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CHAPTER
8 IDENTIFYING MARKET
SEGMENTS AND
TARGETS
LEARNING OBJECTIVES
In this chapter, we will address the following questions:
1. What are the different levels of market segmentation?
2. In what ways can a company divide a market into segments?
3. What are the requirements for effective segmentation?
4. How should business markets be segmented?
5. How should a company choose the most attractive target markets?
CHAPTER SUMMARY
1. Target marketing includes three activities: market segmentation, market targeting, and
market positioning. Market segments are large, identifiable groups within a market.
2. Two bases for segmenting consumer markets are consumer characteristics and
consumer responses. The major segmentation variables for consumer markets are
geographic, demographic, psychographic, and behavioral. Marketers use them singly
or in combination.
3. Business marketers use all these variables along with operating variables, purchasing
approaches, and situational factors.
4. To be useful, market segments must be measurable, substantial, accessible,
differentiable, and actionable.
5. We can target markets at four main levels: mass, multiple segments, single (or niche)
segment, and individuals.
6. A mass market targeting approach is adopted only by the biggest companies. Many
companies target multiple segments defined in various ways such as various
demographic groups who seek the same product benefit.
7. A niche is a more narrowly defined group. Globalization and the Internet have made
niche marketing more feasible to many.
8. More companies now practice individual and mass customization. The future is likely
to see more individual consumers take the initiative in designing products and brands.
9. Marketers must choose target markets in a socially responsible manner at all times.
Second, the concepts of consumer characteristics and responses may be new to many
students as it applies across different age groups and different consumers. Students who
have little contact with other people outside their sphere of influence may have a hard
time realizing that other consumers hold differing views and have different usages for
products and services.
PROJECTS
1. Students should turn in their market segmentation segment of their semester-long new
product or service report.
2. Students should select a product or service that they are familiar with, such as jeans,
computers, or personal CD players. Once these items are selected, the students must
undertake research into the specific items: target market and market segmentation.
Student reports should contain information as to: How large is the target market, what
is the future growth potential of this target market, how do/does the marketer reach
this target market and so on? The second section of this project is for the students to
“re-position” this product to another market segment. For example, if the students
select personal CD players as their product of choice, and confirm that the target
market for this is Gen Y, then the students should define how the manufacturers of
personal CD players will attempt to re-position the product to attract the baby boomer
generation to increase their purchases of personal CD players.
In your role as Jane Melody’s assistant, you are responsible for market segmentation
and targeting for Sonic’s PDA product. Look at the SWOT Analysis, Market
Description, and Competitive Review sections and then answer:
Summarize your conclusions in a written marketing plan or enter them in the Market
Demographics and Target Markets sections of Marketing Plan Pro. Also note any
additional research you may need in the Marketing Research Section of Marketing Plan
Pro.
ASSIGNMENTS
The population of Americans over 50 years of age will swell to 115 million in the next 25
years. In small groups, have the students detail the demographic information on this
group of Americans (ages, buying power, perception of themselves, etc.) and suggest
some key marketing opportunities mined from this information. For example, if seniors
often make buying decisions based on lifestyle and not age, as the vignette mentions,
does this information present marketing opportunities for such industries as travel, bio-
medical industries, at-home exercise equipment, and automobiles? If so, who is going to
be affected and to what extent? Student answers should contain detailed demographic
information about this target market and should draw a connection between what the
information says and what is the potential for marketers.
The upcoming demographic changes for the U.S. population calls for Hispanics to be the
largest demographic segment in the U.S. by 2050. Assuming that this is true, either in
small groups or individually, ask the students to comment on how this demographic shift
will change the segmentation in: a) the grocery industry, b) the fast-food industry, and c)
the casual dining industry. Student answers should include key demographic and lifestyle
facts and figures about these markets and their consumers.
The firm Claritas, Inc. has developed a geoclustering system called PRIZM®. Assign
students the task of visiting this site and collecting the marketing information available
for their particular zip code (home or school). In a report, ask the students to comment on
the accuracy, implications, and usefulness of this information for marketers. How can a
marketer “target” his/her audience using PRIZM?
Effective segmentation criteria are necessary for target market identification. Market
segments must be measurable, substantial, accessible, differentiable, and actionable.
However, not all segmentation schemes are useful—the text uses table salt buyers for
example. Students are to provide three examples of those products or services in which:
segmentation criteria are not necessary and three examples where segmentation criteria
are an absolute necessity. Students are to exchange their findings and explain these
differences. Additional discussion (or assignment) could be to have the students devise a
segmentation strategy for the products or services that they found not currently, where
segmentation criteria are necessary. In other words, to “create” a segmentation distinction
for—“table salt”!
