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MKT 2210
Subbu Sivaramakrishnan

chapter 9 why segment markets? a. what market segmentation means market segmentation involves aggregating prospective buyers into groups that (1) have common needs and (2) will respond similarly to a marketing action. this results in groups of people, called market segments, which are a relatively homogeneous collection of prospective buyers. the existence of different market segments causes firms to use a marketing strategy of product differentiation: the firm uses different marketing mix activities to help consumers percieve the product as being different from and better than competing products. 1. segmentation: linking needs to actions a. the definition of market segmentation stresses two things: (1) the importance of aggregating —or grouping — people or organizations in a market according to the similarity of their needs and the benefits they are looking for in making a purchase. (2) the need to relate such needs and benefits to specific tangible marketing actions the firm can take, such as using one or more of the marketing mix factors. b. market segmentation is only a means to an end: marketing actions to satisfy customer needs. 2. using market-product grids a market-product grid is a framework to relate the market segments of potential buyers to products offered or potential marketing actions by the firm. thus, the cells in the grid reveal the approximate size of the market by market segments and product lines. b. when to segment markets a business firm will go to the trouble and expense of segmenting its markets when this action will increase its profit and return on investment. therefore, when its expenses more than offset the potentially increased revenues from segmentation, it should not attempt to segment its markets. the specific situations that illustrate this key point are: 1. one product and multiple market segments — when a firm produces only a single product or service and attempts to sell it to two or more market segments, it avoids the extra cost of developing and producing additional versions of the product. multiple products and multiple market segments more than one product may be developed to satisfy different market segment needs. manufacturing different products is clearly more expensive than producing one but seems worthwhile if it serves customers' needs better, doesn't reduce quality or increase price, and adds to the seller's sales revenues and profits. 3. segments of one: mass customization. when carried to extreme, market segmentation can be uneconomical for a firm. this appears to be the case with some u.s. car manufacturers, such as ford whose 1982 thunderbird had 69,120 options compared with 32 on the 1982 honda accord. key to successful product differentiation and market segmentation strategies is finding the ideal balance between satisfying a customer’s individual wants and achieving organizational synergy, the increased customer value achieved through performing organizational functions more efficiently. steps in segmenting and targeting markets the process of segmenting a market and then selecting and reaching the target segments is divided into five steps: a. step 1: group potential buyers into segments. 1. criteria to use in forming the segments. a marketing manager should develop segments that meet five key criteria: a. potential for increased profit and return on investment. b. similarity of needs of potential buyers within a segment. c. difference of needs of buyers among segments. d. potential of a marketing action to reach a segment. e. simplicity and cost of assigning potential buyers to segments. a marketing manager must be able to put a market segmentation plan into effect. 2. ways to segment consumer markets. the main dimensions used to segment canadian consumer markets (text figure 9-4) are:  geographic segmentation  demographic segmentation  psychographic segmentation  behavioural segmentation usage rate whether a person is a nonuser or a light, medium, or heavy user is important in many segmentation problems. the 80/20 rule suggests that a large fraction of a firm’s sales are obtained from a small fraction of its customers. 3. variables to use in forming segments for wendy’s for students: - living in dormitories - living near college/university - day commuters - night commuters for nonstudents: - faculty and staff - people who live in the area - people who work in the area 4
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