C H A P T E R

7
Market
Segmentation
and Targeting

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc. All rights rese

Learning Objectives

After studying this chapter, you should be able to:

 Define and explain market segmentation, target markets,
and product differentiation and positioning.
 Understand the criteria used for evaluating the likely
success of a segmentation strategy.
 Know the role of market segmentation in the development
of marketing strategies and programs.
 Describe the issues involved in product and brand
positioning.
 Understand the alternative bases for segmenting consumer
and business-to-business markets.
 Evaluate alternative approaches for pursuing segmentation
strategies.

Bearden Marketing 5th Ed 7-2 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Acxiom

Acxiom is a world leader in

consumer information and
information management. The
company offers its clients the
ability to effectively analyze
their customer base. Acxiom
makes it easy for firms to
keep their best customers by
building knowledge about
what customers like and how
best to communicate with
them.

Bearden Marketing 5th Ed 7-3 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Market Segmentation

Market segmentation divides a market into

subsets of prospective customers who
behave in the same way, have similar wants,
or have similar characteristics that relate to
purchase behavior. The overall market for a
product consists of segments of customers
who vary in their responses to different
marketing mix offerings.

Bearden Marketing 5th Ed 7-4 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Understanding Segmentation

Understanding market segmentation is important:

 Slow market growth has fostered more competition,
increasing the need to identify target markets
 Social and economic forces have produced customers
with varied and sophisticated needs, tastes, and lifestyles.
 Technological advances make it possible for marketers to
devise marketing programs that focus efficiently on
precisely defined segments of the market.
 Minority buyers do not necessarily adopt the social and
economic habits of the mainstream.
 40% of US residents identify with some segment or niche
group other than the historical “marketing mainstream.”

Bearden Marketing 5th Ed 7-5 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Intermarket Segments

International marketing may be based on the

cultivation of intermarket segments, which are
well-defined, similar clusters of customers across
national boundaries. This view of segmentation
allows firms to develop marketing programs and
offerings for each identified segment on a global
basis.

Bearden Marketing 5th Ed 7-6 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Target Markets

Market segmentation lets a firm tailor or develop

products and strategies to appeal to the preferences and
unique needs of specific groups of customers.
These groups are typically referred to as target
markets: groups of consumers or organizations with
whom a firm wants to create marketing exchanges.
Targeting involves selecting which segments in a
market are appropriate to focus on and designing the
means of reaching them.

Bearden Marketing 5th Ed 7-7 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Product Differentiation

Product differentiation exists when a firm’s

offerings differ or are perceived to differ from
those of competing firms on any attribute,
including price.
A product differentiation strategy positions a
product within the market.
Marketers attempt to position a product or
service in customers’ minds—to convince
customers the product has unique and desirable
characteristics.

Bearden Marketing 5th Ed 7-8 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Mass Customization

Among the most notable changes in this century

has been the shift from mass marketing to mass
customization.
Companies like Dell Computers have proved
that complex manufactured products can be
made to order.
Now companies throughout the world have
embraced mass customization in an attempt to
satisfy the diverse needs of their customers and
to provide unique value.

Bearden Marketing 5th Ed 7-9 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Criteria for Effective Segmentation

Measurability reflects the degree to which

Measurability the size and purchasing power of segments
can be assessed.

Accessibility describes the degree to which

Accessibility a firm can reach intended target segments
efficiently.

Substantialness refers to the degree to

Substantialness which identified target segments are large
enough or have sufficient sales and profit
potential to warrant unique or separate
marketing programs.
more
Bearden Marketing 5th Ed 7-10 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Criteria for Effective Segmentation

Durability has to do with stability of

Durability segments—whether distinctions between
segments will diminish or disappear as the
product category or the markets themselves
mature.

Differential Differential responsiveness refers to the

Responsiveness extent to which market segments exhibit
different responses to different marketing
mixes.

Bearden Marketing 5th Ed 7-11 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Developing a Segmentation Strategy

Stages required in the development of a market

segmentation strategy are summarized below. The
organization’s core business determines the product or
service market in which it operates.

Exhibit 7-2

Bearden Marketing 5th Ed 7-12 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Developing a Segmentation Strategy

Stages required in the development of a market

segmentation strategy are summarized below. The
organization’s core business determines the product or
service market in which it operates.

Exhibit 7-2

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Consumer Segmentation Bases

User-Related Behavioral

• Demographics • Benefits

• Social class • Usage

• Culture • Price or promotional

sensitivity
• Geographic
• Buying situation
• Lifestyle and
psychographic • Economic

Bearden Marketing 5th Ed 7-14 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Business to Business Segmentation Bases

User-Related Behavioral

• End use
• Customer size
• Usage
• Geographic location
• Product/service
• Organizational structure
application
• Stage of buying process
• Economic
• Attitude toward vendor

Bearden Marketing 5th Ed 7-15 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Bases for Segmentation

For consumer marketing, demographic

Demographics segments are particularly significant. Some
products are targeted for teenagers and
others for the elderly; others are designed for
young couples just beginning a family.

