Chapter 09 – Market Segmentation, Targeting, and Positioning
9-1
CHAPTER CONTENTS
PAGE
POWERPOINT RESOURCES TO USE WITH LECTURES ……………………………………. 9-2
LEARNING OBJECTIVES (LO) …………………………………………………………………………….. 9-4
KEY TERMS …………………………………………………………………………………………………………… 9-4
LECTURE NOTES
• Chapter Opener: Segmentation Rules in the Kingdom of Happiness! ……………………. 9-5
• Why Segment Markets? (LO 9-1) …………………………………………………………………….. 9-6
• Steps in Segmenting and Targeting Markets (LO 9-2; LO 9-3; LO 9-4) ………………. 9-11
• Positioning the Product (LO 9-5) …………………………………………………………………….. 9-24
APPLYING MARKETING KNOWLEDGE ……………………………………………………………. 9-27
BUILDING YOUR MARKETING PLAN ……………………………………………………………….. 9-30
VIDEO CASE (VC)
• VC-9: Prince Sports, Inc.: Tennis Racquets for Every Segment …………………………… 9-31
APPENDIX D CASE (D)
• D-9: Lawn Mowers: Segmentation Challenges ………………………………………………….. 9-37
IN-CLASS ACTIVITIES (ICA)
• ICA 9-1: Honey Nut Cheerios® Milk ‘N Cereal Bar: Identifying Product Groups ….. 9-40
• ICA 9-2: 3M Post-it® Flag + Highlighter: Product Positioning for Consumers and
Retailers ………………………………………………………………………………………….. 9-43
CONNECT APPLICATION EXERCISES ……………………………………………… 9-48
• Market-Product Grid Case Analysis
• Positioning Strategy Click and Drag*
• The Market Segmentation Process Click and Drag*
• Prince Sports Video Case Video Case
• iSeeit! Video Case: Segmentation Process Video Case
• Applying Segmentation to Consumer Markets Click and Drag*
*Note: An alternate version of each Click and Drag exercise is available in Connect for students with
accessibility needs.
Chapter 09 – Market Segmentation, Targeting, and Positioning
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POWERPOINT RESOURCES TO USE WITH LECTURES
PowerPoint
Textbook Figures Slide
Figure 9-1 Market segmentation links market needs to an organization’s marketing program
through marketing mix actions ………………………………………………………………………….. 9-6
Figure 9-2 A market-product grid shows the kind of sleeper that is targeted for each of the
bed pillows with a different firmness …………………………………………………………………. 9-7
Figure 9-3 The five key steps in segmenting and targeting markets link market needs of
customers to a firm’s marketing program ………………………………………………………….. 9-10
Figure 9-4 Segmentation bases, variables, and breakdowns for U.S. consumer markets ……………. 9-13
Figure 9-5 Patronage of fast-food restaurants by adults 18 years and older …………………………….. 9-15
Figure 9-6 Comparison of various kinds of users and nonusers for Wendy’s, Burger King, and
McDonald’s fast-food restaurants …………………………………………………………………….. 9-16
Figure 9-7 Segmentation bases, variables, and breakdowns for U.S. organizational markets ……… 9-19
Figure 9-8 Wendy’s new products and innovations target specific market segments based on a
customer’s gender, needs, or university affiliation ………………………………………………. 9-21
Figure 9-9 A market-product grid to select a target market for your Wendy’s fast-food
restaurant next to an urban university ……………………………………………………………….. 9-23
Figure 9-10 Advertising actions to reach specific student segments ………………………………………… 9-28
Figure 9-11 The strategy American dairies used to reposition chocolate milk to reach adults ………. 9-35
Marketing Matters, Making Responsible Decisions, and/or Marketing Insights About Me
Marketing Insights About Me: To Which “Flock” Do You Belong? ………………………………………… 9-14
Marketing Matters—Apple’s Segmentation Strategy ……………………………………………………………… 9-31
POWERPOINT RESOURCES TO USE WITH LECTURES
PowerPoint
Slide
Videos
9-1: Zappos TV Video ……………………………………………………………………………………………………….. 9-4
9-2: Dave’s Hot ‘n Juicy Ad ………………………………………………………………………………………………. 9-20
9-3: Apple’s 1984 Super Bowl Ad ……………………………………………………………………………………….. 9-30
9-4: Prince Sports Video Case ……………………………………………………………………………………………. 9-36
In-Class Activities (ICA)
ICA 9-1: Honey Nut Cheerios® Milk ‘N Cereal Bar: Identifying Product Groups ……………………… 9-43
ICA 9-2: 3M Post-it® Flag + Highlighter: Product Positioning for Consumers and Retailers ………. 9-45
Chapter 09 – Market Segmentation, Targeting, and Positioning
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LEARNING OBJECTIVES (LO)
After reading this chapter students should be able to:
LO 9-1: Explain what market segmentation is and when to use it.
