MARKET SEGMENTATION

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MARKET SEGMENTATION
Who is being Targeted?
Part 1 of 3
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First, What Is A Market?Actual or Potential
Customers with
Authority To Buy

Buying Power (Ability)
Willingness - Want To Buy
Unmet need or want
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Market Segmentation

• Divides the market into two or more
  (homogeneous) sub groups based on similar
  expected responses to marketing mix offerings.
• Assumption subgroups differ in wants/needs that
  require separate marketing mixes. (response
  elasticity-inelasticity)
• Process identify bases of audience division,
  develop measures of sales potential (demand
  estimation), evaluate, select audience and
  position product via the marketing mix.

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Market Segmentation
Environmental Opportunity Analysis
Connects Company Resources with Market Demand
Target Market Segmentation
Demand Estimation
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Market Segmentation

• Benefits
• Non-price focus
• Brand demand becomes more inelastic
• Operational efficiency. . for resources

• Disadvantages
• Identifying demand elasticities
• Separating sub group(s) (Cannibalism)
• Increased costs
• Over fragmentation

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Conditions for Market Segmentation Viability

• Measurability - the degree to which the size and
  purchasing power of segments can be readily
  measured (identifiable divisible).
• Accessibility - the ability to effectively reach
  and serve segments.
• Substantiality - the degree of segment size
  and/or profitability.
• Actionability (responsiveness)- degree to which
  effective marketing programs can attract
  segments. (response to product)

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A. Undifferentiated Strategy
Major Segmentation Strategies
One Marketing Mix

Mass Market
(one product) (everyone)
(one demand) curve
Q
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Undifferentiated Strategy

• Advantages Disadvantages
• Cost Economies Hyper competition
• Majority - Fallacy
• Imprecise - Inefficient

a mass marketing effort, Offer one product to
the total market (everybody) E.g., Coca-Cola
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B. Concentrated Strategy
Segment 1
One Marketing Mix (one or more) products
Segment 2 and subdivision 2A, 2B
Segment 3


Q
Q
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Concentrated Strategy
Choose focus on one segment E.g., Mercedes,
VW

• Advantages Disadvantages
• Precise - Efficient High Risk
• (Knowledge of Consumer) One Market Segment
• Cost Economies
• (80-20 principle)

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C. Differentiated Strategy
Stimuli
Target Audience Black Box
Responses

Marketing Mix 1 (Product 1) Marketing Mix
2 (Product 2) Marketing Mix 3 (Product
3)
Segment 1 Segment 2 Segment 3
Q
demand curve 1

Q
demand curve 2

Q
demand curve 3
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Differentiated Strategy
Target two or more segments with one or more
brands.

• Potential Advantages
• - Precision - Efficiency Sales Increase
• Potential Disadvantages
• - Cost Diseconomies
• Potential Social Issue
• - Product Proliferation

Cross segments Offer same product across
different segments. E.g., Duponts Teflon
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Custom Marketing

• Your name
• Room preferences
• Special requests
• Smoking or non smoking
• Credit card number
• Frequent hotel user discount

• One-to-one marketing
• Uses data based-marketing and information
  technology
• For example... GATEWAY, DELL

• Counter segmentation Consolidate several
  segments and launch or reposition a product to
  cover all segments.
• E.g., Nissan and Toyota

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Two Types of Markets

• Consumer Market

Rascos Motor Oil

• Organizational or Business-to-Business
  Market (B2B)

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Segmentation Variables for Organizational (B2B)
Markets

• Type of industry
• Organizational characteristics
• Type of product volume
• Financial Size
• Geographic location
• Purchase behavior/usage

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Segmentation Variables for Consumer Markets
Objective Customer Satisfaction
Marketing Concept
Problem Solution
Product Benefits

• Product Usage
• heavy - light

Psychographic (Black Box) Motives, Life style
Audience Characteristics Geography - Demographics
- Customer Type
There is no single best way. It is a bundle.
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Segment Cross-Classification Aerobic Shoes
2x3x5 30 sub segments
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Demographic Segments by Age