Geographic differences are sometimes

Geographics important in the development of marketing
strategies. For example, cellular phone
marketers use geographic analyses to
evaluate their distribution effectiveness.

more

Bearden Marketing 5th Ed 7-16 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Bases for Segmentation (con’t)

Psychographics Psychographic or lifestyle research

attempts to segment customers according to
& Lifestyle
their activities, interests, and opinions. By
tapping into a consumer’s preferences and
learning where her/his passions lie, firms
increase the reception of their messages.

Benefit segmentation enhances the design

Benefit
and marketing of a product to meet
Segmentation expressed consumer needs for quality,
service, or unique features. In fact, benefit
segmentation is most consistent with
assumption of demand variation between
segments.

more
Bearden Marketing 5th Ed 7-17 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Bases for Segmentation (con’t)

Firms are increasingly segmenting their

Economic
customers based on the profit potential
Segmentation associated with individual accounts. Such
economic segmentation occurs in both
consumer marketing situations and
business-to-business competitive markets.

International Segmentation is an important part of

Segmentation international marketing as well. Firms can
employ one—or some combination—of three
approaches: single standardized strategy,
customized strategies, or intermarket
segments.

Bearden Marketing 5th Ed 7-18 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Combining Bases of Segmentation

Below is one way a firm might combine

consumer characteristics to decide on a market
segmentation strategy.
Exhibit 7-5

Bearden Marketing 5th Ed 7-19 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Segmentation Strategies

A company adopts an undifferentiated

Undifferentiated strategy when it markets a single
product using a single communication
and distribution mix for the mass
market.

At the other end of the scale is the

Differentiated differentiated strategy, under which a
firm uses different strategies for most or
a large number of different segments.

Bearden Marketing 5th Ed 7-20 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Segmentation Strategies

A firm pursues a concentrated

Concentrated strategy when it seeks a large share of
just a few profitable segments, perhaps
only one, of the total market.

Counter- Countersegmentation is an alternative

segmentation strategy to traditional segmentation
approaches. It involves combining
market segments and assumes an
increasing consumer willingness to
accept fewer product and service
variations for lower prices.

Bearden Marketing 5th Ed 7-21 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Estimating Segment Potential

Steps firms can use to estimate potential for a

segment:
 Set time period of interest.
 Define product level.
 Specify segment characteristics or bases.
 Identify geographic market boundaries.
 Make assumptions about marketing environment
(uncontrollable factors such as competitive activity).
 Make assumptions about company’s own marketing
efforts and programs (controllable factors).
 Make estimates of market potential, industry sales, and
company sales
Bearden Marketing 5th Ed 7-22 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Developing Forecasts

Qualitative Quantitative
Procedures Methods

• Survey of Buyers’ • Trend Analysis

intentions

• Expert Opinions • Market Tests

• Composite of Sales • Statistical Demand

Forces estimates Analysis

Bearden Marketing 5th Ed 7-23 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Targeting Market Segments

To select target segments, the firm must consider:

 The segment’s potential sales volume and profits.
 Competition currently selling to the segments.
 The firm’s abilities and objectives.

Positioning a product or service involves designing a

marketing program that is consistent with how the
company wants its products or services to be perceived.
Repositioning, called for when a firm wants to shift
consumer opinions about an existing brand, requires
development of new marketing programs.

Bearden Marketing 5th Ed 7-24 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Perceptual Maps

Exhibit 7-10

Bearden Marketing 5th Ed 7-25 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Micromarketing

Micromarketing frequently combines census and

demographic data to identify clusters of households that
share similar consumption patterns.
Micromarketing enhances the effectiveness of marketing
efforts by enabling marketers to
 Identify potential markets for direct selling through mail
and telemarketing campaigns.
 Profile their customers by matching them to demographic
and lifestyle clusters.
 Learn which areas offer the greatest potential in site
selection for new stores or offices.
 Tailor their advertising themes and plan their media.
Bearden Marketing 5th Ed 7-26 © 2007 The McGraw-Hill Companies, Inc. All rights reser
Summary

After studying this chapter, you should be able to:

 Define and explain market segmentation, target markets,
and product differentiation and positioning.
 Understand the criteria used for evaluating the likely
success of a segmentation strategy.
 Know the role of market segmentation in the development of
marketing strategies and programs.
 Describe the issues involved in product and brand
positioning.
 Understand the alternative bases for segmenting consumer
and business-to-business markets.
 Evaluate alternative approaches for pursuing segmentation
strategies.

Bearden Marketing 5th Ed 7-27 © 2007 The McGraw-Hill Companies, Inc. All rights reser