Chapter Four

Identifying Market Segments and Targets

Steps in Market Segmentation, Targeting,
and Positioning
 The Role of Market Segmentation
• Marketing strategies must be adjusted to
meet the needs of different consumer groups
• Market segmentation - Division of the total
market into smaller, relatively homogenous
groups

3
Criteria for Effective Segmentation
• The market segment must present measurable
purchasing power and size
• Marketers must find a way to effectively
promote and serve the market segment
• Segment must be sufficiently large to offer
good profit potential
• Firm must aim for segments that match its
marketing capabilities

4
 Segmenting Consumer Markets
– Geographic segmentation
– Demographic segmentation
– Psychographic segmentation
– Product-related segmentation

5
 Geographic Segmentation
• Division of an overall market into homogenous
groups based on their locations
• Marketers look at:
– Economic variables
– Geographic indicators
– Migration patterns
• Pay close attention to fastest-growing
states

6
 Geographic Segmentation
• Government now classifies urban data using
several categories
– Core based statistical area (CBSA)
– Metropolitan statistical area (MSA)
– Micropolitan statistical area
– Consolidated metropolitan statistical area
(CMSA)
– Primary metropolitan statistical area (PMSA)

7
 Using Geographic Segmentation
• Marketers focus on core regions, those from
which they draw 40 to 80 percent of sales
• Residence location within a region is an
important variable
• Provides useful distinctions when regional
preferences or needs exist

8
Geographic Information Systems (GISs)

• Computer systems that assemble, store,

manipulate, and display data by location
• Simplifies the job of analyzing geographic
marketing information

9
Geographic Information Systems (GISs)

• Number of companies benefit from using a

GIS
– Locate new outlets
– Assign sales territories
– Plan distribution centers
– Map out the most efficient delivery routes
– Example: Google Earth, allows users to view
different parts of the country at a close up

10
 Demographic Segmentation
• Division of an overall market into homogenous
groups based on:
– Gender and age
– Income and occupation
– Education
– Sexual orientation
– Household size
– Stage in the family life cycle

11
 Segmenting by Gender
• Lines blurring in recent years
• Example: Women buying skin-care products
and Men buying power tools and trucks
• Female consumers who regularly use the
Internet make most of the decisions about
retail items

12
 Segmenting by Age
• Has become blurred as consumers’ roles and
needs change
– Example: St. Joseph’s baby aspirin now marketed
to adults to help prevent heart disease
• School-age children have significant influence
over family purchases

13
Segmenting by Family Life Cycle Stages
• Family lifecycle - Process of family formation
and dissolution
• Life stage, not age, is primary concern of
marketer
• Empty nesters may have higher disposable
incomes and spend more on premium items
• Increase in "boomerangs"—grown children who
have returned home to live with their parents

14
 Segmenting by Household Type
• Average household size in U.S. has decreased
from 5.8 in 1790 to less than 3 today
• U.S. households embody a wide range of
diversity
• Growing number of same-sex couples who
share households

15
 Segmenting by
Income and Expenditure Patterns
• Engel’s laws - As household income increases:
– A small percentage of expenditures goes for food
– Percentage spent on housing, household
operations, and clothing remains constant
– Percentage spent on recreational and educational
items increases

16
 Demographic Segmentation Abroad

• Source of global demographic information

– International Programs Center (IPC) at the U.S.
Census Bureau
• Private marketing research firms can
supplement government data

17
 What is Psychographic Segmentation?

• Division of a population into groups that have

similar attitudes, values, and lifestyles
• AIO statements - Items on lifestyle surveys
that describe various activities, interests, and
respondents’ opinions

18
 Psychographic Segmentation of Global
Markets
• Roper ASW identified six psychographic
consumer segments that exist in 35 countries
studied:
– Strivers - Value professional and material goals
more than the other groups
– Devouts - Value duty and tradition
– Altruists - Emphasize social issues and societal
well-being

19
 Psychographic Segmentation of Global
Markets
– Intimates - Value family and personal relationships
– Fun seekers - Focus on personal enjoyment and
pleasurable experiences
– Creatives - Seek education, technology, and
knowledge

20
Using Psychographic Segmentation
• Quantify aspects of consumers’ personalities
and lifestyles
• Plan and promote more effectively
• Acts as a good supplement to geographic and
demographic segmentation

21
 Product-Related Segmentation
• Division of a population into homogeneous
groups based on their relationships to a
product
• Segmenting by benefits sought
– Focuses on the benefits people expect from using
the product
– Example: Women who work out at Curves want to
look their best and feel healthy

22
 Product-Related Segmentation
• Segmenting by usage rates
– 80/20 principle (Praedo’s law) - 80 percent of a
product’s revenues come from 20 percent of its
customers
– Marketers may target heavy, moderate, light users
or nonusers

