The purpose of the five key steps in segmenting and targeting markets is to

Market Segmentation, Targeting, and Positioning

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LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 8, YOU SHOULD BE ABLE TO: (1 of 2)

1. Explain what market segmentation is and when to use it.

2. Identify the five steps involved in segmenting and targeting markets.

3. Recognize the bases used to segment consumer and organizational (business) markets.

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LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 8, YOU SHOULD BE ABLE TO: (2 of 2)

4. Develop a market-product grid to identify a target market and recommend resulting marketing actions.

5. Explain how marketing managers position products in the marketplace.

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ZAPPOS.COM IS POWERED BY SERVICE— AND SEGMENTATION!

Segmentation is a Key to Success

Delivering WOW Customer Service

Create Fun and a Little Weirdness

Build Open and Honest Relationships

Zappos TV

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WHY SEGMENT MARKETS? WHAT MARKET SEGMENTATION MEANS

Market Segmentation

Market Segments

Product Differentiation

Segmentation: Linking Needs to Actions

The Zappos Segmentation Strategy

Zappos

Website

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FIGURE 8-1 Market segmentation links market needs to an organization’s marketing program through marketing mix actions.

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FIGURE 8-2 A market-product grid shows the kind of sleeper that is targeted for each of the bed pillows with a different firmness.

Using Market-Product Grids

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WHY SEGMENT MARKETS? WHEN AND HOW TO SEGMENT MARKETS (1 of 2)

One-Size-Fits-All Mass Markets No Longer Exist

Three Segmentation Strategies:

One Product and Multiple Market Segments (Ex: Books)

Multiple Products and Multiple Market Segments (Ex: Cars)

Segments of One–“Mass Customization” (Ex: Tailor Products to Individuals)

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Sporting News Baseball Yearbook What market segmentation strategy is used?

Sporting News Baseball

Yearbook Website

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WHY SEGMENT MARKETS? WHEN AND HOW TO SEGMENT MARKETS (2 of 2)

The Segmentation Tradeoff: Synergies vs. Cannibalization

Organizational Synergy

Cannibalization

“Tiffany/Walmart” Strategies (2-Tier)

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SEGMENTING AND TARGETING MARKETS STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS (1 of 5)

Criteria to Use in Forming the Segments

Similarity of Needs of Potential Buyers within a Segment

Potential for Increased Profit

Difference of Needs of Buyers among Segments

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FIGURE 8-3 The five key steps in segmenting and targeting markets that link market needs to a firm's marketing program.

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SEGMENTING AND TARGETING MARKETS STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS (2 of 5)

Criteria to Use in Forming the Segments

Simplicity and Cost-Effectiveness

Potential for Increased Profit

Similarity of Buyers’ Needs

Difference of Needs of Buyers

Potential of Reaching Segment

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SEGMENTING AND TARGETING MARKETS STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS (3 of 5)

Ways to Segment Consumer Markets:

Geographic Segmentation: Region (88%)

Behavioral Segmentation: Product Features (65%)

Demographic Segmentation: Household Size (53%)

Psychographic Segmentation: Lifestyle (43%)

Usage Rate: The 80/20 Rule

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FIGURE 8-4 Comparison of various kinds of users and nonusers for Wendy’s, Burger King, and McDonald’s fast-food restaurants.

Source: Experian Marketing Services Simmons Winter 2013 Full Year Adult Survey 12-Month OneViewSM Crosstabulation Report: Based on Visits within the Past 30 Days

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SEGMENTING AND TARGETING MARKETS STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS (4 of 5)

Variables to Use in Forming Segments for Wendy’s

Students:

Dorms, Sororities, and Fraternities

Apartments

Day Commuters

Night Commuters

Nonstudents:

Faculty and Staff

Residents in Area

Workers in Area

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SEGMENTING AND TARGETING MARKETS STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS (5 of 5)

Ways to Segment Organizational Markets

Geographic Segmentation: Statistical Area

Demographic Segmentation:

By NAICS Code

By Number of Employees

Behavioral Segmentation: Usage Rate

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SEGMENTING AND TARGETING MARKETS STEP 2: GROUP PRODUCTS INTO CATEGORIES

Individual Wendy’s Products

Groupings of Wendy’s Products: Meals

Breakfast

Lunch

Between Meal Snack

Dinner

After Dinner Snack

Wendy’s Ad

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FIGURE 8-5 Wendy’s new products and innovations target specific market segments based on a customer’s gender, needs, or university affiliation.

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SEGMENTING AND TARGETING MARKETS STEP 3: DEVELOP A MARKET-PRODUCT GRID AND ESTIMATE THE SIZE OF MARKETS

Forming a Market-Product Grid

Estimating Market Sizes

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FIGURE 8-6 Selecting a target market for your Wendy’s fast-food restaurant next to an urban university (target market is shaded).

