Welcome to MALS 606
BABA 630:201 Principles of Marketing
Module 6: Marketing Research and Market Segmentation
Page 1 of 5
Chapter 8: Market Segmentation,
Targeting, and Positioning
Let's start off asking the basic question: why are we segmenting markets, and what does market
segmentation mean?
So a business firm segments its markets to respond more effectively to the wants of groups of
potential buyers to increase sales and profits. Not-for-profits also segment the clients they serve to
satisfy their needs more effectively, while achieving their goals. Market segmentation involves
aggregating prospective buyers in the groups or segments that 1) have common needs, and 2) will
espond similarly to a marketing action. Market segments are those relatively homogeneous groups of
prospective buyers that result from the segmentation process. Market segments consist of people who
are relatively similar to each other in terms of their consumption behavior, media behavior,
demographics, or other segmentation base or variable.
These different market segments cause firms to use product differentiation. Product
differentiation is a marketing strategy that involves a firm using different marketing mix actions to help
the consumer perceive the product as being different and better than competing products. As the
perceived differences, they may involve physical features, such as size or color, or non-physical ones,
such as image or price. The process of segmenting a market and selecting specific segments as targets is
the link between the various buyers' needs and the organization's marketing plan.
Market segmentation stretches two things. Number one, forming meaningful groups. People or
organizations should be grouped into a market segment according to the similarity of their needs and
the benefits they look for in a product, service, or good. The other is developing specific marketing
actions. This may involve separate offerings or other aspects of the marketing mix, such as price,
promotion, or distribution strategies.
Next, we're going to talk about what a market product grid is. A market product grid is a
framework that relates the market segments and potential buyers to products offered or potential
marketing actions. In your textbook, and right here in figure 8-2, this is a market product grid that shows
the different market segments in horizontal rows, as well as the different product offerings in the
vertical columns. This market product grid reveals the size of each sleeper segment, as shown by the
percentages in the size of their circles. This tells marketers the relative importance of each of the three
market segments when scheduling production. For example, firm pillows, a product targeted at the side
BABA 630:201 Principles of Marketing
Module 6: Marketing Research and Market Segmentation
“Chapter 8: Market Segmentation, Targeting, and Positioning”
Page 2 of 5
sleeper market, is three times the size of the other two combined; so when scheduling production, you
would schedule firm pillows first.
There are five key steps in segmenting markets and targeting those markets: 1) group potential
uyers into segments; 2) group products sold into categories; 3) develop a market product grid and
estimate the size of the markets; 4) select those target markets; and then finally, (5) taking marketing
actions to reach those. Let's talk about each one individually.
Step 1. Grouping potential buyers into segments.
Grouping potential buyers into meaningful segments involves meeting some specific criteria that
answer the two questions of, number one: would segmentation be worth doing? And number two: is
segmentation possible? If so, you must find specific variables that can be used to create these various
segments. A marketer should develop segments for a market that meet five criteria: number one,
simplicity and cost-effectiveness of assigning potential buyers to segments; number two, potential for
increased profit; number three, similarity of needs of potential buyers within a segment; number four,
differences of needs of buyers among a segment; and then finally, number five, potential of a marketing
action to reach a segment.
There are four general segmentation bases, each with several variables and
eakdowns that
can be used to segment U.S. consumers: number one, geographic segmentation based on where
prospective customers live or work, region, city, et cetera; number two, demographic segmentation
ased on gender, race, age, income, other attributes, including birth era or household size; number
three, psychographic segmentation based on personality, lifestyle, or needs of prospective customers;
and then, finally, behavioral segmentation—this is based on some observable actions or attitudes by
prospective customers, where they buy, what benefits they seek, how frequently they buy, and why
they buy.
One important thing in behavioral segmentation is usage rate. This is the quantity consumed, or
patronage, meaning store visits, during a specific period. This can vary significantly among different
consumer groups. Frequency marketing is a program that encourages consumers to use the product or
service repeatedly, and this idea is central to segmentation analysis.
Step 2. Grouping products into categories.
