MKTG 181 Chapter 9: Marketing Segmentation, Targeting, and Positioning

Why Segment Markets?
A business firm segments its markets so it can respond more effectively to the wants of groups of potential buyers and thus increase its sales and profits. Nonprofits also segment the clients they serve to satisfy client needs more effectively while achieving the organization’s goals

What Market Segmentation Means:

MARKET SEGMENTATION: involves aggregating prospective buyers into groups that (1) have common needs and (2) will respond similarly to a marketing action.

MARKET SEGMENTS: As defined in Chapter 1…the relatively homogeneous groups of prospective buyers that result from the market segmentation process. Each market segment consists of people who are relatively similar to each other in terms of their consumption behavior

The existence of different market segments has cause firms to use a marketing strategy of PRODUCT DIFFERENTIATION. This strategy involves a firm using different marketing mix actions, such as product features and advertising, to help consumers perceive the product as being different and better than competing products. The perceived differences may involve physical features, such as size or color, or nonphysical ones, such as image or price

Segmentation: Linking Needs to Actions…The process of segmenting a market and selecting specific segments as targets is the link between the various buyers’ needs and the organization’s marketing program, as shown in FIGURE 9-1. Market segmentation is only a means to an end: It leads to tangible marketing actions that can increase sales and profitability

Market segmentation first stresses the importance of grouping people or organizations in a market according to the similarity of their needs and the benefits they are looking for in making a purchase. Second, such needs and benefits must be related to specific marketing actions that the organization can take, such as a new product or special promotion

Using Market Product Grids
MARKET PRODUCT GRID: A framework to relate the market segments of potential buyers to products offered or potential marketing actions. The market product grid in FIGURE 9-2 shows different market segments in the horizontal rows, and product offerings appear in the vertical columns…market research reveals the size of each sleeper segment, as shown by both the percentages and circles in Figur 9-2…shows the relative importance of each of the market segments…
When and How to Segment Markets
One size fits all mass markets no longer exist…A business goes to the trouble and expense of segmenting its markets when it expects that this extra effort will increase its sales, profit, and return on investment. When expenses are greater than the potentially increased sales from segmentation, a firm should not attempt to segment its market. Three specific segmentation strategies that illustrate this point:
1) One Product and Multiple Market Segments: When an organization produces only a single product or service and attempts to sell it to two or more market segments, it avoids the costs of developing and producing additional versions…magazines and books…although separate covers and separate advertisements are expensive, these expenses are minor compared with the costs of producing multiple versions of magazines or books for several different market segments
2) Multiple Products and Multiple Market Segments: Multiple products aimed at multiple market segments…costly but effective if it meets consumers’ needs better, doesn’t reduce quality or increase price, and adds to sales revenues and profits…but can reduce quality and increase prices…Ford…
3) Segments of One: Mass Customization: Today’s Internet ordering and flexible manufacturing and marketing processes have made mass customization possible, which means tailoring products or services to the tastes of individual customers on a high volume scale…next step beyond build to order (BTO)…
The Segmentation Trade-Off: Synergies versus Cannibalization
The key to successful product differentiation and market segmentation strategies is finding the ideal balance between satisfying a customer’s individual wants and achieving organizational synergy, the increased customer value achieved through performing organizational function such as marketing or manufacturing more efficiently. The increased customer value can take many forms: more products, improved quality of existing products, lower prices, easier access to products through improved distribution, and so on. So the ultimate criterion for an organization’s marketing success is that customers should be better off as a result of the increased synergies…organization should also achieve increased revenues and profits from the product differentiation and market segmentation strategies….When increased customer value involves adding new products or a new chain of store, the important question is are the new products or new chain simply stealing customers and sales from the older, existing ones? This is known as cannibalization…

Marketers increasingly emphasize a two tier Tiffany/Walmart strategy. Many firms now offer different variations of the same basic offering to high end and low end segments…examples…

