978-0132539302 Chapter 7 Lecture Note

Chapter 7 – Identifying Market Segments and Targets

I………………………………..Chapter Overview/Objectives/Outline

A. Overview

Sellers can take three approaches to a market. Mass marketing is the decision to mass-produce

product marketing mixes.

The key steps in target marketing are market segmentation, market targeting, and product

positioning. Market segmentation is the act of dividing a market into distinct groups of buyers

with different needs or responses. The marketer tries different variables to see which reveal the

The seller should target the best market segment(s). The seller must evaluate the potential of

each segment, which is a function of segment size and growth, segment attractiveness, and

company objectives and resources. Then, the seller should determine how and when it can

ignore segment differences (undifferentiated marketing), develop different market offers for

invasion plans.

B. Learning Objectives

Understand what it means to “segment” a market.

Know the different levels of market segmentation.

Understand the bases used to segment consumer and business markets.

C. Chapter Outline

I. Introduction – Target marketing requires the following: identify and profile distinct groups

of buyers with distinct needs/preferences, select one or more market segments, establish

and communicate distinctive benefits of the market offering to each target segment.

Note the Club Med example

II. Basis for Segmenting Consumer Markets

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profile of specific geographic areas. Multi-attribute segmentation

(geoclustering): assumes people who live near each other and exhibit similar

traits from all of the above segmentation bases. Geoclustering via PRIZM

clusters (American dreams, rural industrial, gray power, country squires) –

focus on increasing diversity

changes in needs

2. Life-stage – taking care of aging parent, divorce, new home

many cases

4. Income – may not be the best predictor, must verify disposable

misleading)

5. Generation (see cohorts Table 7.2)

6. Race and Culture – A Multi cultural approach recognizes

different ethnic and cultural segments

C. Psychographic …………………………………………………………………………………………

………………………………………………………………………………………………

Consumers are divided into different groups on the basis of

psychological/personality traits, life style or values VALSTM (values and

lifestyles) system framework classifies U.S. adult consumers into eight

primary groups based upon personality traits and key demographics.

Refer to figure 7.1

D. Behavioral – divide consumers into groups on the basis of their knowledge of,

attitude toward, use of, or response to a product

segments

decision process: Initiator, Influencer, Decider, Buyer, User

3. User and Usage

a. Occasions when need may develop

users, regular users

c. Usage rate – light, medium, heavy

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d. Buyer-readiness stage – unaware, aware, informed,

for the Brand funnel Concept)

e. Loyalty status- hard core (never switch), split across

several brands, shifting from one to another brand,

switchers (not loyal to any brand)

f. Attitude – enthusiastic, positive, indifferent, negative,

hostile

III.Bases for segmenting business markets

application), Personal characteristics (attitudes toward risk, loyalty, buyer-seller

similarity). Refer to Table 7.3 for a list of Major segmentation Variables for the Business

market.

IV. Market Targeting

segmentation)

A. Effective segmentation criteria

1. Rating Segments (segments must rate favorably on 5 key

criteria

c. Accessible – must be effectively reached

d. Differentiable – must have different needs and respond to

marketing efforts differently

2. Long Term Segment attractiveness – Porter’s five forces help

determine long term attractiveness of segments

competitors

b. Threat of potential entrants – Segment most attractive with high

entry barriers and low exit barriers. Worst scenario exists when

potential substitutes exist

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power and concentrated markets increase power.

e). Threat of suppliers growing bargaining power – suppliers may

have power when they are concentrated and organized, there are

when buyer has high switching costs.

B. Evaluating and selecting market segments – organization must look at the

segment’s overall attractiveness and its objectives and resources. It can then

1. Full market coverage – firm serves all customer groups with products

they might need

segments. Can lead to higher sales but also increases costs

2. Multiple segment specialization

a. Selective specialization – firm selects a number of attractive

similarity

1) Product specialization – firm focus is on a product it can sell

to several segments. Risk is product may be supplanted by

new technology

budget cuts or shrink in size.

3. Single-segment concentration – firm concentrates on one market only

Marketing Insight “Chasing the Long Tail”

4. Individual Marketing –

one”, “customized marketing”, “one-to-one marketing”

b) “Customerization” approach combines operationally driven mass

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5. Ethical Choice of Market Targets major area of consideration in today’s

environment is taking unfair advantage of vulnerable groups

a) Marketing to the children market requires adherence to current legal

and ethical guidelines. Refer to FTC.gov/Privacy website for insight

to current and pending legislation

b) Taking unfair advantage of other groups such as poor and

uninformed.

