Chapter 08 – Market Segmentation, Targeting, and Positioning
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CHAPTER CONTENTS
PAGE
POWERPOINT RESOURCES TO USE WITH LECTURES ……………………………………. 8-2
LEARNING OBJECTIVES (LO) …………………………………………………………………………….. 8-3
KEY TERMS …………………………………………………………………………………………………………… 8-4
LECTURE NOTES
• Chapter Opener: Segmentation Rules in the Kingdom of Happiness! ……………………. 8-4
• Why Segment Markets? (LO 8-1) …………………………………………………………………….. 8-5
APPLYING MARKETING KNOWLEDGE ……………………………………………………………. 8-26
BUILDING YOUR MARKETING PLAN ……………………………………………………………….. 8-29
VIDEO CASE (VC)
• VC-8: Prince Sports, Inc.: Tennis Racquets for Every Segment …………………………… 8-30
IN-CLASS ACTIVITIES (ICA)
CONNECT EXERCISES ……………………………………………………….…………8-44
• Market-Product Grid Case Analysis
• Positioning Strategy Click and Drag*
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POWERPOINT RESOURCES TO USE WITH LECTURES
PowerPoint
Textbook Figures Slide
Figure 8-1 Market segmentation links market needs to an organization’s marketing program
through marketing mix actions ………………………………………………………………………….. 8-6
Figure 8-2 A market-product grid shows the kind of sleeper that is targeted for each of the
Marketing Matters, Making Responsible Decisions, and/or Marketing Insights
Marketing Matters—Apple’s Segmentation Strategy ……………………………………………………………… 8-28
Videos
8-2: Dave’s Hot ‘n Juicy Ad ………………………………………………………………………………………………. 8-17
8-4: Prince Sports Video Case ……………………………………………………………………………………………. 8-33
In-Class Activities (ICA)
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LEARNING OBJECTIVES (LO)
After reading this chapter students should be able to:
LO 8-1: Explain what market segmentation is and when to use it.
LO 8-3: Recognize the bases used to segment consumer and organizational (business) markets.
LO 8-5: Explain how marketing managers position products in the marketplace.
KEY TERMS
80/20 rule
product differentiation
market-product grid
product positioning
market segmentation
product repositioning
perceptual map
usage rate
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LECTURE NOTES
SEGMENTATION RULES IN THE KINGDOM OF HAPPINESS!
• Zappos founder, Tony Hsieh, has a philosophy to balance profits, passion, and
purpose to create a unique company culture and extraordinary customer experience.
A. Zappos’s Secret to Success
• Zappos has a clear, specific market segmentation strategy: Focus on people who
B. Delivering WOW Customer Service
• Asked about Zappos, Hsieh says, “We try to spend most of our time on stuff that
will improve customer-service levels.”
• All new Zappos employees go through 4 weeks of customer-loyalty training.
• Ten “core values” are the foundation for the Zappos culture, brand, and business
strategies. Some examples:
#1. Deliver WOW through service. This focus on exemplary customer
service encompasses all 10 core values.
• The Zappos strategy illustrates successful market segmentation and targeting.
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I. WHY SEGMENT MARKETS? [LO 8-1]
• A business firm segments its markets to respond more effectively to the wants of
groups of potential buyers to increase sales and profits.
A. What Market Segmentation Means
• Market segmentation involves aggregating prospective buyers into groups,
or segments, that (1) have common needs and (2) will respond similarly to a
marketing action.
• Market segments.
a. Are the relatively homogeneous groups of prospective buyers that result from
the market segmentation process.
• Different market segments cause firms to use product differentiation:
a. Is a marketing strategy that:
b. As the perceived differences, they may involve:
1. Segmentation: Linking Needs to Actions.
a. [Figure 8-1] The process of segmenting a market and selecting specific
segments as targets is the link between the various buyers’ needs and the
organization’s marketing program.
b. Market segmentation stresses two things:
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• Develops specific marketing mix (4 Ps) actions. This may involve:
[Video 8-1: Zappos Video]
2. The Zappos.com Segmentation Strategy.
a. The Zappos.com target customer segment consists of people who want:
• A wide selection of shoes.
b. Zappos’ marketing actions include:
• Offering a huge inventory of shoes and other products.
c. These actions allow Zappos.com to:
• Create a positive customer experience.
• Generate repeat purchases.
• Add lines of clothing, handbags, and sunglasses to reach new segments.
3. Using Market Product Grids
a. Three key market segments of sleepers:
b. Research indicates that the right pillow firmness results in better sleep.
c. A market-product grid is a framework to relate the market segments of
potential buyers to products offered or potential marketing actions.
d. [Figure 8-2] Shows a market-product grid in which:
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• Reveals the size of each sleeper segment, as shown by the percentages and
the size of the circles.
• This tells marketers the relative importance of:
B. When and How to Segment Markets
• One-size-fits-all mass markets no longer exist.
• Procter & Gamble has a new segmentation strategy—offer products to reach:
a. High income families.
b. Low income families.
