Chapter 8 Segmenting and Targeting Markets 1 A Market Is 2 Basis For Segmentation a People or organizations with needs or wants who have the ability and willingness to buy i A group that lacks just ONE of these characteristics is not a market b Market Segment A subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs c Market Segmentation The process of dividing a market into meaningful relatively similar identifiable segments or groups i Markets Segment To Identify groups of customers with similar needs analyze the characteristics buying behavior of these groups get information to design marketing mixes meet marketing concept satisfying consumer wants and needs while meeting organization s objectives ii Criteria for Segmentation In terms of the marketing mix 1 Substantial Segment must be large enough 2 Identifiable Measurable 3 Accessibility Segment must be reachable 4 Responsiveness Unless segment responds to a marketing mix differently no separate treatment is needed iii Importance Until 1960 s very few firms practiced segmentation 1 All markets have a variety of needs and preferences markets are different 2 Helps marketers to better define customer needs 3 Decision makers can identify objectives and allocate resources more effectively 4 Performance can be better evaluated when objectives are more precise a Marketers use segmentation bases or variables which are characteristics of individuals group or organizations to divide a total market into segments i Key Find bases that will produce substantial measurable and accessible segments that exhibit different response patterns to marketing mixes b Geographic Segmentation Region of the country or world market size market density climate i Benefits of Regional Segmentation 1 New ways to generate sales in sluggish and competitive markets 2 Scanner data allow assessment of best selling brands in a region 3 Regional brands appeal to local preferences 4 Quicker reaction to competition c Demographic Segmentation Age gender income ethnicity family life cycle i Age Segmentation Uses cohorts such as tweens teens generation Y X Baby Boomers war generation the great depression generation the G I generation ii Gender Segmentation Women make 70 of consumer purchases annually causing marketers of male dominated categories to target women and vice versa iii Income Segmentation Determines consumers wants and buying power 1 Retailers can appeal to a Low Income Wal Mart b High Income Saks c Both Costco Target Asian to expand iv Ethnic Segmentation Largest ethnic markets are Hispanic African American and 1 Companies must make products geared to specific ethnic groups as they continue v Family Life Style A series of stages determined by a combination of age martial status and the presence of absence of children 1 d Psychographic Segmentation Market segmentation on the basis of personality motives lifestyles and geo demographics i Personality Reflects a person s traits attitudes and habits ii Motives Marketers might appeal to emotional rational or status motives among others iii Lifestyle Segmentation How time is spent Importance of things around them Beliefs iv Geo demographic Segmentation Segmenting potential customers into neighborhood socioeconomic characteristics lifestyle categories 1 Combines geographic demographic and lifestyle segmentation e Benefit Segmentation Grouping customers according to the benefits they seek from the f Usage Rate Segmentation Dividing a market by the amount of product being bought or i 80 20 Principle A principle holding that 20 percent of all customers generate 80 percent product consumed institutions of the demand 3 Basis for Segmenting Business Markets a Business markets come in four broad segments producers resellers government and b Company Characteristics Include important segmentation variables i Geographic Location Firms that sell to geographically concentrated industries benefit by locating close to their markets ii Type of Company Allows business to tailor their marketing mixes to the unique needs of particular types of organizations or industries iii Size of Company May affect purchasing procedures types and quantities of products it needs and its responses to different marketing mixes iv Product Use May influence the amount a consumer buys their buying criteria and their selection of vendors c Buyer Characteristics Demographic Characteristics Decision Style Tolerance for Risk Confidence Level Job Responsibilities i Satisficers Business customers who place an order with the first familiar supplier to satisfy product and delivery requirements ii Optimizers Business customers who consider numerous suppliers both familiar and unfamiliar solicit bids and study all proposals carefully before selecting one 4 Steps in Segmenting Market a Select a Market to Study b Choose basis for Segmentation c Select Descriptors d Profile and Analyze Segments e Select Target Markets f Design implement and maintain marketing mix 5 Segmenting a Market a Target Markets 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 i Undifferentiated Target Strategy A marketing approach that views the market as one big market with no individual segments and thus uses a single marketing mix 1 Advantage Potential Savings on production and marketing costs 2 Disadvantage Unimaginative product offerings company more susceptible to ii Concentrated Target Strategy A strategy used to select one niche segment of a competition market for targeting marketing efforts 1 Advantages a Concentration of resources b Meets narrowly defined segment c Small firms can compete d Strong positioning 2 Disadvantages a Segments too small or changing b Large competitors may market to niche segment iii Multi segmented Target Strategy A strategy that chooses two or more well defined market segments and develops a distinct marketing mix for each 1 Advantages a Greater financial success b Economies of scale 2 Disadvantages a Higher costs b Cannibalization Occurs when sales of a new product cut into sales of a firm s existing products 3 Costs of Multi segment Targeting Strategy a Product design costs b Production costs c Promotion costs d Inventory costs e Marketing research costs f Management costs g Cannibalization 6 One to One Marketing a Most businesses today use a mass
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