END-OF-CHAPTER SUPPORT
MARKETING DEBATE—Is Mass Marketing Dead?
With marketers increasingly adopting more and more refined market segmentation
schemes—fueled by the Internet and other customization efforts—some claim mass
marketing is dead. Others counter there will always be room for large brands employing
marketing programs to target the mass market.
Take a position: Mass marketing is dead versus mass marketing is still a viable way to
build a profitable brand.
Pro: People are consumers and people have a number of basic personal and societal needs
that transcends individuality. Certain basic human physical needs (food, clothing, and
shelter, for example) can be best met through mass marketing. In addition, consumers
desire low prices and functionality in some of their basic products and services. Mass
marketing allows the firm to foster the lowest price through economies of production,
distribution, and marketing. Additionally, people like to have their daily life remain
uncomplicated; that is best served through mass produced products. Asking the consumer
to make too many choices can backfire on marketers as it can overly complicate and
stress consumers—for example, the design of a new home can be both a rewarding and
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall
stressful experience; the intended owner(s) is(are) asked to make literally hundreds of
decisions about size, floor plans, colors, and options throughout the process. Not
complicating a consumer’s life, through mass production and mass marketing of products
can create a viable marketing niche for companies.
Con: People are consumers and with the plethora of product and service choices available
to solve their problems today, a firm must produce individual and customized products to
compete. Basic human needs and wants can be delivered to the consumer by a wide range
of choices. Technology has given the consumer the power and ability to interact with
manufacturers in producing the exact product, with the exact features, and at the target
price desired. Consumers are better educated and better informed than previous
generations. Consumers are also more sophisticated than ever before. These increases in
information, technology, and sophistication are causing firms to respond to the
consumers’ wishes for individuality. Accepting the concept of “individuality” in the
production of goods and services is the only option for many firms. Individuality and the
service that that concept demands can lead to a “supplier-consumer” relationship that can
and will build strong brand preferences. Those firms who choose not to compete or fail to
compete in these arenas run the risk of falling behind competition and in experiencing the
subsequent losses in market share and profits.
2.) Does HSBC’s most recent campaign resonate with its target audience? Why or
why not?
Suggested Response: Student answers will vary. Good students will comment on how
this most recent campaign embraces the notion of multiple viewpoints and different
interpretations across countries and peoples. Also, according to the note, this strategy is
stated as “It encapsulates our global outlook that acknowledges and respects that people
value things in very different ways.”
1.) What are the pros and cons to BMW’s selective target marketing? What has the
firm done well over the years and where could it improve?
Suggested Answer: Student answers will vary as to the pros and cons of BMW’s selective
target marketing. Good students will note that BMW has created a different automobile
for each of their segmented target markets while keeping the ‘ultimate driving machine’
tagline consistent across all products.
Good students will note that in the article, is stated “research showed that they cared less
about the bragging rights of the BMW brand and instead desired a variety of design, size,
price, and style choice. As a result, the company took several steps to grow its product
line by targeting specific market segments, which resulted in unique premium-priced cars
such as SUVs, convertibles, roadsters, and less expensive compact cars, the 1 Series. In
addition, BMW redesigned its 3, 5, and 7 Series cars, making them unique in appearance
yet remaining exceptional in performance. BMW’s full range of cars now include the 1
Series, 3 Series, 5 Series, 6 The redesign of the 7 Series, BMW’s most luxurious car,
targeted a group called “upper conservatives.” These wealthy, traditional consumers
traditionally don’t like sportier automobiles. BMW successfully launched the X5 by
targeting “upper liberals” who achieved success in the 1990s and had gone on to have
children and take up extra-curricular activities such as biking, golf, and skiing. These
consumers needed a bigger car for their active lifestyles and growing families, so BMW
created a high-performance luxury SUV. BMW refers to its SUVs as Sport Activity
Vehicles in order to appeal even more to these ac BMW created the lower-priced 1 Series
and X3 SUV to target the “modern mainstream,” a group who are also family-focused
and active but had previously avoided BMW’s because of the premium cost. The 1 Series
reached this group with its lower price point, sporty design, and aspiration to own a
luxury brand. The X3 also hit home with its smaller, less expensive SUV design. BMW
introduced convertibles and roadsters to target “post-moderns,” a high-income group that
2.) BMW’s sales slipped during the worldwide recession in 2008 and 2009. Is its
segmentation strategy too selective? Why or why not?
Suggested Answer: Student answers will vary, but sales slippage is not always associated
with a too selective segmentation as to overall financial conditions of their target
market(s), increased price competition from other automobile manufacturers and even
increased product competition as firms such as Infiniti create products known as “BMW
killers.”
