Lamb Hair Mc Daniel 2010 2011 CHAPTER 8

Lamb, Hair, Mc. Daniel 2010 -2011 CHAPTER 8 Segmenting and Targeting Markets 1

Learning Outcomes LO 1 Describe the characteristics of markets and market segments LO 2 Explain the importance of market segmentation LO 3 Discuss criteria for successful market segmentation LO 4 Describe the bases commonly used to segment consumer markets LO 5 Describe the bases for segmenting business markets 2

Learning Outcomes LO 6 List the steps involved in segmenting markets LO 7 Discuss alternative strategies for selecting target markets LO 8 Explain one-to-one marketing LO 9 Explain how and why firms implement positioning strategies and how product differentiation plays a role 3

Market Segmentation Describe the characteristics of markets and market segments LO 1 4

A Market Is. . . People or organizations with: 1) needs or wants, and with 2) the ability and 3) the willingness to buy. 4) A group of people that lacks any one of these characteristics is not a market. LO 1 5

Market Segmentation Market Segment People or organizations with needs or wants and the ability and willingness to buy. A subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs. The process of dividing a market into Market meaningful, relatively similar, identifiable Segmentation segments or groups. LO 1 6

The Concept of Market Segmentation LO 1 7

The Importance of Market Segmentation Explain the importance of market segmentation LO 2 8

The Importance of Market Segmentation u Markets have a variety of product needs and preferences u Marketers can better define customer needs u Decision makers can define objectives and allocate resources more accurately LO 2 9

Criteria for Successful Segmentation Discuss criteria for successful market segmentation LO 3 10

Criteria for Segmentation Substantiality Segment must be large enough to warrant a special marketing mix. Identifiability and Measurability Segments must be identifiable and their size measurable. Accessibility Responsiveness LO 3 Members of targeted segments must be reachable with marketing mix. Unless segment responds to a marketing mix differently, no separate treatment is needed. 11

Bases for Segmenting Consumer Markets Describe the bases commonly used to segment consumer markets LO 4 12

Bases for Segmentation Geography Demographics Psychographics Benefits Sought Usage Rate LO 4 13

Geographic Segmentation u Region of the country or world u Market size u Market density u Climate LO 4 14

Benefits of Regional Segmentation New ways to generate sales in sluggish and competitive markets u Scanner data allow assessment of best selling brands in region u Regional brands appeal to local preferences u Quicker reaction to competition u LO 4 15

Demographic Segmentation Age Gender Income Ethnic background LO 4 Family life cycle 16

Ethnic Segmentation u Largest ethnic markets are: u Hispanic Americans u African Americans u Asian Americans Will comprise 1/3 of U. S. population by 2010 with buying power of $1 trillion annually LO 4 17

Family Life Cycle Age Marital Status LO 4 Children 18

Family Life Cycle LO 4 19

Psychographic Segmentation Market segmentation on the basis of personality, motives, lifestyles, and geodemographics. LO 4 20

Bases for Psychographic Segmentation Personality Motives Lifestyles Geodemographics http: //www. marthastewart. com http: //www. goodhousekeeping. com LO 4 Online 21

Lifestyle Segmentation u How time is spent u Importance of things around them u Beliefs u Socioeconomic characteristics LO 4 22

Geodemographic Segmentation Segmenting potential customers into neighborhood lifestyle categories. Combines geographic, demographic, and lifestyle segmentation. LO 4 23

Benefit Segmentation The process of grouping customers into market segments according to the benefits they seek from the product. LO 4 24

Usage Segmentation LO 4 Usage-Rate Segmentation Dividing a market by the amount of product bought or consumed. 80/20 Principle A principle holding that 20 percent of all customers generate 80 percent of the demand. 25

Bases for Segmenting Consumer Markets Geography • Region • Market size • Market density • Climate LO 4 Demographics • Age • Gender • Income • Race/ethnicity • Family life cycle Psychographics • Personality • Motives • Lifestyle • Geodemographics Benefits • Benefits sought Usage Rate • Former • Potential • 1 st time • Light or irregular • Medium • Heavy 26

Beyond the Book Economic Crisis and Shifting Targets LO 4 The high spending rates of the baby boom generation have made them a sought-after and profitable customer segment in the U. S. , Japan, and Western Europe. But boomers were often borrowing against the “wealth effect” of real estate appreciation and the equity gains from retirement accounts. In an economy with a depressed housing market and equity losses, many boomers now face an uncertain retirement income and must reprioritize their spending. A recent survey revealed that boomers are likely to cut spending on clothing, personal care, home furnishings, and travel, so companies in those sectors may need to shift their focus to a target demographic segment with better growth prospects. Source: David Court, The Downturn’s new rules for marketers, ” mckinseyquarterly. com, December 2008. 27

Bases for Segmenting Business Markets Describe the bases for segmenting business markets LO 5 28

Bases for Segmenting Business Markets Producers Resellers Government Institutions LO 5 Company Characteristics Buying Processes 29

Bases for Segmenting Business Markets Company Characteristics u Geographic location u Type of company u Company size u Volume of purchase u Product use LO 5 30

