Market Segmentation and Targeting Strategies in Marketing

Market

people or organizations with needs and wants, ability and willingness to purchase products and services.

Market segmentation

the process of dividing a market into meaningful, relatively similar, and identifiable groups -- segments.

Market segment

a subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs.

Importance of Market Segmentation

To identify and define groups and customer needs and wants more precisely, leading to a deeper understanding of segment lifestyles, values, characteristics, buying occasions, and buying behavior.

Criteria for Successful Segmentation

Marketers segment markets to identify groups of customers with similar needs and to analyze the characteristics and buying behavior of these groups.

Segmentation bases (variables)

characteristics of individuals, groups, or organizations used to divide a total market into segments.

Geographic Segmentation

segmenting markets by region of a country or the world, market size, market density, or climate.

Market density

the number of people within a unit of land, such as a census tract.

Climate

commonly used for geographic segmentation because of its dramatic impact on residents' needs and purchasing behavior.

Multiple-variable segmentation

the trend toward using more variables to segment markets, which is more precise.

Disadvantages of multiple-variable segmentation

Usable secondary data are less likely to be available, and as segmentation bases increase, the size of individual segments decreases.

Accessibility

the idea that markets can be segmented using any criteria that seem logical.

Substantiality

the criterion that segments must be large enough to warrant a marketing strategy.

Responsiveness

the degree to which segments respond differently to marketing mixes.

Identifiability

the ability to identify segments based on their characteristics.

Measurability

the ability to measure the size and purchasing power of segments.

Buying behavior

the actions and decision processes of consumers when purchasing products.

Marketing mixes

the combination of product, price, place, and promotion strategies used to reach target markets.

Customer needs

the requirements and desires of consumers that drive their purchasing decisions.

Target markets

specific groups of consumers identified as the intended audience for a marketing campaign.

Positioning strategies

the methods used by firms to create a distinct image of their products in the minds of consumers.

Product differentiation

the process of distinguishing a product from others to make it more attractive to a specific target market.

Demographic segmentation

Segmenting markets by age, gender, income, ethnic background, and family life cycle.

Age Segmentation

Segments markets by age into the following cohorts: Generation Z, Millennials, Generation X, Baby Boomers, War generation, Great Depression generation.

Generation Z

Born from 1995 to 2015, want to work for their success, believe that brands need to be real, have their own rules and etiquette for social media.

Millennials

75.4 million people born between 1980 and 1994, idealistic and pragmatic, the most technology-proficient generation ever, value trustworthiness, creativity, intelligence, authenticity, and confidence, want 'experiences'.

Generation Xers

Born between 1965 and 1979, often stuck between supporting their aging parents and young children, best-educated generation, tend to be disloyal to brands and skeptical of big business, look for products that give them value for the money and good performance.

Baby Boomers

Born between 1946 and 1964, outspend the average consumer in nearly every product category, living longer, healthier, and more active and connected lives, spend time and money doing whatever is necessary to maintain vitality as they age.

Silent Generation

Born before 1946, tend to be cautious, hardworking, and disciplined, place significant value on economic resources, may require some modifications in the products they purchase.

Gender segmentation

In the United States, women drive 70 to 80 percent of purchases of consumer goods each year; companies that have traditionally targeted women are now targeting men, and vice versa.

Income segmentation

Income level influences consumers' wants and determines their buying power.

Gender and Income Segmentation

Gender segmentation uses different strategies for men and women; income segmentation appeals to different income levels.

Ethnic segmentation

To meet needs and wants of expanding ethnic populations, companies make products geared toward specific ethnic groups.

Family life-cycle segmentation

Consumption patterns among people of the same age and gender may differ because they are in different stages of the family life cycle.

Family life cycle (FLC)

a series of stages determined by a combination of age, marital status, and the presence or absence of children

Psychographic segmentation

segmenting markets on the basis of personality, motives, lifestyles, and geodemographics

Personality

a person's traits, attitudes, and habits

Motives

emotions and desires that can drive purchasing decisions

Lifestyles

the way people spend their time, the importance of the things, their beliefs, and socioeconomic characteristics

Geodemographics

categories based on a combination of neighborhood, lifestyle, and other demographic variables

Benefit segmentation

the process of grouping customers into market segments according to the benefits they seek from the product

Usage-rate segmentation

dividing a market by the amount of product bought or consumed

80/20 principle

a principle holding that 20 percent of all customers generate 80 percent of the demand

Heavy users

customers who consume a large amount of a product

Light users

customers who consume a small amount of a product

Company Characteristics

examples include geographic location, type of company, company size, and product use

Volume of purchase

a commonly used basis for business segmentation, categorized as heavy, moderate, or light

Buying Processes

companies can segment some business markets by ranking key purchasing criteria, such as price, quality, technical support, and service

Satisficers

business customers who place an order with the first familiar supplier to satisfy product and delivery requirements

Optimizers

business customers who consider numerous suppliers, solicit bids, and study all proposals carefully before selecting one

Identifiability and Measurability

Data about the population within geographic boundaries, the number of people in various age categories, and other social and demographic characteristics are often easy to get, and they provide fairly concrete measures of segment size.

