Chapter 7 Marketing

Market segmentation

Dividing a large market into smaller groups of consumers with similar needs, characteristics, or buying behaviors.

Five criteria for effective market segmentation

Substantial, measurable, differentiable, accessible, and actionable.

Substantial

The segment is large enough and profitable enough to justify the company's investment.

Measurable

The company can identify the segment's size and purchasing power.

Differentiable

The segment is meaningfully different from other groups and responds differently to marketing.

Accessible

The company can reach and serve the segment through marketing channels and distribution.

Actionable

The company can develop specific strategies to attract and serve the segment.

Demographic segmentation

Divides consumers based on characteristics such as age, gender, income, marital status, and family size.

What question does demographic segmentation answer?

Who is most likely to buy?

Age and life stage

People at different life stages often have different needs, preferences, and spending habits.

Gender segmentation

Divides consumers based partly on gender-related needs or preferences; marketers should avoid stereotypes.

Income segmentation

Uses purchasing power to help determine pricing, product features, and positioning.

Marital status and family size

Life situation affects buying behavior and the products or services consumers prioritize.

Geographic segmentation

Divides markets based on location and geographic characteristics.

Market size in geographic segmentation

The number of potential customers in a particular area.

Customer convenience

How easily customers can access or purchase a product or service, including location, online access, and delivery.

Population shifts

Changes in where people live that can shift demand because of jobs, retirement, disasters, or cost of living.

Why do marketers study population shifts?

To understand where customers are moving and how those changes affect demand.

Psychographic segmentation

Divides consumers based on values, beliefs, interests, and lifestyles rather than only demographic characteristics.

What question does psychographic segmentation help answer?

Why do customers buy?

Lifestyle segmentation

Divides consumers based on their opinions, interests, and activities.

Questions used in lifestyle segmentation

What do consumers care about, how do they spend their time, and what do they believe in?

Behavioral segmentation

Divides consumers based on their actions, product use, occasions, loyalty, and usage rate.

Occasion segmentation

Segments consumers based on when or for what occasion they use a product.

Brand loyalty

How committed a customer is to buying or preferring a particular brand.

Usage rate

How much or how frequently a customer uses a product; users may be light, medium, or heavy users.

The 80/20 rule in marketing

The idea that about 20% of customers, often heavy users, account for about 80% of demand for a product.

Why can behavioral segmentation be difficult?

Collecting accurate behavioral data can require extensive and costly marketing research.

Which segmentation base focuses on values, beliefs, and lifestyles?

Psychographic segmentation.

Which segmentation base focuses on actual customer actions and product usage?

Behavioral segmentation.

Which segmentation base uses age, income, gender, and family size?

Demographic segmentation.

Which segmentation base considers where consumers live?

Geographic segmentation.

VALS

An approach to psychographic segmentation that groups consumers according to their motivations and resources.

Three primary VALS motivations

Ideals, achievement, and self-expression.

Ideals motivation

Consumers emphasize knowledge, values, and principles and want to do what they believe is right.

Achievement motivation

Consumers emphasize success, status, and accomplishment and may prefer products that signal progress or recognition.

Self-expression motivation

Consumers emphasize creativity, individuality, and experiences and seek brands that help express who they are.

How might Nike use psychographic segmentation?

It could market high-performance athletic gear to achievement-oriented consumers and practical, durable gear to consumers who value function.

How do resources affect VALS motivations?

Income, education, confidence, and access to opportunities affect how consumers act on their motivations.

Can two consumers with the same motivation shop differently?

Yes. Differences in resources and opportunities can lead them to pursue the same motivation in different ways.

Regional segmentation

Grouping markets by regions with shared cultural, economic, or political similarities.

Why choose regional segmentation instead of global standardization?

It recognizes similarities within a region while allowing marketing strategies to adapt to regional needs.

Global standardization

Using a largely consistent marketing approach across different countries or markets.

Target market selection

Evaluating market segments to decide which ones a company should target.

Growth potential

A target-market selection factor that considers whether a segment is likely to grow in the future.

Level of competition

A target-market selection factor that considers how crowded the market is and how difficult it may be to stand out.

Strategic fit

How well a market segment matches a company's strengths, mission, and resources.

Target marketing analytics

Uses data to evaluate target markets and understand customer behavior, traffic sources, and engagement.

How can Google Analytics help target-market selection?

It provides data about customer behavior, traffic sources, and engagement patterns.

What makes a target market attractive?

It has growth potential, manageable competition, and a strong fit with the company's strengths and resources.

True or false: Behavioral segmentation is always easier and less expensive than demographic segmentation.

False. Behavioral data can be difficult and costly to collect and analyze.

Multiple choice: Why choose regional segmentation?

A. It guarantees lower production costs. B. It assumes all countries are identical. C. It recognizes shared cultural, economic, or political similarities within a region. D. It eliminates marketing research. Answer: C.

What are the four main bases of consumer market segmentation?

Demographic, geographic, psychographic, and behavioral.

What is the difference between demographic and psychographic segmentation?

Demographic segmentation describes who consumers are; psychographic segmentation focuses on their values, beliefs, interests, and lifestyles.

What is the difference between psychographic and behavioral segmentation?

Psychographic segmentation focuses on motivations and lifestyles; behavioral segmentation focuses on actions and product-use patterns.

What should a company consider when choosing target markets?

Growth potential, competition, strategic fit, and target-market analytics.