In order to understand how and why marketers target certain groups (e.g., teens; minorities) with certain products (e.g., alcohol; tobacco) it is helpful to understand something about the the three-step process of segmentation, targeting and positioning.

What is mass-marketing
A strategy that presumes there is one undifferentiated market and that one product will appeal to all consumers in that market (e.g., the Model-T Ford; Coca-Cola until very recently)

What’s the problem with Mass Marketing?
It only works if all consumers have the same needs, wants, desires, and the same background, education and experience.

It does, however, have the advantage of lower cost

• One advertising campaign is needed
• One marketing strategy is developed
• Usually only one standardized product is developed

1. Segmentation
Act of dissecting the marketplace into submarkets that require different “marketing mixes”
2. Targeting
Process of reviewing market segments and deciding which one(s) to pursue.
3. Positioning
Establishing a differentiating image for a product or service in relation to its competition

1. Market Segmentation
The process of dividing a market into distinct subsets (segments) of consumers with common needs or characteristics and selecting one or more to target with a distinct marketing mix.

Segmentation Variables
Your reading identifies five bases on which to segment a market:
a. Geographic
b. Demographic
c. Geodemographic
d. Psychographic
e. Behavioral

How many variables does a marketer use?
Marketers may use a single variable.
Marketers may use two or more variables.

a. Geographic Segmentation
Division of the market based on the location of the target market.

What is the theory behind it?

• People living in the same area have similar needs and wants that differ from those living in other areas
• E.g., people who live in the Northeast are more likely to buy cars with four-wheel drive than those in the Southeast

b. Demographic Segmentation
Partitioning of the market based on factors such as age, gender, marital status, income, occupation, education, and ethnicity.

Age
Product needs and interests often vary with consumers’ age (e.g., teens are interested in clothing and video games)

Demographers have identified two different underlying forces related to chronological age:
1. Age Effects
Occurrences due to chronological age (e.g., interest in physical fitness among baby boom generation)
2. Cohort Effects
Based on the idea that people hold onto the interests they grew up to appreciate (e.g., baby boomers will continue to listen to rock 'n roll rather than start listening to big band music as their parents did)

Gender
Gender is frequently a distinguishing variable (e.g., some hygiene products are marketed to women only).

Changes in the family and growth of the dual-income household have minimized its importance somewhat (e.g., computers, cell phones, business travel, etc. today are marketed to both men and women)

Marital Status
Marketers have identified specific marital status groups, such as:

• Singles
• Divorced individuals
• Single parents
• Dual-income married couples

Income, Education & Occupation
These three variables are often related and therefore often used together as a measure of one’s social class.

Income is commonly used because marketers feel it is a strong indicator of ability to pay for a particular product or service

Income is often combined with other variables to narrow target markets:

• With age to identify the important affluent elderly
• With age and occupation to produce the "yuppie" segment

Race and Ethnicity
The size and purchasing power of minorities make them an attractive target market.

The size of the market is growing dramatically relative to the “majority” population (e.g., in California today whites are no longer the majority)

Targeting certain products (e.g., alcohol, tobacco) to such groups raises ethical issues

c. Geodemographic Segmentation
A hybrid segmentation scheme based on notion that people who live close to one another are likely to have similar financial means, tastes, preferences, lifestyles and consumption habits.

Market research firms specialize in producing computer-generated geodemographic market “clusters” of consumers.

They have clustered the nation’s >250,000 neighborhoods into lifestyle groupings based on postal zip codes

Marketers use the cluster data for mail campaigns, to select retail sites and merchandise mixes, to locate banks and restaurants, etc.

Best known is PRIZM (Potential Rating Index by Zip Market) developed by Claritas

Learn more about PRIZM:
http://geography.about.com/library/weekly/aa063001a.htm

Visit the PRIZM website and check it out:
http://cluster2.claritas.com/YAWYL/Default.wjsp?System=WL
 

d. Psychographic Segmentation
Partitioning of the market based on lifestyle and personality characteristics.

Marketers use it to further refine a target market.

Its appeal lies in the vivid and practical profiles of consumer segments that it can produce.