23
 Product-Related Segmentation
• Segmenting by brand loyalty
– Example: Frequent purchaser programs

24
 Product-Related Segmentation
• Using multiple segmentation bases
– Segmentation helps marketers increase their
accuracy in reaching the right markets
– Segmentation helps marketers to know their
potential customers better

25
The Market Segmentation Process
• Develop a relevant profile for each segment
– In-depth analysis helps managers accurately
match buyers’ needs with the firm’s marketing
offerings
• Forecast market potential
– Market potential sets the upper limit on the
demand competing firms can expect from a
segment

26
The Market Segmentation Process
• Forecast probable market share
– Comes from analysis of competitors’ market
position and development of marketing strategy
• Select specific market segments
– Use demand forecasts and cost projections to
determine profits and the return on investment
from each segment
– Marketers weigh more than monetary costs
and benefits
27
 Business Market Segmentation
• Demographic segmentation
– Industry, company size, location
• Operating variables
– Technology, usage status, customer capabilities
• Purchasing approaches
• Situational factors
– Urgency, specific application, size of order
• Personal characteristics
– Buyer-seller similarity, attitudes toward risk,
loyalty
 Segmenting International Markets

• Geographic segmentation
– Location or region
• Economic factors
– Population income or level of economic
development
• Political and legal factors
– Type / stability of government, monetary
regulations, amount of bureaucracy, etc.
• Cultural factors
– Language, religion, values, attitudes, customs,
behavioral patterns
 Requirements for Effective Segmentation

• Measurable
– Size, purchasing power, and profile of segment
• Accessible
– Can be reached and served
• Substantial
– Large and profitable enough to serve
• Differentiable
– Respond differently
• Actionable
– Effective programs can be developed
 Target Marketing

• Evaluating Market Segments

– Segment size and growth
– Segment structural attractiveness
• Level of competition
• Substitute products
• Power of buyers
• Powerful suppliers
– Company objectives and resources
Target Marketing Strategies
33
Segment 3
Company
Segment 2 Marketing
Mix
Segment 1
C. Concentrated Marketing
Company
Segment 3
Marketing Mix 3
Company
Segment 2
Marketing Mix 2
Segment 1 Company
Marketing Mix 1
B. Differentiated Marketing
Company
Market Marketing
Mix
A. Undifferentiated Marketing
Target Marketing
 Strategies for Reaching Target Markets

• Undifferentiated marketing
– Strategy that focuses on producing a single
product and marketing it to all customers; also
called mass marketing
• Differentiated marketing
– Strategy that focuses on producing several
products and pricing, promoting, and distributing
them with different marketing mixes designed to
satisfy smaller segments

34
 Concentrated Marketing

• Focusing marketing efforts on satisfying a

single market segment; also called niche
marketing
• Approach can appeal to small firms or to firms
that
offer highly specialized goods and services
• Can backfire if competitors target the same
niche or if market decreases

35
Niche Marketing

– Niches can be identified by dividing a segment

into subsegments or by defining a group seeking
a distinctive mix of benefits
– Niches are fairly small and attract one or a few
competitors
– Niche marketers understand their niches’ needs
so well that their customers willingly pay a price
premium
– Both small and large companies can practice
niche marketing

36
 Target Marketing Strategies
• Characteristics of an attractive niche:
– The customers in the niche have a distinct set of needs
– They will pay a premium to the firm best satisfying
their needs
– The nicher has the required skills to serve the niche in
a superior fashion
– The nicher gains certain economies through
specialization
– The niche has sufficient size, profit and growth
potential

37
 Target Marketing Strategies

• Local Marketing
– Local marketing leads to ğ marketing programs tailored to the
needs and wants of local customer groups
– Those in favor of localizing a company’s marketing ğ see national
advertising as wasteful since it fails to address local target
groups
– Those against local marketing ğ argue that it drives up
manufacturing and marketing costs by reducing economies of
scale

38
 Target Marketing Strategies

• Individual Marketing
– The ultimate level of segmentation leads to 
“customized” or “one-to-one marketing”.
– Technological developments  permit companies to return
to customized marketing
– Mass customization  the ability to produce on a mass basis
individually designed products to meet each customer’s
requirements

39
 Micromarketing

• Targeting potential customers at very narrow,

basic levels
• Internet makes micromarketing more effective
• Firms can suffer if market is too small and
specialized to be profitable

40
Selecting and Executing a Strategy
• Basic determinants of marketing strategy
– Company resources
– Product homogeneity
– Stage in the product lifestyle
– Competitors’ strategies

41
 Positioning
• Placing a product at a certain point or location
within a market in the minds of prospective
buyers
• Possible approaches
– Attributes
– Price/quality
– Competitors
– Application
– Product user/class
42
 Positioning
• Distinguishes firm’s offerings from its
competitors’
• Marketers may develop a positioning map and
reposition a product as necessary

43