1. One Product and Multiple Market Segments.
a. When a firm produces only a single product or service, it:
b. The incremental costs of taking the product into new market segments are
typically those of a:
c. Although these expenses can be high, they are rarely as large as those for
developing an entirely new product.
d. Examples:
• Street & Smith’s Baseball uses different covers in different regions of the
U.S. that features a baseball star from that region.
• Other examples of a single offering for multiple segments include books,
movies, and many services.
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2. Multiple Products and Multiple Market Segments.
a. Marketing different products is more expensive than producing just one but is
justified if it:
b. A potential downside to a product differentiation strategy:
• The proliferation of different models and options can reduce quality and
raise prices.
• Ford has reduced the number of frames, engines, and brands offered.
– This simplified product line provides two benefits to consumers:
3. Segments of One: Mass Customization.
a. Each customer:
b. Economies of scale in manufacturing and marketing during the past century:
c. Mass customization.
• Involves tailoring products or services to the tastes of individual customers
d. Build-to-order (BTO) involves manufacturing a product only when a
customer places an order for it.
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4. The Segmentation Trade-Off: Synergies versus Cannibalization.
a. Successful product differentiation and market segmentation finds the ideal
balance between:
b. Organizational synergy is the increased customer value achieved through
performing organizational functions more efficiently.
c. This increased customer value can take many forms:
• More products.
d. The ultimate criterion for an organization’s marketing success is that
customers should be better off as a result of the increased synergies.
e. The organization should also achieve increased revenues and profits from the
product differentiation and market segmentation strategies it uses.
f. Sometimes, this strategy can lead to cannibalization, which is the stealing of
customers and sales from an existing product or chain of retail stores.
g. Marketers increasingly emphasize the two-tier “Tiffany/Walmart strategy”:
h. However, the lines between customer segments can often blur and lead to
problems.
i. Example: Ann Inc. competition between its Ann Taylor and LOFT stores.
• Ann Taylor stores target successful, affluent, fashion-conscious women.
• LOFT stores target value-conscious women who want clothes that fit a
Chapter 08 – Market Segmentation, Targeting, and Positioning
j. Example: Walmart Neighborhood Market stores that are:
• One-fifth the size of its supercenters.
LEARNING REVIEW
8-1. Market segmentation involves aggregating prospective buyers into groups that
have two key characteristics. What are they?
8-2. In terms of market segments and products, what are the three market
segmentation strategies?
II. STEPS IN SEGMENTING AND TARGETING MARKETS [LO 8-2]
• [Figure 8-3] The process of segmenting a market and then selecting and reaching the
target segments is divided into five steps.
A. Step 1: Group Potential Buyers into Segments
Grouping potential buyers into meaningful segments involves meeting some specific
criteria that answer these two questions:
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1. Criteria to Use in Forming the Segments.
A marketer should develop segments for a market that meet five criteria:
a. Simplicity and cost-effectiveness of assigning potential buyers to segments.
b. Potential for increased profit.
• If future profit and ROI are maximized without segmentation, don’t
segment.
c. Similarity of needs of potential buyers within a segment.
d. Difference of needs of buyers among segments.
• If the needs of the various segments aren’t very different, combine them
e. Potential of a marketing action to reach a segment.
2. Ways to Segment Consumer Markets. [LO 8-3]
• There are four general segmentation bases can be used to segment U.S.
consumer markets.
a. Geographic segmentation.
b. Demographic segmentation. Based on some:
• Objective physical (gender, race).
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c. Psychographic segmentation. Based on some:
• Subjective mental or emotional attributes (personality).
• Aspirations (lifestyle).
d. Behavioral segmentation.
• Based on some observable actions or attitudes by prospective customers:
• Product features.
– Consist of product features, quality, service, and warranty.
– Understanding what benefits are important to different customers:
• Usage rate.
– Is the quantity consumed or patronage (store visits) during a specific
period.
e. A recent study analyzed which segmentation bases were used by the 20
percent most profitable of the 220 organizations surveyed:
• Geographic bases: 88 percent. • Demographic bases: 53 percent.
f. To obtain usage rate data, Experian Simmons:
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• Obtains quarterly, projectable usage rate data from the U.S. national
population for…
• Discover how the offerings they buy and the media they use…
g. Usage rate may be referred to in terms of:
• The 80/20 rule is a concept that suggests 80 percent of a firm’s sales are
3. Patronage of Fast-Food Restaurants.
[Figure 8-4] Patrons were asked if each restaurant was their: (1) only
(sole), (2) primary one, or (3) one of several secondary ones.
• The Wendy’s bar shows that the ‘Sole’ (0.7%) and ‘Primary’ (12.5%) user
segments are somewhat behind Burger King and far behind McDonald’s.
• A strategy: Look at these two competitors and devise a marketing program
to win customers from them.
• The ‘Nonprospects’ in Figure 8-6 shows that:
– 14.6 % of adult Americans don’t go to fast-food restaurants in a
typical month.
4. Variables to Use in Forming Segments for Wendy’s.
(1) where students live and (2) when they are on campus. This results in:
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b. Three nonstudent segments:
c. People in each of these nonstudent segments:
5. Ways to Segment Organizational (Business) Markets.
Three bases and their respective variables and breakdowns can be used to segment
organizational (business) markets:
a. Geographic. Variables consist of global region (European Union), country,
LEARNING REVIEW
8-3. The process of segmenting and targeting markets is a bridge between which two
marketing activities?
