CHAPTER

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.

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OPENING THOUGHT
The first challenges presented in this chapter are the concepts of market segmentation and
the segmentation processes used by marketing firms. Students may have difficulty
understanding the various steps of the segmentation process as well as differentiating
between target markets and market positioning. The instructor is urged to use personal
examples of target marketsthe differences between the instructors age cohort and that
of his/her studentsfor example in illustrating the different markets.
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.
Suggestions to help students understand the degree of sophistication used by marketers
include using the Claritas PRIZM Web site during the class lecture, pinpointed by a
students zip code for example, to show the amount of information available to
marketers. Additional examples for classroom demonstrations include asking students to
research information on the Internet on their particular favorite product and information
by their zip code or other criteria. Many firms provide differing products to different
consumers, Toyota, for example offers the Toyota line of cars and the Lexus family of
cars. Both of these brands can be used to illustrate product differentiation and target
marketing.
TEACHING STRATEGY AND CLASS ORGANIZATION
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.
3. Sonic PDA Marketing Plan Market segmentation is an important part of any
marketing plan. It is the first step in the STP process that precedes any marketing
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strategy: segmentation, targeting, and positioning. The purpose of STP is to identify

and describe distinct market segments, target-specific segments, and then pinpoint the
differentiating benefits to being stressed in marketing.
In your role as Jane Melodys assistant, you are responsible for market segmentation
and targeting for Sonics PDA product. Look at the SWOT Analysis, Market
Description, and Competitive Review sections and then answer:

Which variables should Sonic use to segment its consumer markets?

Which variables should Sonic use to segment its business markets?
How can Sonic evaluate the attractiveness of each identified segment?
Should Sonic pursue full market coverage, market specialization, product
specialization, selective specialization, or single-segment concentration? Why?

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, biomedical 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?

