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LEARNING OBJECTIVES
In this chapter, we will address the following questions:
1. In what ways can a company divide the consumer market into segments?
2. How should business markets be segmented?
3. How should a company choose the most attractive target markets?
4. What are the requirements for effective segmentation?
5. What are the different levels of market segmentation?
CHAPTER SUMMARY
1. Target marketing includes three activities: market segmentation, market targeting, 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
8. More companies now practice individual and mass customization. The future is likely
to see more individual consumers take the initiative in designing products and brands.
9. Marketers must choose target markets in a socially responsible manner at all times.
C H A P T E R
9
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 or their
parents’ cohort and that of his/her students—for example in illustrating the different
markets.
Second, the concepts of consumer characteristics and responses may be new to many
students as it applies across different age groups and different consumers. Students who
TEACHING STRATEGY AND CLASS ORGANIZATION
PROJECTS
2. Students should select a product or service that they are familiar with, such as jeans,
computers, or personal MP3 players. Once these items are selected, the students must
undertake research into the specific items: target market and market segmentation.
Student reports should contain information as to: How large is the target market, what
is the future growth potential of this target market, how do/does the marketer reach
this target market and so on? The second section of this project is for the students to
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
strategy: segmentation, targeting, and positioning. The purpose of STP is to identify
and describe distinct market segments, target-specific segments, and then pinpoint the
differentiating benefits to being stressed in marketing.
In your role as Jane Melody’s assistant, you are responsible for market segmentation
and targeting for Sonic’s PDA product. Look at the SWOT Analysis, Market
Description, and Competitive Review sections and then answer:
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
often make buying decisions based on lifestyle and not age, as the vignette mentions,
does this information present marketing opportunities for such industries as travel, bio-
medical industries, at-home exercise equipment, and automobiles? If so, who is going to
be affected and to what extent? Student answers should contain detailed demographic
information about this target market and should draw a connection between what the
information says and what is the potential for marketers.
Marketing Insight, Chasing the Long Tail, is a compilation of thoughts and notes from a
number of sources. Ask the students to read each of these sources and be prepared to
share their thoughts as well as comments about what they have read in class. Specifically,
are these authors “on-target” when it comes to the significance of the value of the long
tail? Why has the 80-20 rule given way to a 50-50 rule? Ask them to weigh in on whether
the long tail is as important as hit products. Are there any “missing insights” from these
readings that will have a profound impact on future marketing strategies?
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.
Take a position: Mass marketing is dead versus mass marketing is still a viable way to
build a profitable brand.
uncomplicated; that is best served through mass produced products. Asking the consumer
to make too many choices can backfire on marketers as it can overly complicate and
stress consumers—for example, the design of a new home can be both a rewarding and
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?
Loyalty status
Marketing Excellence: HSBC
1.) What are the risks and benefits of HSBC’s positioning itself as the “World’s
Local Bank”?
2.) Evaluate HSBC’s recent business and marketing shift. How do you think its
current ad campaign and tagline, “HSBC helps you unlock the world’s potential,”
resonate with its key consumers?
Suggested Response: Student answers will vary. Good students will comment on how
Marketing Excellence: BMW
1. How does BMW segment its consumers? Why does this work for BMW?
2. What does BMW do well to market to each segment group? Where could it
improve its marketing strategy?
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
3. Should BMW ever change its tagline, “The Ultimate Driving Machine”? Why or
why not?
Suggested Answer: Student answers will vary, but it is currently consistent with the
DETAILED CHAPTER OUTLINE
Companies need to identify the market segments they can serve effectively.
LinkedIn’s well-targeted and positioned brand has led to much initial success. Effective
target marketing requires that marketers: 1. Identify and profile distinct groups of buyers
who differ in their needs and wants (market segmentation) 2. Select one or more market
segments to enter (market targeting). 3. For each target segment, establish, communicate,
and deliver the right benefit(s) for the company’s market offering (market positioning).
Market segmentation, targeting, and positioning are known as the “STP” of marketing.
I. Bases for Segmenting Consumer Markets
A. Market segment consists of a group of customers who share a similar set of
needs and wants.
