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Irwin/McGraw-Hill

C H A P T E R T E N . MARKET SEGMENTATION, TARGETING, AND POSITIONING. Irwin/McGraw-Hill. AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO:. Explain what market segmentation is, when to use it, and the five steps involved in segmentation.

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Irwin/McGraw-Hill

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  1. C H A P T E R T E N MARKET SEGMENTATION, TARGETING, AND POSITIONING Irwin/McGraw-Hill

  2. AFTER READING THIS CHAPTER YOU SHOULDBE ABLE TO: • Explain what market segmentation is, when to use it, and the five steps involved in segmentation. • Recognize the different factors used to segment consumer and organizational markets. • Understand the significance of heavy, medium, and light users and nonusers in targeting markets. • Develop a market-product grid to use in segmenting and targeting a market. • Interpret a cross tabulation to analyze market segments. • Understand how marketing managers position products in the marketplace.

  3. PP10-AA Sneakers Story: From Little Skirmishes to all-out War • Global $12 billion dollar sneaker market for all kinds of athletic shoes. • Sneaker manufacturers are searching for new market segments of consumers and ways to differentiate their products from everyone else’s. • Reebok’s marketing research shows that in 1971 only 1 of every 27 women was involved in sports; today it is 1 in 3!! Thus Reebok has put special emphasis on the female market.

  4. PP10-BB Market Segmentation Defined Market segmentation involves aggregating prospective buyers into groups that: 1. Have common needs and 2. Will respond similarly to the marketing action. The groups that result from the market segmentation process are called market segments, a relatively homogeneous collection of prospective buyers.

  5. PP10-CC Product Differentiation Defined Product differentiation, in the broadest sense, involves a firm’s using different marketing mix activities, 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 or nonphysical features, such as image or price. In a narrower sense, product differentiation involves a firm’s selling two or more products with different features targeted to different market segments.

  6. PP10-1 Market Segmentation Links Market Needs to an Organization’s Marketing Program • Identify market needs • Benefits in terms of: • Product Features • Expense • Quality • Savings in time and convenience Process of segmenting and targeting markets • Execute marketing • program • A marketing mix • in terms of: • Product • Price • Promotion • Place

  7. PP10-2 Reebok Market-Product Grid Market Segment Product GROUP Running Aerobic Tennis Basketball Children’s Walking Cross Step Athletic Golf WITH Shoes Shoes Shoes Shoes Shoes Shoes Train’g Train’g clothing shoes General NEED 1981 1982 1984 1984 1984 1986 1988 1991 1993 1997 runners P P Performance- aerobic P p conscious dancers consumers tennis P P (athletes) players basketball P P players step S P exercisers golfers P P Fashion- comfort & S S S S S S S conscious style consumers conscious (nonathletes) walkers S S S SP P children P KEY: P=Primary Market S=Secondary Market

  8. PP10-DD When To Segment 1. One Product & Multiple Market Segments 2. Multiple Products & Multiple Market Segments 3. Segments of One: Mass Customization

  9. PP10-EE Concept Check 1. Market segmentation involves aggregating prospective buyers into groups that have two key characteristics. What are they? 2. What is product differentiation? 3. The process of segmenting and targeting markets is a bridge between what two marketing activities?

  10. PP10-3 Five Steps in Segmenting and Targeting Markets Execute marketing program • Steps in segmenting and • targeting markets • Form prospective buyers into segments • Form products to be sold into groups • Develop a market-product grid and estimate size of markets • Select target markets • Take marketing actions to reach target markets Identify market needs

  11. PP10-FF Criteria to Use in Forming Market Segments 1. Potential for increased profit and ROI. 2. Similarity of needs of potential buyers within a segment. 3. Difference of needs of buyers among/across segments. 4. Feasibility of marketing action to reach a segment. 5. Simplicity and cost of assigning potential buyers to segments.