8-4. What is the difference between the demographic and behavioral bases of market
segmentation?
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[Video 8-2: Dave’s Hot ‘n Juicy Ad]
B. Step 2: Group Products to Be Sold into Categories
• What does a Wendy’s restaurant sell? Individual products, such as hamburgers,
fries, and Frostys.
1. Individual Wendy’s Products.
a. When Dave Thomas founded Wendy’s in 1969, he offered only 4 basic items:
• Hot ‘n Juicy hamburgers. • French fries.
• Frosty Dairy Desserts. • Soft drinks.
b. [Figure 8-5] Since then, Wendy’s has introduced many new products and
innovations to compete for customers’ fast-food dollars.
2. Groupings of Wendy’s Products: Meals.
a. Finding a means of grouping the products a firm sells into meaningful
categories is as important as grouping customers into segments.
b. When a firm has many products, they must be grouped in some way so buyers
can relate to them in a meaningful way.
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[ICA 8-1: Honey Nut Cheerios® Milk ‘n Cereal Bar:
Identifying Product Groups]
C. Step 3: Develop a Market-Product Grid and Estimate the Size of Markets
[LO 8-4]
1. Forming a Market-Product Grid for Wendy’s.
a. [Figure 8-6] Developing a market-product grid means identifying and
labeling:
b. For Wendy’s:
2. Estimating Market Sizes for Wendy’s.
a. Estimate the size of the market in each cell (the market-product combination).
b. This involves estimating the sales of each kind of meal that can reasonably be
D. Step 4: Select Target Markets
A firm must take care to choose its target market segments carefully:
• If it picks too narrow a set of segments, it may fail to reach the volume of sales
and profits it needs.
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1. Criteria to Use in Selecting the Target Segments.
a. Two kinds of criteria in the market segmentation process are those used to:
b. Five criteria can be used to select a firm’s target market segments:
• Market size.
– The estimated size of the market is a critical factor in deciding whether
it’s worth targeting.
– Wendy’s:
* There is really no market for breakfasts among dormitory students
• Expected growth.
– Assess whether the market segment is projected to grow in the future.
– Wendy’s:
* Sales of fast-food meals eaten outside the restaurants are projected
• Competitive position.
– Assess the firm’s position in the segment relative to current and
expected future competition.
– Wendy’s:
* Ask this question: Is there a lot of competition in the segment now
or is there likely to be in the future?
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• Cost of reaching the segment.
– If inaccessible to a firm’s marketing actions, the segment should not be
pursued.
– Wendy’s:
• Compatibility with the organization’s objectives and resources.
– The firm must economically reach the segment with its offering.
– If your Wendy’s restaurant:
c. As is often the case in marketing decisions, a particular segment may appear
attractive according to some criteria and very unattractive according to others.
2. Choose the Wendy’s Segments.
a. Ultimately, a marketer has to use these criteria to choose the segments for
special marketing efforts.
b. For Wendy’s, the breakfast product grouping was written off for two reasons:
• It’s too small a market.
c. For Wendy’s, in terms of competitive position and cost of reaching the
segment, you choose to focus on:
E. Step 5: Take Marketing Actions to Reach Target Markets
• The purpose of developing a market-product grid is to trigger marketing actions to
increase sales and profits.
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1. Your Immediate Wendy’s Segmentation Strategy.
Key decisions are:
a. What products (meals) to offer for each segment selected.
b. When to open: After 10:00 A.M. since breakfast will not be offered.
c. [Figure 8-7] Where and what meals to advertise to reach specific segments.
• Day commuters.
• Between meal snacks.
• Dinners to night commuters.
d. Depending on how the advertising actions work, you can repeat, modify, or
drop them and design new campaigns for other segments worthy of the effort.
2. Keeping an Eye on Competition.
A marketer must be aware of the strategies of competitors.
a. Ex: McDonald’s:
• Testing breakfast burrito bowl with kale
b. Five Guys Burgers and Fries restaurant:
c. Wendy’s, Burger King, and McDonald’s are aggressively trying the new
“fast–casual” market segment.
• These customers want healthier food and lower prices in sit-down
restaurants…
Chapter 08 – Market Segmentation, Targeting, and Positioning
• Is a market segment being successfully targeted by fast-casual restaurants
like Chipotle Mexican Grill and Panera Bread.
d. Nonhamburger chains trying to gain market share:
3. Future Strategies for Your Wendy’s Restaurant.
a. Changing customer tastes and competition mean you must alter your strategies
when necessary.
b. This involves looking at…
• What Wendy’s headquarters is doing.
c. Wendy’s recently announced a new marketing program:
• Advertising use of fresh beef (not frozen); switching to eggs from cage-
d. Wendy’s strategy has been remarkably successful, replacing Burger King as
the #2 burger chain in terms of sales behind McDonald’s.
4. Apple’s Ever-Changing Segmentation Strategy.
a. In 1977, Apple introduced the Apple II, which launched today’s multi-billion