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Chapter 7

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Queen's University
COMM 131
Ethan Pancer

Chapter 7: Segmentation, Targeting, Positioning Market Segmentation  Segmentation involves dividing the market into smaller groups of buyers with distinct needs, characteristics, or behaviours that might require separate marketing strategies  Four important topics: segmenting consumer markets, segmenting business markets, segmenting international markets, and the requirements for effective segmentation Segmenting Consumer Markets  The major variables that might be used to segment a market are geographic, demographic, psychographic, and behavioural Geographic Segmentation  Dividing a market into different units, such a global regions, countries, provinces, cities...  A company may decide to only operate in one area, or multiple ones  Many companies are localizing their products, advertising, promotion, and sales efforts to fit the needs of individual regions, cities, and even neighbourhoods Demographic Segmentation  Dividing the market into segments based on variables such as age, gender, income level, family size, life cycle, occupation, education, ethic or cultural group, generation, etc.  Demographic variables are easy to measure which is why they are widely used  Needs to know these variables to assess the size of the target market & reach it efficiently Age and Life-Cycle Segmentation  Consists of dividing the market into different age and life-cycle groups  Consumers needs and wants change with age – 65 year olds don’t eat Lunchables Gender  Dividing the market into different segments based on gender  One gender may be better suited to your product and/or may be more profitabale  It is also important to note that a neglected gender segment by competition could offer a new opportunity for a new market Household Income (HHI)  Dividing the market inter different segments based on their level of income  Household income means the entire house – income from both husband and wife  Some firms with luxury goods do not target people who can’t afford it  There are many discount store that market to those less affluent Ethnic or Cultural Group  Marketers often segment markets based on easy to define criteria such as race, language...  With StatsCan’s census info, it is easy to locate markets with a high number of Chinese speaking Canadians Psychographic Segmentation  Dividing the market into different segments based on social class, lifestyle, personality...  Targeting people looking for an adventure, looking to relax, who are outgoing, etc. Behavioural Segmentation  Dividing the market into different segments based on consumer knowledge, attitudes, uses, or responses from products – many believe that this is the best starting point Occasions  Dividing the market into segments according to occasions when buyers get the idea to buy, actually make their purchase, or use the purchased item o Can help firms build up product usage – drink OJ any time, not just morning Benefits Sought  Dividing the market into segments according to the different benefits that consumers seek from the product  Do you want value? Do you seek performance? Durability? User Status  Markets can be segmented into non-users, ex-users, potential users, first-time users, and regular users of the product  Marketers want to reinforce and retain regular users, attract non-users, and reinvigorate relationships with ex-users Usage Rate  Markets can also be into light, medium, and heavy product users  Heavy users are often a small percentage of the market but account for a high percentage of consumption Loyalty Status  Segmenting based on their degree of customer loyalty to a brand, store, and company  Some consumers are completely loyal – they only buy one brand all the time  Some are somewhat loyal – loyal to two or three brands of a given product or favour one brand why sometimes buying others  Some show no loyalty to a brand – something different each time or buy what’s on sale  Studying loyal customers: Can pinpoint the target market and develop marketing appeals  By studying less-loyal customers, a company can detect which brands are most competitive with its own and learn about the company’s own marketing weakness Using Multiple Segmentation Bases  Marketers often use multiple segmentation bases in an effort to identify smaller, better- defined groups – ex. 18-24 year old men, adventurous, looking for performance, reg users  Allows a company to really focus its marketing effort on a specific group or groups with similar characteristics Segmenting Business Markets  Business buyers can also be segmented like consumers  Also some variables like customer operating characteristics, purchasing approaches, situational factors, and personal characteristics are used  Companies will create distinct marketing programs for ex. Merchants, corporations, etc.  Companies do not have to choose between consumer and business market segments o Could sell a phone to a big corporation and to individual consumers  Marketers believe buying behaviour & benefits provide the best base for business markets Segmenting International Markets  Different countries, even those in close proximity to one another, can vary greatly  Can be segmented by geographic region if countries have similar traits and behaviours  Segmented on the basis of economic factors – income lvl or lvl of economic development  Can be segmented based by political and legal factors – types and stability of gov’t, receptivity of foreign firms, monetary regulations, and amount of bureaucracy  Cultural factors – grouping according to common languages, religions, values and attitudes, customs, and behavioural patterns  Intermarket Segmentation: Forming segments of consumers who have similar needs and buying behaviour even though they are located in different countries Requirements for Effective Segmentation  Measurable: The size, purchasing power, and profiles of the segments can be measured  Accessible: The market segments can be effectively reached and served  Substantial: The markets are large or profitable enough to serve – worth pursuing  Differentiable: Segments are conceptually distinguishable and respond differently to different marketing mix elements and programs  Actionable: Effective programs can be designed for attracting and serving the segments o Don’t go after a large segment if you are a small company Market Targeting Evaluating Market Segments  Firms must look at segment size and growth – segment sales, growth rates, profitability o Remember: Sometimes the fastest growing or largest segment is not the best  Examine the major structural factors - # of competitors, existence of substitute products that may limit prices, the relative power of buyers and suppliers o Buyers with strong bargaining power will demand low prices and reduce profits o Suppliers can demand high prices or reduce the quality of the p/s – reduce profits  Companies must also consider their resources and objectives – don’t mesh with the company’s long run objectives or if they lack the skills & resources to serve the segment Selecting Target Markets  After evaluating the segments, a company must then choose its target market(s) o Target Market: The segment that the company decides t
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