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Figure 8.4 outlines the major VALS segmentation (www.sric-bi.com). Students are
asked to characterize either themselves, family members, or others and place them in one
of these groups. How closely does the person the student selected, fit the profile? If so,
can the marketer rely on these characterizations in mapping out marketing plans? Are
there major differences? If major differences exist, what impact does this have on
marketers developing marketing plans?
Marketing Insight, Marketing to Generation Y, is a compilation of thoughts and notes
from a number of sources. Ask the students to read each of these sources and be prepared
to share their thoughts as well as comments about what they have read in class.
Specifically, are these authors on-target when it comes to characterizing their
generation? Are these insights an oversimplification of the buying habits of their
generation? Are there any missing insights from these readings that will have a
profound impact on future marketing strategies?
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 usefulthe 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
fortable salt!
END-OF-CHAPTER SUPPORT
MARKETING DEBATEIs Mass Marketing Dead?
With marketers increasingly adopting more and more refined market segmentation
schemesfueled by the Internet and other customization effortssome 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 consumersfor example, the design of a new home can be both a rewarding and
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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 consumers 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.
MARKETING DISCUSSIONDescriptive Versus Behavioral Market
Segmentation Schemes
Think of various product categories. In each segmentation scheme, to which segment do
you feel you belong? How would marketing be more or less effective for you depending
on the segment? How would you contrast demographic and behavioral segment schemes?
Which one(s) do you think would be most effective for marketing trying to sell to you?
Suggested Response:
Each students answer will vary depending upon the product chosen. However, all
answers should contain some of the following terms.
Niche markets
Local marketing
Customerization marketing
Geographic segmentation
Age and life-cycle stage
Life stage
Gender
Income
Generation
Social class
Psychographic segments (VALS)
Behavioral variables
Usage rates
Buyer-readiness stages
Loyalty status
Marketing Excellence: HSBC
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1.) What are the risks and benefits of HSBCs positioning itself as the Worlds Local
Bank?
Suggested Response: Successful target marketing includes segmentation, targeting, and
market positioning well. HSBC positioning as the worlds local bank requires HSBC
to be very accurate and definitive in its execution of these three activities across all of the
worlds countries, a huge undertaking.
2.) Does HSBCs 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.
Marketing Excellence: BMW
1.) What are the pros and cons to BMWs 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 BMWs 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. BMWs full range of cars now include the 1
Series, 3 Series, 5 Series, 6 The redesign of the 7 Series, BMWs most luxurious car,
targeted a group called upper conservatives. These wealthy, traditional consumers
traditionally dont 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 BMWs 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
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continues to attract attention with more showy, flamboyant cars. BMWs 6 Series, a
flashier version of the high-end 7 Series, also targeted this group.
2.) BMWs 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.
DETAILED CHAPTER OUTLINE
Companies cannot connect with all customers in large, broad, or diverse markets. But they
can divide such markets into groups of consumers or segments with distinct needs and wants.
A company then needs to identify which market segments it can serve effectively. This
decision requires a keen understanding of consumer behavior and careful strategic thinking.
To develop the best marketing plans, managers need to understand what makes each segment
unique and different.
To compete more effectively, many companies are now embracing target marketing.
Effective target marketing requires that marketers:
A) Identify and profile distinct groups of buyers who differ in their needs and wants
(market segmentation).
B) Select one or more market segments to enter (market targeting).
C) For each target market, establish and communicate the distinctive benefit(s) of the
companys market offering (market positioning).
BASES FOR SEGMENTING CONSUMER MARKETS
Market segmentation divides a market into well-defined slices. A market segment
consists of a group of customers who share a similar set of needs and wants. The
marketers task is to identify the appropriate number and nature of market segments and
decide which one(s) to target.
We use two broad groups of variables to segment consumer markets.
A) Descriptive characteristics: geographic, demographics, and psychographic.
B) Behavioral considerations: consumer responses to benefits, usage occasions, or brands.
Regardless of which type of segmentation scheme we use, the key is adjusting the marketing
program to recognize customer differences.
Geographic Segmentation
Geographic segmentation divides the market into geographical units.
A) More and more, regional marketing means marketing right down to a specific zip
code.
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B) Claritas, Inc. has developed a geoclustering approach called PRIZM that classifies
neighborhoods into distinct groups and lifestyle segments called PRIZM Clusters.
Here are four examples of PRIZM clusters:
1. Young Digerati
2. Beltway Boomers
3. The Cosmopolitans
4. Old Milltowns
C) Marketers can use PRIZM to answer a variety of questions.
D) Marketing to microsegments has become possible even for small organizations as
database costs decline, software becomes easier to use, and data integration
increases.
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.
Age and Life-Cycle Stage
Consumer wants and abilities change with age.
Nevertheless, age and life cycle can be tricky variables. The target market for some
products may be the psychologically young.
Life Stage
A) Persons in the same part of the life cycle may differ in their life stage. Life stage
defines a persons 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 middlemarket 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.
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Generation
A) Each generation or cohort is profoundly influenced by the times in which it grows up.
B) Demographers call these groups cohorts.
1) They share similar outlooks and values.
2) Marketers often advertise to a cohort by using the icons and images prominent in
its experiences.
Marketing Insight: Marketing to Generation Y
The influences that shaped Gen Y are important to marketers because this cohort will shape
consumer and business markets for years to come. Members of this cohort are often turned
off by overt branding practices and a hard sell; marketers must use different and often
unconventional approaches to reach them.
C) Generational cohorts also influence each other.
D) Marketers often advertise to a cohort by using the icons and images prominent in its
experiences.
a) Millennials
b) Gen X
c) Baby Boomers
d) Silent Generation
Race and Culture
Multicultural marketing is an approach recognizing that different ethnic and cultural
segments have sufficiently different needs and wants to require targeted marketing
activities, and that a mass-market approach is not refined enough for the diversity of the
marketplace.
The Hispanic-American, African-American, and Asian-American markets are all growing
at two to three times the rate of non-multicultural populations, with numerous
submarkets, and their buying power is expanding.
Multicultural markets also vary in whether they are first and second (or more) generation,
and whether they are immigrants or U.S. born and raised.
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 2010the HispanicAmerican 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.
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B) Hispanic-Americans often share strong family valuesseveral generations

