08 MM21c4

© Noel Capon, 2016. All rights reserved.
PRESENTATION 8 OF 26 / 1
Managing Markets Strategically

Professor Noel Capon
R.C. Kopf Professor of International Marketing
Columbia Business School
New York, NY
Managing Markets Strategically
© Noel Capon, 2016. All rights reserved. PRESENTATION 8 OF 26 / 2
Section I: Marketing and the Firm

Section II: Fundamental Insights for Strategic Marketing
Section III: Strategic Marketing
Chapter 7: Identifying and Choosing Opportunities
Chapter 8: Market Segmentation and Targeting
Chapter 9: Market Strategy – Integrating Firm Efforts for Marketing Success
Chapter 10: Managing through the Life Cycle
Chapter 11: Managing Brands
Section IV: Implementing the Market Strategy
Section V: Special Marketing Topics
CHAPTER 8
Market Segmentation
and Targeting
OPENING CASE: MARRIOTT HOTELS, RESORTS, AND SUITES
Chapter Roadmap
The Market Segmentation Process Market Segments Targeting Market Segments
1. Levels of Segmentation – Discrete groups of Ask key questions about market segments 1. The Multifactor Matrix Approach to Targeting
segments
• How many segments? • Market segment attractiveness
2. Developing Market Segments – two approaches:
• Can individual customers be a segment? • Which market segments to target
customer needs or candidate descriptor
• Do market segments evolve? 2. Targeting Market Segments and Company Size
3. Methodological Approaches to Segments –
Qualitative or quantitative • How do customer life cycles affect market
segments?
• Does segment of customers differ from a group?
Six Marketing Imperatives
• Imperative 1: Determine and recommend which markets to address

• Imperative 2: Identify and target market segments
• Imperative 3: Set strategic direction and positioning
• Imperative 4: Design the market offer
• Imperative 5: Secure support from other functions
• Imperative 6: Monitor and control
Market Segmentation and Targeting
Market segment: A subset of a total market comprising a grouping of customers

with similar needs, seeking similar sets of benefits and values, with similar levels
of priority.
Market segmentation: The process of grouping together actual and potential

customers in a market for the purpose of forming segments.
Targeting: The process of deciding which segments receive most effort, and
which segments receive little or no effort. Since firms typically have insufficient
resources and/or capabilities to address all segments, they must make choices.
Session Roadmap
• The marketing process
• Market segmentation
• Targeting market segments
Session Roadmap
The Marketing Process
Market, Customer, Competitor, Company, and

Situation Analysis Chapters 3, 4, 5, 6
Complementer Insight
Planning Assumptions Transition

The Market
Segmentation Process
Market Segments Chapter 7
The Targeting Decision

Target Market Segments Chapter 8
Develop Market Segment
Strategy and Positioning
Market Segment Strategy and Positioning
(for each target segment); integrate into the Chapter 9
Market Strategy
Design the Market Offer
Implement Market Strategy, and Market Segment

Chapters 12 – 24
Strategies (for each target segment)
The Marketing Process
Market, customer,
competitor, company, and
complementer insight
Strategic Marketing
Implementing the
market strategy
Session Roadmap A
Market Segmentation
Session Roadmap AA
• Market segment illustrations
• Market segment matrix
• Descriptor (segmentation) variables
• Criteria for good market segments
• Developing market segments
• More market segment illustrations
• Standardized market segment
• Questions about market segments
Market Segmentation
Illustration: Analgesics
Market Level Pain Market
Market Segments Back Pain Headache Foot Pain Etc.
Customer Segments Migraine General Tension Etc.

Market Segmentation
Illustration: Tea – temperature
All tea
hot
warm
cold
Market Segmentation
Illustration: Tea – temperature and sweetness
All tea
hot
unsweetened
sweetened
cold
Market Segmentation
Session Roadmap AA
Market Segmentation
Market Segment Matrix
Definition of segments
A B C
Customer needs/ ZZZ 5 2 4
required benefits Priority ordering
YYY 4 1 5
XXX 2 4 1
WWW 1 3 2
VVV 3 5 3
Market Segmentation
Session Roadmap AA
Market Segmentation
Candidate Descriptor Variables