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SEGMENTING AND TARGETING MARKETS STEP 4: SELECT TARGET MARKETS (1 of 3)

Criteria to Use in Selecting Target Markets

Two Types of Criteria:

Those That Divide a Market into Segments

Those That Actually Pick the Target Segments

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SEGMENTING AND TARGETING MARKETS STEP 4: SELECT TARGET MARKETS (2 of 3)

Criteria to Use in Selecting Target Markets

Market Size

Expected Growth

Competitive Position

Cost of Reaching the Segment

Organizational Compatibility

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SEGMENTING AND TARGETING MARKETS STEP 4: SELECT TARGET MARKETS (3 of 3)

Choose the Products and Segments

No Breakfast

Four Student Segments Only

Not the Three Nonstudent Segments

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SEGMENTING AND TARGETING MARKETS STEP 5: TAKE MARKETING ACTIONS (1 of 2)

Wendy’s Immediate Segmentation Strategy

Day Commuters

Between-Meal Snacks

Dinners to Night Commuters

Keeping an Eye on Competition

Future Strategies for Wendy’s?

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MARKETING MATTERS Apple’s Segmentation Strategy

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SEGMENTING AND TARGETING MARKETS STEP 5: TAKE MARKETING ACTIONS (2 of 2)

Apple's Ever-Changing Segmentation Strategy

Market-Product Synergies: A Balancing Act

Marketing Synergies

Product Synergies

Apple’s 1984 Super Bowl Ad

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POSITIONING THE PRODUCT (1 of 3)

Product Positioning

Product Repositioning

Two Approaches to Product Positioning

Head-to-Head Positioning

Differentiation Positioning

Crafting a Formal Positioning Statement

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POSITIONING THE PRODUCT (2 of 3)

Product Positioning Using Perceptual Maps

Identify Important Attributes for a Product or Brand Class

Customers’ Ratings of Competing Products or Brands on These Attributes

Customers’ Ratings of the Company’s Products or Brands on These Attributes

Reposition the Company’s Products or Brands in the Minds of Consumers

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POSITIONING THE PRODUCT (3 of 3)

Perceptual Map

A Perceptual Map to Reposition Chocolate Milk for Adults

Identify Important Attributes for Adult Drinks

Discover How Adults See Competing Drinks

Discover How Customers See Chocolate Milk

Reposition Chocolate Milk to Make It More Appealing to Adults

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FIGURE 8-7 The strategy American dairies are using to reposition chocolate milk to reach adults.

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VIDEO CASE 8 PRINCE SPORTS, INC.: TENNIS RACQUETS FOR EVERY SEGMENT

Prince Video Case

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FIGURE 1 Prince targets racquets at specific market segments

Main Segments Subsegment Characteristics Brand Name Length (Inches) Unstrung Weight (Ounces) Head Size (Sq. In.)
Performance Precision Touring professional players EXO3 Ignite 95 27.0 11.8 95
Thunder Competitive players EXO3 Red 95 27.25 9.9 105
Recreational Small head size Forgiving racquet with added control AirO Lightning MP 27.0 9.9 100
Larger head size Larger sweet spot and added power AirO Maria Lite OS 27.0 9.7 110
Junior More experiences young players Ages 8-15 Shorter and lighter racquet AirO Team Maria 23 23.0 8.1 100
Beginner Ages 5-11 Much shorter and lighter racquet Air Team Maria 19 19.0 7.1 82
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VIDEO CASE 9 Prince Sports (1 of 5)

In the 21st century, what trends in the environmental forces (social, economic, technological, competitive, and regulatory) (a) work for and (b) work against success for Prince Sports in the tennis industry?

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VIDEO CASE 9 Prince Sports (2 of 5)

Because sales of Prince Sports in tennis-related products depends heavily on growth of the tennis industry, what marketing activities might it use in the United States to promote tennis playing?

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VIDEO CASE 9 Prince Sports (3 of 5)

What promotional activities might Prince use to reach (a) recreational players and (b) junior players?

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VIDEO CASE 9 Prince Sports (4 of 5)

What might Prince do to gain distribution and sales in (a) mass merchandisers like Target and Walmart and (b) specialty tennis shops?

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VIDEO CASE 9 Prince Sports (5 of 5)

In reaching global markets outside the U.S., (a) what are some criteria that Prince should use to select countries in which to market aggressively, (b) what three or four countries meet these criteria best, and (c) what are some marketing actions Prince might use to reach these markets?

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IN-CLASS ACTIVITY 8-1

HONEY NUT CHEERIOS® MILK ‘N CEREAL BAR: IDENTIFYING PRODUCT GROUPS

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ICA 8-1 Honey Nut Cheerios® Milk ‘N Cereal Bar

Discover process of categorization and how different people categorize the same objects in different ways.

