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C H A P T E R
7
Market
Segmentation
and Targeting
McGraw-Hill/Irwin
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
After studying this chapter, you should be able to:
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Define and explain market segmentation, target markets,
and product differentiation and positioning.
Understand the criteria used for evaluating the likely
success of a segmentation strategy.
Know the role of market segmentation in the development
of marketing strategies and programs.
Describe the issues involved in product and brand
positioning.
Understand the alternative bases for segmenting consumer
and business-to-business markets.
Evaluate alternative approaches for pursuing segmentation
strategies.
Bearden Marketing 5th Ed
7-2
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Acxiom
Acxiom is a world leader in
consumer information and
information management. The
company offers its clients the
ability to effectively analyze
their customer base. Acxiom
makes it easy for firms to
keep their best customers by
building knowledge about
what customers like and how
best to communicate with
them.
Bearden Marketing 5th Ed
7-3
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Market Segmentation
Market segmentation divides a market into
subsets of prospective customers who
behave in the same way, have similar wants,
or have similar characteristics that relate to
purchase behavior. The overall market for a
product consists of segments of customers
who vary in their responses to different
marketing mix offerings.
Bearden Marketing 5th Ed
7-4
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Understanding Segmentation
Understanding market segmentation is important:
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Slow market growth has fostered more competition,
increasing the need to identify target markets
Social and economic forces have produced customers
with varied and sophisticated needs, tastes, and lifestyles.
Technological advances make it possible for marketers to
devise marketing programs that focus efficiently on
precisely defined segments of the market.
Minority buyers do not necessarily adopt the social and
economic habits of the mainstream.
40% of US residents identify with some segment or niche
group other than the historical “marketing mainstream.”
Bearden Marketing 5th Ed
7-5
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Intermarket Segments
International marketing may be based on the
cultivation of intermarket segments, which are
well-defined, similar clusters of customers across
national boundaries. This view of segmentation
allows firms to develop marketing programs and
offerings for each identified segment on a global
basis.
Bearden Marketing 5th Ed
7-6
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Target Markets
Market segmentation lets a firm tailor or develop
products and strategies to appeal to the preferences and
unique needs of specific groups of customers.
These groups are typically referred to as target
markets: groups of consumers or organizations with
whom a firm wants to create marketing exchanges.
Targeting involves selecting which segments in a
market are appropriate to focus on and designing the
means of reaching them.
Bearden Marketing 5th Ed
7-7
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Product Differentiation
Product differentiation exists when a firm’s
offerings differ or are perceived to differ from
those of competing firms on any attribute,
including price.
A product differentiation strategy positions a
product within the market.
Marketers attempt to position a product or
service in customers’ minds—to convince
customers the product has unique and desirable
characteristics.
Bearden Marketing 5th Ed
7-8
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Mass Customization
Among the most notable changes in this century
has been the shift from mass marketing to mass
customization.
Companies like Dell Computers have proved
that complex manufactured products can be
made to order.
Now companies throughout the world have
embraced mass customization in an attempt to
satisfy the diverse needs of their customers and
to provide unique value.
Bearden Marketing 5th Ed
7-9
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Criteria for Effective Segmentation
Measurability
Measurability reflects the degree to which
the size and purchasing power of segments
can be assessed.
Accessibility
Accessibility describes the degree to which
a firm can reach intended target segments
efficiently.
Substantialness refers to the degree to
Substantialness
which identified target segments are large
enough or have sufficient sales and profit
potential to warrant unique or separate
marketing programs.
more
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7-10
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Criteria for Effective Segmentation
Durability
Durability has to do with stability of
segments—whether distinctions between
segments will diminish or disappear as the
product category or the markets themselves
mature.
Differential responsiveness refers to the
Differential
Responsiveness extent to which market segments exhibit
different responses to different marketing
mixes.
Bearden Marketing 5th Ed
7-11
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Developing a Segmentation Strategy
Stages required in the development of a market
segmentation strategy are summarized below. The
organization’s core business determines the product or
service market in which it operates.
Exhibit 7-2
Bearden Marketing 5th Ed
7-12
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Developing a Segmentation Strategy
Stages required in the development of a market
segmentation strategy are summarized below. The
organization’s core business determines the product or
service market in which it operates.
Exhibit 7-2
Bearden Marketing 5th Ed
7-13
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Consumer Segmentation Bases
Behavioral
User-Related
• Demographics
• Benefits
• Social class
• Usage
• Culture
• Price or promotional
sensitivity
• Geographic
• Lifestyle and
psychographic
Bearden Marketing 5th Ed
• Buying situation
• Economic
7-14
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Business to Business Segmentation Bases
Behavioral
User-Related
• Customer size
• Geographic location
• Organizational structure
• Stage of buying process
• End use
• Usage
• Product/service
application
• Economic
• Attitude toward vendor
Bearden Marketing 5th Ed
7-15
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Bases for Segmentation
For consumer marketing, demographic
Demographics segments are particularly significant. Some
products are targeted for teenagers and
others for the elderly; others are designed for
young couples just beginning a family.
