LEARNING OBJECTIVES
In this chapter, we will address the following questions:
1. What are the different levels of market segmentation?
2. In what ways can a company divide a market into segments?
3. What are the requirements for effective segmentation?
4. How should business markets be segmented?
5. How should a company choose the most attractive target markets?
CHAPTER SUMMARY
1. Target marketing includes three activities: market segmentation, market targeting, and
2. Two bases for segmenting consumer markets are consumer characteristics and
3. Business marketers use all these variables along with operating variables, purchasing
approaches, and situational factors.
5. We can target markets at four main levels: mass, multiple segments, single (or niche)
segment, and individuals.
6. A mass market targeting approach is adopted only by the biggest companies. Many
companies target multiple segments defined in various ways such as various
demographic groups who seek the same product benefit.
C H A P T E R
8
IDENTIFYING MARKET
SEGMENTS AND
TARGETS
OPENING THOUGHT
The first challenges presented in this chapter are the concepts of market segmentation and
the segmentation processes used by marketing firms. Students may have difficulty
understanding the various steps of the segmentation process as well as differentiating
between target markets and market positioning. The instructor is urged to use personal
examples of target markets—the differences between the instructor’s age cohort and that
of his/her students—for example in illustrating the different markets.
TEACHING STRATEGY AND CLASS ORGANIZATION
PROJECTS
1. Students should turn in their market segmentation segment of their semester-long new
product or service report.
2. Students should select a product or service that they are familiar with, such as jeans,
computers, or personal CD players. Once these items are selected, the students must
undertake research into the specific items: target market and market segmentation.
3. Sonic PDA Marketing Plan Market segmentation is an important part of any
marketing plan. It is the first step in the STP process that precedes any marketing
• Which variables should Sonic use to segment its consumer markets?
• Which variables should Sonic use to segment its business markets?
• How can Sonic evaluate the attractiveness of each identified segment?
• Should Sonic pursue full market coverage, market specialization, product
specialization, selective specialization, or single-segment concentration? Why?
ASSIGNMENTS
The population of Americans over 50 years of age will swell to 115 million in the next 25
years. In small groups, have the students detail the demographic information on this
group of Americans (ages, buying power, perception of themselves, etc.) and suggest
some key marketing opportunities mined from this information. For example, if seniors
The upcoming demographic changes for the U.S. population calls for Hispanics to be the
largest demographic segment in the U.S. by 2050. Assuming that this is true, either in
small groups or individually, ask the students to comment on how this demographic shift
will change the segmentation in: a) the grocery industry, b) the fast-food industry, and c)
the casual dining industry. Student answers should include key demographic and lifestyle
facts and figures about these markets and their consumers.
Figure 8.4 outlines the major VALS® segmentation (www.sric-bi.com). Students are
asked to characterize either themselves, family members, or others and place them in one
of these groups. How closely does the person the student selected, “fit” the profile? If so,
can the marketer rely on these characterizations in mapping out marketing plans? Are
there major differences? If major differences exist, what impact does this have on
marketers’ developing marketing plans?
Effective segmentation criteria are necessary for target market identification. Market
segments must be measurable, substantial, accessible, differentiable, and actionable.
However, not all segmentation schemes are useful—the text uses table salt buyers for
example. Students are to provide three examples of those products or services in which:
segmentation criteria are not necessary and three examples where segmentation criteria
are an absolute necessity. Students are to exchange their findings and explain these
END-OF-CHAPTER SUPPORT
MARKETING DEBATE—Is Mass Marketing Dead?
With marketers increasingly adopting more and more refined market segmentation
schemes—fueled by the Internet and other customization efforts—some claim mass
marketing is dead. Others counter there will always be room for large brands employing
marketing programs to target the mass market.
stressful experience; the intended owner(s) is(are) asked to make literally hundreds of
decisions about size, floor plans, colors, and options throughout the process. Not
complicating a consumer’s life, through mass production and mass marketing of products
can create a viable marketing niche for companies.
MARKETING DISCUSSION—Descriptive Versus Behavioral Market
Segmentation Schemes
Think of various product categories. In each segmentation scheme, to which segment do
you feel you belong? How would marketing be more or less effective for you depending
on the segment? How would you contrast demographic and behavioral segment schemes?
Which one(s) do you think would be most effective for marketing trying to sell to you?
Suggested Response:
Each student’s answer will vary depending upon the product chosen. However, all
answers should contain some of the following terms.
Marketing Excellence: HSBC
1.) What are the risks and benefits of HSBC’s positioning itself as the World’s Local
Bank?
Suggested Response: Successful target marketing includes segmentation, targeting, and
2.) Does HSBC’s most recent campaign resonate with its target audience? Why or
why not?
Suggested Response: Student answers will vary. Good students will comment on how
Marketing Excellence: BMW
1.) What are the pros and cons to BMW’s selective target marketing? What has the
firm done well over the years and where could it improve?
Suggested Answer: Student answers will vary as to the pros and cons of BMW’s selective
target marketing. Good students will note that BMW has created a different automobile
2.) BMW’s sales slipped during the worldwide recession in 2008 and 2009. Is its
segmentation strategy too selective? Why or why not?
Suggested Answer: Student answers will vary, but sales slippage is not always associated
killers.”
DETAILED CHAPTER OUTLINE
Companies cannot connect with all customers in large, broad, or diverse markets. But they
can divide such markets into groups of consumers or segments with distinct needs and wants.
A company then needs to identify which market segments it can serve effectively. This
decision requires a keen understanding of consumer behavior and careful strategic thinking.
To develop the best marketing plans, managers need to understand what makes each segment
unique and different.