Demographic Segmentation
In demographic segmentation, we divide the market by variables such as age, family size,
family life cycle, gender, income, occupation, education, religion, race, generation,
nationality, and social class.
A) Consumer needs, wants, usage rates, and product and brand preferences are often
associated with demographic variables.
B) Demographic variables are easy to measure.
Life Stage
A) Persons in the same part of the life cycle may differ in their life stage. Life stage
defines a person’s major concern. These life stages present opportunities for
marketers who can help people cope with their major concerns.
Gender
A) Men and women have different attitudes and behave differently, based partly on
genetic makeup and partly on socialization.
B) Some traditionally more male-orientated markets, are beginning to recognize
gender segmentation, changing how they design and sell their products.
Income
A) Income segmentation is a long-standing practice in product and service
categories.
B) However, income does not always predict the best customers for a given product.
C) Increasingly, companies are finding their markets are hourglass shaped as middle-
market U.S. consumers migrate toward both discount and premium products.
Marketing Insight
Trading Up, Down, and Over
A new pattern in consumer behavior has emerged in recent years: “New Luxury” and in
order to trade up to these brands that offer emotional benefits, consumers often “trade
down” by shopping at discounters.
The norms, language nuances, buying habits, and business practices of multicultural
markets need to be factored into the initial formulation of a marketing strategy, rather
than added as an afterthought.
Hispanic-Americans
A) Hispanic-Americans have become the largest minority in the country with
annual purchasing power estimated to be over $1 trillion in 2010—the Hispanic-
American market holds a wide variety of sub-segments, with roughly two dozen
nationalities including Cuban, Mexican, Puerto Rican, Dominican, and other
Central and South American groups, and a mix of cultures, physical types, racial
backgrounds, and aspirations.
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall
B) Hispanic-Americans often share strong family values—several generations
may reside in one household—and strong roots to their original country of origin.
They have a need for respect, brand loyalty, and a keen interest in product quality.
C) Marketers are reaching out to Hispanic-Americans with targeted promotions,
ads, and Web sites but need to be careful to capture the nuances of cultural and
market trends. U.S.-born Hispanic-Americans also have different needs and tastes
than their foreign-born counterparts and, though bilingual, often prefer to
communicate in English.
African-Americans
A) African-Americans have had a significant economic, social, and cultural
impact on U.S. life, influencing inventions, art, music, sports, fashion, and
literature. Like many cultural segments, they are deeply rooted in the U.S.
landscape while also proud of their heritage and respectful of family ties.
Asian-Americans
A) According to the U.S. Census Bureau, “Asian” refers to people having origins
in any of the original peoples of the Far East, Southeast Asia, or the Indian
subcontinent. The Asian-American market has been called the “invisible market”
because, compared to Hispanic-Americans and African-Americans, it has
traditionally received a disproportionally small fraction of U.S. companies’ total
multicultural marketing expenditure.
Psychographic Segmentation
Psychographics is the science of using psychology and demographics to better understand
consumers.
A) In psychographic segmentation, buyers are divided into different groups on the
basis of psychological/personality traits, lifestyle, or values.
B) One of the most popular commercially available classification systems is SRI
Consulting Business Intelligence’s VALS framework.
1) The major tendencies of the four groups with high resources are:
a. Innovators
b. Thinkers
c. Achievers
d. Experiencers
2) The major tendencies of the four groups with lower resources are:
a. Believers
b. Strivers
Within a given target market industry and customer size, a company can segment further
by purchase criteria.
MARKET TARGETING
Once a firm has identified its market-segment opportunities, it must decide how many
and which ones to target. This has lead some researchers to advocate a needs-based
market segmentation approach.
Single-Segment Concentration
With single-segment concentration, the firm markets to only one particular
segment.
1) Through concentrated marketing, the firm gains deep knowledge of the segment’s needs
and achieves a strong market presence.
2) A niche is a more narrowly defined customer group seeking a distinctive mix of benefits
within a segment. Marketers usually identify niches by dividing a segment into
subsegments.
a. Niche marketers aim to understand their customers’ needs so well that
customers willingly pay a premium.
3) However, there are risks. A market segment can turn sour or a competitor
may invade the segment.
They log onto the Internet; look up information and evaluations of product or service
offerings; conduct dialogue with suppliers, users, and product critics; and in many cases
design the product they want.