  12. PP10-4a U.S. Consumer Market Segmentation Variables MAIN DIMENSION SEGMENTATION TYPICAL VARIABLES BREAKDOWNS CUSTOMER CHARACTERISTICS Northeast; Midwest; South; West Under 10,000; 10,000-24,999; 25,000-49,999; 50,000-99,999; 100,000-249,999; 250,000-499,999; 500,000-999,999; 1,000,000 or more Region City Size Metropolitan area Density Geographic Demographic Metropolitan statistical areas (MSAs); Consolidated metropolitan statistical areas (CMSAs); Primary metropolitan areas (PMSAs) Urban; suburban; small town; rural Male; female Gender Age Race Life Stage Birth Era Household Size Residence tenure Marital Status Under 6; 6-11; 12-17; 18-24; 25-34; 35-44; 45-54; 55-64; 65-74; 75 and over African-American; Asian; Hispanic; White/Caucasian; Other Infant; preschool; child; youth; collegiate; adult; senior Baby Boomer (1949-1965); Generation X (1966-1976); Baby Boomlet/Generation Y (1977-present) 1; 2; 3; 4; 5 or more Own home; rent home Never married; married; separated; divorced; widowed (continued)

  13. PP10-4b U.S. Consumer Market Segmentation Variables MAIN DIMENSION SEGMENTATION TYPICAL VARIABLES BREAKDOWNS CUSTOMER CHARACTERISTICS Socioeconomic Psychographic Income Education Under $15,000; $15,000-$24,999; $25,000-$34,999; $35,000-$49,999; $50,000-$74,999; $75,000 and over Some high school or less; high school graduate (or GED); some college or vocation/associate degree; college graduate; post-graduate Personality Values Gregarious; compulsive; extroverted; aggressive; ambitious; etc. Actualizers; fulfilleds; achievers; experiencers; believers; strivers; makers; strugglers (continued)

  14. PP10-4c U.S. Consumer Market Segmentation Variables MAIN DIMENSION SEGMENTATION TYPICAL VARIABLES BREAKDOWNS BUYING SITUATIONS In-store Direct Product features Needs Usage rate User status Product knowledge Involvement Department; specialty; outlet; convenience; supermarket; superstore/mass merchandiser; catalog Outlet type Benefits Sought Usage Awareness/Intentions Behavior Mail order/catalog; door-to-door; direct response; internet Situation specific; general Quality; service; price/value; financing; warranty; etc. Light user; medium user; heavy user Nonuser; ex-user; prospect; first-time user; regular user Unaware; aware; informed; interested; intending to buy; purchaser; rejection Minimum effort; comparison; special effort

  15. PP10-5 Patronage of Fast-Food and Drive-in Restaurants USER OR SPECIFIC NUMBER NUMBER ACTUAL USAGE INDEX IMPORTANCE NONUSER SEGMENT (1,000S) PERCENTAGE CONSU MPTION (%) PER PERSON OF SEGMENT HIGH Heavy Users (14+ per month) Medium Users (6-13 per month) Light Users (1-5 per month) 24.3% 29.8 33.5 87.6 Users Total Users Nonusers Total Nonusers Total 46,565 57,303 64,294 168,162 46.9% 39.2 13.9 100.0 465 317 100 275 Prospects Nonprospects 0 0 ? ? ? ? 0 0 0 0 LOW 23,861 12.4 --- Users and nonusers 100.0% 192,023 100.0%

  16. PP10-6 Comparison of Various Kinds of Users and Nonusers for Wendy’s, Burger King, & McDonald’s Restaurants Percentage of respondents (adults, 18 and over) BURGER KING McDONALD’S WENDY’S Sole restaurant 100 80 60 40 20 0 17.0% 31.6% 42.3% Primary Secondary Prospects Non- prospects 9.4% Users 60.6% 12.5% 9.9% 41.7% 32.1% Non-users 12.4% 12.4% 12.4%

  17. PP10-7a Segmentation Variables for Organizational Markets SEGMENTATION MAIN DIMENSION VARIABLES TYPICAL BREAKDOWNS CUSTOMER CHARACTISTICS Geographic Global region U.S. region Metropolitan area Density Domestic; International (Europe; South America; Asia; etc.) or Northeast; Midwest; South; West Metropolitan statistical areas (MSAs); Consolidated metropolitan statistical areas (CMSAs); Primary metropolitan statistical areas (PMSAs) Urban; suburban; small town; rural 2-digit: sector; 3-digit: subsector; 4-digit: industry group; 5-digit: industry; 6-digit: US industry Demographic NAICS code NAICS code Agriculture, forestry, fishing an hunting (11); mining (21); utilities (22); construction (23); manufacturing 31-33, etc. (continued)

