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Marketing
Chapter 8
Segmentation,
Targeting, and
Positioning
Dhruv Grewal
Michael Levy
McGraw-Hill/Irwin
Copyright © 2008 by the McGraw-Hill Companies, Inc. All rights reserved.
8-2
Garnier Fructis
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Appeals to
natural/organic segment
Top 10 best selling
shampoos
Market leader in
conditioner
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8-3
Segmentation Targeting Positioning
Process
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8-4
Step 1: Establish Overall Strategy or
Objectives
Consistent with
mission statement
Derived from mission
and current state
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Segmentation Strategy
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Test Your Knowledge
Which of the following products is most likely to use an
undifferentiated segmentation strategy?
A)
shoes
B)
jewelry
C)
cereal
D)
flour
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Dealing with Fragmentation
How are firms dealing with the fragmentation of the
media market?
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Case in Point: McDonald’s
Challenge
Answer
Results
How to reach consumers in light of
the diminishing mass audience.
Shift funding from television
advertising from 2/3 to 1/3 of the
budget. Buy alternative media
targeted to specific audiences.
New mix includes: Ads on Foot
Locker’s in store video to reach
young men, ads in O Magazine
and Marie Claire to target women,
closed circuit sports programs to
the Hispanic market. According to
McDonald’s CMO “We are a big
marketer not a mass marketer.”
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Segmentation Strategy (continued)
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Differentiated segmentation strategy
Concentrated segmentation strategy
Micromarketing
What are examples of products
that use differentiated, concentrated,
and micromarketing segmentation
strategies?
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Step 2: Describe Segments
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Geographic Segmentation
Country
Region
State
City
Neighborhood
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8-12
Test Your Knowledge
Geographic segmentation is most useful for companies whose
products satisfy needs that vary by __________.
A)
gender
B)
region
C)
age
D)
nationality
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Geographic Expansion
How can firms successfully change a
regional brand into a national brand?
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Case in Point: Federated Department
Stores Big Risk
Challenge
Answer
Results
How to integrate well established
and beloved local retail brands into
one national brand, Macy’s, without
alienating the current customers?
Figure out what aspect of the current
brands are important to customers
and keep those while stressing the
value created by the 800 stores
Macy’s stores throughout the U.S.
In Chicago, keep Fields Frango
mints, in Boston keeping Filene’s
annual tree lighting ceremony.
Also by keeping popular store
brands while up scaling other
brands.
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Demographic Segmentation
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Most common segmentation strategy
U.S. Census excellent source of segmentation
data
www.census.gov
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8-16
Psychographic Segmentation
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Psychographic
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Self-values
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Self-concept
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Lifestyles
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8-17
Adding Value 8.1: Segmenting the Asthma
Patient Market by Lifestyle
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VALS Framework
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Benefit Segmentation
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Health
Hedonic
Educational
Individuality or
self-expression
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Geodemographic Segmentation
Claritas “You Are Where You Live”
8-21
Test Your Knowledge
Which of the following tools is widely used for geodemographic
segmentation?
A)
PRIZM
B)
LSAT
C)
GNP
D)
LIMRA
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Finding Where to Live
How can geodemographic segmentation be used to
help consumers find the perfect place to live?
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Case in Point: Neighborhood Scout
Challenge
Answer
Results
To help homebuyers find the
perfect neighborhood for their
needs.
Use geodemographic segmentation
to identify the neighborhoods that
most closely match their needs and
wants.
A patented neighborhood search
engine with 70,000 subscribers and
more than 1 million people who have
used the service.
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Loyalty Segmentation
Much cheaper to keep an
existing customer
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Lifetime value
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Using Multiple Segmentation Methods
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Step 3: Evaluate Segment Attractiveness
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Identifiable
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Who is in their market?
Are the segments unique?
Does each segment require a unique
marketing mix?
Discussion question
When would these women all be in the same segment? When would
they be in different segments?
