Identifying Market Segments and Targets: Hapter

CHAPTER
IDENTIFYING
MARKET
SEGMENTS
AND TARGETS
Copyright © 2007 by The McGraw-Hill Companies, Inc. All Rights Reserved. Slide 9-1
AFTER READING THIS CHAPTER
YOU SHOULD BE ABLE TO:
1. Explain what market segmentation is and when

to use it.
2. Identify the five steps involved in segmenting

and targeting markets.
3. Recognize the different factors used to

segment consumer and organizational
markets.
AFTER READING THIS CHAPTER
YOU SHOULD BE ABLE TO:
4. Know how to develop a market-product grid

to identify a target market and recommend
resulting actions.
5. Explain how marketing managers position

products in the marketplace.
SNEAKERS MARKETING WARS: JAY-Z,
YAO MING, AND A “SWOOSHLESS”
NIKE LINE FOR WAL-MART
• How Do You
Stand Out on
“Sneaker Walls”?
• New Segments
and Strategies
• Competitive Trends
 Age Segments
 Gender Segments
 Price Segments
 Sport Segments
 Lifestyle Segments
WHY SEGMENT MARKETS?
• What Market Segmentation Means
 Market Segmentation
 Market Segments
 Product Differentiation
 Segmentation: Linking Needs to Actions
FIGURE 9-1 Market segmentation—linking
market needs to an organization’s marketing
program
• What Market Segmentation Means
 How Reebok’s Segmentation Strategy

Developed
 Using Market-Product Grids
FIGURE 9-2 Market-product grid showing
how different Reebok shoes reach segments
of customers with different needs
• When to Segment Markets
 Examples of Successful Market Segmentation

• Customer Relationship Management (CRM)
• Mass Customization
• Build-to-Order (BTO)
Street & Smith’s Baseball
What product/market segmentation strategy?
Harry Potter
What product/market segmentation strategy?
• When to Segment Markets
 The Segmentation Trade-Off:

CRM versus Synergy
Ann Taylor & Ann Taylor Loft
What is the danger of a two-segment strategy?
Concept Check
1. Market segmentation involves

aggregating prospective buyers into
groups that have two key
characteristics. What are they?
A: The groups should (1) have common
needs and (2) respond similarly to a
marketing action.
Concept Check
2. When should a firm segment its

markets?
A: A firm goes to the trouble and expense of
segmenting its markets when this will
increase its sales, profit, and return on
investment.
FIGURE 9-3 The five key steps in
segmenting and targeting markets link
market needs of customers to the
organization’s marketing program
STEPS IN SEGMENTING AND
TARGETING MARKETS
• Step 1: Group Potential Buyers into

Segments
 Criteria to Use in Forming the Segments
• Potential for Increased Profit
• Similarity of Needs of Buyers within a Segment

• Difference of Needs of Buyers Among Segments
• Potential of a Marketing Action to Reach a Segment
• Simplicity and Cost of Assigning Buyers to Segments

TARGETING MARKETS

Segments
 Ways to Segment Consumer Markets
• Customer Characteristics
 Geographic: Region
 Demographic: Household
 Psychographic: Lifestyle
TARGETING MARKETS

Segments
 Ways to Segment Consumer Markets
• Buying Situations
 Benefits Sought: Product Features
 Usage/Patronage: Usage Rate
• Frequency Marketing
• 80/20 Rule
FIGURE 9-B Segmentation variables and
breakdowns for U.S. consumer markets
Mac-Gray MicroFridge
What benefits sought and
what consumer market segments targeted?
FIGURE 9-C Patronage of fast-food
restaurants by adults 18 years and older:
Simmons Market Research Bureau
NCS/NHCS Spring 2004 Adult Full-Year
Choices System Crosstabulation Report
FIGURE 9-4 Comparison of various kinds
of users and nonusers for Wendy’s,
Burger King, and McDonald’s fast-food
restaurants
TARGETING MARKETS

Segments
 Variables to use in Forming Segments
• Students in Dorms • Faculty/Staff
• Students in Apartments • People Living in Area
• Day Commuters • People Working in Area
• Night Commuters
TARGETING MARKETS

Segments
 Ways to Segment Organizational Markets
• Customer Characteristics
 Geographic: Statistical Area
 Demographic: NAICS Code
 Demographic: Number of Employees
 Benefits Sought: Product Features
FIGURE 9-D Segmentation variables and
breakdowns for U.S. organizational markets
Xerox WorkCenter C2424
What variables are used to
segment organizational markets?
Concept Check
1. The process of segmenting and

targeting markets is a bridge between
what two marketing activities?
A: identifying market needs and taking
marketing actions
Concept Check
2. What are two main ways to segment

consumer and organizational
markets?
A: customer characteristics and buying
situations
TARGETING MARKETS
• Step 2: Group Products to be Sold

into Categories
• Step 3: Develop a Market-Product Grid and
Estimate Size of Markets
FIGURE 9-5 Selecting a target market for
your Wendy’s fast-food restaurant next to an
urban university (target market is shaded)
TARGETING MARKETS
• Step 4: Select Target Markets
 Criteria to Use in Picking the Target Segments