Steps in Segmenting and Targeting Markets, FIGURE 9-3
FIGURE 9-3 identifies the five-step process used to segment a market and select the target segments on which an organization wants to focus. Segmenting a market requires both detailed analysis and large doses of common sense and managerial judgment. So market segmentation is both science and art!
Step 1: Group Potential Buyers into Segments, FIGURE 9-4, IMPORTANT, COPY/MEMORIZE, FIGURE 9-7 TOO
It’s not always a good idea to segment a market…Ask if its worth doing and possible first, and if so, a marketer must find specific variables that can be used to create those various segments

Criteria to Use in Forming the Segments:
A marketing manager should develop market segments that meet five essential criteria:
Simplicity and cost effectiveness of assigning potential buyers to segments
Potential for increased profit
Similarity of needs of potential buyers within a segment
Difference of needs of buyers among segments
Potential of a marketing action to reach a segment

Ways to Segment Consumer Markets:
FIGURE 9-4 shows four general bases of segmentation and the typical variables that can be used to segment US consumer markets. These four segmentation bases are:
1) Geographical Segmentation: based on where prospective customers live or work (region, city size)
2) Demographic Segmentation: based on some OBJECTIVE physical (gender, race), measurable (age, income), or other classification attribute (birth era, occupation) of prospective customers
3) Pyschographic Segmentation: based on some SUBJECTIVE mental or emotional attributes (personality), aspirations (lifestyle), or needs of prospective customers, and
4) Behavioral Segmentation: based on some observable actions or attitudes by prospective customers, such as where they buy, what benefits they seek, how frequently they buy, and why they buy
Examples of each…
Behavioral Segmentation: Usage rate…USAGE RATE is the quantity consumed or patronage (store visits), during a specific period. It varies significantly among different consumer groups…

Usage rate is sometimes referred to in terms of the 80/20 RULE, a concept that suggests 80 percent of a firm’s sales are obtained from 20 percent of its customers…percentages don’t have to be exact, but they suggest that a small fraction of customers provides most of a firm’s sales…

Ways to Segment Organizational (Business) Markets:
A number of variables can be used to segment organizational (business) markets (see FIGURE 9-7). Geographic…Demographic…Behavioral…SEE AND COPY AND MEMORIZE FIGURE 9-7

Step 2: Group Products to Be Sold into Categories
Wendy’s example…
Finding a means of grouping the products a firm sells into meaningful categories is as important as grouping the customers into segments. If the firm has only one product or service, this isn’t a problem, but when it has many, these must be grouped in some way so buyers can relate to them. This is why department stores and supermarkets are organized into product groups, with the departments or aisles containing related merchandise. Likewise, manufacturers organize products into groupings in the catalogs they send to customers…more on the Wendy’s example
Step 3: Develop a Market-Product Grid and Estimate the Size of Markets
As noted earlier in the chapter, a market product grid is a framework to relate the market segments of potential buyers to products offered or potential marketing actions by an organization. In a complete market-product grid analysis, each cell in the grid can show the estimated market size of a given product sold to a specific market segment…

Developing a market product grid means identifying and labeling the markets (or horizontal rows) and product groupings (or vertical columns) as shown in Figure 9-9

Now the size of the market in each cell (the unique market product combination) of the market product grid must be estimated…for Wendy’s involves estimating the sales of each kind of meal expected to be sold to each student and nonstudent market segment…

The market size estimates in Figure 9-9 vary from a large market, 3, to no market at all, 0, for each cell in the market product grid…These may be simple guesstimates if you don’t have the time or money to conduct formal marketing research, but even such crude estimates of the size of specific markets using a market product grid are helpful in determining which target market segments to select and which product groupings to offer

Step 4: Select Target Markets
A firm must take care to choose its target market segments carefully. If it picks too narrow a set of segments, it may fail to reach the volume of sales and profits it needs. If it selects too broad a set of segments, it may spread its marketing efforts so thing that the extra expense exceeds the increased sales and profits

Criteria to Use in Selecting the Target Segments:
Two kinds of criteria in the market segmentation process are those used to (1) divide the market into segments (discussed earlier) and (2) actually pick the target segment. Even experienced marketing executives often confuse them. Five criteria can be used to select the target segments for your Wendy’s restaurant:
1) Market Size
2) Expected Growth
3) Competitive Position (the less the competition, the more attractive the segment is)
4) Cost of Reaching the Segment (a segment that is inaccessible to a firm’s marketing actions should not be pursued)
5) Compatibility with the Organization’s Objectives and Resources
As is often the case in marketing decisions, a particular segment may appear attractive according to some criteria and very unattractive according to others

