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CHAPTER 6
Target Markets: Segmentation and Evaluation
TEACHING RESOURCES QUICK REFERENCE GUIDE
Resource
Location
Purpose and Perspective
IRM, p. 108
Lecture Outline
IRM, p. 109
Discussion Starters
IRM, p. 117
Class Exercises
IRM, p. 118
Chapter Quiz
IRM, p. 120
Answers to Discussion and Review Questions
IRM, p. 121
Answers to Application Questions
IRM, p. 125
PURPOSE AND PERSPECTIVE
This chapter covers the definition of a market, how organizations identify target markets, and how to
estimate market potential and forecast sales. First, we define a market and discuss the characteristics
groups must possess to be considered a market. Then, we describe in detail the five steps in the target
Answers to Internet Exercise
IRM, p. 126
Answers to Developing Your Marketing Plan
IRM, p. 127
Comments on the Cases
IRM, p. 128
Case 6.1
IRM, p. 128
Case 6.2
IRM, p. 129
Strategic Case 3
IRM, p. 130
Instructions for Role Play Team Case Exercise
IRM, p. 131
Examination Questions: Essay
Testing CD
Examination Questions: Multiple-Choice
Testing CD
Examination Questions: True-False
Testing CD
PowerPoint Slides
Chapter 6: Target Markets: Segmentation, Evaluation, and Positioning 109
LECTURE OUTLINE
I. What Are Markets?
A. We defined the term “market” as a group of people who, as individuals or organizations, have
needs for products in a product category and have the ability, willingness, and authority to
purchase such products.
B. Individuals can have the desire, the buying power, and the willingness to purchase certain
products but may not be authorized to do so.
C. Markets fall into one of two categories: consumer markets or business markets.
1. A consumer market consists of purchaser and household members who intend to consume
or benefit from the purchased products and do not buy products for the main purpose of
II. Target Market Selection Process
A. Marketers generally employ a five-step process for target market selection: identifying the
appropriate targeting strategy, determining which segmentation variables to use, developing
market segment profiles, evaluating relevant market segments, and selecting specific target
markets.
B. Step 1: Identify the Appropriate Targeting Strategy
1. The targeting strategy is affected by target market characteristics, product attributes, and the
organization’s objectives and resources.
2. Undifferentiated Strategy
a. The undifferentiated targeting strategy is one in which an organization defines an
110 Chapter 6: Target Markets: Segmentation, Evaluation, and Positioning
a. Heterogeneous markets are markets made up of individuals or organizations with
diverse product needs.
b. Market segmentation is the process of dividing the total market into groups or segments
that have relatively similar product needs for the purpose of designing a marketing mix
which precisely matches the needs of individuals in a selected segment. It is appropriate
for heterogeneous markets.
(a) A market segment consists of individuals, groups, or organizations with one or
more similar characteristics which cause them to have relatively similar product
needs.
marketing mix.
c. A concentrated targeting strategy is a strategy in which an organization targets a single
market segment using one marketing mix.
(1) Specialization gives the organization an opportunity to carefully analyze the
characteristics and needs of a distinct customer group and then focus all marketing
4. Differentiated Targeting Strategy through Market Segmentation
a. A differentiated targeting strategy is a strategy in which an organization targets two or
more segments by developing a marketing mix for each segment.
C. Step 2: Determine Which Segmentation Variables to Use
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1. Segmentation variables are characteristics of individuals, groups, or organizations that are
used to divide a market into segments.
a. A segmentation variable should be related to customers’ needs for, uses of, or behavior
2. Variables for Segmenting Consumer Markets
a. Demographic Variables
(1) Demographic characteristics marketers commonly use in segmenting markets include
age, gender, race, ethnicity, income, education, occupation, family size, family life
cycle, religion, and social class.
(2) Marketers rely on these demographic characteristics because they are often closely
linked to customers’ needs and purchasing behaviors, and can be readily measured.
(6) Income affects people’s ability to buy and their desires for certain lifestyles.