• Market Size • Cost of Reaching Segment
• Expected Growth • Compatibility with the

Organization’s Objectives
• Competitive Position and Resources
 Choose the Segments
TARGETING MARKETS
• Step 5: Take Marketing Actions to Reach

Target Markets
 Your Wendy’s Segmentation Strategy
• Day Commuters
• Between-Meal Snacks
• Dinner to Night Students
Wendy’s
How can Wendy’s target different market
segments with different advertising programs?
FIGURE 9-6 Advertising actions to reach
specific student segments
TARGETING MARKETS
• Step 5: Take Marketing Actions to Reach

Target Markets
 Apple’s Ever-Changing Segmentation
Strategy
Apple Computer (1977–Today)
How have Apple’s product lines and market
segmentation strategies changed?
TARGETING MARKETS
• Market-Product Synergies: A Balancing Act
 Marketing Synergies
 Product Synergies
FIGURE 9-E Benefits (+) and drawbacks (-)
of a firm’s market-product strategies
Concept Check
1. What are some criteria used to decide

which segments to choose for
targets?
A: These criteria include market size, expected
growth, competitive position, cost of
reaching the segment, and compatibility
with the organization’s objectives and
resources.
Concept Check
2. In a market-product grid, what factor

is estimated or measured for each of
the cells?
A: Each cell in the grid can show the
estimated market size of a given
product sold to a specific market
segment.
Concept Check
3. What is the difference between marketing

synergies and product synergies in a
market-product grid?
A: Marketing synergies run horizontally across a

market-product grid. Each row represents an
opportunity for efficiency in the marketing efforts
to a market segment. Product synergies run
vertically down the market-product grid. Each
column represents an opportunity for efficiency in
research and development (R&D) and production.
POSITIONING THE PRODUCT
• Product Positioning Using Perceptual Maps
 Identify Important Attributes for a

Product Class
 Judgments of Existing Brands on These
Important Attributes
 Ratings of an “Ideal” Brand’s Attributes
 Perceptual Map
Chocolate Milk
How can dairies put more “zip” into sales?
FIGURE 9-7 Your challenge as a marketing
manager: Try to position chocolate milk to
make it more appealing to adults
POSITIONING THE PRODUCT
• Product Positioning Using Perceptual Maps
 Positioning Chocolate Milk for Adults

• Finding a New Position for Chocolate Milk
in the Minds of Adults: Nutrition
• Packaging “Adult” Chocolate Milk
FIGURE 9-8 A perceptual map to suggest a
strategy for positioning chocolate milk to
reach adults
Concept Check
1. What is product positioning?
A: Product positioning refers to the place

an offering occupies in consumers’
minds on important attributes relative
to competitive offerings.
Concept Check
2. Why do marketers use perceptual

maps in product positioning
decisions?
A: Marketers use perceptual maps to

display in two dimensions the location
of their and competing products or
brands to see how consumers perceive
them and then take marketing actions.
GOING ONLINE
APPLE’S LATEST
MARKET-PRODUCT
STRATEGIES
Going Online
1. Access the Apple History website.

Identify the new and remaining
markets Apple has targeted with new
and existing products compared to
those described in the text and the
Marketing NewsNet.
Going Online
2. Can Apple survive as a niche PC

marketer like BMW has with autos?
Why or why not?
VIDEO CASE 9
NOKIA: A PHONE
FOR EVERY SEGMENT
VIDEO CASE 9
Nokia
VIDEO CASE 9
Nokia
1. Why has segmentation been a

successful marketing strategy for
Nokia?
VIDEO CASE 9
Nokia
2. What customer characteristics were

used by mobile phone marketers
during the industry’s early stages of
growth? Which customer
characteristics and segmentation
variables does Nokia use?
VIDEO CASE 9
Nokia
3. Create a market-product grid for

Nokia today. What potential new
markets could you add to the grid?
SUPPLEMENTAL
LECTURE NOTE 9-1
MARKET SEGMENTATION IN
PRACTICE: WHAT KIND OF
PILLOW DO YOU NEED?
FIGURE 9-A Market-product grid showing
the size of markets for pillows for three
different segments of sleepers
SUPPLEMENTAL
LECTURE NOTE 9-2
MARKET-PRODUCT
SYNERGIES
FIGURE 9-F Market-product grid of
alternative strategies for a lawnmower
manufacturer
IN-CLASS ACTIVITY 9-1
INTERPRETING CENSUS DATA
U.S. Census 2000 Promotional Video
Census 2000 Short Form
American Community Survey Video
American Community Survey Form
PRODUCT CATEGORIZATION
TO IDENTIFY
PRODCUT GROUPS
PRODUCT POSITIONING FOR