LO 9-2: Identify the five steps involved in segmenting and targeting markets.
LO 9-3: Recognize the bases used to segment consumer and organizational (business) markets.
LO 9-4: Develop a market-product grid to identify a target market and recommend resulting
marketing actions.
LO 9-5: 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. Zappo’s Secret to Success
• Zappos has a clear, specific market segmentation strategy: Focus on people who
will shop for and buy shoes online and like to use mobile technology.
• This focus has generated over $1 billion in sales annually.
• Segmentation strategy also uses behavioral segmentation to match relevant
products from other categories based on past shoe purchases.
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 four weeks of customer-loyalty training.
a. Hsieh offers $4,000 to anyone who wants to leave after the training.
b. The theory: If you take the money and run, you’re not right for Zappos.
• 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.
#3. Create fun and a little weirdness. In a Zappos day, cowbells ring,
parades appear, and modified-blaster gunfights arise.
#6. Build open and honest relationships with communications.
Employees are told to say what they think.
• The Zappos strategy illustrates successful market segmentation and targeting.
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I. WHY SEGMENT MARKETS? [LO 9-1]
• A business firm segments its markets to respond more effectively to the wants of
groups of potential buyers to increase sales and profits.
• Not-for-profit organizations also segment the clients they serve so they can satisfy
client needs more effectively while achieving the organization’s goals.
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.
b. Consist of people who are relatively similar to each other in terms of their:
• 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 9-1] 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:
• Forms meaningful groupings. People or organizations should be grouped
into a market segment according to:
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• Develops specific marketing mix (4 Ps) actions. This may involve:
[Video 9-1: Zappos TV 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.
– With millions of customers and 5,000 calls daily, Zappos.com believes
• Add lines of clothing, handbags, and sunglasses to reach new segments.
3. Using Market Product Grids
a. Three key market segments of sleepers:
• Side sleepers. • Back sleepers. • Stomach 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 9-2] Shows a market-product grid in which:
• The different market segments are in horizontal rows.
• The different product offerings appear in vertical columns.
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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:
– Each of the three market segments when scheduling production.
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 firm goes to the trouble and expense of segmenting its markets when it expects
that this will increase its sales, profit, and return on investment.
• When expenses are greater than the potentially increased sales from segmentation,
a firm should not segment its market.
1. One Product and Multiple Market Segments.
a. When a firm produces only a single product or service, it:
• Attempts to sell it to two or more market segments.
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:
• Sporting News Baseball Yearbook issue uses different covers in different
regions of the U.S. that feature 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:
• Serves customers’ needs better. • Doesn’t increase price.
• Doesn’t reduce quality. • Adds to sales and profits.
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:
• Has unique wants and needs.
• Desires tender loving care.
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
on a high-volume scale.
• Made possible via Internet ordering as well as flexible manufacturing and
marketing processes.
• Is the next step beyond build-to-order.
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:
• Satisfying a customer’s individual wants.
• Achieving organizational synergy.
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”:
• Offer different variations of the same basic product or service to…
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
casual lifestyle at work and home.