V. Executive Summary

II. Lecture

“Understanding Market Segments”

This discussion begins the teaching/learning process where students begin to understand that

marketing and marketers cannot be all things to all people, and there is a need for increasing

focus and segmentation.

Teaching Objectives

To appreciate the value of segmenting and targeting markets.

To comprehend the process through which marketers engage in segmentation.

To learn about companies/industries making use of segmentation.

Discussion

UNDERSTANDING THE ISSUE

Market segmentation is a process based on factual information rather than marketer intuition.

The value of market segmentation is obvious. Customers are different and are likely to be

attracted to different products throughout various stages in their lifetimes. For an illustration of

this concept, consider the automobile industry.

Note to the Instructor: To develop this issue, ask students to offer the names of various

brands and models (placed on the board). Then, ask them to identify which brands and models

are likely to appeal to specific characteristics – age, income, gender, etc. From this illustration,

it will become obvious that not all products appeal to everyone on a mass level.

The segmentation process involves dividing a market into distinct groups of buyers who might

require separate products or marketing mixes, recognizing that all buyers have unique needs

and wants. Still, it is usually possible in consumer markets to identify relatively homogeneous

portions or segments of the total market according to shared preferences, attitudes, or behaviors

that distinguish them from the rest of the market. These segments may require different

products and/or separate mixes, and in the contemporary one-to-one marketing approach

segmentation is a critical step.

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TARGETING AND POSITIONING

Market targeting is the follow-up to the segmentation process and is the process of evaluating

each market segment’s attractiveness and selecting one or more segments to enter. Given

effective market segmentation, the firm must choose which markets to serve and how to serve

them. In targeting markets to serve, the firm must consider its resources and objectives in

setting strategy.

Market positioning is the process of formulating competitive positioning for a product and a

detailed marketing mix. The firm must have a plan for how to present the product to the

consumer, and the product’s position is defined by how consumers view it on important

attributes. The text discusses this concept in detail.

The consumer market is often segmented according to variables such as: demographics,

psychographics, geographic location, behavior, etc. Major segmentation variables for business

markets obviously vary from the consumer market. The important variables here are as

follows:

Demographics. Industry segmentation focuses on which industries buy the

product. Company size can be used. Geographic location may be used to group

businesses by proximity.

Operating Variables. Business markets can be segmented by technology (what

customer technologies should we focus on?), user/nonuser status (heavy,

medium, light), or customer capabilities (those needing many or few services).

Purchasing Approaches. Five approaches are possible:

oSegment. “Segmentation” can be by purchasing function organization

(centralized or decentralized).

oPower structure. Selecting companies controlled by a functional

specialty.

oThe Nature of Existing Relationships. Current desirable customers or

new desirable customers.

contracts, sealed bids.

oPurchasing Criteria. Focus on non-compensatory criteria such as price,

service, or quality.

In addition, there can be situational factors that influence the business market segmentation

effort. Situational segmentation may be based upon urgency (such as quick delivery needs),

accounts).

PERSONAL CHARACTERISTICS

Personal comparisons can lead to segmentation by buyer-seller similarity (companies with

similar personnel and values), attitudes toward risk (focus on risk-taking or risk-avoiding

companies), or loyalty (focus on companies that show high loyalty to their suppliers).

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are:

Can the market(s) be identified and measured?

Is the segment large enough to be profitable? Related issue: Is the segment

stable and long-term?

Is the segment reachable?

Is the segment responsive?

FINDING “HEALTHY” CUSTOMERS IN THE MEDICAL INDUSTRY

As members of its industry begin to understand the mass-market approach is no longer viable,

health care providers are moving from a product orientation to a marketing orientation. Market

segmentation has become a tool that is widely used by a financially squeezed health care

and patterns of behavior.

Because hospitals maintain detailed information on patients, the information necessary to

determine the “typical” patient is available. Through medical and business records, health care

marketers have access to usage rates for a predetermined number of years, services received,

payment (or nonpayment) history, and, at the simplest level, name and address information.

services.

Overlaying demographic with psychographic information allows hospitals to learn about the

people who compose the market. By combining this information with its own product line mix,

and disease incidence rates, segmentation opportunities become readily apparent. For example,

one hospital recently recognized the potential for outpatient substance-abuse counseling

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Based on an understanding of its target market, the marketing-oriented hospital developed an

outpatient program and spoke directly to the target audience via promotional efforts in

publications and television. A direct mail effort also targeted the businesses where those

upscale patients were likely to be found. As a result, the hospital gained significant market

care marketplace.

