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Chapter 6 Version 3e 1©2003 South-Western
chapter
Segmenting and Targeting Segmenting and Targeting MarketsMarkets
66
Prepared byPrepared byDeborah BakerDeborah Baker
Texas Christian UniversityTexas Christian University
Chapter 6 Version 3e 2©2003 South-Western
chapter
Learning ObjectivesLearning Objectives
66
1.1. Describe the characteristics of markets Describe the characteristics of markets and market segments.and market segments.
2. Explain the importance of market 2. Explain the importance of market segmentation.segmentation.
3. Discuss criteria for successful market 3. Discuss criteria for successful market segmentation.segmentation.
Chapter 6 Version 3e 3©2003 South-Western
chapter
Learning Objectives (continued)Learning Objectives (continued)
66
4. Describe the bases commonly used to 4. Describe the bases commonly used to segment consumer markets.segment consumer markets.
5. Describe the bases for segmenting 5. Describe the bases for segmenting business markets.business markets.
6. List the steps involved in segmenting 6. List the steps involved in segmenting markets.markets.
Chapter 6 Version 3e 4©2003 South-Western
chapter
Learning Objectives (continued)Learning Objectives (continued)
66
7. Discuss alternative strategies for 7. Discuss alternative strategies for selecting target markets.selecting target markets.
8.8. Explain how and why firms implement Explain how and why firms implement positioning strategies and how product positioning strategies and how product differentiation plays a role.differentiation plays a role.
9.9. Discuss global market segmentation Discuss global market segmentation and targeting issues.and targeting issues.
Chapter 6 Version 3e 5©2003 South-Western
Learning Objective Learning Objective 11
Describe the characteristics of Describe the characteristics of markets and market segments.markets and market segments.
Chapter 6 Version 3e 6©2003 South-Western
Market SegmentationMarket Segmentation
MarketMarket
MarketSegmentMarket
Segment
MarketSegmentation
MarketSegmentation
People or organizations with needs or wants and the ability and
willingness to buy
People or organizations with needs or wants and the ability and
willingness to buy
A subgroup of people or organizations sharing one or more characteristics that cause them to
have similar product needs.
A subgroup of people or organizations sharing one or more characteristics that cause them to
have similar product needs.
The process of dividing a market into meaningful, relatively similar, identifiable segments or groups.
The process of dividing a market into meaningful, relatively similar, identifiable segments or groups.
11
Chapter 6 Version 3e 7©2003 South-Western
A Market is...A Market is...
(1) people or organizations with
(2) needs or wants, and with
(3) the ability and
(4) the willingness to buy.
A group of people that lacks any one of these characteristics is not a market.
11
Chapter 6 Version 3e 8©2003 South-Western
Learning Objective Learning Objective 22
Explain the importance Explain the importance of market segmentation.of market segmentation.
Chapter 6 Version 3e 9©2003 South-Western
The Importance of The Importance of Market SegmentationMarket Segmentation
Markets have a variety of product needs and preferences
Marketers can better define customer needs
Decision makers can define objectives and allocate resources more accurately
22
Chapter 6 Version 3e 10©2003 South-Western
Learning Objective Learning Objective
Discuss criteria for successful Discuss criteria for successful market segmentation.market segmentation.
33
Chapter 6 Version 3e 11©2003 South-Western
Criteria for Successful Criteria for Successful SegmentationSegmentation
Criteria Criteria for for
Market Market SegmentsSegments
Criteria Criteria for for
Market Market SegmentsSegments
SubstantialitySubstantiality
IdentifiabilityIdentifiability
AccessibilityAccessibility
ResponsivenessResponsiveness
33
Chapter 6 Version 3e 12©2003 South-Western
Criteria for SegmentationCriteria for Segmentation
SubstantialitySubstantialitySubstantialitySubstantiality
IdentifiabilityIdentifiabilityMeasurabilityMeasurabilityIdentifiabilityIdentifiabilityMeasurabilityMeasurability
AccessibilityAccessibilityAccessibilityAccessibility
ResponsivenessResponsivenessResponsivenessResponsiveness
Segment must be large enough to warrant a special
marketing mix.
Segment must be large enough to warrant a special
marketing mix.
Segments must be identifiable and their size measurable.
Segments must be identifiable and their size measurable.
Members of targeted segments must be reachable with
marketing mix.
Members of targeted segments must be reachable with
marketing mix.Unless segment responds to a marketing mix differently, no separate treatment is needed.
Unless segment responds to a marketing mix differently, no separate treatment is needed.
33
Chapter 6 Version 3e 13©2003 South-Western
Learning Objective Learning Objective
Describe the bases commonly Describe the bases commonly used to segment consumer markets.used to segment consumer markets.
44
Chapter 6 Version 3e 14©2003 South-Western
Segmentation BasesSegmentation Bases
Characteristics of
individuals, groups,
or organizations used
to divide a total market
into segments.