Step 5: Take Marketing Actions to Reach Target Markets
Wendy’s example…decided when to be open…another essential decision is where and what meals to advertise to reach specific marketing segments…depending on how your advertising actions work, you can repeat, modify, or drop them and design new campaigns for other segments you deem are worth the effort. This advertising example is just a small piece of a complete marketing program for your Wendy’s restaurant

Keeping an Eye on Competition: Other competitors are not sitting still, so in running your Wendy’s you must be aware of their strategies as well

Future Strategies for Your Wendy’s Restaurant: Changing customer tastes and competition mean you must alter your strategies when necessary. This involves looking at (1) what Wendy’s headquarters is doing, (2) what competitors are doing, and (3) what might be changing in the area served by your restaurant

Apple’s Ever Changing Segmentation Strategy: Typical of young companies, Apple focused on its products and had little concern for its markets…then a new market segmentation strategy, consisted of developing two general types of computer products (desktops and laptops) targeted at two market segments: the consumer and professional sectors
In most segmentation situations, a single product does not fit into an exclusive market niche. Rather, product lines and market segments overlap. So Apple’s market segmentation strategy enables it to offer different products to meet the needs of different market segments…

Market-Product Synergies: A Balancing Act
Recognizing the opportunities for key synergies, that is, efficiencies, is vital to success in selecting target market segments and making marketing decisions…Market product grids illustrate where such synergies can be found…
Market Synergies: running horizontally across the grid, each row represents an opportunity for efficiency in terms of a market segment…were Apple to focus on just one group of consumers such as the medium/large business segment, its marketing efforts could be streamlined (see pages 239-240)…although clearly not Apple’s strategy today, new firms often focus only on a single customer segment
Product Synergies: running vertically down the market product grid, each column represents an opportunity for efficiency in research and development (R&D) and production. If Apple wanted to simplify its product line, reduce R&D and production expenses, and manufacture only one computer, it might do well to focus on the iMac…
Marketing synergies often come at the expense of product synergies because a single customer segment will likely require a variety of products, each which will have to be designed and manufactured. The company saves money on marketing but spends more on production. Conversely, if product synergies are emphasized, marketing will have to address the concerns of a wide variety of consumers, which costs more time and money. Marketing managers responsible for developing a company’s product line must balance both product and marketing synergies as they try to increase the company’s profits

Positioning the Product
When a company introduces a new product, a decision critical to its long term success is how prospective buyers view it in relation to those products offered by its competitors.
PRODUCT POSITIONING refers to the place a product occupies in consumers’ minds based on important attributes relative to competitive products. By understanding where consumers see a company’s product or brand today, a marketing manager can seek to change its future position in their minds.
This requires PRODUCT REPOSITIONING, or changing the place a product occupies in a consumer’s mind relative to competitive products

Tow Approaches to product Positioning:
Marketers follow two main approaches to positioning a new product int he market:
1) Head to head positioning involves competing directly with competitors on similar product attributes in the same target market…example…
2) Differentiation positioning involves seeking a less competitive, smaller market niche in which to locate a brand…example…

Writing a Positioning Statement:
Marketing managers often convert their positioning ideas for the offering into a succinct written position statement. The position statement is used not only internally within the marketing department, but also for others outside it, such as research and development engineers or advertising agencies…example…

Product Positioning Using Perceptual Maps:
A key to positioning a product or brand effectively is discovering the perceptions in the minds of potential customers by taking four steps:
1) Identify the important attributes for a product or brand class
2) Discover how target customers rate competing products or brands with respect to these attributes
3) Discover where the company’s product or brand is on these attributes in the minds of potential customers
4) Reposition the company’s product or brand in the minds of potential customers

As shown in FIGURE 9-11, from these data it is possible to develop a PERCEPTUAL MAP, a means of displaying in two dimensions the location of products or brands in the minds of consumers. This enables a manager to see how consumers perceive competing products or brands, as well as the firm’s own product or brand…chocolate milk repositioning example…