  18. PP10-7b Segmentation Variables for Organizational Markets SEGMENTATION MAIN DIMENSION VARIABLES TYPICAL BREAKDOWNS CUSTOMER CHARACTISTICS Demographic (continued) Number of employees Annual sales Number of stores or locations 1-99; 100-499; 500-999; 1,000-4,999; 5,000 and over Under $1 million; $1 million-$9.9 million; $10 million-$49.9 million; $50 million- $99.9 million; $100 million-$499.9 million; $500 million-$999.9 million; $1 billion- $4.9 billion; $5 billion and over 1-9; 10-49; 50-99; 100-499; 500-999; 1,000 and over BUYING SITUATIONS Nature of good Buying condition Kind Where used Application Purchase location Who buys Type of buy Product; service Installation; component; supplies Office use; limited production; use; heavy production use Centralized; decentralized Individual buyer; group of buyers New buy; modified rebuy; straight rebuy

  19. PP10-8 Selecting a Target Market for your Fast-Food Restaurant Next to a Metropolitan College PRODUCTS: MEALS BETWEEN- AFTER- BREAK- MEAL DINNER MARKETS FAST LUNCH SNACK DINNER SNACK STUDENT Dormitory Apartment Day Commuter Night Commuter NONSTUDENT Faculty or Staff Live in area Work in area 0 1 3 0 3 1 3 3 2 1 0 3 2 1 0 0 0 1 3 2 0 3 1 1 0 0 1 2 2 1 1 3 0 1 0 Key: 3 Large market; 2 meduim market; 1 small market; 0 no market

  20. PP10-GGa Criteria to Use in Picking the Target Segments 1. Size: The estimated size of the market to determine whether or not it is worth going after. 2. Expected Growth: The size of the market may be small, but if it is growing significantly it may be worth going after. 3. Competitive position: The less competition the more attractive the market. (continued)

  21. PP10-GGb Criteria to Use in Picking the Target Segments 4. Cost of reaching the market: Is the market accessible to a firm’s marketing actions? If not it should not be pursued. 5. Compatibility with the organization’s objectives and resources.

  22. PP10-9 Advertising Actions to Reach Specific Student Segments PRODUCTS: MEALS BETWEEN- AFTER- MEAL DINNER MARKETS LUNCH SNACK DINNER SNACK Dormitory students Apartment students Day Commuter students Night Commuter students 1 3 0 3 3 3 1 1 3 2 1 0 0 1 3 2 Ad on flyer under windshield wipers of cars in night parking lots: “Free Frosty with this coupon when you buy a hamburger and french fries” Ads in buses; flyers under windshield wipers of cars in parking lots Ad campaign: “Ten percent off all purchases between 2:00 and 4:30 P.M. during winter quarter”

  23. PP10-MNN Apple’s Segmentation Strategy MARKETS PRODUCTS (PERSONAL COMPUTERS) POWERMACINTOSH G3        POWERBOOK G3        IMAC    POWERMACINTOSH G3 SERVER       SECTOR Consumer/ household Kindergarten thru 12th grade College and University Small business Large business Design and Publishing SEGMENT Family/ Games Students Faculty/ administration Students Faculty administration Owners/ employees Administration/ technical Media/graphics/ Internet Desktop publishing EDUCATION COMMERICAL

  24. PP10-HH Concept Check 1. What are some of the variables used to segment customer markets? 2. What are some criteria used to decide which segments to choose for targets? 3. Why is usage rate important in segmentation studies?

  25. PP10-II Definition of Cross Tabulation A cross tabulation, or “cross-tab”is . . . . a method of presenting and relating data having two or more variables. Cross tabs are used to analyze and discover relationships in the data. An important aspect of cross tabulations is deciding which two variables should be paired together for analysis.

  26. PP10-10 Cross Tabulations A. ABSOLUTE FREQUENCIES FREQUENCY AGE OF HEAD OF ONCE 2 OR 3 ONCE HOUSEHOLD A WEEK TIMES A MONTH (YEARS) OR MORE A MONTH OR LESS TOTAL 24 or less 25 to 39 40 or over Total 144 52 19 215 46 58 29 133 82 69 87 238 272 179 135 586 B. ROW PERCENTAGES: RUNNING PERCENTAGES HORIZONTALLY AGE OF HEAD OF ONCE 2 OR 3 ONCE HOUSEHOLD A WEEK TIMES A MONTH (YEARS) OR MORE A MONTH OR LESS TOTAL 24 or less 25 to 39 40 or over Total 67.0% 24.2 8.8 100.0% 34.6 43.6 21.8 100.0 34.4 29.0 36.6 100.0 46.4% 30.6% 23.0% 100.0%

  27. PP10-JJa The Value of Cross Tabulations • The most widely used technique for organizing and presenting marketing data. • The simple format allows direct interpretation and an easy means of communicating data to management. (continued)

  28. PP10-JJb The Value of Cross Tabulations • They have great flexibility and can be used to summarize experimental, observational, and questionnaire data. • The ultimate value of cross tabulations to a marketing manager lies in obtaining a better understanding of the wants and needs of buyers andtargeting key segments.

