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Chapter 8

Chapter 8 Notes


Department
Management (MGM)
Course Code
MGMA01H3
Professor
Alison Jing Xu
Chapter
8

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Chapter 8 Customer-Driven Marketing Strategy Creating Value for Target
Customers Notes
most companies have moved away from mass marketing and toward target marketing—identifying market segments, selecting
one or more of them, and developing products and marketing programs tailored to each
in the first two steps of customer-driven marketing strategy, the company selects the customers that it will serve
market segmentation dividing a market into smaller groups of buyers with distinct needs, characteristics, or behaviours that
might require separate marketing strategies or mixes
the company identifies different ways to segment the market and develops profiles of the resulting market segments
market targeting (targeting) evaluating each market segment’s attractiveness and selecting one or more segments to enter
in the final two steps, the company decides on a value proposition—how it will create value for target customers
differentiation actually differentiating the market offering to create superior customer value
positioning arranging for a market offering to occupy a clear, distinctive, and desirable place relative to competing products in
the minds of target customers; last step of the customer-driven marketing strategy
Market Segmentation
buyers in any market differ in their wants, resources, locations, buying attitudes, and buying practices
through market segmentation, companies divide large, heterogeneous markets into smaller segments that can be reached more
efficiently and effectively with products and services that match their unique needs
Segmenting Consumer Markets
a marketer has to try different segmentation variables, alone and in combination, to find the best way to view market structure
Geographic Segmentation
geographic segmentation dividing a market into different geographical units such as nations, regions, provinces, counties,
cities, or even neighbourhoods; a company may decide to operate in one or a few geographical areas, or to operate in all areas
but pay attention to geographical differences in needs and wants
Demographic Segmentation
demographic segmentation dividing the market into groups based on variables such as age, gender, family size, family life
cycle, income, occupation, education, religion, race, generation, and nationality
demographic factors are the most popular bases for segmenting customer groups
one reason is that consumer needs, wants, and usage rates often vary closely with demographic variables
another is that demographic variables are easier to measure than most other types of variables
even when marketers first define segments using other bases, such as benefits sought or behaviour, they must know segment
demographic characteristics to assess the size of the target market and to reach it efficiently
age and life-cycle segmentation dividing a market into different age and life-cycle groups
marketers must be careful to guard against stereotypes when using age and life-cycle segmentation
gender segmentation dividing a market into different groups based on gender
a neglected gender segment can offer new opportunities in markets ranging from motorcycles to guitars
income segmentation dividing a market into different income groups
Psychographic Segmentation
psychographic segmentation dividing market into diverse groups based on social class, lifestyle, or personality characteristics
people in the same demographic group can have very different psychographic makeups
Behavioural Segmentation
behavioural segmentation dividing market into groups based on consumer knowledge, attitudes, uses, or responses to product
many marketers believe that behaviour variables are the best starting point for building market segments
occasion segmentation dividing the market into groups according to occasions when buyers get the idea to buy, actually make
their purchase, or use the purchased item; can help firms build up product usage
benefit segmentation dividing the market into groups according to the different benefits that consumers seek from the product
benefit segmentation requires finding the major benefits people look for in the product class, the kinds of people who look for
each benefit, and the major brands that deliver each brand
markets can be segmented into nonusers, ex-users, potential users, first-time users, and regular users of a product
marketers want to reinforce and retain regular users, attract targeted nonusers, and reinvigorate relationships with ex-users
markets can also be segmented into light, medium, and heavy product users
heavy users are often a small percentage of the market but account for a high percentage of total consumption
a market can also be segmented by consumer loyalty to brands, stores, and companies
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buyers can be divided into groups according to their degree of loyalty
some consumers are completely loyal—they buy one brand all the time; other consumers are somewhat loyal—they are loyal to
2 or 3 brands of a given product or favour one rand while sometimes buying others; and still other buyers show no loyalty to any
brand—they either want something different each time they buy or they buy whatever’s on sale
Segmenting Business Markets
business buyers can be segmented geographically, demographically (industry, company size), or by benefits sought, user status,
usage rate, and loyalty status; yet business marketers also use additional variables, such as customer operating characteristics,
purchasing approaches, situational factors, and personal characteristics
by going after segments instead of the whole market, companies can deliver just the right value proposition to each segment
served and capture more value in return
within a given target industry and customer size, the company can segment by purchasing approaches and criteria
many marketers believe that buying behaviour and benefits provide the best basis for segmenting business markets
Segmenting International Markets
different countries, even those that are close together, can vary greatly in their economic, cultural, and political makeup
international firms need to group their world markets into segments with distinct buying needs and behaviours
companies can segment markets using one or a combination of variables: (1) geographic location, grouping countries by regions
such as Western Europe, Pacific Rim, Middle East, or Africa; (2) economic factors; (3) political and legal factors such as type
and stability of government, receptivity to foreign firms, monetary regulations, and amount of bureaucracy; and (4) cultural
factors, such as common languages, religions, values and attitudes, customs, and behavioural patterns
segmenting international markets based on geographic, economic, political, cultural, and other factors assume that segments
should consist of clusters of countries; however, as new communications technologies connect consumers around the world,
marketers can define and reach segments of like-minded consumers no matter where in the world they are
inter-market segmentation (cross-market segmentation) forming segments of consumers who have similar needs and buying
behaviour even though they are located in different countries
Market Targeting
Evaluating Market Segments
in evaluating different market segments, a firm must look at three factors: segment size and growth, segment structural
attractiveness, and company objectives and resources
company must collect and analyze data on current segment sales, growth rates, and expected profitability for various segments
it will be interested in segments that have the right size and growth characteristics
the company also needs to examine major structural factors that affect long-run segment attractiveness
even if a segment has right size and growth and is structurally attractive, firm must consider its own objectives and resources
Selecting Target Market Segments
after evaluating different segments, the company must decide which and how many segments it will target
target market a set of buyers sharing common needs or characteristics that the company decides to serve
market targeting can be carried out at several different levels—companies can target very broadly (undifferentiated marketing),
very narrowly (micromarketing), or somewhere in between (differentiated or concentrated marketing)
Undifferentiated Marketing
undifferentiated marketing (mass marketing) a market coverage strategy in which firm decides to ignore market segment
differences and go after the whole market with one offer
this mass marketing strategy focuses on what is common in the needs of consumers rather than on what is different
the company designs a product and a marketing program that will appeal to the largest number of buyers
Differentiated Marketing
differentiated marketing (segmented marketing) a market-coverage strategy in which a firm decides to target several market
segments and designs separate offers for each; by offering product and marketing variations to segments, companies hope for
higher sales and a stronger position within each market segment
developing stronger position within several segments creates more total sales than undifferentiated marketing across all segments
but differentiated marketing also increases the costs of doing business—developing separate marketing plans for the separate
segments requires extra marketing research, forecasting, sales analysis, promotion planning, and channel management; and
trying to reach different market segments with different advertising campaigns increases promotion costs
Concentrated Marketing
concentrated marketing (niche marketing) a market coverage strategy in which a firm goes after a large share of one or a few
segments or niches, instead of going after a small share of a large market
through concentrated marketing, the firm achieves a strong market position because of its greater knowledge of consumer needs
in the niches it serves and the special reputation it acquires; it can market more effectively by fine-tuning its products, prices, and
programs to the needs of carefully defined segments; it can market more efficiently, targeting its products or services, channels,
and communications programs toward only consumers that it can serve best and most profitably
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