• 1999 (midyear) 2010
• Population 273,131 298,026
• 0-4 18.1 - 6.9 20.0 - 6.7
• 5-14 39.5 - 14.5 39.7 - 13.3
• 15-19 19.7 - 7.2 21.8 - 7.3
• 20-24 18.1 - 6.9 21.2 - 7.2
• 25-34 38 - 13.9 38.4 - 12.9
• 35-44 44.9 - 16.4 38.5 - 12.9
• 45-54 35.8 - 13.1 43.6 - 14.6

..
..
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Demographic Segments by Age

• 1999 midyear 2010
• Population 273,131
  298,026
• 55-64 23.4 - 8.6 35.3 - 11.8
• 65-74 18.2 - 6.7 21.0 - 7
• 75 16.3 - 5.9 18.3 - 6.1
• Life expectancy 76.2 77.4
• Zero pop. growth rates, decreasing birthrates and
  an aging population.
• Age is predictive of behavior correlates w/
  income

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Macro Analysis Spending Levels of Three Age
Groups for Selected Product Categories
PF Text pg 275
FIGURE 8.4
Source U.S. Department of Labor, Bureau of Labor
Statistics. August 2000.
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Applied Marketing
Time for Age Segmentation

• A growing gap between the young and old
• The age group (40-59/empty-nesters) in Korea,
  Hong Kong, Singapore and Taiwan is forecasted to
  grow by 30 to 10.9 million, while the youth
  market shrinks by 10 to 11.4 million in the
  same decade.
• Population growth is from younger, developing
  countries such as Mexico and Brazil
• They buy more toothpaste and laundry detergent
• Young adults tend to spend
• Pick up on new technology faster
• Quicker to open their wallets

WSJ,27Feb03
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Companies are forced to rethink how they market
their products, but strategy changes are slow

• Half of Japans population will be over 50 by
  2025 compared to the U.S. with 36 over 50
• Older people take time to examine their
  purchases, while younger adults dont hesitate
  to buy
• The U.S. focus is to affluent, aging customers
• toothpaste with Rejuvenating Effects for aging
  women
• An anti-aging cream, Olay

• Cell phone features for aging customers
• Zoom function to enlarge the font size on the
  small screens
• Internal speakers that can
  connect with hearing aids

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Whats Going On?
Age Segmentation
Applied Marketing
This Is Not Your Fathers Toyota

• Loyal customers entering golden years
• Young drivers are not replacing them
• Median buying age 45 years old

WSJ, March 26, 2002
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HONDA
Applied Marketing

• Japans 2 car maker
• Specializes in compact, fuel efficient cars
• To stay competitive 20 30 yr old engineers
  designed the ELEMENT
• Hondas 2003 Innovative SUV
• Target Market Generation X (people born
  1965-1979)
• Is buying a tiny car worth the risk?

Very Defensive Driving, WSJ
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Applied Marketing
Demographic Segmentation Ethnic Preferences

• Marlboro targets white teen smokers
• 58 of white teens smoke Marlboro
• 8.1 of black teens smoke Marlboro

The Marlboro Man, that rugged cowboy we all
know and love.

• Menthol cigarettes are targeted toward African
  Americans.

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Demographic SegmentationBy Family Life Cycle
Based on marital status and children

• Single
• Newly Married without children
• Married with children
• Middle age
• Middle age without children
• Older married (Empty nest)
• Solitary survivor
• Divorces
• Unwed w/children
• Singles

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PF TEXT pg 277
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Family Life Cycle (Shattered?)
Divorce

• - 93 of all adults marry.
• - 50 of all first marriages end in divorce.
• - 60 of 2nd marriages fail.
• - 38 of divorces occur within the 1st 5 yrs.
• - 80 of divorced males do not provide child
  support.
• Source(s) Splitup.Com.
• Www.Split.Com/.
• Ency. Of Mormonism.
• (Feb 2000) www.Stepfamily.Com.