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j. Example: Walmart Neighborhood Market stores that are:
• One-fifth the size of its supercenters.
LEARNING REVIEW
9-1. Market segmentation involves aggregating prospective buyers into groups that
have two key characteristics. What are they?
9-2. In terms of market segments and products, what are the three market
segmentation strategies?
II. STEPS IN SEGMENTING AND TARGETING MARKETS [LO 9-2]
• [Figure 9-3] The process of segmenting a market and then selecting and reaching the
target segments is divided into five steps.
• Segmenting a market requires detailed analysis, large doses of common sense, and
managerial judgment.
A. Step 1: Group Potential Buyers into Segments
Grouping potential buyers into meaningful segments involves meeting some specific
criteria that answer these two questions:
• “Would segmentation be worth doing?”
• “Is segmentation possible?”
• If so, a marketer must find specific variables that can be used to create these
various segments.
9-11
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.
• For nonprofit organizations, the criterion is the potential for serving clients
more effectively.
c. Similarity of needs of potential buyers within a segment.
• Potential buyers within a segment should be similar in terms of common
d. Difference of needs of buyers among segments.
• If the needs of the various segments aren’t very different, combine them
into fewer segments.
e. Potential of a marketing action to reach a segment.
• Reaching a segment requires a simple but effective marketing action.
• If no such action exists, don’t segment.
2. Ways to Segment Consumer Markets. [LO 9-3]
[Figure 9-4] There are four general segmentation bases, each with several
variables and breakdowns that can be used to segment U.S. consumer markets.
a. Geographic segmentation.
• Based on where prospective customers live or work (region, city size).
b. Demographic segmentation.
• Objective physical characteristic (gender, race).
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c. Psychographic segmentation. Based on:
• Subjective mental or emotional attributes (personality).
• Aspirations (lifestyle).
• Needs of prospective customers.
interests, and buy similar offerings. This is of great value to marketers.
MARKETING INSIGHTS ABOUT ME
To Which “Flock” Do You Belong?
Nielsen Claritas’ PRIZM classifies U.S. households into one of 66 demographically
d. Behavioral segmentation.
• Based on some observable actions or attitudes by prospective customers:
– Where they buy. – How frequently they buy.
– What benefits they seek. – Why they buy.
• 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.
– Can vary significantly among different customer groups.
e. A recent study analyzed which segmentation bases were used by the 20
percent most profitable of the 220 organizations surveyed:
Chapter 09 – Market Segmentation, Targeting, and Positioning
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• Geographic bases: 88 percent. • Demographic bases: 53 percent.
f. To obtain usage rate data, Experian Simmons:
• Surveys over 25,000 adults 18 years of age and older each year.
• Obtains quarterly, projectable usage rate data from the U.S. national
population for…
– More than 500 consumer product categories.
• Discover how the offerings they buy and the media they use…
• Relate to their behavioral, psychographic, and demographic
characteristics.
3. Patronage of Fast-Food Restaurants.
a. [Figure 9-5] The Simmons survey data shows the results of a question about
adult respondents’ frequency of use (or patronage) of fast-food restaurants.
• As shown by the arrow in the far right column of Figure 9-5, the
importance of the segment increases as one moves up the table.
• Among nonusers, prospects are more important than nonprospects.
• Moving up the rows to users in Figure 9-5:
– Light users of these restaurants (0 to 5 times per month) are important
but less so than medium users (6 to 13 times per month).
b. 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
obtained from 20 percent of its customers.
c. The Simmons survey data in Figure 9-5 show that:
• 36.1% of the U.S. population who are heavy users of fast-food restaurants
provides 63.6% of the consumption volume (the orange shading).
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– Giving the light users (0 to 5 restaurant visits per month) an index
of 100, the heavy users have an index of 640.
d. [Figure 9-6] 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 9-6 shows that:
– 14.6 % of adult Americans don’t go to fast-food restaurants in a
• But the 57.0 % who are ‘Prospects’ may be worth targeting.
– These adults use the product category (fast-food restaurants) but
do not go to Wendy’s.