Buyer Characteristics Satisficers Business customers who place an order with the first familiar supplier to satisfy product and delivery requirements. Optimizers Business customers who consider numerous suppliers, both familiar and unfamiliar, solicit bids, and study all proposals carefully before selecting one. LO 5 31

Buyer Characteristics Demographic characteristics Decision style Tolerance for risk Confidence level Job responsibilities LO 5 32

Steps in Segmenting a Market List the steps involved in segmenting markets LO 6 33

Steps in Segmenting Markets 1 Select a market for study 2 Choose bases for segmentation 3 Select descriptors 4 Profile and analyze segments 5 Select target markets 6 Design, implement, maintain marketing mix Note that steps 5 and 6 are actually marketing activities that follow market segmentation (steps 1 through 4). LO 6 34

Strategies for Selecting Target Markets Discuss alternative strategies for selecting target markets LO 7 35

Strategies for Selecting Target Markets Target Market LO 7 A group of people or organizations for which an organization designs, implements, and maintains a marketing mix intended to meet the needs of that group, resulting in mutually satisfying exchanges. 36

Strategies for Selecting Target Markets Undifferentiated Strategy 7 LO Concentrated Strategy Multisegment Strategy 37

Undifferentiated Targeting Strategy Undifferentiated A marketing approach that Targeting views the market as one big Strategy market with no individual segments and thus requires a single marketing mix. LO 7 38

Undifferentiated Targeting Strategy Advantage: u Potential savings on production and marketing costs Disadvantages: u Unimaginative product offerings Undifferentiated Strategy LO 7 u Company more susceptible to competition 39

Concentrated Targeting Strategy A strategy used to select one Concentrated segment of a market for targeting Targeting Strategy marketing efforts. Niche One segment of a market. LO 7 40

Concentrated Targeting Strategy Advantage: u u Concentration of resources Meets narrowly defined segment Small firms can compete Strong positioning Disadvantages: Concentrated Strategy LO 7 u Segments too small, or changing u Large competitors may market to niche segment 41

Multisegment Targeting Strategy LO 7 A strategy that chooses two or more well-defined market segments and develops a distinct marketing mix for each. 42

Beyond the Book LO 7 Multisegment Targeting {Standard Tissue} You might think a firm producing a standard product like toilet tissue would adopt an undifferentiated strategy. However, this market has industrial segments and consumer segments. • Industrial buyers – • Economical, single-ply product • Large boxes • Consumer market – • Versatile product • Cushioned or not • Soft or tough • Scented or unscented • economy or luxury price • Variable roll sizes • Small packages, even single rolls • Charmin built a campaign based on their many options (www. charmin. com) • Fort Howard Corporation only participates in the industrial market 43

Multisegment Targeting Strategy Advantage: u Greater financial success u Economies of scale Disadvantages: u High costs u Cannibalization Multisegment Strategy LO 7 44

Costs of Multisegment Targeting Strategy u Product design costs u Production costs u Promotion costs u Inventory costs u Marketing research costs u Management costs u Cannibalization Multisegment Strategy LO 7 45

One-to-One Marketing Explain one-to-one marketing LO 8 46

One-to-One Marketing is. . . Has a Goal of… Individualized Cost Reduction Information-Intensive Customer Retention Long-Term Increased Revenue Personalized Customer Loyalty LO 8 47

One-to-One Marketing Trends • One-size-fits all marketing no longer effective • Direct and personal marketing will grow to meet needs of busy consumers. • Consumers will be loyal to companies that have earned—and reinforced—their loyalty. • Mass-media approaches will decline as technology allows better customer tracking. LO 8 48

Positioning Explain how and why firms implement positioning strategies and how product differentiation plays a role LO 9 49

Positioning Developing a specific marketing mix to influence potential customers’ overall perception of a brand, product line, or organization in general. LO 9 50

LO 9 Positioning of Procter & Gamble Detergents Brand Tide Cheer Bold Gain Era Dash Oxydol Solo Dreft 9 Ivory Snow Ariel LO Positioning Tough, powerful cleaning Market Share 31. 1% Tough cleaning, color protection 8. 2% Detergent plus fabric softener 2. 9% Sunshine scent and odor-removing formula 2. 6% Stain treatment and stain removal 2. 2% Value brand 1. 8% Bleach-boosted formula, whitening 1. 4% Detergent and fabric softener in liquid form 1. 2% Outstanding cleaning for baby clothes, safe 1. 0% Fabric & skin safety on baby clothes 0. 7% Tough cleaner, aimed at Hispanic market 0. 1% 51

Effective Positioning 1. Assess the positions occupied by competing products 2. Determine the dimensions underlying these positions 3. Choose a market position where marketing efforts will have the greatest impact LO 9 52

Product Differentiation A positioning strategy that some firms use to distinguish their products from those of competitors. Eat Fresh! Distinctions can be real or perceived. LO 9 53

Perceptual Mapping A means of displaying or graphing, in two or more dimensions, the location of products, brands, or groups of products in customers’ minds. LO 9 54