Chapter 6 Target Markets Segmentation and Evaluation 6 1 What are Markets Individuals may have desire and power to buy products but not the authority to do so ie teens Markets fall into one of two categories based on characteristics of the individuals and groups that make up a specific market and the purposes for which they buy products 1 Consumer Markets Consists of purchasers household members who intend to consume or benefit from products and do not buy products for the main purpose of making profit Business to Consumer market B2C Food clothing vehicles services appliances furniture etc 2 Business Markets Consists of individuals or groups that purchase a specific kind of product for one of three purposes resale direct use in producing other products or in general daily operations Business to business B2B Wiring raw materials etc 6 2 Target Market Selection Process Marketers generally use a five step process for selecting a target market 6 2A Step 1 Identify the Appropriate Targeting Strategy Target Market a group of people organizations for which a business creates and maintains a marketing mix specifically designed to satisfy the needs of group members Strategy used to select target market is affected by things like available resources and product attributes Undifferentiated Strategy when a company designs a single marketing matrix and directs it at the entire market for a particular product o Assumes all customers in the target market have similar needs o One type of product with little or no variation o One price one promotional program aimed at everybody one distribution system o Staple food items sugar salt farm produce etc o Effective under two conditions 1 A large proportion of customers in a total market must have similar needs for 2 The organization must be able to develop and maintain a single marketing mix the product homogeneous market that satisfies customer needs Concentrated Targeting Strategy when an organization directs its marketing efforts toward a single market segment using one marketing matrix o A market made up of individuals or organization with diverse product needs heterogeneous market ie The automobile industry o Market Segmentation the process of dividing a total market into groups that consist of people organizations with relatively similar product needs o Market Segment consists of individuals groups or organizations that share one or more similar characteristics that cause them to have relatively similar product needs o For market segmentation to succeed five conditions must be met 1 Customers needs for the product must be heterogeneous otherwise there is little reason to segment the market 2 Segments must be identifiable and divisible 3 The total market should be divided so segments can be compared with respect to estimated sales potential costs and growth 4 At least one segment must have enough profit potential to justify developing and maintaining a special marketing mix for that segment 5 The company must be able to reach the chosen segment with a particular marketing mix Some might be difficult to reach due to legal social or distribution constraints o Advantage of concentrated strategy allows a firm to specialize o Allows small firms with limited resources to compete with larger organizations that may have overlooked smaller segments o Disadvantage putting all eggs in one basket Differentiated Targeting Strategy an organization directs its marketing efforts at two or more segments by developing a marketing mix for each segment o Example Dove traditionally targeted women now it makes products for men with a separate marketing mix o Can increase sales and profit as well as costs for materials 6 2B Step 2 Determine Which Segmentation Variables To Use Segmentation Variables the characteristics of individuals groups or organizations used to divide a market into segments o Location age gender and rate of product usage o Should relate to the customer s needs for uses of or behavior toward the product o A company s resources affect the number and size of segment variables used Demographic Variables Geographic Variables o Age gender fertility rates migration patterns mortality rates etc o Closely linked to customer needs o Customers from the south rarely need snow tires for example o Market Density refers to the number of potential customers within a unit of land ara o Geodemographic Segmentation clusters people in zip code areas based on lifestyle and such as a square mile demographic information Micromarketing the focusing of precise marketing efforts on very small geographic markets such as community and even neighborhood markets Special advertising campaigns promotions special pricing etc Climate control AC units in the south heaters in the north o Personality characteristics motives and lifestyles o Must appeal to personality characteristic that many people view positively People with this characteristic as well as those who would like to have it may be influenced to buy that marketer s brand Psychographic Variables o Lifestyle Segmentation segmentation based on how people spend their money o VALS classifies consumers based on psychological characteristics Behavioristic Variables o Divide the market according to some feature of consumer behavior toward a product Product use frequency Heavy moderate light and non users o Benefit Segmentation division of a market according to benefits that consumers want from products Variables for Segmenting Business Markets o Like consumer markets business markets are often segmented by multiple variables o Geographic location demand for products varies among areas o Types of Organization different types of organizations require different product features distribution systems price structures and selling strategies Carpet producer segmenting into automobile makers carpet contractors apartment complex developers carpet wholesalers etc o Customer Size an organization s size may affect its purchasing procedures and the types and quantities of products it wants Customers who buy in bulk are sometimes offered discounts o Product Use segmentation based on how a product is used by consumers Computer producer segments to target accountants engineers researchers software designers etc 6 2C Step 3 Develop Market Segment Profiles Market Segment Profile describes the similarities among potential customers within a segment and explains the differences among people and organizations in different segments o Demographic
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