– New menu items or new promotional strategies might succeed
in converting these prospects into secondary or primary users.
4. Variables to Use in Forming Segments for Wendy’s.
• Since the restaurant is located near a university, the segmentation base should
be behavioral: prospective customers are either students or nonstudents.
• The bases of segmentation for the “students” segment combines two variables:
(1) where students live and (2) when they are on campus. This results in:
a. Four student segments:
• Students living in dormitories (residence halls; fraternities/sororities).
b. Three nonstudent segments:
• Faculty and staff members who work at the university.
• People who live in the area but aren’t connected with the university.
• People who work in the area but aren’t connected with the university.
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c. People in each of these nonstudent segments:
5. Ways to Segment Organizational (Business) Markets.
[Figure 9-7] 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,
metropolitan and micropolitan statistical area, etc.
b. Demographic. Variables consist of NAICS, number of employees, annual
sales, etc.
LEARNING REVIEW
9-3. The process of segmenting and targeting markets is a bridge between which two
marketing activities?
9-4. What is the difference between the demographic and behavioral bases of market
segmentation?
[Video 9-2: 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.
• But for marketing purposes, Wendy’s sells groups of these products that become a
“meal.” This distinction is critical.
• Finding a means of grouping the products a firm sells into meaningful categories
is as important as grouping customers into segments.
1. Individual Wendy’s Products.
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a. When Dave Thomas founded Wendy’s in 1969, he offered only 4 basic items:
b. [Figure 9-8] Since then, Wendy’s has introduced many new products and
innovations to compete for customers’ fast-food dollars.
c. Figure 9-8 also shows that each product or innovation is not targeted equally
to all market segments based on gender, needs, or university affiliation.
• The cells labeled “P” represent Wendy’s primary target market segments
when it introduced each product or innovation.
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.
c. This is the reason supermarkets and department stores are organized into
product groups, with departments or aisles containing related merchandise.
d. How one groups products is where judgment—the qualitative aspect of
marketing—comes in.
e. For Wendy’s, students buy an eating experience—a meal that satisfies a need
at a particular time of day or occasion.
[ICA 9-1: 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 9-4]
• Recall that a market-product grid is a framework to relate the market segments of
potential buyers to products offered or potential marketing actions by a firm.
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• In a complete market-product grid analysis, each cell in the grid can show the
estimated market size of a given product sold to a specific market segment.
1. Forming a Market-Product Grid for Wendy’s.
a. [Figure 9-9] Developing a market-product grid means identifying and
labeling:
• The markets (or horizontal rows).
• The product groupings (or vertical columns).
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
expected to be sold to each student and nonstudent market segment.
c. The market size estimates may be simple “guesstimates” if you don’t have
time for formal marketing research.
d. These market size estimates are helpful in determining which target market
segments to select and which product groupings to offer.
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.
• If it selects too broad a set of segments, it may spread its marketing efforts so thin
that the extra expenses are more than the increased sales and profits.
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.
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– 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
with meal plans…
• 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
to exceed those eaten inside.
• 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?
* The less the competition, the more attractive the segment is.
• Cost of reaching the segment.
– If inaccessible to a firm’s marketing actions, the segment should not be
pursued.
– Wendy’s:
* A segment that is inaccessible to a firm’s marketing actions should
not be pursued.
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• Compatibility with the organization’s objectives and resources.
– The firm must economically reach the segment with its offering.
– If your Wendy’s restaurant:
* Doesn’t yet have the cooking equipment to make breakfasts and…
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.
• It’s incompatible with your objectives and resources.
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.
• This means that someone must develop and execute an action plan in the form of
a marketing program.
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 9-10] Where and what meals to advertise to reach specific segments.
• Day commuters.
– Run ads to promote all meals to an entire market segment.
– Is a horizontal cut through the market-product grid (orange shading).
Chapter 09 – Market Segmentation, Targeting, and Positioning
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• Between meal snacks.
– Direct ads to all four student segments.
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…
• 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…