BASES FOR SEGMENTING CONSUMER MARKETS
Market segmentation divides a market into well-defined slices. A market segment
consists of a group of customers who share a similar set of needs and wants. The
marketer’s task is to identify the appropriate number and nature of market segments and
decide which one(s) to target.
We use two broad groups of variables to segment consumer markets.
A) Descriptive characteristics: geographic, demographics, and psycho-
graphic.
Geographic Segmentation
Geographic segmentation divides the market into geographical units.
A) More and more, regional marketing means marketing right down to a specific zip
code.
Demographic Segmentation
In demographic segmentation, we divide the market by variables such as age, family size,
family life cycle, gender, income, occupation, education, religion, race, generation,
Age and Life-Cycle Stage
Consumer wants and abilities change with age.
Nevertheless, age and life cycle can be tricky variables. The target market for some
products may be the psychologically young.
Life Stage
A) Persons in the same part of the life cycle may differ in their life stage. Life stage
defines a person’s major concern. These life stages present opportunities for
marketers who can help people cope with their major concerns.
Gender
A) Men and women have different attitudes and behave differently, based partly on
Income
A) Income segmentation is a long-standing practice in product and service
categories.
Marketing Insight
Trading Up, Down, and Over
A new pattern in consumer behavior has emerged in recent years: “New Luxury” and in
order to trade up to these brands that offer emotional benefits, consumers often “trade
Generation
A) Each generation or cohort is profoundly influenced by the times in which it grows up.
Marketing Insight: Marketing to Generation Y
The influences that shaped Gen Y are important to marketers because this cohort will shape
consumer and business markets for years to come. Members of this cohort are often turned
Race and Culture
Multicultural marketing is an approach recognizing that different ethnic and cultural
segments have sufficiently different needs and wants to require targeted marketing
activities, and that a mass-market approach is not refined enough for the diversity of the
marketplace.
The Hispanic-American, African-American, and Asian-American markets are all growing
Hispanic-Americans
A) Hispanic-Americans have become the largest minority in the country with
annual purchasing power estimated to be over $1 trillion in 2010—the Hispanic-
B) Hispanic-Americans often share strong family values—several generations
may reside in one household—and strong roots to their original country of origin.
They have a need for respect, brand loyalty, and a keen interest in product quality.
African-Americans
A) African-Americans have had a significant economic, social, and cultural
impact on U.S. life, influencing inventions, art, music, sports, fashion, and
literature. Like many cultural segments, they are deeply rooted in the U.S.
landscape while also proud of their heritage and respectful of family ties.
Asian-Americans
A) According to the U.S. Census Bureau, “Asian” refers to people having origins
in any of the original peoples of the Far East, Southeast Asia, or the Indian
Psychographic Segmentation
Psychographics is the science of using psychology and demographics to better understand
consumers.
A) In psychographic segmentation, buyers are divided into different groups on the
basis of psychological/personality traits, lifestyle, or values.
B) One of the most popular commercially available classification systems is SRI
Consulting Business Intelligence’s VALS framework.
1) The major tendencies of the four groups with high resources are:
a. Innovators
Behavioral Segmentation
In behavioral segmentation, marketers divide buyers into groups on the basis of their
knowledge of, attitude toward, use of, or response to a product.
Needs and Benefits
A) Benefits: Not everyone who buys a product has the same needs or wants the same
benefits from it.
Decision Roles
It’s easy to identify the buyer for many products. People play five roles in a buying
decision: Initiator, Influencer, Decider, Buyer, and User.
User and Usage-Related Variables
Many marketers believe variables related to various aspects of users or their usage—
occasions, user status, usage rate, buyer-readiness stage, and loyalty status—are good
starting points for constructing market segments.
A) Occasions
F) Attitudes
a) enthusiastic
e) hostile
G) Multiple bases
BASIS FOR SEGMENTING BUSINESS MARKETS
Business markets can be segmented with some of the variables used in consumer market
segmentation but business marketers also use other variables.
Business marketers generally identify segments through a sequential process.
A) The company first undertook macrosegmentation. It looked at which end-use
market to serve: automobile, residential, or beverage containers. It chose the
residential market, and it needed to determine the most attractive product application:
MARKET TARGETING
Once a firm has identified its market-segment opportunities, it must decide how many
and which ones to target. This has lead some researchers to advocate a needs-based
market segmentation approach.
Effective Segmentation Criteria
To be useful, market segments must rate favorably on five key criteria:
A) Measurable
Evaluating and Selecting the Market Segments
In evaluating different market segments, the firm must look at two factors: The segment’s
overall attractiveness and the company’s objectives and resources.
Full market coverage
1) The firm attempts to serve all customer groups with all the products they might
need.
Multiple Segment Specialization
1) With selective specialization, a firm selects a subset of all the possible
2) Keeping synergies in mind, companies can try to operate in supersegments
3) With product specialization, the firm sells a certain product to several different market
segments. A microscope manufacturer, for instance, sells to university, government, and
4) With market specialization, the firm concentrates on serving many needs of a
particular customer group, such as by selling an assortment of products only to university
Single-Segment Concentration
With single–segment concentration, the firm markets to only one particular
segment.
2) A niche is a more narrowly defined customer group seeking a distinctive mix of benefits
within a segment. Marketers usually identify niches by dividing a segment into
3) However, there are risks. A market segment can turn sour or a competitor
may invade the segment.
5) Companies can try to operate in super–segments rather than in isolated
segments.
a. A super-segment is a set of segments sharing some exploitable similarity.
Individual Marketing
The ultimate level of segmentation leads to “segments of one,” “customized marketing,”
or “one–to-one marketing.
Today customers are taking more individual initiative in determining what and how to
buy.
Ethical Choice of Market Targets
Market targeting also can generate public controversy when marketers take unfair
advantage of vulnerable or disadvantaged groups, or promote potentially harmful
products.