Chapter 8
Segmenng and Targeng 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
Learning Outcomes
8-1 Describe the characteristics of markets and market segments
The term “market” means different things to different people. We are all familiar with the
supermarket, stock market, labor market, fish market, and flea market. All these types of markets
share several characteristics. First, they are composed of people (consumer markets) or
organizations (business markets). Second, these people or organizations have wants and needs
that can be satisfied by particular product categories. Third, they have the ability to buy the
products they seek. Fourth, they are willing to exchange their resources, usually money or credit,
for desired products. In sum, a market is (1) people or organizations with (2) needs or wants and
with (3) the ability and (4) the willingness to buy. A group of people or an organization that lacks
any one of these characteristics is not a market. The process of dividing a market into
meaningful, relatively similar, and identifiable segments, or groups, is called market
segmentation.
8-2 Explain the importance of market segmentation
Until the 1960s, few firms practiced market segmentation. Today, market segmentation plays a
crucial marketing strategy for nearly all successful organizations. Market segmentation helps
marketers define consumer needs and wants more precisely. Because market segments differ in
size and potential, segmentation helps decision makers to more accurately define marketing
objectives and better allocate resources.
8-3 Discuss the criteria for successful market segmentation
First, segmentation enables marketers to identify groups of customers with similar needs and to
analyze the characteristics and buying behavior of these groups. Second, segmentation provides
marketers with information to help them design marketing mixes specifically matched with the
characteristics and desires of one or more segments. Third, segmentation is consistent with the
marketing concept of satisfying customer wants and needs while meeting the organization’s
objectives. To be useful, a segmentation scheme depends on four basic criteria: (1)
Substantiality: A segment must be large enough to warrant developing and maintaining a special
marketing mix. (2) Identifiability and measurability: Segments must be identifiable and their
size measurable. (3) Accessibility: The firm must be able to reach members of targeted segments
with customized marketing mixes. (4) Responsiveness: Markets can be segmented using any
criteria that seem logical.
8-4 Describe the bases commonly used to segment consumer markets
Marketers use segmentation bases, or variables, which are characteristics of individuals, groups,
or organizations, to divide a total market into segments. Consumer goods marketers commonly
use one or more of the following characteristics to segment markets: geography, demographics,
psychographics, benefits sought, and usage rate. Geographic segmentation refers to segmenting
markets by the region of a country or the world, market size, market density, or climate.
Demographic segmentation is based on age, gender, income level, ethnicity, and family life cycle
characteristics. Psychographic segmentation includes personality, motives, lifestyles, and
geodemographic characteristics. Benefit segmentation is the process of grouping customers into
market segments according to the benefits they seek from the product. Finally, usage-rate
segmentation divides a market by the amount of product purchased or consumed.
8-5 Describe the bases for segmenting business markets
The business market consists of four broad segments: producers, resellers, government, and
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. Two
purchasing profiles that have been identified are satisficers and optimizers. Satisficers contact
familiar suppliers and place the order with the first one to satisfy product and delivery
requirements. Optimizers consider numerous suppliers (both familiar and unfamiliar), solicit
bids, and study all proposals carefully before selecting one.
8-6 List the steps involved in segmenting markets
The purpose of market segmentation, in both consumer and business markets, is to identify
marketing opportunities. Six steps are involved when segmenting markets: (1) selecting a market
or product category for study, (2) choosing a basis or bases for segmenting the market, (3)
selecting segmentation descriptors, (4) profiling and analyzing segments, (5) selecting markets,
and (6) designing, implementing, and maintaining appropriate marketing mixes.
8-7 Discuss alternative strategies for selecting target markets
The market segmentation process is only the first step in deciding whom to approach about
buying a product. The next task is to choose one or more target markets. A target market is a
group of people or organizations for which an organization designs, implements, and maintains a
marketing mix intended to meet the needs of that group, resulting in mutually satisfying
exchanges. Marketers select target markets using three different strategies: undifferentiated
targeting, concentrated targeting, and multisegment targeting. A firm using an undifferentiated
targeting strategy essentially adopts a mass-market philosophy, viewing the market as one big
market with no individual segments. With a concentrated targeting strategy, a firm selects a
market niche (one segment of a market) for targeting its marketing efforts. A firm that chooses to
serve two or more well-defined market segments and develops a distinct marketing mix for each
has a multisegment targeting strategy. Another potential cost of multisegment targeting is
cannibalization, which occurs when sales of a new product cut into sales of a firm’s existing
products.
8-8 Explain how CRM can be used as a targeting tool
CRM entails tracking interactions with customers to optimize customer satisfaction and
long-term company profits. Companies that successfully implement CRM tend to customize the
goods and services offered to their customers based on data generated through interactions
between carefully defined groups of customers and the company. CRM can also allow marketers
to target customers with extremely relevant offerings. There are at least four trends that will lead
to the continuing growth of CRM: personalization, time savings, loyalty, and technology.
Although mass marketing will probably continue to be used, the advantage of CRM cannot be
ignored.
8-9 Explain how and why firms implement positioning strategies and how product
differentiation plays a role
Marketers segment their markets and then choose which segment, or segments, to target with
their marketing mix. A product’s positioning is a process that influences potential customers’
overall perception of a brand, a product line, or an organization in general. Position is the place a
product, brand, or group of products occupies in consumers’ minds relative to competing
offerings. One positioning strategy that many firms use to distinguish their products from
competitors is based on product differentiation. The distinctions between products can be either
real or perceived. Products may be positioned on the basis of attribute, price and quality, use or
application, product user, product class, competitor, or consumer emotion.
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
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.
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.
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,
possibly an “eco-mom.” Numi Organic Tea also identifies potential customers through
what they want from the product—those who are looking for organic, fair-trade, premium
quality tea.
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
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 whom 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
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.