(7) Marital status and the presence and age of children—characteristics often combined
and called the family life cycle—affect needs for housing, appliances, food and
beverages, automobiles, and recreational equipment.
b. Geographic Variables
(1) Geographic variables—climate, terrain, city size, population density, and urban/rural
areas—also influence consumer product needs.
112 Chapter 6: Target Markets: Segmentation, Evaluation, and Positioning
(5) Micromarketing focuses precise marketing efforts on very small geographic
markets, such as community, and even neighborhood markets.
(6) Climate is also used as a segmentation variable because of its broad impact on
people’s behavior and product needs.
c. Psychographic Variables
(1) A psychographic variable can be used by itself to segment a market or combine with
other types of segmentation variables. The following are the types most commonly
used to segment markets.
(2) Personality characteristics
(4) Lifestyle segmentation
(a) Lifestyle segmentation groups individuals according to how they spend their
time, importance of things in their surroundings, beliefs about themselves and
broader issues, and some demographic characteristics.
d. Behavioristic Variables
(1) Firms can divide a market according to some feature of consumer behavior toward a
product, commonly involving some aspect of product use.
(2) How consumers use or apply the products may also determine segmentation.
Chapter 6: Target Markets: Segmentation, Evaluation, and Positioning 113
(3) Benefit segmentation is the division of a market according to benefits that
consumers want from the product.
3. Variables for Segmenting Business Markets
a. Geographic Location: Variations in organizations’ demands result from differences in
climate, terrain, consumer preferences, or similar factors.
D. Step 3: Develop Market Segment Profiles
1. Market segment profiles describe the similarities among potential customers within a segment
and explain the differences among people and organizations in different market segments.
E. Step 4: Evaluate Relevant Market Segments
1. Sales Estimates
a. Potential sales for a segment can be measured along several dimensions, including
product, geographic area, time, and level of competition.
b. Market potential is the total amount of a product for all firms in an industry which
customers will purchase within a specified period at a specific level of industry-wide
marketing activity.
(1) It can be stated in terms of dollars or units and can refer to a total market or to a
114 Chapter 6: Target Markets: Segmentation, Evaluation, and Positioning
(2) There are two general approaches to measuring company sales potential: breakdown
and buildup.
(a) The breakdown approach measures company sales potential based on a general
2. Competitive Assessment
a. Sales estimates may be misleading without competitive information.
b. Several questions must be asked about competitors in the segments being considered.
(1) How many competitors exist?
3. Cost Estimates
a. Meeting the needs of a target segment can be expensive.
F. Step 5: Select Specific Target Markets
1. Marketers first decide whether there are enough differences in customers’ needs to warrant
the use of market segmentation.
2. The firm’s management must consider whether the organization has the financial resources,
Chapter 6: Target Markets: Segmentation, Evaluation, and Positioning 115
d. Executive judgment relies on the intuition of one or more executives, which is
unscientific but expedient and inexpensive.
(1) It may work reasonably well when product demand is relatively stable and the
e. Surveys
(1) In a customer forecasting survey, marketers ask customers what types and
quantities of products they intend to buy during a specific period.
(2) In a sales force forecasting survey, the firm’s salespeople estimate anticipated sales
in their territories for a specified period.
(3) For an expert forecasting survey, a company hires experienced professionals to help
prepare the sales forecast.
(4) With time series analysis, the forecaster uses the firm’s historical sales data to
discover a pattern or patterns in the firm’s sales over time. It assumes that past sales
patterns will continue in the future.
(a) Trend analysis focuses on aggregate sales data, such as the company’s annual
sales figures, covering a period of many years to determine whether annual sales
(5) In regression analysis, the forecaster seeks to find a relationship between past sales
(the dependent variable) and one or more independent variables, such as population,
per capita income, or gross domestic product.
116 Chapter 6: Target Markets: Segmentation, Evaluation, and Positioning
(a) The objective is to develop a mathematical formula that accurately describes a
(6) A market test involves making a product available to buyers in one or more test
areas and measuring purchases and consumer responses to distribution, promotion,
and price.