B. Two broad groups of variables to segment consumer markets.
i. Descriptive characteristics—geographic, demographic, and
1. Customer cloning assumes future customers come from
existing customers’ neighborhoods
2. PRIZM (Potential Rating Index by Zip Markets) NE combines
geographic and demographic data and 39 variables in five
4. Density
5. Climate
ii. Demographics often associated with customer needs
1. Age: Consumer wants and abilities change with age
3. Family life cycle: Life stage defines a person’s major concern,
4. Gender: Men and women have different attitudes and behave
5. Income: Long-standing practice in such categories as
automobiles, clothing, cosmetics, financial services, and travel
7. Education
9. Race and culture:
10. Generation: Each generation or cohort is profoundly influenced
12. Social class
iii. Psychographic lifestyle
iv. Personality
v. Behavioral occasions
E. Generations
i. Millennials (or Gen Y) usually means people born between 1977 and
1994 = 78 million people in the United States, with annual spending
power approaching $200 million.
1. Echo Boomers, “digital natives”, multitaskers, go online to
2. They tend to trust friends more than corporate sources of
information.
3. Sense of entitlement and abundance from growing up during
5. Turned off by overt branding – street teams, events and student
ambassadors useful
ii. Gen X born between 1964 and 1978.
1. Unflattering image of disaffection, short attention spans, and
weak work ethic
2. Working parents relied on day care or left “latchkey kids” on
4. Prize self-sufficiency and the ability to handle any
circumstance.
6. Pragmatic and individualistic.
7. Wary of hype and pitches that seem inauthentic or patronizing.
iii. Baby Boomers are the approximately 76 million U.S. consumers born
between 1946 and 1964.
1. $1.2 trillion in annual spending power and controlling three-
3. Willing to change brands, spend on technology, use social
networking sites, and purchase online
iv. Silent Generation born between 1925 and 1945 are redefining what old
age means.
1. Many older consumers lead very active lives.
2. Advertisers have learned that older consumers don’t mind
4. Need their own products
5. Researchers at the MIT AgeLab use a suit called AGNES (Age
Gain Now Empathy System) to research the changing needs of
the elderly.
F. 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
i. Growing at two to three times the rate of non-multicultural populations
iii. Hispanic American (52.4 million in 2012; 128.8 million in 2060)
2. Youthful – median age is 27
3. Geographically concentrated in California, Texas and Florida;
5. Need to capture nuances of culture and language, as Hispanic
Americans are diverse
6. More active with mobile technology and social media than the
general population
iv. Asian American (15.7 million in 2012; 34.4 million in 2060)
1. US population represented mainly by six countries: China (21
3. More brand-conscious but least loyal to brands
4. Care more about what others think and share core values of
safety and education
v. African American (41.1 million in 2012; 61.8 million in 2060)
2. Most fashion-conscious of all racial and ethnic groups but are
strongly motivated by quality and selection.
4. Watch television and listen to the radio more than other groups
and are heavy users of mobile data.
5. Cigarette, liquor, and fast-food firms have been criticized for
targeting urban African Americans
G. Psychographic Segmentation uses psychology and demographics to better
understand consumers.
i. Buyers are divided into groups on the basis of psychological/
personality traits, lifestyle, or values.
ii. VALS is based on psychological traits for people and classifies U.S.
adults into eight primary groups based on responses to a questionnaire
featuring four demographic and 35 attitudinal questions.
1. The main dimensions of the VALS segmentation framework
3. Those primarily motivated by ideals are guided by knowledge
and principles.
5. Consumers whose motivation is self-expression desire social or
physical activity, variety, and risk.
6. Personality traits such as energy, self-confidence,
7. Different levels of resources enhance or constrain a person’s
expression of his or her primary motivation.
H. Behavioral Segmentation divides buyers into groups on the basis of their
knowledge of, attitude toward, use of, or response to a product
i. Needs-based or benefit-based segmentation identifies distinct market
segments with clear marketing implications.
ii. People play five roles in a buying decision:
2. Different people are playing different roles, but all are crucial
in the decision process and ultimate consumer satisfaction
iii. User and Usage-Related Variables include occasions, user status,
usage rate, buyer-readiness stage, and loyalty status
II. How should business markets be segmented?
A. Demographic: Which industries should we serve?
B. Company size: What size companies should we serve?
C. Location: What geographical areas should we serve?
D. Operating Variables
i. Technology: What customer technologies should we focus on?
ii. User or nonuser status: Should we serve heavy users, medium users,
light users, or nonusers?
iii. Customer capabilities: Should we serve customers needing many or
few services?
E. Purchasing Approaches
i. Purchasing-function organization: Should we serve companies with a
highly centralized or decentralized purchasing organization?
ii. Power structure: Should we serve companies that are engineering
F. Situational Factors:
i. Urgency: Should we serve companies that need quick and sudden
delivery or service?
