segmentation Mass Marketing Same product to all consumers (no segmentation) Segment Marketing Different products to one or more segments (some segmentation) Niche Marketing Different products to subgroups within segments ( more segmentation) Micromarketing Products to suit the tastes of individuals or locations (complete segmentation) 6 Copyright © 2003 Prentice-Hall, Inc.

Definition § Market Segmentation: § The act of dividing a market into smaller groups of buyers with distinct needs, characteristics, or behaviors who might require separate products and/or marketing mixes. l. If all consumers respond the same way, then there should be no need to segment a market 7 Copyright © 2003 Prentice-Hall, Inc.

Levels and Patterns of Market Segmentation Levels of Market Segmentation: § Mass marketing: one product for all buyers (Coke) § Micromarketing: segments, niches, local areas, and individuals. 1. Segment marketing: § Market segment: a group of customers who share a similar set of wants (car buyers: low cost VS luxurious). § Sector: young and middle-income buyers § Marketer doesn’t create the segment but identify & target it. § Flexible market offering § Naked solution: product and service elements all segment’s members value. § Discretionary options: some segment’s members value. (Mobile) § Segment marketing offers several benefits over mass marketing (best product, distrib. and comm. channels, understand competitors well). 8 Copyright © 2003 Prentice-Hall, Inc.

2. Niche Marketing § Niche: customers with distinct set of needs. § Niches attract smaller competitors than segments. § Niche has size, profit and growth potential. 3. Local Marketing § Tailored marketing programs fit the local needs and wants. § Has several problems: more costs, logistical problems, affect company’s brand image. 9 Copyright © 2003 Prentice-Hall, Inc.

4. Individual Customer Marketing § Mass-customization: Individually designed products, services, programs and comm. To meet each customer’s requirements. § Choiceboard: interactive online services. § Choiceboard advantages include: facilitate selling, real-time market research, reduces company’s costs. § Customization: allow customers to design their own products and services of their choice. 10 Copyright © 2003 Prentice-Hall, Inc.

Patterns for Market Segmentation § Preference segments § Homogeneous preferences: all customers have roughly the same preferences. § Diffused preferences: customers vary greatly in their preferences. § Clustered preferences: § Natural market segments: distinct preference clusters. § Concentrated marketing: to be positioned in the largest market segment. 11 Copyright © 2003 Prentice-Hall, Inc.

: : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : Attribute Y BASIC MARKET PREFERENCE PATTERNS Attribute X A. Homogeneous Preferences B. Diffused Preferences C. Clustered Preferences 12 Copyright © 2003 Prentice-Hall, Inc.

Market Segmentation Procedure § Needs-based market segmentation approach Grouping customers into segments based on similar needs and benefits sought by them. § Market partitioning: to investigate the hierarchy of attributes consumers examine in choosing a brand (example: nation, manufacturer, product). § Brand-dominant hierarchy § Nation-dominant hierarchy § The hierarchy of attributes can reveal customer segments (price, type, brand). 13 Copyright © 2003 Prentice-Hall, Inc.

Requirements for Effective Segmentation Measurable • Size, purchasing power, profiles of segments can be measured. Accessible • Segments must be effectively reached and served. Substantial • Segments must be large or profitable enough to serve. • Segments must respond Differential differently to different marketing mix elements & actions. effective programs can be designed for attracting and serving the segments. Actionable 14 Copyright © 2003 Prentice-Hall, Inc.

Segmenting Consumer Markets Geographic Nations, states, regions or cities Demographic Age, gender, family size and life cycle, or income Psychographic Social class, lifestyle, personality or Behavioral Occasions, benefits, uses, or responses 15 Copyright © 2003 Prentice-Hall, Inc.

The Classic Segmentation Variables for Consumer Markets FIGURE 7. 316 Copyright © 2003 Prentice-Hall, Inc.

Segmenting Consumer Markets § Geographic Segmentation: Dividing an overall market into homogeneous groups on the basis of their locations § Does not ensure that all consumers in a location will make the same buying decision. § Help in identifying some general patterns. • ( Where they live ? ) 17 Copyright © 2003 Prentice-Hall, Inc.

Segmenting Consumer Markets § Demographic segmentation: § (Who they are ) 18 Copyright © 2003 Prentice-Hall, Inc.

§ Segmenting by gender § Marketers must ensure that traditional assumptions are not false § Other firms start by targeting one gender and then switch to both § To some companies market successfully to both genders 19 Copyright © 2003 Prentice-Hall, Inc.

§ Segmenting by age § Many firms identify market segments on the basis of age § Products are often designed to meet the specific needs of certain age groups § Examples: baby food and denture cream. Dole: Developing a Product Specifically for Children 20 Copyright © 2003 Prentice-Hall, Inc.