SENIOR CITIZENS ENJOY SURFING…THE INTERNET

Many members of the older generation are out to dispel beliefs that they are resistant to new

technology. Internet clubs, consisting of members who are in their later years, have been

formed all over the United States. The seniors use the Internet to obtain many types of new

We tend to bookmark the information we need on a regular basis but rarely venture out on

extensive “surfing” expeditions. Retired persons do have this kind of time, so when they log on

to the Internet, they are likely to stay a while. In addition, many of the people in their golden

years have physical limitations that may restrict their mobility. The Internet is an ideal way to

venture beyond their home.

Note to the Instructor: It is important to note here that when a marketer considers the needs

of one segment over all other segments, controversy is likely to ensue. A good way to begin a

discussion in this topic area is to ask students for some of the dangers and/or disadvantages that

may result from segmenting and targeting markets.

these approaches may include:

Dish detergent

Hard water use versus softened water (note this precipitates a discussion on the

detergent not being the final product as the detergent is mixed with water to form the

actual product used

Industrial use versus consumer home use

Machine versus hand

Suds versus no-suds

Powder versus liquid

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or anyone buts and sells stock frequently. The instructor can suggest finding people who

subscribe to Sky Diving Magazine. Small business owners many times take the ultimate risk.

Discussions at micro levels can precipitate segments choices such as:

Geographic reach such as in driving versus flying with the latter leading to a discussion

of destination objectives

Table play versus slot machine play (behavioral)

geographic area

People who stay on a property but gamble elsewhere versus people who stay elsewhere

but gamble in the casino versus people who stay on the property but do not gamble at

all

Length of stay and number of annual stays

Average play amounts

III. Background Article

Issue: Gaining Perspective On Niche Market Segments

Corner,” Beverage Aisle, October 15, 2001, p. 48.

Ready-to-drink coffee (RTD), the cold, refreshing, bottled offshoot of America’s classic hot

morning beverage, has found a home in the convenience channel. An up-and-coming category,

RTD coffee generated less than $50 million at retail in 1996, but soared to over $100 million in

1997, driven by Frappuccino from Starbucks/PepsiCo, which still owns most of the category.

channel.

What accounts for that growth? Part of it may be explained by the product’s appeal to teens and

young adults, who prefer to get their caffeine from a cold drink. The product comes in sweet

flavors such as mocha and caramel. We know that families with teenagers account for 21

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counterparts. The result is an opportunity for convenience retailers to attract new customers to

their stores at a time when they could certainly use some.

Perhaps convenience store operators could use the RTD coffee segment to target more affluent

consumers. If the strategy succeeds, it won’t be just the consumers who get a boost from the product.

RTD Coffee Sales by Channel $174,617,058 (*)

Change from One Year Ago

(%)

Grocery +2.5

Convenience +9.4

Drug -16.1

combined.

Case

Eastman Kodak Co., Funtime Film

HBS Case: 594-111 TN: 5-597-080

Teaching Perspectives

by about $80 million during the last five years. Thus, Kodak must “do something” but

figuring out a viable plan for stemming the share loss without loss in profitability is a

challenge.

While Eastman Kodak still maintained a dominant position in the U.S. film market in

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“fighting brand” called Funtime to compete with less expensive rivals. Funtime would

involve a vertical product line proliferation strategy whereby Kodak would offer a “good,

better, best” selection of films for amateur users. The case sets out the market situation

strategy should fail.

The case is designed to:

Allow students to ascertain the forces underlying a market’s move to

commodity status producing share pressure on the high priced offerings in

the market.

better, best” strategies.

Provide opportunity for quantitative analysis, such as margin calculations

and break-even analysis, in assessing marketing strategy.

Provide a setting in which to analyze the importance of a “brand name” in

consumers’ decision making and how that may vary by customer segment,

usage occasion and over time.

equity.

3. Evaluation of the general concept of Funtime proposal and its

implementation details given consumer behavior.

4. Consideration of other action plan options such as a price cut on the

flagship Gold Plus brand.

Evaluating the competition in the film category, the competitors are growing and succeeding.

Fuji is growing in reputation and acceptance in the U.S. market and Polaroid, a well-known

entrant into the conventional film market, is operating at low prices. In addition, private label

film is becoming more acceptable and no longer perceived as low quality.

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Questions:

Funtime Program?

2. What is the potential conflict between share, profits and brand equity?

3. What are some alternatives to the Funtime program?

4. What will be Fuji’s reaction?

5. What will be the ultimate impact of the plan on Kodak?

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