Purpose of Market Segmentation

The purpose of market segmentation is to identify and adapt to dynamic marketing opportunities.

Select a Market or Product Category

Define the overall market or product category to be studied, whether related or totally new.

Choose a Basis for Segmenting the Market

A successful segmentation scheme must produce segments that meet the four basic criteria: people or organizations with needs or wants and the ability and willingness to buy.

Select Segmentation Descriptors

Descriptors identify the specific segmentation variables to use.

Profile and Analyze Segments

The profile should include the segments' size, expected growth, purchase frequency, current brand usage, brand loyalty, and long-term sales and profit potential.

Rank Potential Market Segments

This information can then be used to rank potential market segments by profit opportunity, risk, consistency with organizational mission and objectives, and other factors important to the firm.

Select Markets

This is a major decision that influences and often directly determines the firm's marketing mix.

Design, Implement, and Maintain Marketing Mixes

This will be explored in more detail in Chapters 10 to 19.

Target Market

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.

Different Marketing Mixes

If a marketer wishes to appeal to more than one segment of the market, it must develop different marketing mixes.

Undifferentiated Targeting

A marketing approach that views the market as one big market with no individual segments and thus uses a single marketing mix.

Assumption of Undifferentiated Strategy

A firm that adopts an undifferentiated targeting strategy assumes that individual customers have similar needs that can be met with a common marketing mix.

First Firm in an Industry

The first firm in an industry sometimes uses an undifferentiated strategy.

Disadvantages of Undifferentiated Targeting

Potentially sterile, unimaginative product offerings that have little appeal to anyone and makes the company more susceptible to competition.

Concentrated Targeting

A strategy used to select one segment of a market for targeting marketing efforts.

Niche

One segment of a market.

Advantages of Concentrated Targeting

Allows a firm to concentrate on understanding the needs, motives, and satisfaction of that segment's members, can be more profitable than spreading resources over different segments, and allows some small firms to better compete with larger firms.

Disadvantages of Concentrated Targeting

If chosen segment is too small or if it shrinks or changes, the firm may suffer negative consequences. Large competitors may more effectively market to a niche segment.

Multisegment Targeting

A strategy that chooses two or more well-defined market segments and develops a distinct marketing mix for each.

Advantages of Multisegment Targeting

May lead to greater sales volume, higher profits, larger market share, and economies of scale in manufacturing and marketing.

Disadvantages of Multisegment Targeting

May involve higher costs for product design, production, promotion, inventory, marketing research, and management. Potential for cannibalization, which occurs when sales of a new product cut into sales of a firm's existing products.

Customer Relationship Management (CRM)

A tool that allows companies to customize goods and services offered to customers based on data generated through interactions between carefully defined groups of customers and the company.

Personalization in CRM

Consumers want to be treated as the individuals they are, with their own unique sets of needs and wants.

Time savings in CRM

Consumers want to spend less time making purchase decisions and more time doing the things that are important to them.

Loyalty in CRM

CRM techniques focus on finding a firm's best customers, rewarding them for their loyalty, and thanking them for their business.

Technology in CRM

New technology offers marketers a more cost-effective way to reach customers and enables businesses to personalize their messages.

Positioning

Developing a specific marketing mix to influence potential customers' overall perception of a brand, product line, or organization.

Position

The place a product, brand, or group of products occupies in consumers' minds relative to competing offerings.

Perceptual Mapping

A means of displaying or graphing, in two or more dimensions, the location of products, brands, or groups of products in customers' minds.

Positioning Bases

Firms use a variety of bases for positioning, including attributes or benefits, price and quality, use or application, product user, product class, competitor, and emotion.

Attributes or Benefits

A product is associated with an attribute, product feature, or customer benefit.

Price and Quality

This positioning base may stress high price as a signal of quality or emphasize low price as an indication of value.

Use or Application

Stressing uses or applications for the product can be an effective means of positioning it with buyers.

Product User

This positioning base focuses on a personality or type of user.

Product Class

This associates the product with a particular category of products.

Competitor

Positioning against competitors is part of any positioning strategy.

Emotion

Positioning using emotion focuses on how the product makes customers feel.

Repositioning

Changing consumers' perceptions of a brand in relation to competing brands.

Repositioning Purpose

Products or companies are repositioned to sustain growth in slow markets or to correct positioning mistakes.