The night spent itself. Some sort of a dawn crept across the city
and touched the edges of the windows in the rear of 355 McDougal
Street. As the grey light penetrated the room on the third floor, a girl,
who had been lying across the body of a dead man, arose, looked
stupidly about her, rubbed her eyes, and went over to the window
where she gazed across the damp Greenwich Village roofs. She
thought, perhaps, that she was going mad, with this silence which
penetrated her whole nature, like the cold dawn that had just
penetrated the night. But, strangely enough, it was not altogether her
own loneliness, nor yet the painful sense of loss at the death of her
father, nor even the ghostliness of his figure on the bed, that was
thus driving her toward insanity. Rather, it was the remembrance of
Paul’s face, the knowledge of his suffering for her, and the feeling
that, although she could never love him—really love him, as she had
pictured love in her girlhood dreams—still, the death of her father
had removed the last tangible excuse which she had to offer him.
She felt that it was not right to add to his sorrow for Hanaré’s death,
a still larger grief caused by her own selfishness.
She smiled tearfully as she gazed out of the window. Why, she
was making it appear like a case of duty!—and, of course, no one
ought to marry for duty. Actually, it was not altogether a case of duty.
Actually, she was alone—and afraid of her own loneliness. Indeed,
the image of Paul came to her like a light shining through the
darkness. He was forced upon her, by the strength of circumstances.
Hanaré was gone now. Without Hanaré life could never be the same.
Paul had become essential to her very existence. Love him or not,
he was essential to her existence.
As the sun rose and the day wore on, and she went about her
necessary tasks, it seemed to her almost as though she loved Paul.
She had never had a feeling quite so compelling as this. Before her
father’s death, she had never wished to marry. She had
contemplated some sort of a career, with her painting and her
sculpture, which she inherited from Hanaré. Besides, her father had
needed her. He had been a solitary man, with few friends, a dreamy
personality, and so absent-minded that he required her constant
attention. Thus life had seemed to her best, close to her father’s
side, managing the little household, and doing her art at her leisure.
The thought of children to take care of revolted her. And as yet no
passion had entered her life, sufficiently powerful to make this
secluded existence seem trivial or repulsive. Nor was there anything
about Paul Duval to attract her strongly. He was the nicest and
kindest man in the world, and he loved Hanaré; but for a husband—
well—what was the use of a husband, anyway?
She felt differently now. She wanted Paul. Yet all day he stayed
away.
Toward evening there came to her again the sensation that she
was going mad. It was simply inhuman of Paul to leave her alone like
this. There had been, of course, the neighbors, who offered their
sympathetic assistance, and who tried to comfort this strange, silent
girl, whom none of them understood. But because of her yearning for
Paul, the neighbors only aggravated her nervous sorrow. And
although she had consented to sleep with an elderly woman in
another part of the house, until her father should be buried,
nevertheless, late that night, she felt herself irresistibly drawn to
Hanaré’s stiff corpse; and she crept into the ghostly room, in her
night-gown, to appease that unnatural craving. This was about ten
o’clock. She sat for some minutes on the edge of the bed, but could
find no consolation. Suddenly she jumped up with the wild resolve to
go to Paul’s apartment and find out what had happened to him.
She reflected, as she slipped on her clothes, that this was a most
unwomanly course of action. She was impelled toward it by the
almost inhuman nature of her circumstances. She hoped Paul would
understand. She hoped nothing had happened to him. Perhaps she
could even be of some comfort to him, in this recent sorrow which so
obviously depressed him.
In fact, as she made her away along the winding streets of
Greenwich Village, Marie began to feel almost exultant. A new joy
entered her heart, because she was relieving herself of intolerable
burdens, and because, too, she was bringing to Paul a surprise-
present for which he had been waiting many years. She began
timidly to picture to herself Paul’s expression, first upon seeing her,
and later—perhaps even days later—when he should realize what
this new resolve of hers meant to both of them. She found herself
immensely relieved at the thought of transferring her small
belongings from her present dreary apartment to his own. Her
collection of books, her pictures, yes, and even her paints and her
sculptor’s tools—all these she would show to Paul as belonging to
both of them together. In his eyes and in his mouth would come that
look of appreciation for things which were such precious
possessions. It would be inexpressible relief! A happy life! They were
both dreamers—
She arrived, a trifle breathless, at his apartment, which was four
stories up in a brick building that boasted of no elevator. She
knocked several times on the thin, wooden door, but no one
answered. So she tried the door knob, found that it was unlatched,
opened the door timidly, and gazed in. There was a vestibule leading
into the sitting-room, and since the latter was lighted, she proceeded
on tip-toe toward it. Upon entering she perceived a long, narrow
room, hazy with tobacco smoke and heavy with the odor of stale
whiskey. The bric-a-brac and furniture were in a state of disorder.
There were a couple of empty bottles on the table—glasses and
books. She perceived a thin, sallow figure, sprawled out in the morris
chair, staring at her in a glazed way, like a dead man.
