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1. 9 MarketingLamb, Hair, McDaniel Designed by Eric Brengle B-books, Ltd. Prepared by Deborah Baker Texas Christian University Segmenting and Targeting Markets CHAPTER 7

2. Learning Outcomes Describe the characteristics of markets and market segments Explain the importance of market segmentation Discuss criteria for successful market segmentation Describe the bases commonly used to segment consumer markets LOI LO2 LO3 LO4

3. Learning Outcomes Describe the bases for segmenting business markets List the steps involved in segmenting markets Discuss alternative strategies for selecting target markets Explain one-to-one marketing Explain how and why firms implement positioning strategies and how product differentiation plays a role LO5 LO6 LO7 LO8 LO9

4. Market Segmentation LOI Describe the characteristics of markets and market segments

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

6. Market Market Segment Market Segmentation 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 meaningful, relatively similar, identifiable segments or groups. Market Segmentation LOI

7. The Concept of Market Segmentation LOI

8. The Importance of Market Segmentation LO2 Explain the importance of market segmentation

9. The Importance of Market Segmentation • Markets have a variety of product needs and preferences • Marketers can better define customer needs • Decision makers can define objectives and allocate resources more accurately LO2

10. Market segmentation More precise definition of customers needs and wants More accurate marketing objectives Improved resource allocation Better marketing results REVIEW LEARNING OUTCOMEThe Importance of Market Segmentation LO2

11. Criteria for Successful Segmentation LO3 Discuss criteria for successful market segmentation

12. Substantiality Segment must be large enough to warrant a special marketing mix. Identifiabilityand Measurability Segments must be identifiable and their size measurable. Accessibility Members of targeted segments must be reachable with marketing mix. Responsiveness Unless segment responds to a marketing mix differently, no separate treatment is needed. Criteria for Segmentation LO3

13. Usefulsegment? • Substantial • Identifiable and measurable • Accessible • Responsive Then, yes: Useful segmentation scheme REVIEW LEARNING OUTCOMESuccessful Market Segmentation LO3

14. Bases for Segmenting Consumer Markets LO4 Describe the bases commonly used to segment consumer markets

15. SegmentationBases Bases for Segmenting Consumer Markets LO4 Characteristics of individuals, groups, or organizations used to divide a total market into segments. (variables)

16. Geography Demographics Psychographics Benefits Sought Usage Rate Bases for Segmentation LO4

17. Geographic Segmentation LO4 • Region of the country or world • Market size • Market density • Climate

18. Benefits of Regional Segmentation • New ways to generate sales in sluggish and competitive markets • Scanner data allow assessment of best selling brands in region • Regional brands appeal to local preferences • Quicker reaction to competition LO4

19. Demographic Segmentation Age Gender Income Ethnic background Family life cycle LO4

20. Ethnic Segmentation • Largest ethnic markets are: • Hispanic Americans • African Americans • Asian Americans • Will comprise 1/3 of U.S. population by 2010 with buying power of $1 trillion annually LO4

21. Family Life Cycle Age MaritalStatus Children LO4

22. Family Life Cycle LO4

23. PsychographicSegmentation Psychographic Segmentation LO4 Market segmentation on the basis of personality, motives, lifestyles, and geodemographics.

24. Personality Motives Lifestyles http://www.marthastewart.com http://www.goodhousekeeping.com Geodemographics Online Bases for Psychographic Segmentation LO4

25. Lifestyle Segmentation LO4 • How time is spent • Importance of things around them • Beliefs • Socioeconomic characteristics

26. Biz Flix LO4 The BreakfastClub 26

27. Geodemographic Segmentation Geodemographic Segmentation LO4 Segmenting potential customers into neighborhood lifestyle categories. Combines geographic, demographic, and lifestyle segmentation.

28. Benefit Segmentation Benefit Segmentation LO4 The process of grouping customers into market segments according to the benefits they seek from the product.