Variable Type Examples of Descriptor Variables
Geographic Country, region, county size, city or Standard Metropolitan Statistical Area (SMSA)
size, population density, climate
Demographic B2C — age, education, family life-cycle stage, family size, gender, income, language,
national origin, occupation, race, religion, social class, wealth
B2B — balance sheet items, firm size, growth, industry, profitability, legal entity, length
of time at location, number of years in business
Behavioral Composition/type of purchase decision, decision-making practice, decision-making
unit, new or existing user, use occasion, user situation
B2B variables: procurement organization — centralized/decentralized, and power
structure — like engineering dominated, financial dominated
Socio-psychological B2C — attitudes; life stage; personality (ambitiousness, authoritarianism, autonomy,
compulsiveness, conservatism, gregariousness, leadership); sexual orientation
B2B — inward/outward orientation and organizational climate and culture
Market Segmentation
Candidate Descriptor Variables

Firms use candidate descriptor variables to construct customer groups and then searches for
homogenous profiles within each group
Variable Type Examples of Descriptor Variables

Geographic Country, region, county size, city or Standard Metropolitan Statistical Area (SMSA)
size, population density, climate
Demographic B2C — age, education, family life-cycle stage, family size, gender, income, language,
national origin, occupation, race, religion, social class, wealth
B2B — balance sheet items, firm size, growth, industry, profitability, legal entity, length
of time at location, number of years in business
Behavioral Composition/type of purchase decision, decision-making practice, decision-making
unit, new or existing user, use occasion, user situation
B2B variables: procurement organization — centralized/decentralized, and power
structure — like engineering dominated, financial dominated
Socio-psychological B2C — attitudes; life stage; personality (ambitiousness, authoritarianism, autonomy,
compulsiveness, conservatism, gregariousness, leadership); sexual orientation
B2B — inward/outward orientation and organizational climate and culture
Market Segmentation
Descriptor Variables: Illustration – Candidate Groups

Variable Type Variable Examples of Descriptor Variables
Demographic (B2C) Education Grade school or less
Some high school
High school graduate
Some college
College graduate
Demographic (B2B) Firm size Fortune 500
Fortune 501 to 1000
Sales > $100 million
Sales $50 to $100 million
Sales <$50 million
Socio-psychological Life stage Single
Just married
Married with children
Divorced with children
Empty-nester couple
Empty-nesters with grandchildren
Widow/widower
Class Discussion
• Tune hotels believes mid-range and budget travelers are highly price
sensitive
• Discuss Tune Hotels approach to market segmentation and analyze how
the Internet impacts the segmentation
Market Segmentation
Descriptor Variables — Forming Market Segments:

Illustration – Sneaker Manufacturer – gender
Male
Gender
Female
20 years 40 years
Age
Market Segmentation
Forming Market Segments: Illustration – Sneaker

Manufacturer – age
Male
Gender
Female
20 years 40 years
Age
Market Segmentation
Forming Market Segments: Illustration – Sneaker

Manufacturer – exercise behavior
Male
Gender
Female
20 years 40 years
Age
Market Segmentation
Market Segment Matrix: Illustration – Skin Care Cream

Age-Based Market Segments
Customer
Need/Required 14–18 19–29 30–39 40–49 50–64 65 and over
Benefits
Beauty 5 4 1 2 2 3
Confidence 2 2 3 3 3 4
Economy 4 5 7 7 6 5
Health 6 6 4 4 4 2
Sexual Allure 3 1 2 5 5 6
Status 1 3 6 6 7 7
Youthfulness 7 7 5 1 1 1
Market Segmentation
Session Roadmap AA
Market Segmentation
Criteria for Good Market Segments

Differentiated
Stable
Identifiable
Criteria for
Market
Segments
Accessible
Measurable
Appropriately sized
Market Segmentation
Session Roadmap AA
Market Segmentation
Developing Market Segments

Identification of Customer Value
Actionable
High Customer needs first
segmentation
Candidate descriptor
Low (segmentation)
variables first
Low High
Identification of Customers
Market Segmentation
Developing Market Segments: A Process View

Market Segmentation
Developing Market Segments: NOT!