“Paul!” she cried.
Paul moved slowly, blinked his eyes, shuddered. “Eh?”
“Paul!”
“I should not have wished you to see me like this,” he said, as
though her coming were the most natural thing in the world.
“Are you—all right?”
“Yes, a little dazed.”
“Why have you been drinking?”
He sighed and bowed his head, in a tired way, until his chin
touched his disordered bow-tie. But he did not answer.
Impulsively Marie ran over to his side and knelt there, with her
arms upon the chair.
“Are—are you drunk, Paul?” She had rarely seen drunken men.
He raised his head then and looked into her eyes, which were so
close to his. “No,” he said. “I have been drinking, but I am not drunk.
I am merely dazed, by death, and by life—but mostly by life. Life is
so strange. Have you never thought that?”
“Yes.”
“No—no—no! Not the way I have thought it. You only know the
half of life—Hanaré’s half. You have inherited, now, Hanaré’s
domain. Innocent, childish Hanaré! You are the mistress of his
innocence and his naïveté. But it will never—never—never be the
same again.”
“Paul! What do you mean?”
Inspiration
The smoking-room gave a terrific lurch. As if the motion had been a
signal, Carlos Bentley abruptly broke off his sentence, at the same
time removing his hand from the arm of his companion’s chair.
Although the big steamer recovered almost immediately from the
unexpected blow, Carlos continued to remain silent, his gaze
wandering uncertainly around the comfortable room. But he did not
notice particularly the brown sleekness of the leather chairs nor the
subtle masculinity of the lighting. He was wondering whether he had
not again let his tongue run away with his good taste in allowing it to
run on over the history of his past two weeks to this gentleman to
whom he had introduced himself. That was one of Carlos’ bête-noirs
—a cheerful frankness and lack of reserve that made him
communicate things he wished later he had kept to himself. But after
all the fellow had looked lonely and— A polite question which
interrupted his train of thought finished by driving the self-reproaches
from his mind. He answered the question at some length.
“Oh, yes! We spent six months in Paris. I got to know the place
quite well—well enough to get tired of it. I’m looking forward to New
York as a change. If it hadn’t been for my wife, I’d have come back
before, but she insisted on our staying—for my own good, she said.
You see, I went over to study art—portraits mainly. Spent hours
every day looking at pictures and trying to copy them.”
“Do you plan to take up art as a profession?” asked his
companion, knocking the ashes from his pipe. He was an elderly
man who had an air of demanding confidences with a view of solving
any difficulties connected with them from the depths of a thoughtful
urbanity.
Carlos hesitated a moment.
“Yes,” he said finally, “I expect to. That’s my ultimate aim. But, of
course, after all this studying I’ll want a bit of a rest—say a month or
so. Then I’ll be ready to get down to work.”
The other nodded a thoughtful assent. Then—
“You’ll pardon the remark, but—you have an income, I take it.”
Bentley nodded.
“Very fortunate, very fortunate indeed. So many poor devils have
to start with literally nothing but their talent. You’re unusually
blessed. Well, I must be getting to bed. We dock early to-morrow, I
believe. I’ve enjoyed talking to you immensely, and you’ll pardon my
leaving so abruptly, won’t you? Good-night.”
Carlos stood gazing after him a moment; then, turning away, went
off in the direction of his own stateroom. He had an uneasy feeling
that the man had not quite approved of him, although he was unable
to explain what he himself had said that could have given ground for
such an opinion.
When he got to his stateroom, he found a message that his wife
had left on his bureau before going to bed. It had come by wireless
that evening and was from his father. On opening it, he read:
“Meet you at pier. Glad you are settling down to work at
last.
Dad.”
Carlos laughed softly. Just like his father to mention work, even in
a wireless. It occurred to him that everyone, ever since he was a
boy, had been wanting him to work. They had all told him what great
things they expected of his talent if he would only use it. His mother
had cherished a letter from a boyhood schoolmaster, which dwelt in
glowing terms on his artistic ability, while at the same time it decried
his indolence. His wife had refused many suitors as importunate and
more wealthy than he because she was in love with him, and
believed that her love could make him fight for the success which
was expected of him. Well, his father was right—it was time to start
work. They had had enough disappointments in him, and now he
must do something to make them proud of him. It wouldn’t be hard.
In an exceedingly virtuous mood Carlos bent over and kissed his
sleeping wife. What a wonderful girl Eloise was, and what a trump to
have believed in him enough to have married him. He would work as
he never had before as soon as they got settled in New York. With
which resolutions he got into bed to dream of painting portraits for
the kings and queens of Europe.