29. Usage-RateSegmentation Dividing a market by the amount of product bought or consumed. 80/20Principle A principle holding that 20 percent of all customers generate 80 percent of the demand. Benefit Segmentation LO4

30. Example of Usage-Rate LO4 • Verizon, Sprint Nextel and others allow consumers with standard contracts to access the Internet via cellular high-speed services. • Some customers’ service is being cancelled because they are using excessive network capacity. • Sprint and Cingular Wireless charge based on usage: the amount of data bits they wirelessly transfer each month. SOURCE: Amol Sharma and Dionne Searcey, “Cell Carriers to Web Customers: Use Us, but Not too Much,” Wall Street Journal, May 11, 2006, B1.

31. Geography Demographics Psychographics Benefits Usage Rate • Region • Market size • Marketdensity • Climate • Age • Gender • Income • Race/ethnicity • Family life cycle • Personality • Motives • Lifestyle • Geodemo-graphics • Benefitssought • Former • Potential • 1st time • Light orirregular • Medium • Heavy REVIEW LEARNING OUTCOMEBases for Segmenting Consumer Markets LO4

32. Bases for Segmenting Business Markets LO5 Describe the bases for segmenting business markets

33. Producers Resellers Government Institutions Bases for Segmenting Business Markets LO5 Company Characteristics Buying Processes

34. Company Characteristics Bases for Segmenting Business Markets • Geographic location • Type of company • Company size • Volume of purchase • Product use LO5

35. Satisficers Business customers who place an order with the first familiarsupplier to satisfy product anddelivery requirements. Optimizers Business customers who consider numerous suppliers, both familiar and unfamiliar, solicit bids, and study allproposals carefully beforeselecting one. Buyer Characteristics LO5

36. Buyer Characteristics Demographic characteristics Decision style Tolerance for risk Confidence level Job responsibilities LO5

37. Company Characteristics Producers Resellers Governments Institutions Buying Process REVIEW LEARNING OUTCOMESegmenting Business Markets LO5

38. Steps in Segmenting a Market LO6 List the steps involved in segmenting markets

39. Select a market for study Choosebasesfor segmen-tation Selectdescriptors Profileandanalyzesegments Selecttargetmarkets Design,implement,maintainmarketingmix REVIEW LEARNING OUTCOMESteps in Segmenting Markets LO6 1 2 3 4 5 6

40. Strategies for Selecting Target Markets LO7 Discuss alternative strategies for selecting target markets

41. TargetMarket Strategies for Selecting Target Markets LO7 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.

42. Undifferentiated Strategy Concentrated Strategy Multisegment Strategy Strategies for Selecting Target Markets LO7

43. UndifferentiatedTargetingStrategy Undifferentiated Targeting Strategy LO7 A marketing approach that views the market as one big market with no individual segments and thus requires a single marketing mix.

44. Undifferentiated Strategy Undifferentiated Targeting Strategy LO7 Advantage: • Potential savings on production and marketing costs Disadvantages: • Unimaginative product offerings • Company more susceptible to competition

45. Concentrated Targeting Strategy LO7 ConcentratedTargeting Strategy A strategy used to select one segment of a market for targeting marketing efforts. NicheOne segment of a market.

46. Concentrated Strategy Concentrated Targeting Strategy LO7 Advantages: • Concentration of resources • Meets narrowly defined segment • Small firms can compete • Strong positioning Disadvantages: • Segments too small, or changing • Large competitors may market to niche segment

47. MultisegmentTargetingStrategy Multisegment Targeting Strategy LO7 A strategy that chooses two or more well-defined market segments and develops a distinct marketing mix for each.

48. Multisegment Strategy Multisegment Targeting Strategy LO7 Advantages: • Greater financial success • Economies of scale Disadvantages: • High costs • Cannibalization

49. Costs of Multisegment Targeting LO7 • Product design costs • Production costs • Promotion costs • Inventory costs • Marketing research costs • Management costs • Cannibalization

50. Cannibalization Situation that occurs when sales of a new product cut into sales of a firm’s existing products. Cannibalization LO7