may reside in one householdand 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.
B) Asian-Americans tend to be more brand-conscious than other minority groups
yet are the least loyal to particular brands LGBT. The Lesbian, Gay, Bisexual and
Transgender market is estimated to make up 5% to 10% of the population and
have approximately $700 billion in buying power.
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 Intelligences 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
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c. Makers
d. Survivors
Behavioral Segmentation
In behavioral segmentation, marketers divide buyers into groups on the basis of their
knowledge of, attitude toward, use of, or response to a product.
Needs and Benefits
A) Benefits: Not everyone who buys a product has the same needs or wants the same
benefits from it.
B) Needs-based or benefit-based segmentation is a widely used approach because it
identifies distinct market segments with clear marketing implications.
1) Enthusiasts (12%)
2) Image Seekers (20%)
3) Savvy Shoppers (15%)
4) Traditionalists (16%)
5) Satisfied Sippers (14%)
6) Overwhelmed (23%)
Decision Roles
Its easy to identify the buyer for many products. People play five roles in a buying
decision: Initiator, Influencer, Decider, Buyer, and User.
User and Usage-Related Variables
Many marketers believe variables related to various aspects of users or their usage
occasions, user status, usage rate, buyer-readiness stage, and loyalty statusare good
starting points for constructing market segments.
A) Occasions
B) User Status
C) Usage Rate
D) Buyer-Readiness Stage
E) Loyalty Status
a) hard-core loyals
b) split loyals
c) shifting loyals
d) switchers
F) Attitudes
a) enthusiastic
b) positive
c) indifferent
d) negative
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e) hostile
G) Multiple bases
BASIS FOR SEGMENTING BUSINESS MARKETS
Business markets can be segmented with some of the variables used in consumer market
segmentation but business marketers also use other variables.
Within a given target market industry and customer size, a company can segment further
by purchase criteria.
Business marketers generally identify segments through a sequential process.
A) The company first undertook macrosegmentation. It looked at which end-use
market to serve: automobile, residential, or beverage containers. It chose the
residential market, and it needed to determine the most attractive product application:
semifinished material, building components, or aluminum mobile homes. Deciding to
focus on building components, it considered the best customer size and chose large
customers.
B) The second stage consisted of microsegmentation. The company distinguished
among customers buying on price, service, or quality. Because it had a high-service
profile, the firm decided to concentrate on the service-motivated segment of the
market.
Business-to-business marketing experts Anderson and Narus have urged marketers to
present flexible market offerings to all members of a segment.
C) A flexible market offering consists of two parts: a naked solution containing the
product and service elements that all segment members value, and discretionary
options that some segment members value. Each option might carry an additional
charge.
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.
Effective Segmentation Criteria
To be useful, market segments must rate favorably on five key criteria:
A) Measurable
B) Substantial
C) Accessible
D) Differentiable
E) Actionable

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Evaluating and Selecting the Market Segments

In evaluating different market segments, the firm must look at two factors: The segments
overall attractiveness and the companys objectives and resources.
Full market coverage
1) The firm attempts to serve all customer groups with all the products they might
need.
2) In undifferentiated marketing, the firm ignores segment differences and goes after
the whole market with one offer.
3) In differentiated marketing, the firm operates in several market segments and
designs different products for each segment.
Multiple Segment Specialization
1) With selective specialization, a firm selects a subset of all the possible
segments, each objectively attractive and appropriate. There may be little or no
synergy among the segments, but each promises to be a moneymaker.
2) Keeping synergies in mind, companies can try to operate in supersegments
rather than in isolated segments. A supersegment is a set of segments sharing
some exploitable similarity.
3) With product specialization, the firm sells a certain product to several different market
segments. A microscope manufacturer, for instance, sells to university, government, and
commercial laboratories, making different instruments for each and building a strong
reputation in the specific product area. The downside/risk is that the product may be
supplanted by an entirely new technology.
4) With market specialization, the firm concentrates on serving many needs of a
particular customer group, such as by selling an assortment of products only to university
laboratories. The firm gains a strong reputation among this customer group and becomes
a channel for additional products its members can use. The downside/risk is that the
customer group may suffer budget cuts or shrink in size.
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 segments 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.
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4) For these reasons, many companies prefer to operate in more than one
segment.
5) Companies can try to operate in super-segments rather than in isolated
segments.
a. A super-segment is a set of segments sharing some exploitable similarity.
Individual Marketing
The ultimate level of segmentation leads to segments of one, customized marketing,
or one-to-one marketing.
Today customers are taking more individual initiative in determining what and how to
buy.
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.
Customerization combines operationally driven mass customization with customized
marketing in a way that empowers consumers to design the product and service offering
of their choice.
Ethical Choice of Market Targets
Market targeting also can generate public controversy when marketers take unfair
advantage of vulnerable or disadvantaged groups, or promote potentially harmful
products.

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