Chapter 8 Segmenting and Targeting Markets Market people or organizations with needs or wants and with the ability and the willingness to buy Market segment a subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs Market segmentation the process of dividing a market into meaningful relatively similar and identifiable segments or groups 8 2 The Importance of Market Segmentation Helps marketers define customer needs and wants more precisely Helps marketers define objective and better allocate resources Few firms practiced market segmentation until the 1960s 8 3 Criteria for Successful Segmentation Enables marketers to identify groups of customers with similar needs and to analyze the characteristics and buying behavior of these groups provides marketers with information to help them design marketing mixes specifically matched with the characteristics and desires of one or more segments consistent with the marketing concept of satisfying customer wants and needs while meeting the organization s objectives A successful segmentation scheme must product segments that meet 4 basic criteria o 1 Substantiality segment must be large enough to maintain a special marketing mix need potential customers o 2 Identifiability and measurability o 3 Accessibility the firm must be able to reach members of targeted segments with customized marketing mixes o 4 Responsiveness 8 4 Bases for Segmenting Consumer Markets Segmentation bases variables characteristics of individuals groups or organizations Segment markets based on geography demographics psychographics benefits sought usage rate Geographic segmentation segmenting markets by region of a country or the world market size market density or climate Consumer goods companies take a regional approach to marketing for 4 reasons o Many firms need ot find new ways to generate sales bc of sluggish and intensely competitive markets o Computerized checkout stations with scanners give retailers an accurate assessment of which brands sell best in their regions o Many packaged goods manufacturers are introducing new regional brands intended to appeal to local preferences o A more regional approach allows consumer goods companies to react more quickly to competition Demographic segmentation segmenting markets by age gender income ethnic background and family life cycle o Children account for and influence a great deal of consumption o Generation X disloyal to brands skeptical of big business desire an experience not just a product o Baby boomers want attention and service when they shop o Family life cycle FLC a series of stages determined by a combination of age martial status and the presence or absence of children Demographics provide the skeleton but psychographics add meat to the bones Psychographic segmentation segmenting markets on the basis of personality motives lifestyles and geodemographics o Geodemographic segmentation segmenting potential customers into neighborhood lifestyle categories combines geographic demographic lifestyle segmentations o Young digerati tech savvy affluent live in trendy condos read the economist annual income of 88 000 Benefit segmentation the process of grouping customers into market segments according to the benefits they seek from the product based on needs wants not on age gender Usage rate segmentation dividing a market by the amount of product 80 20 principle a principle holding that 20 of all customers generate bought or consumed 80 of the demand 8 5 Bases for Segmenting Business Markets Company characteristics such as geographic location type of company company size and product use can be important segmentation variables 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 8 6 Steps in Segmenting A Market Select segmentation descriptors Select a market or product category for study Choose a basis or bases for segmenting the market Profile and analyze segments Design implement and maintain appropriate marketing mixes Select target markets 8 7 Strategies for Selecting Target Markets Target market 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 Undifferentiated targeting strategy a marketing approach that views the market as one big market with no individual segments and thus uses a single marketing mix o Model T car the first firm in an industry sugar flour o Advantages potential savings on production marketing cost o Disadvantages unimaginative product offerings company more susceptible to competition Concentrated targeting strategy a strategy used to select one segment of a market for targeting marketing efforts o Niche one segment of a market o Advantages concentration of resources can better meet the needs of a narrowly defined segment allows some small firms to better compete with larger firms strong positioning o Disadvantages segments too small or changing large competitors may more effectively market to niche segment Multi segment targeting strategy a strategy that chooses 2 or more well defined market segments and develops a distinct marketing mix for each o P G o Advantages greater financial success economies of scale in producing marketing o Disadvantages high costs cannibalization Cannibalization a situation that occurs when sales of a new product cut into sales of a firm s existing products 8 8 CRM As A Targeting Tool CRM entails tracking interactions with customers to optimize customer satisfaction and long term company profits Personalization Time savings Loyalty Technology 8 9 Positioning Positioning developing a specific marketing mix to influence potential customers overall perception of a brand product line or organization in general Position the place a product brand or group of products occupies in consumers minds relative to competing offerings Positioning assumes that consumers compare products on the basis of important features Effective positioning requires assessing the positions occupied by competing products determining the important dimensions underlying these positions and choosing a position in the market where the organization s marketing efforts will
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