Chapter 7 Market Segmentation and Targeting

1. Chapter 7 Market Segmentation and Targeting Professor Jason C. H. Chen, Ph.D. School of Business Administration Gonzaga University Spokane, WA 99223 chen@jepson.gonzaga.edu

2. 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.

3. After studying this chapter you should be able to: • 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.

4. OPENING VIGNETTE WWW.SRIC-BI.COM • What does the VALS topology accomplish? • What does new service does VALS offer? Two Cases for this chapter (Making Marketing Decisions ): Case 7-1: PRIZM by Claritas: You Are Where You Live Case 7-2: Marriott International: “Suite Deals”

5. Focusing Marketing Strategy and Evaluating Marketing Opportunities Opportunities to be turned Into marketing strategies and plans Evaluating Opportunities Focusing marketing Strategy S.W.O.T Analysis Develop product market Screening criteria Defining generic markets and product-markets Targeting and Segmentation Positioning and Differentiation Company mission, objectives, resources Competitor analysis Trends in external environment: Technological, Economic, Political & Legal Cultural & Social

6. A Marketing Strategy – showing the 4 P’s of a Marketing Mix Product Place Price Promotion C

7. Product Place Price Promotion C Overview of Marketing Strategy Planning Process Narrowing down to focused strategy with quantitative and qualitative screening criteria Customers Needs and other Segmenting Dimensions S. W. O. T. Segmentation & Targeting Company Objectives & Resources Segmentation & Positioning Competitors Current & Prospective External Market Environment Technologies Political and Legal Cultural and Social Economic

8. Feedback of Results Strategy How to cope with a dynamic environment, capitalizing on opportunities and handling threats… How to adopt and integrated systems orientation… How to be a market driven organization = STRATEGIC PLANNING Mission Statement (Marketing Concept Orientation) Company-Wide Level Objectives and Goals Impact of Competition and other Environmental Items Grand Strategy Marketing Strategy and Tactics Target Market (Segments, Position) Marketing Mix P P P P Offering to the Market

9. Organization’s Single Marketing Mix Organization’s Several Marketing Mixes Organization’s Single Marketing Mix A D F Segment Segment Segment Segment Mass Market A B C D E A B C D E F MARKETING STRATEGY MASS MARKET STRATEGY MULTISEGMENT STRATEGY CONCENTRATION STRATEGY

10. 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. Intermarket Segments: Well-defined, similar clusters of customers across national boundaries. Market Segmentation

11. Target Markets • Targeting: • Selecting which segments in a market • are appropriate to focus on and • designing the means of reaching them.

12. Select target marketing approach Segmenting into possible target markets Narrowing down to specific product-market Narrowing down target markets Single target marketing approach All customer needs Some generic market One broad- product market Homogenous (narrow) product- markets Multiple target marketing approach Combined target marketing approach

13. 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.

14. From Mass Marketing to Mass Customization • Mass Customization: • Complex manufactured products made to order.

15. Is Market Segmentation Appropriate? • Frequently use approaches for a sustainable marketing strategy (company) • Developing brand-line extensions • Repositioning the product for additional uses • Identifying the needs of a particular segment, or segments • Developing marketing strategies for each • When the segmentation strategy is not useful • When the overall market is so small that marketing to a portion of it is not profitable • When the brand is dominant in the market and draws its appeal from all segments

16. structure/ culture competition Business landscape Internal/ External Consistent fulfill Analysis (Porter, SWOT) future positioning … Finance Management Process H/R Technology Corporate strategy • Positioning on product/market • Differentiation/choice of competitive advantage Business strategy • Competitive posture • Industry characteristics， • Market growth， • Demand characteristics， • Barrier of entry，etc. Functional strategy Essentials for a Sustainable Enterprise Value propositions 1. Business model 2. Core competencies Strategic intent Strategy Positioning 3. Execution IT Role? N

17. Criteria for Effective Segmentation Five Criteria: • Measurability • Accessibility • Substantialness • Durability • Differential Responsiveness

18. Stages in Developing Market Segmentation Strategies

19. Stages in Developing Market Segmentation Strategies Exhibit 7-2 Develop a market segmentation strategy Define overall product market in which company operates Identify distinguishing characteristics of segments or bases for segmentation Describe segments Evaluate approaches for potential & likely success Select target market Determine desired positioning and then develop marketing mix to achieve desired position 2 3 4 5 6 1

20. Exhibit 3-2 Four Basic Types of Opportunities © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin—for use only with Basic Marketing

21. Four Basic Types of Opportunities Present products New products Market penetration Product development Present markets Market development Diversification New markets

22. Examples of Different Types of Opportunities • Market Penetration • Arm & Hammer promotes new uses of its baking soda • Market Development • Marriott Hotels target families for weekend "get-aways" to rent rooms filled by business travelers during the week • Product Development • Microsoft develops a new version of its Windows operating system to appeal to the people who bought an earlier version but now want more features • Diversification • RJR, the cigarette producer, adds baked goods to its product line to appeal to new customers