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Applied Marketing Family Life Cycle

• Fisher-Price plans to market their electronic
  learning toys towards Generation X mothers.

• Electronic Learning Toys Account for 27 of toys
  sold for preschool market
• 1.2 billion in sales last year
• 60 growth since 2000

WSJ September 19, 2003
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Family Life Cycle Forecasts (Trends)

• 2000 2010
• All 110,140 117,696
• Families 70.6 68.1
• - Married Couples 55.4 52.1
• - Children lt 18 22.1 19.9
• gt 18 4.8 5.8
• - Single Father 1.4 1.4
• - Single Mother 6.8 6.6
• - Others 7.0 8.1
• - No children 28.5
  26.3

Family size is decreasing!
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Non-family Forecasts

• 2000 2010
• Non-families 29.4 31.9
• - Living alone men 9.9 10.7
• - women 14.8 15.8
• - Others 4.8 5.4

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Geographic Segmentation

• Population Density - Political Boundaries
• - Nations, Regions
• counties (urban - rural), Cities -
  neighborhood(s)

• Climate
• National Resources
• Terrain

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Benefit Segmentation Geo-demographic
Segmentation

• Target Audience the Baby Boom Generation?
  (1946-1965)
• Honda believes older drivers seek safety features
  and will target senior populations (i.e. Florida)
  
• Innovative Safety Features
• Improved designs for a sturdier car
• Sophisticated Cruise-Control System
• Collision Mitigation Brake System

Geodemographic- cluster people by geographical
area on life style demographics
WSJ Spring 04
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Geographic Population Growth1990-2010
40 Northwest
26 West
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Percentage Change in Metropolitan and Non
metropolitan Populations, by Region and Division
1990 to 1998
Metropolitan
16.1
Non metropolitan
13.8
13.1
9.1
7.5
7.0
5.9
3.9
2.3
1.7
Midwest
Northeast
U.S.
West
South
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Percentage Change in Metropolitan and Non
metropolitan Populations, by Region and
Subdivisions 1990 to 1998
South Region
Northeast Region
14.4
13.2
9.8
9.8
6.7
5.9
2.9
1.8
1.9
1.5
New England
Middle Atlantic
South Atlantic
West South Central
East South Central
Metropolitan
Non metropolitan
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Alcohol (Beer/Liquor) Consumption American
Demographics Magazine, Jan. 97 by Shannon Dortch

• Various Groups of Drinkers Population
• Total Adults 41.3
  187.7
• Females 32.6
  97.6
• Males 50.7
  90
• 18-24 47.7 23.9
• Northwest Region 42.9 38.6
• Mid-West Region 43.1
  45.0
• Southern Region 38.9
  65.2
• Western Region 41.6 38.8

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Product Usage by Regional Divisions
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Californias Mexican Housholds

• To capture consumer spending, locate where
  consumer spending is growing
• After tax income grew from 62 bil. to 92 bil.
  (1995-1999)

WSJ,8Feb01,A18,urban Inst.
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Geographic Segmentation by Metropolitan
Classifications

• MSA - any area with a city or urbanized
• area with 50,000 pop. and a total
  metropolitan pop. at 100,000
• - an urbanized area encircled by
• non-metro counties and is neither
  socially nor economically
• dependent on any other metro area
• PMSA - 1 million
• CMSA - consists of two or more PMSAs

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Metro Areas of the Future

• 2000 2010
  change
• 1. New York-Newark, NY-NJ-PA 17,381 17,806
  2.4
• 2. L.A.-Long Beach, CA 9,338 9,797
  4.9
• 3. Chicago, IL 7,738 8,050 4.0
• 4. Boston-Brockton-Nashuma, MA-NH 5,902
  6,112 3.6
• 5. Philadelphia, PA-NJ 5,066 5,202
  2.7
• 16. Pittsburgh, PA 2,431 2,470
  1.6
• 19. Cleveland-Lorain-Elyria, OH
  2,217 2,232 0.6
• 40. Orlando, FL 1,735 2.237
  28.9