CHAPTER 2
Market Segmentation and Real-Time Bidding
LEARNING OBJECTIVES
After reading, studying and analyzing this chapter, students should be able:
2.1 To understand how to segment markets along demographics, lifestyles, product benefits and
CHAPTER SUMMARY
Learning Objective 2.1: To understand how to segment markets along demographics,
lifestyles, product benefits and usage, and media exposure.
Market segmentation is dividing a market into subsets of consumers with common needs or
characteristics. Each subset represents a consumer group with shared needs that are different
from those shared by other groups. After dividing the market into distinct groups, the company
must select segments that are profitable and reachable, and feasibly targetable within its
objectives and resources.
Social class is the division of members of a society into a hierarchy of distinct status classes—
most often based on income, education, and occupation—so that members of each class have
relatively the same status and members of all other classes have either higher or lower status.
Because they are so versatile, psychographics are widely used, mostly together with
demographics, providing marketers with richly descriptive profiles of target markets.
Usage-rate segmentation reflects the differences among heavy, medium, and light users, and
nonusers of a specific product, service, or brand. Rate of usage is strongly related to product
awareness status, which is the degree of a consumer’s awareness of the product and its features,
and whether or not he or she intends to buy it reasonably soon. A related factor is product
involvement, which reflects the degree of personal relevance that the product holds for
the consumer. Usage-occasion segmentation recognizes that consumers purchase some products
for specific occasions. Marketing studies have shown that consumers are increasingly skeptical
about assigning foods to specific times of the day or places. Marketers have been responding by,
for example, trying to convince consumers to snack on Greek-style yogurt and candy while
watching the Super Bowl.
Learning Objective 2.2: To understand how to identify, select, and reach target markets.
All consumers are not alike. They have different needs, wants, and desires, and different
backgrounds, education levels, and experiences. Therefore, marketers must offer alternatives that
correspond to the needs of different consumer groups or segments. Not every company is
interested in or has the means to reach every market segment. In addition to being identifiable,
the segment(s) chosen must be profitable and accessible.
Learning Objective 2.3: To understand real-time bidding as compared with market
segmentation.
Real-time bidding (RTB) takes place when advertisers buy inventories of customers—termed
impressions or eyeballs—on a per-impression basis, via programed instantaneous auction. An
impression is a term for a customer that becomes available for realtime bidding online. Detailed
profiles for the impressions are compiled from online navigation, demographics, geographic
locations, and possessions and purchases.
Predictive analytics are measures that foresee consumers’ future purchases on the bases of past
buying information and other data, and also evaluate the impact of personalized promotions
created from these predictions. These measures are also designed to notice significant changes in
consumers’ buying behavior because such variations provide marketers with targeting prospects.
CHAPTER OUTLINE
INTRODUCTION
1. Market segmentation is the process of dividing a market into subsets of consumers with
common needs or characteristics.
2. Companies select the segments that are profitable, reachable, and feasibly targeted given the
firm’s objectives and resources.
4. Product repositioning means changing and “refreshing” a brand’s portrayal.
5. Usage-occasion segmentation is a segmentation strategy based on the fact that many
products are purchased and used in the context of specific occasions.
*****Use Discussion Questions #2.1 and #2.2 Here; Use Key Terms market segmentation,
positioning, repositioning, and usage-occasion segmentation Here; Use Figure #2.1
Here*****
Market Segmentation
2. Marketers segment consumers along quantitative and cognitive factors.
a) Quantitative factors include consumer-intrinsic attributes (like demographics) and
consumption-based factors (determined numerically).
b) Cognitive factors are psychological abstracts that include consumer-intrinsic factors
(like personality traits and values) and consumption-specific attitudes and preferences.
*****Use Learning Objective #2.1 Here *****
3. Demographics determine consumers’ needs for products and the ability to buy them;
psychographics explain buyers’ purchase decisions and choices.
***** Use Key Terms demographic segmentation and family life cycle Here*****
4. Demographic segmentation divides consumers according to age, gender, ethnicity, income
and wealth, occupation, marital status, household type and size, and geographic location.
a) The core of almost all segmentations is demographics because:
i. Demographics are the easiest and most logical way to classify people and can
be measured more precisely than other segmentation bases.
ii. Demographics offer the most cost-effective way to locate and reach specific
*****Use Review and Discussion Question #2.4 Here*****
b. Age: product needs often vary with consumers’ age, and marketers commonly target
age groups.
c. Gender is a factual distinguishing segmentation variable, and many products and
services are inherently designed for either males or females. However, sex roles have
*****Use Key Term family life cycle Here*****
e. Social class can indicate an ability or inability to pay for a product model or brand,
and consumers of different social classes vary in terms of values, product preferences
and buying habits.
i. Income is combined with other demographic variables to define target
markets.