Explore some of the reasons for these differences.

Understand the importance of categorization in identifying both market segments and competitors.

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IN-CLASS ACTIVITY 8-2

3M POST-IT® FLAG + HIGHLIGHTER: PRODUCT POSITIONING FOR CONSUMERS AND RETAILERS

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ICA 8-2 3M Post-it® Flag Highlighter Invention

Study 3M Flag Highlighters

Suggest Consumer Benefits and Retailer Benefits

Compose a Product Positioning Statement that Links it to 3M’s Branding Strategy for the Product

3M Post-it Flag

Highlighter Ad

3M Post-it Flag

Highlighter Website

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Product and Branding Handout

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Product and Branding Answers Handout

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Market Segmentation

Market segmentation involves aggregating prospective buyers into groups, or segments, that (1) have common needs and (2) will respond similarly to a marketing action.

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Product Differentiation

Product differentiation is a marketing strategy that involves a firm using different marketing mix actions to help consumers perceive the product as being different and better than competing products.

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Market-Product Grid

A market-product grid is a framework to relate the market segments of potential buyers to products offered or potential marketing actions.

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Product Positioning

Product positioning is the place a product occupies in consumers’ minds based on important attributes relative to competitive products.

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Product Repositioning

Product repositioning involves changing the place a product occupies in a consumer’s mind relative to competitive products.

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Perceptual Map

A perceptual map is a means of displaying in two dimensions the location of products or brands in the minds of consumers to enable a manager to see how they perceive competing products or brands, as well as the firm’s own product or brand.

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Usage Rate

Usage rate is the quantity consumed or patronage (store visits) during a specific period. Also called frequency marketing.

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80/20 Rule

The 80/20 rule is a concept that suggests 80 percent of a firm’s sales are obtained from 20 percent of its customers.

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Appendix 1 FIGURE 8-1 Market segmentation links market needs to an organization’s marketing program through marketing mix actions

The first step in market segmentation is to identify market needs, including benefits in terms of product features, expense, quality, and savings in time and convenience. The second step is linking needs to actions, including take steps to segment and target markets. The third step is execute marketing program actions, including a marketing mix of product, price, promotion, and place (distribution).

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Appendix 2 FIGURE 8-2 A market-product grid shows the kind of sleeper that is targeted for each of the bed pillows with a different firmness

Firm pillows are targeted to side sleepers (73 percent), while medium pillows are targeted to back sleepers (22 percent), and soft pillows are targeted to stomach sleepers (5 percent).

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Appendix 3 Sporting News Baseball Yearbook What market segmentation strategy is used?

Four issues of Sporting News Baseball Yearbook with different covers. All covers have the headline “Holy Cow! Cubs Win”The first is a close up of an Atlanta Braves player about to catch a ball. The second is a New York Yankees pitcher about to pitch a ball. The third is a Seattle Mariners pitcher in mid-pitch. The fourth is a Toronto Blue Jays batter who has just finished swinging the bat.

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Appendix 4 FIGURE 8-3 The five key steps in segmenting and targeting markets that link market needs to a firm’s marketing program

First, market needs must be identified. Then needs must be linked to actions. This is done by the following five steps:

1. Group potential buyers into segments.

2. Group products to be sold into categories.

3. Develop a market-product grid and estimate size of markets.

4. Select target markets.

5. Take marketing actions to reach target markets.

Finally, execute marketing program actions.

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Appendix 5 FIGURE 8-4 Comparison of various kinds of users and nonusers for Wendy’s, Burger King, and McDonald’s fast-food restaurants

Wendy's, Burger King, and McDonalds have their patrons broken into user percentages (sole restaurant, primary restaurant, secondary restaurant) and nonusers percentages (prospects, nonprospects).

Wendy's. Sole restaurant 0.7 percent. Primary restaurant 12.5 percent. Secondary restaurant 15.2 percent. Prospects 57.0 percent. Nonprospects 14.6 percent.

Burger King. Sole restaurant 0.7 percent. Primary restaurant 14.7 percent. Secondary restaurant 19.0 percent. Prospects 51.0 percent. Nonprospects 14.6 percent.

McDonald's. Sole restaurant 3.5 percent. Primary restaurant 40.5 percent. Secondary restaurant 15.4 percent. Prospects 26.0 percent. Nonprospects 14.6 percent.

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Appendix 6 FIGURE 8-5 Wendy’s new products and innovations target specific market segments based on a customer’s gender, needs, or university affiliation

Nine Wendy's products or innovations are listed: hot n' juicy hamburger (1969), drive-thru (1970), 99 cent super value meals (1989), salad sensations (2002), e-pay (2003), breakfast sandwiches (2007), natural-cut fries with sea salt (2010), Dave's hot 'n juicy hamburgers (2011), and my Wendy's mobile app (2014). Three general market segments, and their smaller groups, are also listed: gender (male, female), needs (price/value, health-conscious, convenience, meat lovers), and university affiliation (affiliated, nonaffiliated).