(a) It provides information about consumers’ actual rather than intended purchases.
(b) Purchase volume can be evaluated in relation to the intensity of other marketing
(7) Most businesses use multiple forecasting methods to deal with variations in the time
or scope of forecasts.
Chapter 6: Target Markets: Segmentation, Evaluation, and Positioning 117
DISCUSSION STARTERS
Discussion Starter 1: How Many Markets?
This exercise involves a series of questions. Ask the students to stand or remain standing if the statement
is true for them.
(1) Are you a University/College student?
(2) Are you a University/College student in the state of ___________?
(3) Are you a University/College student in (insert your University/College name)?
(4) Are you a student in the College of Business at (insert your University/College name)?
(5) Are you a marketing major in the College of Business at (insert your University/College
name)?
(6) Are you brown haired?
(7) Are you brown eyed?
(8) Are you taller than 5’7”?
(9) Are you male?
ASK: What happened to the number standing as I went through these questions? Why did the number
standing get smaller?
Each of these questions represents a different level of market aggregation. We began with the broadest
Discussion Starter 2: Understanding Segments
The 10 minute video segment is part of a Frontline series called “The Merchants of Cool.” While this
program aired years ago, it is still relevant. Frontline is an excellent program and a ll of its episodes
are available online at the PBS website. You may want to consider previewing other episodes and
using them later in the semester. However, some episodes contain content which may not be
appropriate for all classes.
ASK: How do marketers know what is “cool” for a particular segment?
Today the teen market is a very desirable market segment since they set trends and have high levels
118 Chapter 6: Target Markets: Segmentation, Evaluation, and Positioning
CLASS EXERCISES
Class Exercise 1: Segmentation Variables
The objective of this class exercise is to gain a thorough understanding of segmentation variables by
designing a target market for a new retail operation.
Prompt for Students:
You have just received a sizable inheritance. After giving part of it to charity, you have $500,000
remaining to begin a new retail operation in your local area. What kind of operation will you open?
1. What market or segment of a market exists in your area with unfulfilled needs or wants?
2. Briefly describe the nature of the operation you would open to meet the needs of a specific market
segment(s).
a. Product or service?
b. Price range?
c. Location?
3. Will you use a concentrated or a differentiated targeting strategy? Why?
4. What segmentation variables will be useful in describing your target market(s)? Why?
Answers:
1. Other ways of asking this question are “What kinds of retail stores do you wish were available here?”
and “What kinds of restaurants or retail outlets have you seen in other places that might work here?”
Class Exercise 2: Segmentation Variables in Different Industries
This exercise is designed to get students to think in terms of segmentation variables discussed in the
chapter. For example, what demographic, geographic, psychographic, or lifestyle variables could have
been used to segment the market for baby food (variable 2)? Lifestyle segmentation variables could
include:
1. Consumers who want nothing but all-natural ingredients
Chapter 6: Target Markets: Segmentation, Evaluation, and Positioning 119
2. Upscale consumers who want gourmet baby food
3. Time-conscious consumers who need instant or quick meals for their babies
Many other combinations are possible. Encourage students to be creative and imaginative. As with most
exercises, there are no right or wrong answers. The following list includes variables or characteristics that
could be used to segment markets for specific products.
Question
Answers
1.
Recreational vehicles (RVs)
age, income
2.
Baby food
family life cycle, age
3.
Rolls Royce automobiles
income, social class
4.
Snow tires
climate
5.
Hotel rooms
income, business vs. tourism
6.
Magazines
age, job, education, ethnicity, gender
7.
Soft drinks
age, gender
8.
Movies
age, family life cycle
9.
Shoes
age, income, lifestyle
10.
Bicycles
income, age, lifestyle
11.
Air passenger service
income, business vs. tourism
12.
Cameras
lifestyle, occupation, income
14.
Restaurants
income, age, city size, lifestyle
15.
Snowboards
age, climate
Class Exercise 3: Demographics
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