Let's use your textbook example about Wendy's. What does Wendy's sell? They sell individual
products, hamburgers, cheeseburgers, Frosties, chicken nuggets, but for marketing purposes, Wendy's
sells groups of these products that become a meal. This distinction is critical. Finding a means of
BABA 630:201 Principles of Marketing
Module 6: Marketing Research and Market Segmentation
“Chapter 8: Market Segmentation, Targeting, and Positioning”
Page 3 of 5
grouping the products a firm sells into meaningful categories is as important as grouping customers into
segments. When a firm has many products, they must be grouped in some way so that buyers can relate
to them. This is why supermarkets and department stores are organized into product groups with
departments or aisles containing related merchandise.
How one groups products is where judgement, the qualitative aspect of marketing, comes in.
For Wendy's, for example, students buying/eating experience a meal that satisfies a need at a particular
time of day or occasion. So for Wendy's, we could group products into meals:
eakfast, lunch, between
meal snack, dinner, and after dinner snack. These groupings are closely related to the way fast food
purchases are actually made.
Now we're going to develop a market product grid. We've already defined it earlier in the
textbook. Recall that it's a framework that relates market segments and potential buyers to products
offered or potential marketing actions by a firm. In a complete market product grid analysis, each cell in
the grid can show the estimated market size of a given product sold to a specific market. Figure 8-A,
here on the slide, recalls our side sleepers versus our back sleepers versus our stomach sleepers.
Developing a market product grid means identifying label to markets on the horizontal rows, as well as
the product groupings on the vertical rows.
Step 4. Selecting target markets.
A firm must take care to choose its target market segments carefully. If it picks too na
ow a set
of segments, it may fail to reach the sales volume and profit it needs. If it selects too
oad a set of
segments, it may spread its marketing efforts so thin that the extra expenses are more than the
increased sales and profits. There are two criteria in the market segmentation process, and they are
used to divide the markets into segments and then actually pick those market segments.
Five criteria can be used to select a firm's target market segments. Market size: the estimated
size of the market is a critical factor in determining whether the market is worth targeting. Expected
growth: assess whether the market segment is projected to grow in the future. Competitive position:
assess the firm's position in the segment relative to cu
ent and future competition. Next up, the cost of
eaching the segment: if inaccessible to a firm's marketing actions, the segment should not be pursued.
Next up, compatibility with the organizations, objectives, and resources: the firm must economically
each the segment with its offering.
Ultimately, a marketer must use these criteria to choose the segments for their marketing
actions. In the textbook, for example, Wendy's, the
eakfast grouping was written off for two reasons:
1) it's too small a market, 2) it's incompatible with the objectives and resources.
BABA 630:201 Principles of Marketing
Module 6: Marketing Research and Market Segmentation
“Chapter 8: Market Segmentation, Targeting, and Positioning”
Page 4 of 5
Finally, the fifth step is taking marketing actions to reach target markets.
The purpose of developing a market product grid is to trigger marketing actions to increase sales
and profits. This means that someone must develop and execute an action plan in the form of a
marketing program.
They’re the five key steps in the segmenting and targeting markets: Grouping potential buyers
into segments; grouping products to be sold into categories; developing a market product grid, as well
as estimating the size of the markets; selecting those markets; and then taking marketing actions to
each those markets.
One very important topic connected to market segmentation is positioning. We touched on this
earlier in the class, but now we're going to spend some time and talk about it. Positioning refers to the
place that a product occupies in a consumer's mind, or an important attribute relative to the
competitive offerings and products. Product repositioning is changing the place that a product occupies
in a consumer's mind relative to competitive products. There are two approaches to product
positioning. The first is head-to-head: this involves competing directly with competitors on similar
product attributes in the same target market. The other is differentiation positioning: this involves
seeking a less competitive, smaller market niche in which to locate a
and.
There is a great book called Positioning: The Battle for Your Mind by Ries and Trout. It's a
marketing classic; I highly recommend it for reading for anyone that's interested. Let's talk a little bit.
How do we craft and create a positioning statement? Marketing managers often convert their
positioning ideas for an offering or a
and into succinctly