G. Personal Characteristics
i. Buyer-seller similarity: Should we serve companies whose people and
values are similar to ours?
ii. Attitude toward risk: Should we serve risk-taking or risk-avoiding
customers
iii. Loyalty: Should we serve companies that show high loyalty to their
suppliers?
H. A flexible market offering consists of two parts:
i. A naked solution containing the product and service elements that all
III. Market Targeting
A. Once the firm has identified its market-segment opportunities, it must decide
how many and which ones to target.
i. Marketers are increasingly combining several variables in an effort to
identify smaller, better-defined target groups.
ii. Seven-step approach
1. Needs-based segmentation
3. Segment attractiveness
5. Segment positioning
7. Marketing mix strategy
B. Effective Segmentation Criteria
i. Measurable: The size, purchasing power, and characteristics of the
segments can be measured
ii. Substantial: The segments are large and profitable enough to serve. A
segment should be the largest possible homogeneous group worth
C. Michael Porter’s five forces that determine the intrinsic long-run
attractiveness of a market or market segment:
i. Industry competitors
ii. Potential entrants
iii. Substitutes
iv. Buyers
v. Suppliers
vi. A segment is unattractive if it already contains numerous, strong, or
aggressive competitors.
1. Unattractive if it’s stable or declining, if plant capacity must be
2. Conditions will lead to frequent price wars, advertising battles,
and new-product introductions and will make it expensive to
compete
vii. The most attractive segment is one in which entry barriers are high and
exit barriers are low.
1. Few new firms can enter the industry, and poorly performing
firms can easily exit.
2. When both entry and exit barriers are high, profit potential is
3. When both entry and exit barriers are low, firms easily enter
and leave the industry, and returns are stable but low. The
worst case occurs when entry barriers are low and exit barriers
are high
viii. A segment is unattractive when there are actual or potential substitutes
for the product.
2. If technology advances or competition increases in these
substitute industries, prices and profits are likely to fall.
ix. A segment is unattractive if buyers possess strong or growing
bargaining power.
2. To protect themselves, sellers might select buyers who have the
least power to negotiate or switch suppliers.
3. A better defense is developing superior offers that strong
buyers cannot refuse
x. A segment is unattractive if the company’s suppliers are able to raise
prices or reduce quantity supplied.
1. Suppliers tend to be powerful when they are concentrated or
2. The best defenses are to build win-win relationships with
suppliers or use multiple supply
D. Evaluating and Selecting the Market Segments
i. Two factors: the segment’s overall attractiveness and the company’s
objectives and resources.
ii. How well does a potential segment score on the five criteria?
iii. Does investing in it make sense given the firm’s objectives,
competencies, and resources?
1. Undifferentiated marketing: mass marketing; the firm ignores
segment differences and goes after the whole market with one
offer
a. Product with a superior image that can be sold to the
2. Differentiated marketing: marketers define multiple segments
and design, price, disclose, and deliver the product or service
vi. Multiple Segment Specialization
1. Selective specialization - a firm selects a subset of all the
3. A supersegment is a set of segments sharing some exploitable
similarity.
5. With market specialization, the firm concentrates on serving
vii. Single-Segment Concentration: the firm markets to only one particular
segment.
1. Through concentrated marketing, the firm gains deep
2. It also enjoys operating economies by specializing its
production, distribution, and promotion.
viii. A niche is a more narrowly defined customer group seeking a
distinctive mix of benefits within a segment.
2. The niche is fairly small but has size, profit, and growth
potential and is unlikely to attract many competitors
3. A niche marketer gains certain economies through
specialization.
ix. Individual Marketing leads to “segments of one,” “customized
marketing,” or “one-to-one marketing
2. Mass customization is the ability of a company to meet each
3. Consumers increasingly value self-expression and the ability to
4. Services are also a natural setting to apply customized
5. One-to-one marketing suggests businesses:
a. Identify your prospects and customers
i. Don’t go after everyone.
b. Differentiate customers in terms of (1) their needs and
(2) their value to your company
i. Spend proportionately more effort on the most
valuable customers (MVCs).
ii. Apply activity-based costing and calculate
6. One-to-one marketing works best for firms that normally
collect a great deal of individual customer information and
carry a lot of products that can be cross-sold, need periodic
replacement or upgrading, and offer high value
E. Legal and Ethical Issues with Market Targets
i. Some consumers resist being labeled
ii. Market targeting also can generate public controversy when marketers
take unfair advantage of vulnerable groups (such as children) or
