Target Markets: Segmentation and Evaluation

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Target Markets Segmentation and Evaluation

• Dr. John T. Drea
• Professor of Marketing
• Western Illinois University

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Market

• What is a market? It is composed of...

People and/or organizations
with needs and wants,
the ability to buy,
the willingness to buy, and
the authority to buy.
You need to have all of these elements present
before you have a market!
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Some key terms/concepts

• Target market - a homogenous segment that your
  organization has chosen to pursue.
• Niche - one segment (usually small) of an overall
  market.
• Mass market - an entire market, unsegmented (ex
  Wal-Mart)
• For a segmentation basis to work, it need to
  based on a set of attributes that are meaningful.

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What is Market Segmentation?

• Defined
• the process of dividing a market into meaningful,
  relatively similar and identifiable segments or
  groups.
• Changing a heterogeneous group (market) into
  smaller homogenous groups (market segments)
• 4 Criteria

Identifiability and Measureability
Substantiality
Responsiveness
Accessibility
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Market Segmentation

• Why do we segment markets? To do a better job of
  meeting consumer needs, and to be consistent with
  the marketing concept.
• Consider Coca-Cola Co.

Before 1960 Since 1960
Coke, Diet Coke, Sprite, Cherry Coke,
Caffeine-Free Coke, Citra, Minute Maid,
Fruitopia, etc.
Coke
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Bases of Segmentation

• Geographic grouping potential buyers according
  to location (ex most retail)
• Demographic grouping potential buyers according
  to age, gender, income, ethnic background, family
  characteristics, etc. (ex many clothing stores,
  movies)
• Psychographic grouping potential buyers
  according to personality, motives, and lifestyles

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Bases of Segmentation (continued)

• Benefit segmentation grouping potential buyers
  according to the benefits they seek from
  products. It groups according to product-related
  needs. (ex Head and Shoulders)
• Usage-rate (type of customer) segmentation
  grouping potential customers by the amount they
  would buy (ex travelers, DIY centers, banks)

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Segmenting for business to business sales

• Broad segmentation variables like usage rate
  sometimes dont help enough, so we divide even
  smaller. Microsegmentation is sub-dividing
  business markets on the characteristics of
  decision-making units. Typical microsegmentation
  variables are
• Key purchasing criteria (whats really
  important?)
• Purchasing strategies (satisficers versus
  optimizers)
• Importance of purchase (is it routine? This can
  be a function of size, or importance of the
  input)
• Personal characteristics (e.g., if tolerance for
  risk is low, what brand of computer would you buy?

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Strategy issues (continued)

• Basic ways to develop market oriented strategies
  in a broad product market
• Undifferentiated targeting all segments, one
  marketing mix
• Concentrated targeting one segment, one
  marketing mix.
• Multisegment targeting pursuing more than one
  segment and using more than one marketing mix
• Multiple target market market approach gt 1
  segment, and a different marketing mix for each
  segment.
• Combined target market approach gt 1 segment, but
  one marketing mix.

But watch out for cannibalization!
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Strategy issues (continued)

• Undifferentiated and Combined Target Markets
• can lower production/marketing costs,
• may not meet individual needs as well, leave
  opportunity for others to attack niches.
• Concentrated Target Market
• concentration of resources, usually a better job
  of meeting needs, allows some smaller firms to
  better compete with larger ones.
• segments can be too small/change
• Multisegment Target Markets
• broader customer base, some economies of scale,
• higher unit costs and cannibalization.

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Positioning

• Developing a specific marketing mix to influence
  perceptions of potential customers about a brand,
  product line, or organization.
• Positioning is a matter of perception.
• It is the consumers perception of the product
  that is important (as opposed to the companys
  perception).
• Positioning is a basis for product
  differentiation a strategy for making your
  products standout from others

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Positioning example

• What do these brands of laundry detergent have in
  common?
• Tide
• Cheer
• Bold
• Gain

• Era
• Dash
• Oxydol
• Solo
• Dreft
• Ivory Snow
• Ariel

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Multiple target market issues

• Product design costs (minor or major- label
  change or product re-design?)
• Production costs (length of production run
  typically influences unit cost)
• Promotion costs (creating different ads for
  different segments costs )
• Inventory costs (typically increase)
• Market research costs (requires accurate,
  detailed information)
• Management costs (requires additional management
  time)