(variables)
44
Chapter 6 Version 3e 15©2003 South-Western
Bases for SegmentationBases for Segmentation
Usage RateUsage Rate
Benefits SoughtBenefits Sought
PsychographicsPsychographics
DemographicsDemographics
GeographyGeography
Bases Bases Used toUsed toSegmentSegment
ConsumerConsumerMarketsMarkets
Bases Bases Used toUsed toSegmentSegment
ConsumerConsumerMarketsMarkets
44
Chapter 6 Version 3e 16©2003 South-Western
Geographic SegmentationGeographic Segmentation
Segmenting markets by
region of the country or
world, market size, market
density, or climate.
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Chapter 6 Version 3e 17©2003 South-Western
Geographic SegmentationGeographic Segmentation
Region of the country or world
Market size
Market density
Climate
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Chapter 6 Version 3e 18©2003 South-Western
Benefits of Regional SegmentationBenefits of Regional Segmentation
New ways to generate sales in sluggish and competitive markets
Scanner data allow assessment of best selling brands in region
Regional brands appeal to local preferences
React more quickly to competition
44
Chapter 6 Version 3e 19©2003 South-Western
Demographic SegmentationDemographic Segmentation
Segmenting markets
by age, gender, income,
ethnic background,
and family life cycle
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Chapter 6 Version 3e 20©2003 South-Western
Bases for Bases for Demographic SegmentationDemographic Segmentation
44
Age
Gender
Income
Ethnic background
Family Life Cycle
Chapter 6 Version 3e 21©2003 South-Western
Ethnic BackgroundEthnic Background
Largest ethnic markets are:African-American
Hispanic-American
Asian-American
Will comprise 1/3 of U.S. population by 2010 with buying power of a trillion dollars
44
Chapter 6 Version 3e 22©2003 South-Western
Family Life CycleFamily Life Cycle
AgeAge
MaritalMaritalStatusStatus
ChildrenChildren
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Chapter 6 Version 3e 23©2003 South-Western
Psychographic SegmentationPsychographic Segmentation44
Market segmentation on
the basis of personality,
motives, lifestyles, and
geodemographics.
Chapter 6 Version 3e 24©2003 South-Western
Bases for Bases for Psychographic SegmentationPsychographic Segmentation
PsychographicPsychographicSegmentationSegmentation
PsychographicPsychographicSegmentationSegmentation
PersonalityPersonality
MotivesMotives
LifestylesLifestyles
GeodemographicsGeodemographics
44
Chapter 6 Version 3e 25©2003 South-Western
Lifestyle SegmentationLifestyle Segmentation44
How time is spent
Beliefs
Socioeconomic characteristics
Chapter 6 Version 3e 26©2003 South-Western
Geodemographic SegmentationGeodemographic Segmentation44
Segmenting potential
customers into
neighborhood lifestyle
categories.
Combines geographic,
demographic, and lifestyle
segmentation.
Chapter 6 Version 3e 27©2003 South-Western
VALS 2 DimensionsVALS 2 DimensionsPrinciple-Principle-orientedoriented
Status-Status-orientedoriented
Action-Action-orientedoriented
Fulfillers
Believers
Actualizers
Achievers
Strivers
Strugglers
Experi-encers
Makers
Minimal Resources
Abundant Resources
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Chapter 6 Version 3e 28©2003 South-Western
Benefit SegmentationBenefit Segmentation
The process of grouping
customers into market
segments according to
the benefits they seek
from the product .
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Chapter 6 Version 3e 29©2003 South-Western
Usage-Rate SegmentationUsage-Rate Segmentation
Dividing a market by the
amount of product
bought or consumed.
44
Chapter 6 Version 3e 30©2003 South-Western
The 80/20 PrincipleThe 80/20 Principle
A principle holding that
20 percent of all customers
generate 80 percent
of the demand.
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Chapter 6 Version 3e 31©2003 South-Western
Learning Objective Learning Objective
Describe the bases for Describe the bases for segmenting segmenting
business markets.business markets.
55
Chapter 6 Version 3e 32©2003 South-Western
MacrosegmentationMacrosegmentation
The process of dividing
business markets into
segments based on general
characteristics such as
geographic location,
customer type, customer
size, and product use.
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Chapter 6 Version 3e 33©2003 South-Western
MicrosegmentationMicrosegmentation
The process of dividing
business markets into
segments based on the
characteristics of decision-
making units within a
macrosegment.
55
Chapter 6 Version 3e 34©2003 South-Western
Business Marketing SegmentationBusiness Marketing SegmentationGeographic
Customer Type
Customer Size
Product UseBusinessBusinessMarketsMarkets
BusinessBusinessMarketsMarkets
Purchasing Criteria
Purchasing Strategy
Importance
Personal Characteristics
Micro- segmentation
Micro- segmentation
Macro- segmentation
Macro- segmentation
55
Chapter 6 Version 3e 35©2003 South-Western
Learning Objective Learning Objective 66
List the steps involved List the steps involved in segmenting markets.in segmenting markets.