Geographics
Geographic differences are sometimes
important in the development of marketing
strategies. For example, cellular phone
marketers use geographic analyses to
evaluate their distribution effectiveness.
more
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7-16
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Bases for Segmentation (con’t)
Psychographics Psychographic or lifestyle research
attempts to segment customers according to
& Lifestyle
their activities, interests, and opinions. By
tapping into a consumer’s preferences and
learning where her/his passions lie, firms
increase the reception of their messages.
Benefit segmentation enhances the design
Benefit
and marketing of a product to meet
Segmentation expressed consumer needs for quality,
service, or unique features. In fact, benefit
segmentation is most consistent with
assumption of demand variation between
segments.
more
Bearden Marketing 5th Ed
7-17
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Bases for Segmentation (con’t)
Firms are increasingly segmenting their
Economic
customers based on the profit potential
Segmentation associated with individual accounts. Such
economic segmentation occurs in both
consumer marketing situations and
business-to-business competitive markets.
International Segmentation is an important part of
Segmentation international marketing as well. Firms can
employ one—or some combination—of three
approaches: single standardized strategy,
customized strategies, or intermarket
segments.
Bearden Marketing 5th Ed
7-18
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Combining Bases of Segmentation
Below is one way a firm might combine
consumer characteristics to decide on a market
segmentation strategy.
Exhibit 7-5
Bearden Marketing 5th Ed
7-19
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Segmentation Strategies
Undifferentiated
Differentiated
Bearden Marketing 5th Ed
A company adopts an undifferentiated
strategy when it markets a single
product using a single communication
and distribution mix for the mass
market.
At the other end of the scale is the
differentiated strategy, under which a
firm uses different strategies for most or
a large number of different segments.
7-20
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Segmentation Strategies
Concentrated
Countersegmentation
Bearden Marketing 5th Ed
A firm pursues a concentrated
strategy when it seeks a large share of
just a few profitable segments, perhaps
only one, of the total market.
Countersegmentation is an alternative
strategy to traditional segmentation
approaches. It involves combining
market segments and assumes an
increasing consumer willingness to
accept fewer product and service
variations for lower prices.
7-21
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Estimating Segment Potential
Steps firms can use to estimate potential for a
segment:
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Set time period of interest.
Define product level.
Specify segment characteristics or bases.
Identify geographic market boundaries.
Make assumptions about marketing environment
(uncontrollable factors such as competitive activity).
Make assumptions about company’s own marketing
efforts and programs (controllable factors).
Make estimates of market potential, industry sales, and
company sales
Bearden Marketing 5th Ed
7-22
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Developing Forecasts
Quantitative
Methods
Qualitative
Procedures
• Survey of Buyers’
intentions
• Trend Analysis
• Expert Opinions
• Market Tests
• Composite of Sales
Forces estimates
• Statistical Demand
Analysis
Bearden Marketing 5th Ed
7-23
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Targeting Market Segments
To select target segments, the firm must consider:
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The segment’s potential sales volume and profits.
Competition currently selling to the segments.
The firm’s abilities and objectives.
Positioning a product or service involves designing a
marketing program that is consistent with how the
company wants its products or services to be perceived.
Repositioning, called for when a firm wants to shift
consumer opinions about an existing brand, requires
development of new marketing programs.
Bearden Marketing 5th Ed
7-24
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Perceptual Maps
Exhibit 7-10
Bearden Marketing 5th Ed
7-25
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Micromarketing
Micromarketing frequently combines census and
demographic data to identify clusters of households that
share similar consumption patterns.
Micromarketing enhances the effectiveness of marketing
efforts by enabling marketers to
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Identify potential markets for direct selling through mail
and telemarketing campaigns.
Profile their customers by matching them to demographic
and lifestyle clusters.
Learn which areas offer the greatest potential in site
selection for new stores or offices.
Tailor their advertising themes and plan their media.
Bearden Marketing 5th Ed
7-26
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Summary
After studying this chapter, you should be able to:






Define and explain market segmentation, target markets,
and product differentiation and positioning.
Understand the criteria used for evaluating the likely
success of a segmentation strategy.
Know the role of market segmentation in the development of
marketing strategies and programs.
Describe the issues involved in product and brand
positioning.
Understand the alternative bases for segmenting consumer
and business-to-business markets.
Evaluate alternative approaches for pursuing segmentation
strategies.
Bearden Marketing 5th Ed
7-27
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.