23. Bases for Segmentation • Demographics • Geographics • Psychographics & Lifestyles • Benefit Segmentation • Economic Segmentation • International Segmentation

24. Segmentation Variables Geographics Nation/Region State/Region City/Neighborhood Climate/Terrain Population density Market density Age Gender Income Buying Power Expenditure patterns Occupation Education Race or nationality Family life cycle Social class Potential Consumer Segments Personality Lifestyle Demographics Psychographics Decisions Amount of usage Type of usage Brand loyalty Benefits sought Behavioral

25. Demographic Dimensions • Important operational dimensions for understanding market segments and developing marketing mixes • Much good data is available • Important for determining size of consumer target markets • Is the market substantial? • Seeing demographic trends helps identify opportunities • Shifts in age distribution • Geographic growth/decline

26. Map of United States Showing Population by State (all figures in thousands)

27. Percent Change in Population by State

28. Changes in the U.S. Birthrate, 1935-2005

29. Age Distribution • Average age is increasing • But there is a big teen cycle on the way • Post World War II "Baby Boomers“ • Still a big, influential group • 50 and older group to grow dramatically in next decade

30. MyGeneration ad

31. Population Distribution (and Percent Growth Rate) by Age Groups for Different 10-Year Periods)

32. Median Family Income Over Time (in 1999 dollars)

33. Percent of Total Income Going to DifferentIncome Groups in 1999

34. Income Distribution • Growth in real income has slowed down • Middle income groups in U.S. enjoy real choices • U.S. distribution like Canada, Western Europe, Japan, Australia, New Zealand • Higher income groups still have much of the spending power • Top 20% income group has over 47 percent of total income! • Bottom 20% income group has only about 4 percent!

35. Types of Income • DISPOSABLE INCOME • Income that is left after taxes • DISCRETIONARY INCOME • What is left of disposable income after paying for "necessities"

36. Family cycle factors Marital status FAMILY LIFE CYCLE FACTORS Age Age of children In the household

37. Stages in Modern Family Life Cycles Middle-age divorced without children Young divorced without children * Middle-age married without children Young single * Young married without children * Young married with children * Middle-age married with children Middle-age married without dependent children Older Married * Older Unmarried * Middle-age divorced without children Middle-age divorced with children Middle-age divorced without dependent children Usual flow Recycled flow * Tradition family flow

38. Psychological (intra-personal) Variables • Motivation • Perception • Learning • Attitudes and beliefs • Personality • Lifestyle (psychographics)

39. Possible Needs Motivating a Person to Some Action

40. Psychographics PSYCHOGRAPHICS Activities CONSUMER LIFESTYLES Interests Opinions

41. Lifestyle Dimensions (and some related demographic dimensions)

42. Six Betty Crocker pictures, 1936-2000 (The original Betty, 1936) (1965) (1972) (Betty Crocker 2000) (1980) (1986)

43. Social (intra-personal) Influenceson Consumers • Family • Reference groups • Social class • Culture and subculture © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin—for use only with Basic Marketing

44. Characteristics and Attitudes of Middle and Lower Classes • Middle classes • Plan and save for the future • Analyze alternatives • Understand how theworld works • Feel they have opportunities • Willing to take risks • Confident about decision making • Want long-run qualityor value • Lower classes • Live for the present • "Feel" what is "best" • Have simplistic ideas about how things work • Feel controlled by the world • "Play it safe" • Want help with decision making • Want short-run satisfaction © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin—for use only with Basic Marketing

45. Combining Bases of Market Segmentation Exhibit 7-5 A two stage segmentation example Stage 1 Initial segmentation Stage 2 Supplemental segmentation descriptors Managerial decisions Demographics: Income & Education Media Selection (magazines & TV programs) Usage: Heavy vs. Light Lifestyles Advertising Content (conservative, youthful, appeals, & messages)

46. Organization’s Single Marketing Mix Organization’s Several Marketing Mixes Organization’s Single Marketing Mix A D F Segment Segment Segment Segment Mass Market A B C D E A B C D E F MARKETING STRATEGY MASS MARKET STRATEGY MULTISEGMENT STRATEGY CONCENTRATION STRATEGY

47. NEW MARKET ENTRANTS SUBSTITUTE PRODUCTS & SERVICES TRADITIONAL COMPETITORS THE FIRM SUPPLIERS CUSTOMERS PORTER’S FIVE COMPETITIVE FORCES MODEL Threats Internal Forces 1.customer focus 2.communication 3.core competencies 4.complexity 5.quality Bargaining power N

48. Porter’s Generic Strategy Framework – 3 Strategies for achieving Competitive Advantage Uniqueness Perceived by Customer Lower Cost Position Industrywide (Broad Target) Overall Cost Leadership Differentiation Competitive Scope Particular Segment only (Narrow Target) Focus Competitive Mechanism N

49. Segmentation Strategies Undifferentiated Strategy Differentiated Strategy Concentrated Strategy

50. Countersegmentation Strategy • Countersegmentation: • An alternative strategy to traditional segmentation approaches. • Combines market segments • Consumers accept lower price over variety