Chapter9: IDENTIFYING MARKET SEGMENTS AND TARGETS

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IDENTIFYING MARKET SEGMENTS AND TARGETS

I. WHY SEGMENT MARKETS?

A. What Market Segmentation Means
Aggregating prospective buyers into groups that have common needs and will respond similarly to a marketing action. Relatively homogeneous collection of market segments prospective buyers. Using different marketing mixes to help gain strategy of product competitive advantage with a specific segment. differentiation Selling two or more products with different features targeted to different market segments. 1. Segmentation: Linking Needs to Actions 1. Grouping people or organizations according to Market segmentation similarity of needs and the benefits desired stresses two things: 2. Needs and benefits must be related to specific, tangible marketing actions Segmentation is a means to an end Does it lead to tangible marketing actions to increase sales and profitability? Definition

2. How Reeboks Segmentation Strategy Developed As shown in Figure 9-2, Reebok introduced its Freestyle soft-leather aerobic dance shoe in 1982 and has subsequently added tennis, basketball, childrens, and other shoes targeted at specific market segments.

A market-product grid

Using Market-Product Grids Framework to relate

the segments of a market to products offered or potential marketing actions. show the size of the market by segments and product.

Individual Grid Cells

B. When to Segment Markets

When Segmentation will increase its sales revenue, profit, and return on investment When segmentation expenses is offset by potentially increased revenues

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1. One Product and Multiple Market Segments A single product or service sold to two or more market segments Avoids cost of developing and producing additional product versions. 2. Multiple Products and Multiple Market Segments Multiple products developed to satisfy different market segment Clearly more expensive Worthwhile if Serves customers needs better, Doesnt reduce quality Doesn't increase price Adds to the sellers sales revenues and profits. Example: different variations of the same product to high and low-end segments. 3. Segments of One: Internet ordering Flexible manufacturing processes have made possible mass customization Tailoring goods or services to the tastes of individual customers on a high-volume scale. Mass Customization Mass customization is the next step beyond build-to-order (BTO), manufacturing a product only when there is an order from a customer. Example, Dell Computer uses BTO systems to give customers a good choice. 4. The Segmentation Trade-Off: CRM versus Synergies
Key to successful product differentiation and market segmentation strategies is finding the ideal balance between satisfying a customers individual wants and achieving organizational synergy, the increased customer value achieved through performing organizational functions more efficiently.

II. STEPS IN SEGMENTING AND TARGETING MARKETS

The process of segmenting a market and then selecting and reaching the target segments is divided into five steps:

A. Form Prospective Buyers into Segments

1. 2. 3. 4. 5.

1. Criteria for Forming Market Segments Potential for increased profit and return on investment. Similarity of needs of potential buyers within a segment. Difference of needs of buyers among segments. Feasibility of a marketing action to reach a segment. Simplicity and cost of assigning potential buyers to segments.

2. Ways to Segment Consumer Markets

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Chapter9: IDENTIFYING MARKET SEGMENTS AND TARGETS

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customer characteristics buying situations. Region a geographical customer characteristic Age and household a demographic customer characteristics. size, a psychographic customer characteristic. Lifestyle Psychographic variables are consumer activities, interests, and opinions. Benefits sought, a buying situations characteristic. (quantity consumed or patronagestore visits during Usage rate a specific period).

3. Ways to Segment Organizational Markets Location. NAICS code. Number of employees. Benefits sought.

B. Form Products to Be Sold into Groups

group products meaningful categories so customers can relate to them. This is the reason supermarkets and department stores are organized into product groups, with aisles and departments containing related merchandise.

C. Develop a Market-Product Grid and Estimate Size of Markets

markets (or horizontal rows) products (or vertical columns) Estimating the size of market in each cell market-product combination.

D. Select Target Markets

1. Criteria to Use in Picking the Target Segments Market size. Estimated size of the market in the segment. Expected growth. Projection of the future size of the segment Position in segment relative to Competitive position. current competition expected future competition. Cost of reaching Accessibility of segment is to marketing actions. segment. Compatibility with objectives and Ability to reach the segment profitably resources. 2. Choose the Segments

E. Take Marketing Actions to Reach Target Markets

The purpose of developing a market-product grid is to trigger marketing actions to increase revenues and profits. This requires someone to develop and execute an action plan by acting on the information gathered in the previous steps.

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Chapter9: IDENTIFYING MARKET SEGMENTS AND TARGETS

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III. ANALYZING MARKET SEGMENTS USING CROSS-TABULATIONS

Subjective estimates of the market size in various segments may be all that time and money allow. Crude estimates of market size are better than estimates of the entire market. When time and money are available, a more systematic approach using better information helps to study the markets segments and develop strategy. This is where cross-tabulations are useful.

A. Developing Cross-Tabulations
A method of presenting data having two or more variables. Cross-tabs are widely used in market segmentation studies (2) forming the resulting cross-tabulations. 1. Pairing the Questions Questionnaires deciding which of two variables to pair together to help understand the situation and 2. Forming Cross-Tabulations Count (raw data) row percentages. Four forms of the cross-tabulation column percentages. total percentages.

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Chapter9: IDENTIFYING MARKET SEGMENTS AND TARGETS

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B. Interpreting Cross-Tabulations
Pair two questions from a questionnaire Form a cross-tabulation Show the result on a video display Interpret the results and recommend action.

C. Value of Cross-Tabulations
Advantages: Easy, visual direct interpretation & communication. Great flexibility - Can be used on experimental, observational, & survey data. Can be analyzed horizontally, vertically, or in total Easily generated by computer Helps marketing manager Understand the wants and needs of buyers Target key segments Position the product . Disadvantages Percentages are misleading if the count is low Voluminous - 50 questions from a survey would give 1,225 cross-tabs. Can hide more complex and subtle

IV. POSITIONING THE PRODUCT

Product positioning The place an offering occupies in consumers minds on important attributes.

A. Two Approaches to Product Positioning

Head-to-head Compete directly with competitors on similar product positioning attributes in the same target market. Differentiation Seek a less competitive, smaller market niche for a positioning brand.

B. Product Positioning Using Perceptual Maps

Two dimensional graph Shows location of products or brands in the Perceptual map, minds of consumers Used to help understand consumer perceptions. 1. GMs Positioning Nightmare General Motors has used perceptual maps to reposition its brands of carsto try to change their images in consumers minds. The challenge: How can consumers tell the difference? 2. Repositioning Chocolate Milk for Adults Repositioning involves changing the place an offering occupies in a consumers mind relative to competitive offerings. For example, dairies have repositioned chocolate milk as a nutritious drink for adults.

http://www-rohan.sdsu.edu/~renglish/370/notes/chapt09/index.htm

12/8/2011