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Chapter 8: Segmenting and Targeting Markets
1
Chapter 8
Segmenting and Targeting Markets
This chapter begins with the learning outcome summaries followed by a set of lesson plans for
you to use to deliver the content.
• Lecture (for large sections) on page 4
• Company Clips (video) on page 6
• Group Work (for smaller sections) on page 7
Review and Assignments begin on page 9
Review questions
Application questions
Application exercise
Ethics exercise
Video Assignment
Case assignment
Great Ideas for Teaching Marketing from faculty around the country begin on page 23
Chapter 8: Segmenting and Targeting Markets
2
Learning Outcomes
8-1 Describe the characteristics of markets and market segments
A market is composed of individuals or organizations with the ability and willingness to make
8-2 Explain the importance of market segmentation
Before the 1960s, few businesses targeted specific market segments. Today, segmentation is a
crucial marketing strategy for nearly all successful organizations. Segmentation helps marketers
8-3 Discuss the criteria for successful market segmentation
Successful market segmentation depends on four basic criteria: 1) a market segment must be
substantial and have enough potential customers to be viable, 2) a market segment must be
8-4 Describe the bases commonly used to segment consumer markets
Five bases are commonly used for segmenting consumer markets. Geographic segmentation is
based on region, size, density, and climate characteristics. Demographic segmentation is based
8-5 Describe the bases for segmenting business markets
The business market consists of four broad segments: producers, resellers, government, and
Chapter 8: Segmenting and Targeting Markets
3
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
institutions. Company characteristics, such as geographic location, type of company, company
size, and product use, can be important segmentation variables. Many business marketers find it
helpful to segment customers and prospective customers on the basis of how they buy.
8-6 List the steps involved in segmenting markets
Six steps are involved when segmenting markets: 1) selecting a market or product category for
8-7 Discuss alternative strategies for selecting target markets
Marketers select target markets using three different strategies: undifferentiated targeting,
8-8 Explain how CRM can be used as a targeting tool
Companies that successfully implement CRM tend to customize the goods and services offered
8-9 Explain how and why firms implement positioning strategies and how product
differentiation plays a role
Positioning is used to influence consumer perceptions of a particular brand, product line, or
organization in relation to competitors. Position is the place a product, brand, or group of
Chapter 8: Segmenting and Targeting Markets
4
Key Terms
Benefit segmentation
Market segment
Product differentiation
Cannibalization
Market segmentation
Psychographic segmentation
Concentrated targeting
strategy
Multisegment targeting
strategy
Repositioning
Demographic segmentation
Niche
Satisficers
80/20 principle
Optimizers
Segmentation bases
(variables)
Family life cycle (FLC)
Perceptual mapping
Target market
Geodemographic
segmentation
Position
Undifferentiated targeting
strategy
Geographic segmentation
Positioning
Usage-rate segmentation
Market
Lesson Plan for Lecture
Brief Outline and Suggested PowerPoint Slides
Learning Outcomes and Topics
PowerPoint Slides
LO1 Describe the characteristics of markets
and market segments
8-1 Markets and Market Segments
1. Segmenting and Targeting Markets
2. Learning Outcomes
3. Learning Outcomes (continued)
4. Markets and Market Segments
5. Market
LO2 Explain the importance of market
segmentation
8-2 The Importance of Market
Segmentation
6. The Importance of Market Segmentation
7. Importance of Market Segmentation
LO3 Discuss the criteria for successful market
segmentation
8-3 Criteria for Successful Segmentation
8. Criteria for Successful Segmentation
9. Successful Segmentation
LO4 Describe the bases commonly used to
segment consumer markets
10. Bases for Segmenting Consumer Markets
11. Bases for Segmentation
12. Geographic Segmentation
Chapter 8: Segmenting and Targeting Markets
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Learning Outcomes and Topics
PowerPoint Slides
8-4 Bases for Segmenting Consumer
Markets
13. Demographic Segmentation
14. Age Segmentation
15. Gender and Income Segmentation
16. Ethnic Segmentation
17. Bases for Psychographic Segmentation
18. Benefit and Usage-Rate Segmentation
LO5 Describe the bases for segmenting
business markets
8-5 Bases for Segmenting Business
Markets
19. Bases for Segmenting Business Markets
20. Segmentation Variables
21. Purchasing profiles
LO6 List the steps involved in segmenting
markets
8-6 Steps in Segmenting a Market
22. Steps in Segmenting a Market
23. Steps in Segmenting Markets
LO7 Discuss alternative strategies for
selecting target markets
8-7 Strategies for Selecting Target
Markets
24. Strategies for Selecting Target Markets
25. Target Market
26. Target Marketing Strategies
27. Exhibit 8.2: Advantages and
Disadvantages of Target Marketing
Strategies
28. Costs Involved in Multisegment Targeting
Strategy
LO8 Explain how CRM can be used as a
targeting tool
8-8 CRM as a Targeting Tool
29. CRM as a Targeting Tool
30. CRM
31. Trends Leading to the Continuing Growth
of CRM
LO9 Explain how and why firms implement
positioning strategies and how product
differentiation plays a role
8-9 Positioning
32. Positioning
33. Positioning, Perceptual Mapping, and
Repositioning
34. Positioning Bases
35. Key Terms
36. Key Terms
37. Summary
Chapter 8: Segmenting and Targeting Markets
6
Learning Outcomes and Topics
PowerPoint Slides
Suggested Homework
• The end of this chapter contains assignments for the Numi Organic Tea video and the
Harley Davidson case.