§ Ethnic Group Segmentation § Census Bureau projects that by 2050, nearly half of the population of the US will belong to nonwhite minority groups. § The three largest and fastest-growing racial/ethnic groups in the US are African Americans, Hispanics, and Asian Americans. 21 Copyright © 2003 Prentice-Hall, Inc.

n Family Life Cycle Stages Segmentation ü The process of family formation and dissolution. ü The underlying theme is that life stage, not age per se, is the primary determinant of many consumer purchases. ü Today, the average woman gives birth to two children. ü She usually has her children at a later age —about 35. 22 Copyright © 2003 Prentice-Hall, Inc.

n Segmenting by household type ü The “traditional family” has declined over the years ü Single-parent families, single-person households, and non-family group households have more than doubled during the same time ü Non-traditional households make likely buyers of single-serving and convenience foods 23 Copyright © 2003 Prentice-Hall, Inc.

§ Jaguar § Segmentation based on income 24 Copyright © 2003 Prentice-Hall, Inc.

Demographic Segmentation Variables Goal 2: Understand the major bases for segmentation Copyright © 2003 Prentice-Hall, Inc. 25

Psychographic Segmentation Variables Psychographics is the science of using psychology and demographic to better understand consumer. Divides Buyers Into Different Groups Based on: Social Class Lifestyle Personality (How they behave ? ) 26 Copyright © 2003 Prentice-Hall, Inc.

§ Psychographic Segmentation § Divides a population into groups that have similar psychological characteristics, values, and lifestyles § Lifestyle: people’s decisions about how to live their daily lives, including family, job, social, and consumer activities § The most common method for developing psychographic profiles of a population is to conduct a large-scale survey: VALS and VALS 2. “Values and Lifestyles” 27 Copyright © 2003 Prentice-Hall, Inc.

§ Product-related segmentation: § dividing a consumer population into homogeneous groups based on characteristics of their relationships to the product § Can take the form of segmenting based on: § § § Benefits that people seek when they buy Usage rates for a product Consumers’ brand loyalty toward a product § (Why they buy ? ) 28 Copyright © 2003 Prentice-Hall, Inc.

Behavioral Segmentation Variables § Benefits Sought: § Buyers can be classified according to the benefits they seek. § Usage Rates § Segmenting by grouping people according to the amounts of a product that they buy and use § Markets often divided into heavy-user, moderate-user, and light-user segments Goal 2: Understand the major bases for segmentation Copyright © 2003 Prentice-Hall, Inc. 29

§ Brand Loyalty § Segmenting consumers grouped according to the strength of brand loyalty felt toward a product § A practical example of this would be the frequent flyer programs of airlines and many hotels 30 Copyright © 2003 Prentice-Hall, Inc.

Behavioral Segmentation Variables § Loyalty Status: § Buyers can be divided into four groups according to brand loyalty status: 1 - Hard core loyals : consumers who buy only one brand all the time. 2 -Split loyals: consumers who are loyal to two or three brands. 3 -Shifting loyals : consumers who shift loyalty from one brand to another. 4 -Switchers: consumers who show no loyalty to any brand. 31 Copyright © 2003 Prentice-Hall, Inc.

Behavioral Segmentation Variables § Occasions: § Special promotions and labels for holidays. § Special products for special occasions. (e. g. , Kodak disposable cameras) Goal 2: Understand the major bases for segmentation Copyright © 2003 Prentice-Hall, Inc. 32

Behavioral Segmentation Variables § Attitude: § Five attitude groups can be found in a market: 1 -Enthusiastic 2 -Positive 3 -Indifferent 4 -Negative 5 -Hostile Goal 2: Understand the major bases for segmentation Copyright © 2003 Prentice-Hall, Inc. 33

Segmenting Business Markets Demographics Operating Variables Purchasing Approaches Business Marketers Use Many of the Same Consumer Variables, Plus: Situational Factors Personal Characteristics 34 Copyright © 2003 Prentice-Hall, Inc.

Segmenting Business Markets § Demographic segmentation 1 -Industry: Which industries should we serve? 2 - company size: What size companies should we serve? 3 - location : What geographical areas should we serve? 35 Copyright © 2003 Prentice-Hall, Inc.

Segmenting Business Markets § Operating variables 1 -Technology: What customer technologies should we focus on? 2 - User or non-user status: Should we serve heavy users, medium user, light users, or nonusers? 3 - Customer capabilities: Should we serve customers needing many or few services? 36 Copyright © 2003 Prentice-Hall, Inc.

Segmenting Business Markets § Purchasing Approaches 1 -Purchasing-function organization: Should we serve companies with highly centralized or decentralized purchasing organizations? 2 - Power structure: Should we serve companies that are engineering dominated, financially dominated and so on? 3 - Nature of existing relationships: Should we serve companies with which we have strong relationships or simply go after the most desirable companies? 4 - General purchase policies: Should we serve companies that prefer leasing? service contracts? System purchase? 5 - Purchasing criteria: Should we serve companies that are seeking quality? Service? Price? 37 Copyright © 2003 Prentice-Hall, Inc.

