Identifying Market Segments

and Target Customers

ch-6
Effective targeting requires that marketers:
1. Identify distinct groups of buyers who differ in their needs and
wants (segmentation).
2. Select one or more market segments to enter (targeting).
3. For each target segment, establish, communicate, and deliver the
right benefit(s) for the company’s market offering (developing a
value proposition and positioning).
Identifying Target Customers
• Marketers are increasingly combining several variables in an effort to
identify smaller, better-defined target groups in order to develop an
offering that can fulfill these customers’ needs better than the
competition.
• Targeting is the process of identifying customers for whom the
company will optimize its offering.
THE LOGIC OF TARGETING
• In mass marketing, the firm ignores segment differences and goes
after the whole market with one offer.
• In targeted marketing, the firm sells different products to all the
different segments of the market.
• The ultimate level of targeting is the one-to-one approach in which
each market segment comprises a single customer.
• Mass customization is the ability of a company to meet each
customer’s requirements—to prepare on a mass basis individually
designed products, services, programs, and communications.
STRATEGIC AND TACTICAL
TARGETING
• Strategic targeting:
• Focuses on customers whose needs the company can fulfill by ensuring that its
offerings are customized to their needs.
• Calls for a trading market size that yields a better fit between the offering’s
benefits and the customers’ needs.
• Based on the deliberate choice to ignore some customers to better serve other
customers with an offering that matches their specific needs.
• Tactical targeting
• Identifies the ways in which the company can reach these strategically important
customers.
• Strives to reach all strategically important customers in an effective and cost-
efficient manner
Strategic targeting
A manager must address two key questions when evaluating the
viability of a particular customer segment:
1. Can the company create superior value for these customers? (Target
compatibility)
2. Can these customers create superior value for the company? (Target
attractiveness)
TARGET COMPATIBILITY
• Target compatibility is a reflection of the company’s ability to outdo the competition
in fulfilling the needs of target customers—in other words, to create superior
customer value.
• Target compatibility is a function of the company’s resources and its capacity to use
these resources in a way that creates value for target customers.
• Essential resources for the success of a company’s targeting strategy:
• Business infrastructure: production facilities and equipment; call centers, CRM solutions; supply-
chain infrastructure and the company’s business management culture.
• Access to scarce resources
• Skilled employees
• Technological expertise
• Strong brands
• Collaborator networks
TARGET ATTRACTIVENESS
• Target attractiveness reflects the ability of a market segment to
create superior value for the company.
• Target customers can create two kinds of value for a company:
• Monetary Value.
• Consists of the capability of customers to engender profits for the company.
• Includes both the revenues a particular customer segment generates and the costs of
serving these customers.
• Strategic Value:
• Refers to nonmonetary benefits that customers bring to the company.
• Strategic value is not as readily observable and can be difficult to quantify.
key aspects of tactical targeting
• Defining the customer profile:
• Demographic factors.
• Geographic (geolocation) factors.
• Behavioral factors.
• customers’ prior experience with the company’s offering: current customers, competitors’ customers, or
new-to-the-category customers.
• Frequency of purchase, the quantity they purchase, their price sensitivity and sensitivity to the company’s
promotional activities, their loyalty, their online versus offline purchases, and the retail outlets they
patronize most often.
• Customers’ role in the decision process (e.g., as initiator, influencer, decider, buyer, or user), and what
stage of the customer decision journey they are in.
• The manner in which customers learn about new products, how they socialize, and what they do in their
spare time.
• Psychographic factors:
• involve aspects of an individual’s personality such as: attitudes, value system, interests, and lifestyle.
strategic Value
• Social value:
• Reflects the influence of target customers on other potential buyers.
• Companies target opinion leaders, trendsetters, and experts because of their capacity to promote and
endorse the company’s offering via social networking.
• Scale value:
• Denotes the benefits derived from the scale of the company’s operations.
• The economics of its business model might lead a company to target low-margin or sometimes even
unprofitable customers, as is the case with airlines, hotels, and cruise lines that have large fixed costs and
smaller variable costs.
• A company in its early growth stages might decide to target low-margin customers to build a product and
user base that will serve as a platform for future growth.
• Information value:
• Is the worth of the information that customers provide about their needs and profile.
• Target early adopters. These “lead users” allow the company to glean feedback on how it can modify and
enhance the offering to attract more buyers.
Tactical Targeting
• Demographic factors
• Geographic (geolocation) factors
• Behavioral factors:
• User status, loyalty…etc
• Psychographic factors:
• Individual’s personality—such as attitudes, value system, interests, and
lifestyle.
Single-Segment and Multi-Segment
Targeting
• Single-segment Targeting
• Through concentrated marketing, firm gains:
• Deep knowledge of the segment’s needs
• Strong market presence.
• Enjoys operating economies by specializing its production, distribution, and promotion.

• Targeting Multiple Segments:

• There may be little or no synergy among the segments, but each segment
promises to be a moneymaker.
• A firm can increase the appeal of its offerings to target customers by focusing on
different products and/or markets. (Product specialization, Market specialization).
Segmenting Consumer Markets
• Market segmentation divides a market into well-defined slices.
• A market segment consists of a group of consumers who share a
similar set of needs and/or profile characteristics.
• Common types of segmentation include:
• demographic, geographic, behavioral, and psychographic.
DEMOGRAPHIC SEGMENTATION
• Demographic variables to segment markets:
• Age.
• Silent Generation (1925–1945); Baby Boomers (1946–1964); Generation X (1965–1981);
Generation Y, also referred to as Millennials (1982–2000); and Generation Z (2001–
present).
• Each generation is profoundly influenced by the times in which it grows up—the music,
movies, politics, and defining events of that period.
• Stage in the Life Cycle
• Gender
• Income
• Race and Culture
BEHAVIORAL SEGMENTATION
• Divide buyers into groups on the basis of their actions.
• User status: Based on their prior experience with the company’s offering, consumers can
be classified into nonusers, potential users, first-time users, regular users, and ex-users.
• Usage rate: We can segment markets into light, medium, and heavy product users.
• Buyer-readiness stage: Some people are unaware of the product, some are aware, some
are informed, some are interested, some desire the product, and some intend to buy.
• Loyalty status: consumers can be divided into four segments: hard-core loyal consumers:
who buy only one brand all the time, split-loyal consumers: loyal to two or three brands,
shifting-loyalty consumers: move from one brand to another, and switchers: show no
loyalty to any brand.
• Occasions.
PSYCHOGRAPHIC SEGMENTATION
• Buyers are divided into groups on the basis of psychological traits,
lifestyle, or values.
• It offers better understanding for buyers needs.
Segmenting Business Markets
• Demographic factors such as: industry, company size, and location.
• Operating variables such as: technology, user or nonuser status (e.g.,
Should we serve heavy users, medium users, light users, or nonusers?),
and customer capabilities (e.g., Should we serve customers needing
many or few services?)
• Purchasing approaches such as: nature of existing relationship; general
purchasing policies; and purchasing criteria
• Situational factors such as: urgency; specific application; and size of order
• Personal characteristics such as: buyer–seller similarity; attitude toward
risk; and loyalty.