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Substantial
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Size matters
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Too small and it is
insignificant
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Not profitable
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Reachable
Persuasive communication
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Distribution
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Responsive
Customers must:
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React positively to firm’s
offering
Move toward the firms
products/services
Accept the firm’s value
proposition
Discussion question
Nike is very successful at selling sports related goods. Would
consumers accept personal care products from Nike? Why or why not?
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Profitable
Segment profitability = Segment size
x Segment adoption percentage
x Purchase behavior
x Profit margin percentage
– Fixed costs,
where
Segment size = Number of people in the segment
Segment adoption percentage = Percentage of customers in the segment
who are likely to adopt the product
Purchase behavior = Purchase price x number of times the customer
would buy the product/service during a given
time period.
Profit margin percentage = ((Selling price – variable costs) ÷ selling price).
Fixed costs = Fixed costs (e.g., advertising expenditure).
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Profitable Segments
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Segment size = 60
million (<15 yrs)
Segmentation Adoption
Percentage = 35%
Purchase Behavior =
$500 x 1 time purchase
Profit margin % = 10%
Fixed Cost = $50M
Is this segment profitable?
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Test Your Knowledge
Which of the following factors would be most useful in
determining whether or not a product will be profitable?
A)
the region where the consumer lives
B)
the inflation rate
C)
the defection rate
D)
the speed of the distribution factors
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Step 4: Selecting a Target Market
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Meet Connie, marketing manager
for a denim company
Has to choose a new target market
for the firms new line of jeans.
Both the consumers pictured wear
jeans.
How does she choose?
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Step 5: Identify and Develop
Positioning Strategy
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Test Your Knowledge
Positioning strategies generally focus on either how the product
or service affects the consumer or how it is _______________.
A)
better than the previous year’s product line
B)
advertised on the Internet
C)
better than competitors’ products and services
D)
positioned relative to the company mission
statement
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Value
Consider Grandpa Tony, now retired:
 He knows the price of everything he has ever bought.
 He clips the newspaper coupons.
 He goes to multiple stores to get the best price.
 He is willing to pay more for quality.
 He trusts brand names.
Discussion question
How can marketers
appeal to price
sensitive customers
like Grandpa Tony?
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The relationship of price to quality
Different consumers = different value
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Salient Attributes
Consider Selia, college Freshman.
Reasons for her college choice:
 Close to home.
 Good academic reputation.
 Good financial aid package.
 Did we mention cute guys?
Discussion question
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What were the
salient attributes of
your college choice?
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Focus on the attributes that are
most important
Vary by target market
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Symbol
Can be used as
a positioning
tool
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Competition
Position against a
specific competitor
Position against an
entire product
classification
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Entrepreneurial Marketing 8.1: Tom
and Tom The Juice Guys
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Desire to re-create a fruit
beverage from Spain
Use only top quality
ingredients
Positioned as a quality,
natural juice beverage
Eventually expanded to teas,
etc.
Annual net sales in 2002 $59
million
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Positioning Strategies
1. Determine consumers’ perceptions and evaluations
of the product or service in relation to competitors’.
2. Identify competitors’ positions.
3. Determine consumer preferences.
4. Select the position.
5. Monitor the positioning strategy.
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Perceptual Maps
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Repositioning
Volcano Maker
Cleaner
Disposal
Freshener
Baking Ingredient
Tooth Cleaner
Stain Remover
Refrigerator Freshener
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Chapter 8 Glossary
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Concentrated segmentation strategy: When an organization selects
a single, primary target market and focuses all its energies on
providing a product to fit that market’s needs.
Differentiated segmentation strategy: When firms target several
market segments with a different offering for each.
Lifestyles: How we live our lives to achieve goals.
Micromarketing: When a firm tailors a product or service to suit an
individual customer’s wants or needs.
Psychographic segmentation: Segmenting method that delves into
how consumers describe themselves.
Self-concept: The image people have of themselves.
Self-values: Goals for life, not just the goals one wants to accomplish
in a day. In this context, they refer to overriding desires that drive how
a person lives his or her life.
Undifferentiated segmentation strategy (mass marketing): Single
strategy for everyone because everyone is considered a potential user
of the product or service, being provided the same benefits.
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