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Chapter 7

Market Segmentation and Targeting

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McGraw-Hill/Irwin

Copyright 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

After
After studying
studying this
this chapter
chapter you
you
should
should be
be able
able to:
to:
Define and explain market segmentation,
target markets, and product differentiation
and positioning.
Understand the criteria used for evaluating
the likely success of a segmentation strategy.
Know the role of market segmentation in the
development of marketing strategies and
programs.
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After
After studying
studying this
this chapter
chapter you
you
should
should be
be able
able to:
to:
Describe the issues involved in product
and brand positioning.
Understand the alternative bases for
segmenting consumer and business-tobusiness markets.
Evaluate alternative approaches for
pursuing segmentation strategies.
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Market Segmentation
Market
Segmentation:
Divides a market into
subsets of
prospective
customers who
behave in the same
way, have similar
wants, or have similar
characteristics that
relate to purchase.

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Intermarket
Segments:
Well-defined, similar
clusters of customers
across national
boundaries.

Target Markets

Targeting:
Selecting which segments in a market
are appropriate to focus on and
designing the means of reaching them.
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Product Differentiation
Product
Differentiation:
Exists when a firms
offerings differ or are
perceived to differ from
those of competing
firms on any attribute,
including price.

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From Mass Marketing to Mass

Customization
Mass Customization:
Complex manufactured
products made to order.

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Criteria for Effective

Segmentation
Five Criteria:
1.
2.
3.
4.
5.

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Measurability
Accessibility
Substantialness
Durability
Differential Responsiveness

Stages in Developing Market

Segmentation Strategies

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Bases for Segmentation

Demographics
Demographics
Geographics
Geographics
Psychographics &&
Psychographics
Lifestyles
Lifestyles
Benefit Segmentation
Segmentation
Benefit
Economic
Economic
Segmentation
Segmentation
International
International
Segmentation
Segmentation
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Combining Bases of Market

Segmentation

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Segmentation Strategies
Undifferentiated Strategy

Differentiated Strategy

Concentrated Strategy

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Countersegmentation Strategy
Countersegmentation:
Countersegmentation:
An
Analternative
alternative strategy
strategyto
to traditional
traditionalsegmentation
segmentation
approaches.
approaches.

Combines
Combines market
market segments
segments
Consumers
Consumers accept
accept lower
lower price
price over
over variety
variety

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Factors Influencing
Segmentation Strategy
Size
Sizeand
andtype
typeof
ofthe
themarket
market
Competitive
Competitivefactors
factors
Product-related
Product-relatedfactors:
factors:
1.
1. Stage
Stageininthe
theproduct
productlife
lifecycle.
cycle.
2.
2. Degree
Degreeto
towhich
whichthe
theproduct
productmay
maybe
bevaried
varied
or
ormodified.
modified.

Firms
Firmssize
sizeand
andfinancial
financialposition
position
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Estimating Segment Potentials

1.
1. Set
Settime
timeperiod
periodof
ofinterest.
interest.
2.
2. Define
Defineproduct
productlevel.
level.
3.
3. Specify
Specifysegment
segmentcharacteristics
characteristicsor
or
bases.
bases.
4.
4. Identify
Identifygeographic
geographicmarket
marketboundaries.
boundaries.
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Estimating Segment Potentials

5.
5. Make
Makeassumptions
assumptionsabout
aboutthe
themarketing
marketing
environment.
environment.
6.
6. Make
Makeassumptions
assumptionsabout
aboutcompanys
companysown
own
marketing
marketingefforts
effortsand
andprograms
programs(controllable
(controllable
factors).
factors).
7.
7. Make
Makeestimates
estimatesof
ofmarket
marketpotential,
potential,industry
industry
sales,
sales,and
andcompany
companysales.
sales.
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Developing Forecasts

Qualitative
Procedures:
Survey of Buyers
Intentions

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Quantitative
Methods:
Trend Analysis

Expert Opinion

Market Tests

Composite of
Salesforce
Estimates

Statistical Demand
Analysis

Firm and Market Potentials and

Forecasts

Industry
IndustryLevel
Level
Firm
FirmLevel
Level

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Best
BestPossible
PossibleResults
Results

Expected
ExpectedResults
Resultsfor
forGiven
GivenStrategy
Strategy

Market
MarketPotential
Potential
Sales
SalesPotential
Potential

Market
MarketForecast
Forecast
Sales
SalesForecast
Forecast

Targeting Market Segments

Toselect
select target
target segments,
segments, the
the firm
firm
To
must consider:
consider:
must
Thesegments
segmentspotential
potentialsales
salesvolume
volume and
and
The
profits.
profits.
Competitioncurrently
currentlyselling
sellingto
tothe
the
Competition
segments.
segments.
Thefirms
firmsabilities
abilitiesand
andobjectives.
objectives.
The

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Positioning
Positioning:
Designing a marketing program, including
the product mix, that is consistent with how
the company wants its products or
services to be perceived.

Repositioning:
When a firm wants to shift consumer
opinions about an existing brand.

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Perceptual Maps
Perceptual
Perceptual Maps:
Maps:
Spatial
Spatial representations
representations of
of consumer
consumer
perceptions
perceptions of
of products
products or
or brands,
brands, are
are often
often
used
used to
to evaluate
evaluate brand
brand positions
positions in
in aa market.
market.
Diet Pepsi

Diet Sprite
Diet 7-Up

Pepsi Cola
RC Cola
Coke Classic
Dr Pepper

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7-Up
Sprite
Orange Crush

Micromarketing

Micromarketing:
Micromarketing:

Combines
Combinescensus
censusand
and
Demographic
Demographicdata
datatotoidentify
identify
clusters
clustersofof households
households
that
thatshare
sharesimilar
similar
consumption
consumptionpatterns.
patterns.

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Micromarketing
Enhances
Enhancesthe
theeffectiveness
effectivenessof
ofmarketing
marketingefforts
efforts
by:
by:

Identifying
Identifyingpotential
potentialmarkets
marketsfor
fordirect
directselling
sellingthrough
through
mail
mailand
andtelemarketing
telemarketingcampaigns.
campaigns.
Profiling
Profilingcustomers
customersby
bymatching
matchingthem
themtoto
demographic
demographicand
andlifestyle
lifestyleclusters.
clusters.
Learning
Learningwhich
whichareas
areasoffer
offerthe
thegreatest
greatestpotential
potentialinin
site
siteselection
selectionfor
fornew
newstores
storesor
oroffices.
offices.
Tailoring
Tailoringadvertising
advertisingthemes
themesand
andplanning
planningmedia.
media.

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Market Segmentation and Ethics

Advertising
Advertising to
to Children
Children
Harmful
Harmful Products
Products
Privacy
Privacy Issues
Issues
Product
Product Proliferation
Proliferation
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