• This chapter’s online study tools include flashcards, visual summaries, practice quizzes,
and other resources that can be assigned or used as the basis for longer investigations into
marketing.
Lesson Plan for Video
Company Clips
Segment Summary: Numi Organic Tea
Numi Organic Tea describes how its sampling program helps position the brand with its target
markets. Its premium position ties naturally into the customer outlined in the film, but Numi is
also interested in expanding outside of the major tea drinker into more casual tea drinkers.
Pre-Class Prep For You
Pre-Class Prep For Your Students
• Preview the Company Clips video
segment for Chapter 8. This exercise
reviews concepts for LO1, LO2, LO3,
LO4, and LO5.
• Review your lesson plan.
• Make sure you have all of the equipment
needed to show the video to the class,
including the DVD and a way to project
the video.
• Alternatively, you can stream the video
HERE.
• Have students take notes on the following
terms and concepts: market segment, market
segmentation, segmentation criteria, bases for
segmenting consumer markets, steps in
segmenting a market, target strategy, and
positioning.
• Assign students to locate a couple of premium
coffee/tea stores in their area, and using either
the phone or the Internet, have them research
how the stores position themselves in their
market.
Video Review Exercise
Activity
Warm Up
• Begin class with a review of the criteria for successful segmentation. Ask
students to brainstorm to anticipate Numi’s segmentation scheme, given its
premium tea products.
Chapter 8: Segmenting and Targeting Markets
7
In-Class
Preview
• On the board, copy the top-level details of the map of consumer market
segments. Do not fill in the entire map. Review the five bases with the class, if
needed.
• Have students copy your work onto a sheet of paper that they can use to take
notes while watching the video.
• Tell students that they may use any notes they made when they were
familiarizing themselves with the key terms and concepts from their pre-class
work.
• Explain that they are to gather data from the video to “map” Numi’s
segmentation variables.
Viewing
(Solutions
below)
1. In the first part of the video, Jen Mullin, the vice president of marketing
for Numi Organic Tea, clearly describes their typical customer. Who is
that customer, and how did the Numi marketing team figure that out?
2. What is Numi’s principal marketing plan? In what way does Numi’s
marketing team use what they know about their target demographic to
implement their marketing plan?
Follow-up
• Have students research and prepare a one-page report on the Numi Organic
Tea market strategies and positioning. Students must cite their work and print
out or copy a page that clearly advertises to this market segment with labels
identifying marketing bases or variables evident in the ad.
Solutions for Viewing Activities
1. In the first part of the video, Jen Mullin, the vice president of marketing for Numi
Organic Tea, clearly describes their typical customer. Who is that customer, and how
did the Numi marketing team figure that out?
Quantitative data revealed their typical customer as a female, college-educated tea lover,
2. What is Numi’s principal marketing plan? In what way does Numi’s marketing team
use what they know about their target demographic to implement their marketing
plan?
Numi’s marketing plan includes providing opportunities for potential customers to sample
their teas, rather than the more traditional print and television advertising. Numi Organic
Chapter 8: Segmenting and Targeting Markets
8
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Tea selects ways to provide samples to target markets, such as an Earth Day gift bag
through JetBlue or by donating tea to a cause socially conscious women would care about,
so that they know they are putting a sample of their product into the hands of potential
customers whom they believe are most likely to want to buy more Numi tea.
Lesson Plan for Group Work
In most cases, group activities should be completed after some chapter content has been covered,
probably in the second or third session of the chapter coverage. (See “Lesson Plan for Lecture”
above.)
Class Activity—Bank Marketing
Give students the following statistics about the identity of depositors at banks in the United
States.
Age Group
Percent of
Households
Percent of
Deposits
15–24
6
Less than 1
25–34
23
6
35–44
21
14
45–54
15
14
55 and over
35
66
Ask students who they think the banks should be targeting and why. Who should the banks be
targeting for the future?
What can the banks do to appeal to their chosen market or markets? How do the segments differ
in their needs for services?
Have your class brainstorm ideas of services to offer. Possible services are given below.
✓ Free checking accounts
✓ Safety-deposit boxes
✓ Free credit cards
✓ Low interest rates on installment loans
✓ High interest rates on checking and savings accounts
✓ High-interest certificates of deposit
✓ Pre-approved car loans
✓ Aid in formulating budget and savings plans
✓ Lines of credit
Chapter 8: Segmenting and Targeting Markets
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✓ Seminars on financial planning, health, and travel
✓ Traveler’s checks
Can the students think of other services to offer? Banks have selected and bundled these services
into packages to appeal to certain market segments. How would the class bundle these services
for the different segments?
Factors to remember: The “30-something” consumer is in the prime borrowing years, and
customers will inevitably move from being borrowers to being savers and investors with time.