Accomplished by using AIO inventories--questionnaires that reveal consumers’ activities, interests, and opinions

AIO Inventories
AIO research seeks consumers’ responses to a large number of statements that measure:

• Activities (how the family spends time, e.g., working, vacationing, hiking)
• Interests (the family’s preferences and priorities, e.g., home, fashion, food)
• Opinions (how the consumer feels about a variety of events and political issues, social issues, the future, etc.)

e. Behavioral Segmentation
Partitioning of the market based on attitudes toward or reactions to a product and to its promotional appeals.

Behavioral segmentation can be done on the basis of

• Usage rate
• Benefits sought from a product
• Loyalty to a brand or a store

In general, a relatively small number of heavy users account for a disproportionately large percentage of product usage (e.g., 25-35% of beer drinkers account for 70% of consumption)

Targeting those heavy users is a common marketing strategy

Benefit Segmentation
Marketers constantly attempt to identify the one most important benefit of their product that will be the most meaningful to consumers.

Changing lifestyles play a major role in determining the product benefits that are important to consumers and also provide marketers with opportunities for new products and services (e.g., the rise in dual income families increased demand for microwave ovens and convenience foods)

Brand and Store Loyalty
Brand loyalty: the tendency of some consumers to repeatedly select the same brand within a given product category.

Store loyalty: a parallel tendency of some consumers to repeatedly patronize a particular retail establishment.

Marketers often try to identify the characteristics of their brand-loyal customers so they can target consumers with similar characteristics in the larger population.

Marketers also target consumers who show no brand loyalty as a means of penetrating a larger market.

Marketers reward brand loyalty by offering special benefits to frequent customers (e.g., frequent flyer programs)

2. Choosing Market Segments to Target
Once an organization has identified its most promising market segments, it must decide whether to target one segment or several segments.

Each targeted segment will then receive a specially designed marketing mix—a specially tailored product, price, distribution network and/or promotional campaign

Market Targeting Strategies
There are three basic types of strategies:
a. Undifferentiated
b. Multisegment (Differentiated)
c. Concentration (Niche)

a. Undifferentiated Strategy
A strategy that ignores differences between groups within a market and offers a single marketing mix to the entire market (e.g., Coke)

It works when a product is new to the market and there is minimal or no competition.

Main advantage--economies in production and marketing

Main disadvantage--vulnerability to competitors offering more differentiated products and services to market subsegments

b. Multisegment/Differentiated Strategy
Targeting two or more segments with different marketing mixes for each (e.g., General Motors with its car lines of Chevrolet, Oldsmobile, Buick and Cadillac, each targeted to a different segment based on age and income).

Advantages--minimizes risks, as losses in one segment can be made up for in others; unique product features allow for higher prices.
Disadvantage--increased costs for differentiated products and marketing.

c. Concentration/Niche Marketing Strategy
Focus on one sub-market (e.g., Harley-Davidson motorcycles)

Advantages--greater knowledge of customers’ needs; economies of scale

Disadvantages--entry of a strong competitor; change in size or tastes of the segment
 

3. Positioning
Once marketers have segmented the market and selected the target, the product or service needs to be properly “positioned.”

This means deciding how the firm wants the company and its brands to be perceived and evaluated by target markets; differentiating the product from other products of the firm or its competition (e.g., Carnival Cruise Line's "fun ships" targets a younger audience with less disposable income than Royal Caribbean, which emphasizes duperior service)

Positioning complements and is an integral part of the company’s segmentation strategy and selection of target markets.

The same product can be positioned differently to different market segments.

The result of successful positioning is a distinctive brand image on which consumers rely in making product choices (e.g., Volvo has created an image of a vehicle that is safe for the family)

Repositioning
Marketers may be forced to “reposition” products due to competition or a changing environment (e.g., Volvo, again, emphasizing a sportier image to appeal to today's families).

Perceptual Mapping
A spatial picture of how consumers view products or brands within a market.

Allows marketers to determine how their product appears in relation to competitive brands.

Enables them to see gaps in positioning of all brands in the product class to identify areas in which consumer needs are not being met.