***** Use Key Terms social class and psychographics Here*****
5. Lifestyles, also known as psychographics, consist of activities, interests, and opinions
(AIOs).
a) The interests and opinions portions are cognitive constructs, which can be measured via
surveys but are not evidence-based.
2.2)
6. Geodemographics: Where a person lives determines some aspects of consumption behavior,
so marketers frequently use geodemographics, a hybrid segmentation scheme based on the
premise that people who live close to one another are likely to have similar financial means,
tastes, preferences, lifestyles, and consumption habits, in strategic targeting.
a) The primary commercial application of this technique is PRIZM, offered by Nielsen’s
MyBestSegments. This system uses the ZIP + 4 postal system to classify all of the
nation’s households into 66 segments.
b) Nielsen also uses P$YCLE (based on household wealth) and ConneXions (based on
household receptivity to new technologies.
***** Use Hands-on Assignment #2.16 Here; Use Key Term geodemographics Here*****
7. Benefit segmentation is based on the benefits consumers seek from products and services.
a) Many believe benefits sought are the core of all segmentation strategies.
*****Use Hands-on Assignment #2.13 Here; Use Figure 2.3 Here; Use Key Term benefit
segmentation Here *****
8. Media exposure considers the benefits consumers seek from adopting communication tools.
***** Use Table #2.4 and Figure 2.4 Here *****
9. Usage rate segmentation stems from differences among heavy, medium and light users, and
nonusers of a specific product, service, or brand.
a) Marketers have found that within some product categories that a relatively small group
of heavy users account for a disproportionately large percentage of total product usage.
b) Targeting heavy users is a common marketing strategy, and it can be more profitable
than targeting other user categories.
h) Product involvement is also a segmentation factor.
10. The occasion or situation often determines what consumers will purchase or consume, so
marketers sometimes use usage-occasion segmentation. Many products are promoted for
special usage occasions.
*****Use Review and Discussion Question #2.5 Here; Use Key Terms product involvement,
usage-occasion segmentation Here *****
Selecting Target Markets
1. Real-time bidding (RTB) takes place when advertisers buy inventories of customers –
2. RTB facilitates optimization of advertising expenditures by considering inventory per
impression or placing premium bids on access to consumers that are particularly valuable to
them.
5. Predictive analytics measures are designed to predict consumers’ future purchases.
Marketers base predictions on past buying information and other data and evaluate the
impact of personalized promotions stemming from the predictions.
***** Use Key Term predictive analytics Here; Use Figure 2.6 Here*****
6. Behavioral biometrics – originally called identity verification – chart unique patterns in the
way people perform activities like swiping a screen
8. A cookie is a software code sent from a website and stored on the user’s computer we
browser while the user is online.
10. RTB also enables cross-channel campaigns.
REVIEW AND DISCUSSION QUESTIONS
2.1 What is market segmentation? How is market segmentation related to the marketing
concept?
Market segmentation is the process of dividing a potential market into distinct subsets of
consumers with common needs or characteristics and selecting one or more segments to
target with a distinct marketing mix. Before the widespread adoption of the marketing
concept, most companies practiced mass marketing, that is, offering the same product and
marketing mix to all consumers. The marketing concept states that a company must
2.2 How are market segmentation, targeting, and positioning interrelated?
Market segmentation consists of subdividing the market into homogeneous clusters, and it
is the first step in a three-phase market strategy. After segmenting the market, the marketer
2.3 Discuss the advantages and disadvantages of using demographics as a basis for
segmentation. Can demographics and psychographics be used together to segment
markets? Illustrate your answer with a specific example.
2.4 Does your lifestyle differ significantly from your parents’ lifestyle? If so, how are the
two lifestyles different? What factors cause these differences?
This is an interesting way to illustrate similarities and differences between the activities,
interests, and opinions of two distinct groups, as the factors that determine one’s lifestyle.
2.5 Combine at least two segmentation bases for targeting each of the following products.
Explain your choices: (a) men’s sneakers; (b) women’s cocktail dresses; (c) hybrid cars;
(d) e-readers.
2.6 Some marketers consider benefit segmentation as the segmentation approach most
consistent with the marketing concept. Do you agree or disagree with this view? Why?
Benefit segmentation is built upon the premise that consumers are basically purchasing needs,
2.7 How can a marketer for a chain of health clubs use the VALS™ segmentation profiles
to develop an advertising campaign? Which segments should be targeted? How should
the health club be positioned to each of these segments?
The best prospects (note that opinions on the following may vary) for health clubs appear to
be the Actualizers and Achievers because members of these groups are interested in growth,
control of their lives, self-discovery, and self-expression. Many of them are probably already
2.8 Regent Seven Seas Cruises and Royal Caribbean International are two companies in
the vacation and travel industry. After looking at their websites, describe the kind of
consumers that each company is seeking to attract. Also, describe how either company
can use demographics and psychographics to identify TV shows and magazines in
which to place its advertisements.
