CHAPTER

TEN

MARKET SEGMENTATION, TARGETING, AND POSITIONING

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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. Recognize the different dimensions used to segment consumer and organizational 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.

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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 elses. Reeboks 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.
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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.
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Product Differentiation Defined

Product differentiation, in the broadest sense, involves a firms 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 firms selling two or more products with different features targeted to different market segments.
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PP10-1 Market Segmentation Links Market Needs to an Organizations 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

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PP10-2 Reebok Market-Product Grid

Market Segment Product
GROUP Running Aerobic Tennis Basketball Childrens Walking Cross Step Athletic Golf WITH Shoes Shoes Shoes Shoes Shoes Shoes Traing Traing 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 Fashioncomfort & S S S S S S S conscious style consumers conscious (nonathletes) walkers S S S S P P children P KEY: P=Primary Market S=Secondary Market 10-7
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When To Segment
1. One Product & Multiple Market Segments 2. Multiple Products & Multiple Market Segments 3.
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Segments of One: Mass Customization

2000 McGraw-Hill Ryerson Limited

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?
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PP10-3 Five Steps in Segmenting and Targeting Markets

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

Execute marketing program

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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 segments. 4. Feasibility of marketing action to reach a segment. 5. Simplicity and cost of assigning potential buyers to segments.
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PP10-4a Canadian Consumer Market Segmentation Variables

MAIN DIMENSION SEGMENTATION VARIABLES Region City or Census Metropolitan area (CMA) size Density Climate Gender Age TYPICAL BREAKDOWNS
Atlantic, Quebec, Ontario, Prairies, British Columbia Under 5,000; 5,000-19,999; 20,000-49,999; 50,000-99,999; 100,000-249,999; 250,000-499,999; 500,000-999,999; 1,000,000 or more CUSTOMER CHARACTERISTICS

Geographic

Urban; suburban; small town; rural East; West

Male; female Under 6; 6-11; 12-17; 18-24; 25-34; 35-44; 45-54; 55-64; 65-74; 75 and over White; Black; Asian; Native; other Young single; young married; older married; etc. Under $10,000; 10,000-19,9999; 20,000-29,999; 30,000-39,999 40,000-54,999; 55,000-74,999; $75,000+ 1; 2; 3; 4; 5 or more Own home; rent home Grade school or less; some high school; high school graduate; some college; college graduate
2000 McGraw-Hill Ryerson Limited

Demographic

Race Life Stage Income Family size Home ownership Education

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PP10-4b Canadian Consumer Market Segmentation Variables

MAIN DIMENSION SEGMENTATION VARIABLES Benefits sought Usage rate User status Loyalty status TYPICAL BREAKDOWNS
Quality; service; low cost Light user; medium user; heavy user Non-user; ex-user; prospect; first-time user; regular user None; medium; strong

CUSTOMER CHARACTERISTICS

Behavioural

Psychographic

Personality Lifestyle (GoldFarb Segments)

Gregarious; compulsive; extroverted; introverted Structured; discontented; fearful; assured; resentful; caring

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PP10-5 Segmentation Variables for Organizational Markets

MAIN MAINDIMENSIONS DIMENSIONS Geographic Geographic segmentation segmentation Demographic Demographic segmentation segmentation VARIABLES VARIABLES Region Region Location Location NAICS NAICScode code Number Numberof ofEmployees Employees Annual Sales Annual SalesVolume Volume TYPICAL TYPICALBREAKDOWNS BREAKDOWNS Atlantic, Ontario, Atlantic,Quebec, Quebec, Ontario, Prairies, British Columbia Prairies, British Columbia In not InCMA; CMA; notin inCMA CMA 2-digit; 5-digit 2-digit;3-digit; 3-digit;4-digit; 4-digit; 5-digit categories categories 119; 100249; 250+ 119;2099; 2099; 100249; 250+ Less than $1 million; $110 Less than $1 million; $110milmillion; $10100 million; over lion; $10100 million; over $100 $100million million Quality; customer Quality; customerservice; service;low low price price Light Lightuser; user;medium mediumuser; user;heavy heavy user user Nonuser; Nonuser;ex-user; ex-user;prospect; prospect; firstfirsttime user; regular user time user; regular user None; None;medium; medium;strong strong Centralized; decentralized; Centralized; decentralized; Individual; Individual;group group New buy; modified New buy; modifiedrebuy; rebuy;straight straight rebuy rebuy
2000 McGraw-Hill Ryerson Limited

Behavioural Behavioural segmentation segmentation

Benefits sought Benefits sought Usage Usagerate rate User Userstatus status Loyalty Loyaltystatus status Purchase Purchasemethod method Type buy Typeof of buy