• That’s the way we’ve always done it.
• That’s the way data are available.
• That’s the way we’re organized.
• That’s the way competitors do it.
Market Segmentation
Two-Variable Segmentation: Illustration – Physicians
Relies on
scientific Risk taker Hard headed
evidence
Type of Data
Relies on
clinical Path finder Tortoise
experience
Aggressive Conservative
Approach to Treatment
Behavioral and socio-psychological variables may be more effective than

geographic and demographic variables
Market Segmentation
Session Roadmap AA
Market Segmentation
Market Segments: Illustration – Gasoline Buyers

Taxonomy at the Pump: Mobil’s Five Types of Gasoline Buyers
Road Warriors (10%) True Blues (10%) Generation F3 (27%) Homebodies (21%) Price Shoppers (20%)
Generally higher- Usually men and (Fuel, Food, Fast) Usually housewives who Generally aren’t loyal to
income, middle-aged women with moderate to Upwardly mobile men shuttle their children either a brand or a
men who drive 25,000 high incomes who are and women – half under around during the day particular station, and
to 50,000 miles a loyal to a brand and 25 years of age – who and use whatever rarely buy the premium
year…buy premium with sometimes to a are constantly on the gasoline station is line…frequently on tight
a credit card…purchase particular go…drive a lot and based in town or along budgets…efforts to woo
sandwiches and drinks station…frequently buy snack heavily from the their route of travel. them have been the
from the convenience premium gasoline and convenience store. basis of marketing
store…will sometimes pay in cash. strategies for years.
wash their cars at the
car wash. Source: The Wall Street Journal, January 30, 1995
Market Segmentation
Market Segments: Illustration – Dog Food

• Candidate descriptor variables
• hair
• size
• weight
• breed
Market Segmentation
Market Segments: Illustration – Dog Food

Caring Indifferent
Doter Loving parent Casual friend
companion acquaintance
% of households 17 22 18 25 18
Casual
Emotional bond Love Love Affection Affection
attachment
Nature of Dog as Dog as best Dog for the
Dog as child Dog as dog
relationship grandchild friend family
Attitude
Love/do what’s Health & Cheap/convenie
expressed in dog Indulgence Basic fuel
best nutrition nt fuel
food
• Premium • Complete • Price
Ante • • Price
• Strong dog nutrition • Rationalized
(cost of entry) Health/nutritional • Convenience
appeal • Quality variety
• Health
Driver • Flavor/variety • Professional
performance • Price/emotion • Great price
(of brand choice) • Brand image recommendation
• Variety
Market Segmentation
Illustration: Pregnancy Tests

“Hopeful” “Fearful”
Brand name Conceive Fact plus
Package Pink box, smiling baby Black lettering, test stick
Shelf location Near ovulation testing kit Near condoms
Price $19.50 $9.69
Market Segmentation
Session Roadmap AA
Market Segmentation
Standardized Market Segments: Prizm

• 14 social groups
• 66 clusters
• Illustration: Rustic Living – mostly white (some ethnic diversity);
predominantly owners of single-family homes
• Back Country Folks
• Bedrock America
• Crossroads Villagers
• Golden Ponds
• Old Milltowns
• Young & Rustic
• Uses
Market Segmentation
Standardized Market Segments: Prizm

• 14 social groups
• 66 clusters
• Illustration: Rustic Living
• Uses
• identify current and/or potential customers by standardized segments
• place effort in geographic areas with high percentage of current and/or
potential customers in those segments
Market Segmentation
Session Roadmap AA
Market Segmentation
Questions about Market Segments

• How many market segments are enough?
• Can an individual customers be a market segment?
• Do market segments evolve?
• How do customer life cycles affect market segments?
• Focus on fixed age group
• Retain consumers as they age
• Does a segment of customers differ from a group of customers?
• Can we develop segments based on just our current customers?
Market Segmentation

Session Roadmap
• principle of selectivity and concentration
• targeting illustrations
• targeting matrix
• perceptual maps
Targeting Market Segments
• Principle of selectivity and concentration

• Targeting illustrations
• Targeting matrix
• Perceptual maps
Principle of selectivity and concentration

• Marketing must carefully choose targets for the firm’s efforts
• The firm should concentrate its resources against those targets
Illustration: Best Buy

• Barry – An affluent tech enthusiast
• Buzz – A young gadget fiend
• Jill – A busy suburban mom
• Mr. Storefront – Owns a small business
• Ray – A price-conscious family guy
Illustration: Marriott Hotels

• Courtyard
• EDITION hotels
• ExecuStay
• Fairfield Inn & Suites
• Renaissance hotels
• Residence Inn
• Ritz-Carlton
• Springhill Suites
• TownePlace Suites
Market segment attractiveness versus business strengths
1000
High G B A
Market Segment Attractiveness
700
Medium D H C
400
Low F E I
100
100 Low 400 Medium 700 High 1000
Business Strengths
Assessing Market Segment Attractiveness: Illustration