Regent Seven Seas Cruises is owned by Prestige Cruise Holdings. According to their web
site, Prestige is the market leader in the Upper Premium and Luxury segments of the cruise
2.9 Choose one of the VALS segments as a potential target market for each of the following
offerings and explain your choices: (a) SUVs; (b) financial retirement plans; (c) a new
smartphone model.
Student responses will vary. When students describe the segments, they should make sure
2.10 Explain the differences between segmentation and real-time bidding.
Behavioral targeting consists of sending consumers personalized and prompt offers and
promotional messages based on marketers’ tracking of one or more of the following factors:
2.11 Explain how marketers can employ each of the following data in predictive
analytics: (a) the website’s consumers visit; (b) consumers’ levels of engagement with
visited websites (i.e. the pages viewed, lengths of visits, return to site frequency); (c)
Consumers’ interests, lifestyles and personalities (e.g., from the contents of their blogs,
tweets, and Facebook profiles); (d) consumers’ purchases, almost purchases,
abandoned carts, and product returns and exchanges.
Predictive analytics are measures that predict consumers’ future purchases on the bases of
past buying information and other data, and also evaluate the impact of personalized
promotions stemming from the predictions. Recording the websites that consumers visit,
2.12 How would you segment the market of consumers who would like to order Oakley
sunglasses online? Explain your answer.
Responses will vary, but students should consider the bases for segmentation (demographics,
geodemographics, “green”-ness, personality traits, psychographics/lifestyles, benefits, media
usage, usage rate, and usage occasion) and the information referenced in 2.10 that is used to
HANDS-ON ASSIGNMENTS
2.13 Select a product and brand that you use frequently and list the benefits you receive
from using it. Without disclosing your list, ask a fellow student who uses a different
brand in this product category (preferably, a friend of the opposite gender) to make a
similar list for his or her brand. Compare the two lists and discuss the differences and
similarities among the benefits that you and your friend seek from the same product
category.
2.14 Visit two web sites that you are familiar with and write down every click that you
make, and the patterns and the navigation patterns and times of your surfing. Then,
describe how a marketer—of a product of your choice—who had tracked your Web
visits to the sites could use the observation of your surfing in designing a customized
advertising message directed at you.
Instructor’s Discussion
The answers to this question will be personal to each student. However, you should expect to
2.15 The owners of a local health-food restaurant have asked you to prepare a
psychographic profile of families living in the community surrounding the restaurant’s
location. Construct a 10-question psychographic inventory appropriate for segmenting
families on the basis of their dining-out preferences.
2.16 Find three print advertisements directed at three different clusters, each one belonging
to one of the three frameworks: PRIZM, P$YCLE and ConneXions. Explain your
choices.
Instructor’s Discussion
As students consider the effectiveness of each ad, the discussion should focus on the
following issues: When discussing the ad based on a PRIZM cluster, students should make
S.T.A.R. PROJECTS
Ethical Issues in Consumer Behavior
S.T.A.R. Project #1
One of the best and easiest ways to segment a market is on the basis of age. As marketers have
discovered, however, this is a form of segmentation that can become a very sticky proposition.
Consider the number of marketing efforts directed toward the elderly. In this case, marketers
must be aware that, even though they are dealing with experienced consumers, this segment is
Instructor’s Discussion
Students will be able to observe a variety of issues that impact and affect the elderly market
S.T.A.R. Project #2
Few subjects are as controversial in the United States today as gun control. Given the violence in
our society, the number of incidents in which guns are weapons of destruction, and the growing
void between those that demand the right to own guns and those that want all guns destroyed, the
National Rifle Association is at the center of a whirlwind of controversy. The NRA (see
www.nra.org) has been singled out as an organization that is either a defender of the Constitution
or evil (depending on one’s point of view). Ethical situation—assuming that you have been given
the task of evaluating a request from the NRA to sponsor a local civic event in your area (for
Instructor’s Discussion
This is a controversial assignment that is designed to get students to think about an issue from
several perspectives. Certainly the amount of violence (and the use of guns with respect to this
Small Group Projects
S.T.A.R. Project #3
One of the hardest assignments for a marketing manager is how to reinvigorate a brand that has
been around for a long time. Time-tested brands have met the needs of their consumers but often
forget to keep pace with changes in the marketplace and new market segments that are constantly
Instructor’s Discussion
Rit Dye has been an excellent marketer through the years and has provided products that have
met a real need. When, however, is the last time you dyed something? That is the crux of Rit
S.T.A.R. Project #4
Given the business challenges of the last few years, companies must always look for new ways
to retain customers and enhance the value experience brought to them. One company that has
specialized in this art is Carnival Cruise Lines. Carnival has learned how to target potential
customers, provide fun and excitement for current customers, and bring loyal customers back
again and again. Personal attention, e-mail reminders, and an interactive Web site have aided the
Instructor’s Discussion
The Carnival Web site provides a wealth of information about itself and its customers. Some of