Segmenting Business Markets § Situational factors 1 -Urgency: Should we serve companies that need quick and sudden delivery or service? 2 -specific application: Should we focus on certain application of our product rather than all applications? 3 - size of order: Should we focus on large or small orders? 38 Copyright © 2003 Prentice-Hall, Inc.

Segmenting Business Markets § Personal characteristics 1 -Buyer-seller similarity: Should we companies whose people and values are similar to ours? 2 - Attitudes toward risk: Should we serve risk-taking or risk-avoiding customers? 3 -loyalty: Should we serve companies that show high loyalty to their suppliers? 39 Copyright © 2003 Prentice-Hall, Inc.

Evaluating Market Segments § Segment Size and Growth § Analyze current segment sales, growth rates, and expected profitability. § Segment Structural Attractiveness § Consider effects of: competitors, existence of substitute products, and the power of buyers & suppliers. § Company Objectives and Resources § Examine company skills & resources needed to succeed in that segment. § Offer superior value and gain advantages over competitors. 40 Copyright © 2003 Prentice-Hall, Inc.

Target Marketing Strategies 41 Copyright © 2003 Prentice-Hall, Inc.

Market Targeting § Evaluating and Selecting the Market Segments § § § Single-Segment Concentration Selective Specialization Product Specialization Market Specialization Full Market Coverage § Undifferentiated marketing § Differentiated marketing 42 Copyright © 2003 Prentice-Hall, Inc.

Market Targeting § Higher costs using differentiated marketing include: § § § Product modification cost Manufacturing cost Administrative cost Inventory cost Promotion cost 43 Copyright © 2003 Prentice-Hall, Inc.

Target Marketing § Target Market § Consists of a set of buyers who share common needs or characteristics that the company decides to serve Goal 3: Know how companies identify and target attractive segments Copyright © 2003 Prentice-Hall, Inc. 44

Target Marketing § Evaluating Market Segments § Segment size and growth § Segment structural attractiveness § § Level of competition Substitute products Power of buyers Powerful suppliers § Company objectives and resources Goal 3: Know how companies identify and target attractive segments Copyright © 2003 Prentice-Hall, Inc. 45

Target Marketing § Selecting Target Market Segments § Undifferentiated (mass) marketing § Differentiated (segmented) marketing § Concentrated (niche) marketing § Micromarketing (local or individual) Goal 3: Know how companies identify and target attractive segments Copyright © 2003 Prentice-Hall, Inc. 46

Choosing a Target Marketing Strategy § Considerations include: § Company resources § The degree of product variability § Product’s life-cycle stage § Market variability § Competitors’ marketing strategies Goal 3: Know how companies identify and target attractive segments Copyright © 2003 Prentice-Hall, Inc. 47

Targeting Strategies § Classic mass marketing, all things to all people approach § Ignore segments § One mm for all customers § Rarely used today – Name an undifferentiated FIGURE 7. 248 product? Copyright © 2003 Prentice-Hall, Inc.

FIGURE 7. 2 49 Copyright © 2003 Prentice-Hall, Inc.

Differentiated Strategy (cont. ) § The firm targets several separate segments and designs separate marketing strategies for each § GM’s “a car for every purpose, purse, and personality” § vs. Fords one car for every purpose for every purse for every For most firms, this means they go for a small personality” share of the larger, total aggregate market (one or two mm for one or two segments (out of maybe six or seven) 50 Copyright © 2003 Prentice-Hall, Inc.

Concentrated Marketing § The firm goes for a large share of a single (or very few) segments § Jeep vs. GM § Can be niched or larger Copyright © 2003 Prentice-Hall, Inc. FIGURE 7. 251

IT IS CRITICAL TO UNDERSTAND THAT § Mass marketers do not often practice mass marketing today § They practice differentiated marketing § Often they do not change the product to appeal to different segments § They change price, place, and promotion 52 Copyright © 2003 Prentice-Hall, Inc.

Target Marketing § Socially Responsible Targeting § Some segments, especially children, are at special risk § Many potential abuses on the Internet, including fraud Internet shoppers § Controversy occurs when the methods used are questionable Goal 3: Know how companies identify and target attractive segments Copyright © 2003 Prentice-Hall, Inc. 53

Positioning § Positioning: § The place the product occupies in consumers’ minds relative to competing products. § Typically defined by consumers on the basis of important attributes. § Involves implanting the brand’s unique benefits and differentiation in the customer’s mind. § Positioning maps that plot perceptions of brands are commonly used. Goal 4: Realize how companies position their products Copyright © 2003 Prentice-Hall, Inc. 54