The firm should identify useful factors for evaluating segments, then ask the question
“Given our history, objectives, culture, management style, successes, and failures, we like
to be in market segments that offer…”
Market Segment Factor Score

Factor Firm Weighting
Rating (1 to 10 scale) (weighting x rating)
Ability to build new strengths 10 6 60
Easy customer access 15 9 135
High market growth 20 7 140
Large potential size 20 5 100
Little regulation 10 8 80
Opportunity to use excess resources 10 2 20
Weak competition 15 4 60
Total 100 595

Assessing Business Strengths: Illustration

The firm should ask the question: “To be successful in this market segment, any
competitor must possess the following strengths…”
Segment Firm Rating Factor Score

Factor
Weighting (1 to 10 scale) (weighting x rating)
Deep pockets 10 9 90
Fast-moving organization 5 3 15
Good R&D 25 7 175
High-quality service 15 6 90
In-place distribution 20 5 100
Low-cost operations 10 4 40
Well-trained sales force 15 9 135
Total 100 645

Shifting Position
• left to right – improve business strengths
• bottom to top – conduct finer-level segmentation
1000
High G B A Z
Market Segment Attractiveness
700
Medium D H X C Y
400
Low F E I
100
100 Low 400 Medium 700 High 1000
Business Strengths
Perceptual Map: Illustration – Toy Animals
Cuddly
Brands
1 1 Lankester
A 2 McLean
3 Johnson
4 Tellis
B
Not 2 Realistic
Realistic C
4
3D Market Segments
A perfectionists
E B searchers
C accepters
Not Cuddly D dreamers
E realists
Copyright © Impact Planning Group

Class Discussion
• Can you think of a small business and a big business which have created
an advantage/disadvantage via market segmentation?
• Large firms and small firms each have advantages in targeting market
segments. Missteps can cause each to lose a strong position.
Session Roadmap
CHAPTER 8
Market Segmentation
and Targeting

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© Noel Capon, 2016. All rights reserved.

Managing Markets Strategically

Section I: Marketing and the Firm

The Market Segmentation Process Market Segments Targeting Market Segments

• Imperative 1: Determine and recommend which markets to address

Market segment: A subset of a total market comprising a grouping of customers

Market segmentation: The process of grouping together actual and potential

Market, Customer, Competitor, Company, and

Planning Assumptions Transition

The Targeting Decision

Implement Market Strategy, and Market Segment

Market Segments Back Pain Headache Foot Pain Etc.

Customer Segments Migraine General Tension Etc.

Illustration: Tea – temperature

Illustration: Tea – temperature and sweetness

Market Segment Matrix

Candidate Descriptor Variables

Candidate Descriptor Variables

Variable Type Examples of Descriptor Variables

Descriptor Variables: Illustration – Candidate Groups

Descriptor Variables — Forming Market Segments:

Forming Market Segments: Illustration – Sneaker

Forming Market Segments: Illustration – Sneaker

Market Segment Matrix: Illustration – Skin Care Cream

Criteria for Good Market Segments

Developing Market Segments

Developing Market Segments: A Process View

Developing Market Segments: NOT!

Two-Variable Segmentation: Illustration – Physicians

Behavioral and socio-psychological variables may be more effective than

Market Segments: Illustration – Gasoline Buyers

Market Segments: Illustration – Dog Food

Market Segments: Illustration – Dog Food

Illustration: Pregnancy Tests

Standardized Market Segments: Prizm

Standardized Market Segments: Prizm

Questions about Market Segments

• Market segment illustrations

• Principle of selectivity and concentration

Principle of selectivity and concentration

Illustration: Best Buy

Illustration: Marriott Hotels

Market segment attractiveness versus business strengths

Assessing Market Segment Attractiveness: Illustration

Market Segment Factor Score

Easy customer access 15 9 135

High market growth 20 7 140

Large potential size 20 5 100

Opportunity to use excess resources 10 2 20

Total 100 595

Assessing Business Strengths: Illustration

Segment Firm Rating Factor Score

Good R&D 25 7 175

In-place distribution 20 5 100

Well-trained sales force 15 9 135

Total 100 645

Perceptual Map: Illustration – Toy Animals

Copyright © Impact Planning Group

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