Chapter 6 Version 3e 36©2003 South-Western
Steps in Segmenting a MarketSteps in Segmenting a Market
Select a
market for
study
Choosebases
for segmen-
tation
Selectdescrip-
tors
Profileand
analyzesegments
Selecttarget
markets
Design,imple-ment,
maintainmkting
mix
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Chapter 6 Version 3e 37©2003 South-Western
Learning Objective Learning Objective
Discuss alternative strategies Discuss alternative strategies for selecting target markets.for selecting target markets.
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Chapter 6 Version 3e 38©2003 South-Western
Target MarketTarget Market
A group of people or
organizations for which an
organization designs,
implements, and maintains a
marketing mix intended to
meet the needs of that
group, resulting in mutually
satisfying exchanges.
77
Chapter 6 Version 3e 39©2003 South-Western
Strategies for SelectingStrategies for SelectingTarget MarketsTarget Markets
ConcentratedStrategy
ConcentratedStrategy
UndifferentiatedStrategy
UndifferentiatedStrategy
MultisegmentStrategy
MultisegmentStrategy
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Chapter 6 Version 3e 40©2003 South-Western
Undifferentiated Undifferentiated Targeting StrategyTargeting Strategy
Marketing approach that
views the market as one big
market with no individual
segments and thus requires
a single marketing mix.
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Chapter 6 Version 3e 41©2003 South-Western
Undifferentiated Undifferentiated Targeting StrategyTargeting Strategy
AdvantagesAdvantages: Potential savings on
production and marketing costs
DisadvantagesDisadvantages: Unimaginative product
offerings Company more
susceptible to competition
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Chapter 6 Version 3e 42©2003 South-Western
Concentrated Concentrated Targeting StrategyTargeting Strategy
A strategy used to select
one segment of a market for
targeting marketing efforts.
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Concentrated Concentrated Targeting StrategyTargeting Strategy
AdvantagesAdvantages: Concentration of resources Meets narrowly defined
segment Small firms can compete Strong positioning
DisadvantagesDisadvantages: Segments too small, or
changing Large competitors may market
to niche segment
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Chapter 6 Version 3e 45©2003 South-Western
Multisegment Multisegment Targeting StrategyTargeting Strategy
A strategy that chooses
two or more well-defined
market segments and
develops a distinct
marketing mix for each.
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Chapter 6 Version 3e 46©2003 South-Western
AdvantagesAdvantages: Greater financial success Economies of scale
DisadvantagesDisadvantages: High costs Cannibalization
Multisegment Multisegment Targeting StrategyTargeting Strategy
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Chapter 6 Version 3e 47©2003 South-Western
Costs of Multisegment TargetingCosts of Multisegment Targeting
$ Product design costs
$ Production costs
$ Promotion costs
$ Inventory costs
$ Marketing research costs
$ Management costs
$ Cannibalization
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Chapter 6 Version 3e 48©2003 South-Western
CannibalizationCannibalization
Situation that occurs when
sales of a new product
cut into sales of a
firm’s existing products.
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Chapter 6 Version 3e 49©2003 South-Western
Learning Objective Learning Objective
Explain how and why firms implement Explain how and why firms implement positioning strategies and positioning strategies and how product differentiation how product differentiation
plays a role.plays a role.
88
Chapter 6 Version 3e 50©2003 South-Western
PositioningPositioning
Developing a specific
marketing mix to influence
potential customers’ overall
perception of a brand,
product line, or organization
in general.
88
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PositionPosition
The place a product, brand,
or group of products
occupies in consumers’
minds relative to competing
offerings.
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Effective PositioningEffective Positioning
Assess the positions of competing products
Determine the dimensions of these positions
Choose an effective market position
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Product DifferentiationProduct Differentiation
A positioning strategy that
some firms use to
distinguish their products
from those of competitors.
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Perceptual MappingPerceptual Mapping
A means of displaying or
graphing, in two or more
dimensions, the location of
products, brands, or groups
of products in customers’
minds.
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Chapter 6 Version 3e 55©2003 South-Western
Perceptual Mapping--Levi’sPerceptual Mapping--Levi’s88
High PriceHigh PriceHigh PriceHigh Price
Low PriceLow PriceLow PriceLow Price
Cla
ssic
Cla
ssic
Cla
ssic
Cla
ssic
Desig
ner
Desig
ner
Desig
ner
Desig
ner
Old product
New product
Vintage
Red Line
Silver Tab
Slates
DockersPremium
DockersClassics
501
Red TabBasics
Red TabDry Goods
L2
Red TabElesco
Chapter 6 Version 3e 56©2003 South-Western
Positioning BasesPositioning Bases
AttributeAttribute
Price and QualityPrice and Quality
Use or ApplicationUse or Application
Product UserProduct User
Product ClassProduct Class
CompetitorCompetitor
Positioning Positioning BasesBases
Positioning Positioning BasesBases
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RepositioningRepositioning
Changing consumers’
perceptions of a brand
in relation to
competing brands.
88
Chapter 6 Version 3e 58©2003 South-Western
Learning Objective Learning Objective
Discuss global market segmentation Discuss global market segmentation and targeting issues.and targeting issues.
99