  29. PP10-KK Product Positioning Product Positioning refers to the place an offering occupies in consumers’ minds on important attributes relative to competitive offerings. 2 Approaches to Product Positioning: 1. Head-to-Head Positioning: involves competing directly with competitors on similar attributes in the same target market. 2. Differentiation Positioning: involves seeking a less competitive, smaller market niche in which to locate a brand.

  30. PP10-LLa Perceptual Maps A key to positioning a product effectively is the perceptions of consumers. In determining a brand’s position and the preferences of consumers, companies obtain three types of data from consumers: 1. Evaluations of the important attributes for a product class. 2. Judgments of the existing brands with the important attributes. 3. Ratings of an “ideal” brand’s attributes. (continued)

  31. PP10-LLb Perceptual Maps From these data, it is possible to develop a perceptual map, a means of displaying via two dimensions the location products or brands occupy in the minds of consumers.

  32. A. Consumer perceptions in 1982 [o] and GM goals for 1990 [] B. Potential change in goals from 1990 [] to 2000 High Price High Price  Cadillac o Cadillac  Buick € ?  Buick o  Oldsmobile o ?  Oldsmobile ? Family/ Conservative Family/ Conservative Personal/ Expressive Personal/ Expressive  Pontiac o Pontiac € ? ? Chevrolet o  Chevrolet   Saturn (1990) ž Saturn Low Price Low Price PP10-11 GM’s Strategy to Reposition Its Major Car Brands

  33. PP10-MM Repositioning Repositioning involves changing the place an offering occupies in a consumer’s mind relative to competitive offerings.

  34. PP10-NN Concept Check 1. What is cross tabulation? 2. What are some advantages of cross tabulations? 3. Why do marketers use perceptual maps in product positioning decisions?

  35. PP10-A Hudson’s Successful Pillow Ad Directed to Three Segments of Sleepers

  36. PP10-B Market-Product Grid Showing Size of Markets for Pillows for Three Different Segments of Sleepers Products Medium Markets Soft Pillow Pillow Firm Pillow Stomach Sleepers L M S Back Sleepers M L M Side Sleepers S M L KEY: L, Large Market; M, medium market; S, small market L L L

  37. PP10-C Benefits (+) and Drawbacks (-) of a Firm’s Market-Product Strategies PRODUCTS Markets Present New Present A. Market penetration B. Product development +: know products & +: can gain marketing market segments well economies of scale -: growth limited to this -: need new R&D and segment manufacturing can cannibalize sales NewC. Market development D. Diversification +: can gain R&D & +: can mitigate swings in manufacturing economies core business by -: need new sales training products in new mkts. and distribution -: no economies of scale R&D, mfg., or mktg.

  38. PP10-D Answers to Questions 7a in Chapter 10: Column Percentages, or Running Percentages Vertically for Absolute Frequency Data in Figure 10-11, A FREQUENCY Age Once a week 2-3 times Once a month (in years) or more a month or less TOTAL 24 or less 53.0% 29.1% 14.0% 36.7% 25 to 39 16.9 32.4 21.5 22.7 40 or over 30.1 38.5 64.4 40.6 TOTAL 100.0% 100.0% 100.0% 100.0%

  39. PP10-E Ans. to Question 7b in Chapter 10: Total Percentages, or Taking %’s of The Grand Total for Absolute Frequency Data in Figure 10-11, A FREQUENCY Age Once a week 2-3 times Once a month (in years) or more a month or less TOTAL 24 or less 24.7% 8.9% 3.2% 36.8% 25 to 39 7.8 9.9 4.9 22.6 40 or over 14.0 11.9 14.8 40.6 TOTAL 46.5% 30.6% 22.9% 100.0%

  40. PP10-F Friskies Advertisement for a Special Market Segment -- ”Senior Cats” Used with permission of Friskies Pet Care Company, Inc..

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