The table lists the market segments as either the primary market or the secondary market for the Wendy's products and innovations.

Male: Primary - Hot n' Juicy Hamburger. Primary - drive thru. Primary - 99 cent super value meals. Secondary - salads. Primary - e-pay. Primary - breakfast sandwiches. Primary - natural-cut fries with sea salt. Primary - Dave's hot n' juicy hamburgers. Primary - Wendy's mobile app.

Female: Primary - salads. Primary - e-pay. Primary - Wendy's mobile app.

Price/Value: Primary - 99 cent super value meals. Secondary - salads.

Health-conscious: Primary - salads.

Convenience: Secondary - Hot n' Juicy Hamburger. Primary - drive thru. Secondary - salads. Primary - e-pay. Primary - breakfast sandwiches. Secondary - Dave's hot n' juicy hamburgers. Primary - Wendy's mobile app.

Meat lovers: Primary - Hot n' Juicy Hamburger. Primary - 99 cent super value meals. Secondary - breakfast sandwiches. Secondary - natural-cut fries with sea salt. Primary - Dave's hot n' juicy hamburgers.

Affiliated (students, faculty, staff): Primary - Hot n' Juicy Hamburger. Secondary - drive thru. Primary - 99 cent super value meals. Primary - salads. Primary - e-pay. Secondary - breakfast sandwiches. Primary - Dave's hot n' juicy hamburgers. Primary - Wendy's mobile app.

Nonaffiliated (residents, workers): Secondary - Hot n' Juicy Hamburger. Primary - drive thru. Secondary - 99 cent super value meals. Secondary - salads. Secondary - e-pay. Primary - breakfast sandwiches. Secondary - Dave's hot n' juicy hamburgers. Secondary - Wendy's mobile app.

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Appendix 7 FIGURE 8-6 Selecting a target market for your Wendy’s fast-food restaurant next to an urban university (target market is shaded)

The grid breaks down the general market segments of student (dormitory, apartment, day commuter, night commuter) and nonstudent (faculty or staff, live in area, work in area). These are compared to five products or innovations (breakfast, lunch, between-meal snack, dinner, after-dinner snack) to determine whether there is a large market, a medium market, a small market, or no market.

Dormitory: breakfast (none), lunch (small), between-meal snack (large), dinner (none), after-dinner snack (large).

Apartment: breakfast (small), lunch (large), between-meal snack (large), dinner (small), after-dinner snack (small).

Day Commuter: breakfast (none), lunch (large), between-meal snack (medium), dinner (small), after-dinner snack (none).

Night Commuter: breakfast (none), lunch (none), between-meal snack (small), dinner (large), after-dinner snack (medium).

Faculty or staff: breakfast (none), lunch (large), between-meal snack (small), dinner (small), after-dinner snack (none).

Live in area: breakfast (none), lunch (small), between-meal snack (medium), dinner (medium), after-dinner snack (small).

Work in area: breakfast (small), lunch (large), between-meal snack (none), dinner (small), after-dinner snack (none).

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Appendix 8 MARKETING MATTERS Apple’s Segmentation Strategy

The grid breaks down market sectors into the segments of consumer (individuals, small/home office, students, and teachers) and professional (medium/large business, creative, college faculty, and college staff). These are compared to five computer products (the mac pro, macbook pro, iMac, macbook air, and mac mini) to determine whether there is a market.

Individuals: iMac, macbook air, mac mini.

Small/home office: macbook pro, iMac, macbook air.

Students: iMac, macbook air, mac mini.

Teachers: macbook pro, iMac.

Medium/large business: mac pro, macbook pro, iMac, macbook air, mac mini.

Creative: mac pro, macbook pro, iMac.

College faculty: macbook pro, iMac, macbook air.

College staff: iMac, macbook air.

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Appendix 9 FIGURE 8-8 The strategy American dairies are using to reposition chocolate milk to reach adults

Two lines intersect to form four quadrants. The vertical line is labeled high nutrition at the top and low nutrition at the bottom. The horizontal line is labeled children's drinks to the left and adult drinks to the right. Various drink types are plotted across the quadrants.

Adult drinks/high nutrition: orange juice, nutritionally designed diet drinks, sports drinks, tea.

Adult drinks/low nutrition: mineral water, skinny latte, coffee, sugared soft drinks.

Children's drinks/low nutrition: fruit-flavored drinks, sugared soft drinks.

Children's drinks/high nutrition: regular milk, orange juice, milk shakes, chocolate milk.

A line labeled "the repositioning strategy" is drawn from chocolate milk in the children's drinks/high nutrition quadrant to a spot in the adult drinks/high nutrition quadrant labeled "adult" chocolate milk.

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