Review and Assignments for Chapter 8
Review Questions
1. You are the marketing manager for a specialty retailer that sells customized
handbags. Write a memo to your boss describing how the company could benefit
from implementing a CRM system and some ideas for collecting data from customers
in an innovative way.
Students’ answers will vary. Possible reasons include stocking styles that customers like
and managing databases to send out targeted marketing message. Ideas include sending
2. Choose a product category (e.g., blue jeans), and identify at least three different
brands and their respective positioning strategies. How is each position
communicated to the target audience?
Students should be able to determine positioning strategies for the individual products in
Application Questions
Chapter 8: Segmenting and Targeting Markets
10
1. Mercedes is thinking about advertising its cars to college students. Do you think that
college students are a viable potential market for Mercedes? Why, or why not?
Why college students would be a viable market: A large percentage of college students
today work full- or part-time and make a lot more money than college students of
yesteryear. Thus, they have more disposable income and want to spend their money on
something that shows prestige. Prestige products that have successfully targeted college
2. How are visitors to the following website segmented when seeking relevant job
openings? Try this search engine and report your results:
http://www.careermag.com/.
The website uses both consumer and business target markets and segments the market in
several different ways, mostly by benefit and geographic segmentation. For benefit
3. As a marketing consultant for a chain of hair salons, you have been asked to evaluate
children as a potential segment for the chain to target. Write a memo to your client
Chapter 8: Segmenting and Targeting Markets
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showing your evaluation of the kids’ segment against the four criteria for successful
market segmentation.
The criteria for successful market segmentation that should appear in students’ answers
are:
4. Choose magazine ads for five different consumer products. For each ad, write a
description of what you think the demographic characteristics of the targeted market
are.
Students will choose a variety of ads but should clearly understand demographics and
5. Investigate how Delta Airlines uses its website, http://www.delta.com/, to cater to its
market segments.
Delta uses usage-rate and benefit segmentation in its website. The market segments that are
6. Choose five ads from business publications such as the Wall Street Journal, Fortune,
or Bloomberg BusinessWeek. For each ad, write a description of how you think the
company has segmented the business market.
Students’ answers should contain the bases on which segmentation was done: the bases for
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
7. Write a letter to the president of your bank suggesting ideas for increasing profits
and enhancing customer service by improving segmentation and targeting strategies.
Make your suggestions specific.
Students’ answers should describe two or more variables that should be used to segment
8. Form a team with two or three other students. Create an idea for a new product.
Describe the segment (or segments) you are going to target with the product, and
explain why you chose the targeting strategy you did.
Students should clearly describe a market segment as a subgroup of people or
9. Go to the websites of JCPenney, http://www.jcpenney.com, and Target,
http://www.target.com/. Determine which is more product-focused and which is more
brand focused. Which company’s approach do you think will appeal more to the
“Holy Grail” target market of 25- to 35-year-old women?
Students’ answers will vary widely.
10. Is it possible to identify a single market for two distinctly different products? For
example, how substantial is the market comprised of consumers who use Apple and
who drive Volkswagens? Can you think of other product combinations that would
interest a single market? (Do not use products that are complementary, like a bike
and a bike helmet. Think of products, like the iPod and the car, that are very
different.) Complete the following sentences, and describe the market for each set of
products you pair together.
Consumers of Propel fitness water could also be a target market for _____.
Consumers of Proactiv Solution skin care products could also be a target market for
_____.
Consumers of Alienware computers could also be a target market for _____.
Chapter 8: Segmenting and Targeting Markets
13
Consumers of Specialty luggage tags could also be a target market for _____.
Students’ answers will vary.
Application Exercise
How tightly do you fit into a particular market segment? Do you think you can be neatly
classified? If you think your purchasing habits make you an enigma to marketers, you may need
to think again.
Activities
1. Have students visit the following website:
http://geography.about.com/od/obtainpopulationdata/a/claritas.htm. Click on the “You Are
Where You Live” link, and type in your zip code. The database will generate many cluster
descriptions based on your zip code. Depending on the functionality of the website at the
time you access the database, you may need to reenter your zip code multiple times if you
want to read all the cluster descriptions.
2. Now pick a product category, such as automobiles, athletic shoes, beverages, or health and
beauty products. Then think about which products in that category would appeal to each of
the clusters generated by your zip code search. For example, a car that appeals to a cluster
titled “Young Bohemians” may not be the car of choice for the cluster “Pools and Patios.”
If your search generated only one cluster type, you may wish to enter other zip codes for
your area or for your region.
3. Create a perceptual map for the product you chose. Write a short statement that describes
the overall position of each product with an explanation of why you located it where you
did on the perceptual map.
Purpose: This exercise quickly shows students the limitations of using only demographics to
describe their customers and clarifies the process of segmentation and positioning for them.
Setting It Up: Form groups of five to eight persons. Instruct each group to pick a product
category, preferably something they are familiar with (see suggestions below). Plan about 15
minutes for the exercise.
This exercise was inspired by the following Great Idea in Teaching Marketing:
Kim McKeage, University of Maine