CONSUMERS AND RETAILERS
3M Post-it® Notes TV ad
3M Post-it® Flag Highlighter Invention
+ =
3M Post-it® Flag Highlighter
Colors and Packages
3M Post-it® Flag Highlighter
Front and Back of Package
Market Segmentation
Market
Market segmentation
segmentation involves
involves
aggregating
aggregating prospective
prospective buyers
buyers into
into
groups
groups that
that (1)
(1) have
have common
common needsneeds and
and
(2)
(2) will
will respond
respond similarly
similarly to
to aa marketing
marketing
action.
action.
Market Segments
Market
Market segments
segments areare the
the relatively
relatively
homogeneous
homogeneous groups
groups ofof prospective
prospective
buyers
buyers that
that result
result from
from the
the market
market
segmentation
segmentation process.
process.
Product Differentiation
Product
Product differentiation
differentiation is is aa strategy
strategy that
that
involves
involves aa firm’s
firm’s using
using different
different
marketing
marketing mix
mix activities
activities to
to help
help
consumers
consumers perceive
perceive the
the product
product as as being
being
different
different and
and better
better than
than competing
competing
products.
products.
Market-Product Grid
A
A market-product
market-product grid grid is
is aa framework
framework
to
to relate
relate the
the market
market segments
segments of of potential
potential
buyers
buyers toto products
products offered
offered oror potential
potential
marketing
marketing actions
actions by
by the
the firm.
firm.
Synergy
Synergy
Synergy isis the
the increased
increased customer
customer value
value
achieved
achieved through
through performing
performing
organizational
organizational functions
functions more
more efficiently.
efficiently.
Usage Rate
Usage
Usage rate
rate isis the
the quantity
quantity consumed
consumed or or
patronage
patronage (store
(store visits)
visits) during
during aa specific
specific
period
period of
of time.
time.
80/20 Rule
The
The 80/20
80/20 rule
rule isis aa concept
concept that
that suggests
suggests
80
80 percent
percent of
of aa firm’s
firm’s sales
sales are
are obtained
obtained
from
from 20
20 percent
percent of of its
its customers.
customers.
Product Positioning
Product
Product positioning
positioning refers
refers to
to the
the place
place
an
an offering
offering occupies
occupies in
in consumers’
consumers’ minds
minds
on
on important
important attributes
attributes relative
relative to
to
competitive
competitive products.
products.
Perceptual Map
A
A perceptual
perceptual mapmap isis aa means
means of of
displaying
displaying oror graphing
graphing in in two
two dimensions
dimensions
the
the location
location ofof products
products or or brands
brands inin the
the
minds
minds ofof consumers
consumers to to enable
enable aa manager
manager
to
to see
see how
how consumers
consumers perceive
perceive competing
competing
products
products oror brands
brands relative
relative to to its
its own
own and
and
then
then take
take marketing
marketing actions.
actions.

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CHAPTER

1. Explain what market segmentation is and when

2. Identify the five steps involved in segmenting

3. Recognize the different factors used to

4. Know how to develop a market-product grid

5. Explain how marketing managers position

• What Market Segmentation Means

• What Market Segmentation Means

 How Reebok’s Segmentation Strategy

• When to Segment Markets

 Examples of Successful Market Segmentation

• When to Segment Markets

 The Segmentation Trade-Off:

1. Market segmentation involves

2. When should a firm segment its

• Step 1: Group Potential Buyers into

• Similarity of Needs of Buyers within a Segment

• Simplicity and Cost of Assigning Buyers to Segments

• Step 1: Group Potential Buyers into

• Step 1: Group Potential Buyers into

 Usage/Patronage: Usage Rate

• Step 1: Group Potential Buyers into

• Step 1: Group Potential Buyers into

 Demographic: NAICS Code

 Demographic: Number of Employees

 Benefits Sought: Product Features

1. The process of segmenting and

2. What are two main ways to segment

• Step 2: Group Products to be Sold

• Step 4: Select Target Markets

 Criteria to Use in Picking the Target Segments

• Expected Growth • Compatibility with the

 Choose the Segments

• Step 5: Take Marketing Actions to Reach

• Step 5: Take Marketing Actions to Reach

• Market-Product Synergies: A Balancing Act

1. What are some criteria used to decide

2. In a market-product grid, what factor

3. What is the difference between marketing

A: Marketing synergies run horizontally across a

• Product Positioning Using Perceptual Maps

 Identify Important Attributes for a

• Product Positioning Using Perceptual Maps

 Positioning Chocolate Milk for Adults

• Packaging “Adult” Chocolate Milk

1. What is product positioning?

A: Product positioning refers to the place

2. Why do marketers use perceptual

A: Marketers use perceptual maps to

1. Access the Apple History website.

2. Can Apple survive as a niche PC

1. Why has segmentation been a

2. What customer characteristics were

3. Create a market-product grid for

INTERPRETING CENSUS DATA

PRODUCT POSITIONING FOR

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