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PP10-6 Selecting a Target Market for your Fast-Food Restaurant Next to an Urban University
PRODUCTS: MEALS
BREAKFAST BETWEENMEAL SNACK AFTERDINNER SNACK

MARKETS

LUNCH

DINNER

STUDENT Dormitory Apartment Day Commuter Night Commuter NONSTUDENT Faculty or Staff Live in area Work in area

0 1 0 0

1 3 3 0

3 3 2 1

0 2 1 3

3 1 0 2

0 0 1

3 1 3

1 2 0

1 2 1

0 1 0

Key: 3 Large market; 2 meduim market; 1 small market; 0 no market 10-15

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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.
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Criteria to Use in Picking the Target Segments 4. Cost of reaching the market: Is the market accessible to a firms marketing actions? If not it should not be pursued. 5. Compatibility with the organizations objectives and resources.

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PP10-7 Advertising Actions to Reach Specific Student Segments

PRODUCTS: MEALS
BETWEENMEAL SNACK AFTERDINNER SNACK

MARKETS

LUNCH

DINNER

Dormitory students Apartment students Day Commuter students Night Commuter students

1 3 3 0

3 3 2 1

0 1 1 3 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

3 1 0 2

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

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PP10-MNN Apples Segmentation Strategy

MARKETS PRODUCTS (PERSONAL COMPUTERS) POWER MACINTOSH POWERBOOK G3 G3 POWER MACINTOSH G3 SERVER

SECTOR Consumer/ household EDUCATION Primary through OAC

SEGMENT Family/ Games

IMAC

Students Faculty/ administration Community College Students and University Faculty/ administration Owners/ employees Administration/ technical Media/graphics/ Internet Desktop publishing

COMMERICAL Small business Large business Design and Publishing 10-19

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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?
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Definition of Cross Tabulation

A A cross cross tabulation, tabulation, or or cross-tab cross-tab is is .. .. .. ..
a amethod methodof ofpresenting presentingand andrelating relatingdata datahaving havingtwo twoor or more morevariables. variables. Cross Crosstabs tabsare areused usedto toanalyze analyzeand and discover discoverrelationships relationshipsin inthe thedata. data. An Animportant importantaspect aspectof ofcross crosstabulations tabulationsis isdeciding deciding which whichtwo twovariables variablesshould shouldbe bepaired pairedtogether togetherfor for analysis. analysis.
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PP10-8 Cross Tabulations

A. ABSOLUTE FREQUENCIES
AGE OF HEAD OF HOUSEHOLD (YEARS) 24 or less 25 to 39 40 or over Total ONCE A WEEK OR MORE 144 46 82 272

FREQUENCY
2 OR 3 TIMES A MONTH 52 58 69 179 ONCE A MONTH OR LESS 19 29 87 135

TOTAL 215 133 238 586

B. ROW PERCENTAGES: RUNNING PERCENTAGES HORIZONTALLY

AGE OF HEAD OF HOUSEHOLD (YEARS) 24 or less 25 to 39 40 or over Total ONCE A WEEK OR MORE 67.0% 34.6 34.4 46.4% 2 OR 3 TIMES A MONTH 24.2 43.6 29.0 30.6% ONCE A MONTH OR LESS 8.8 21.8 36.6 23.0%

TOTAL 100.0% 100.0 100.0 100.0%

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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.
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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 and targeting key segments.
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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.
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Perceptual Maps
A key to positioning a product effectively is the perceptions of consumers. In determining a brands 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 brands attributes.
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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.
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PP10-9 GMs Strategy to Reposition Its Major Car Brands

A. Consumer perceptions in 1982 [o] and GM goals for 1990 [ ] High Price
Cadillac o Buick o Family/ Conservative o Oldsmobile Personal/ Expressive o Pontiac Chevrolet o Chevrolet Saturn (1990) Saturn Family/ Conservative

B. Potential change in goals from 1990 [ ] to 2002 High Price

Cadillac Buick

? ?
Oldsmobile

Personal/ Expressive

Pontiac

Low Price
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Low Price

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Repositioning

Repositioning involves changing the place an offering occupies in a consumers mind relative to competitive offerings.

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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?
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SLN10-1

Market-Product Grid Showing Size of Markets for Pillows for Three Different Segments of Sleepers

Markets Stomach Sleepers Back Sleepers Side Sleepers

Soft Pillow L L M S

Products Medium Pillow M L M

Firm Pillow S M L L

KEY: L, Large Market; M, medium market; S, small market

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