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Chapter 9

80/20 rule

A concept that suggests 80% of a firm's sales are obtained from 20% of its customers. The percentages in the concept are not really fixed but suggets that a small fraction of customers provides a large fraction of a firm's sales.

marketing-product grid

A framework to relate the market segments of potential buyers to products offered or potential marketing actions by an organization

market segmentation

Involves aggregating prospective buyers into groups, or segments, that (1) have common needs and (2) will respond similarly to a marketing action.

market segments

The relatively homogeneous groups of prospective buyers that result from the market segmentation process.

perceptual map

a means of displaying or graphing in two dimensions the location of products or brands in the minds of consumers to enable a manager to see how consumers perceive competing products or brands, as well as its own product or brand to develop marketing actions to move its product or brand into an ideal position.

product differentation

a marketing strategy that involves a firm's using different marketing mix activities to help consumers perceive the product as being different and better than competing products.

Usage Rate

The quantity consumed or patronage (store visits) during a specific period. Also called frequency marketing

Key of Marketing segmentation

1. forms meaningful groupings 2. develops specific marketing mix actions

One Product and Multiple market segments

when an organization produces only a single product or service and attempts to sell it to two or more market segments, it avoids the exra costs of developing and producing additional versions of the product

Multiple Markets and Multiple Market Segments

many firms now offer different variations of the same basic offering to high-end and low-end segments

Segments of One: Mass Customization

tailoring goods or services to the tastes of individual customers on a high-volume scale made possible by today's internet ordering, flexible marketing and flexible manufacturing.

Built-to-order (BTO)

manufacturing a product only when there is an order from a customer.

Organizational Synergy

The increased customer value achieved through performing organizational functions such as marketing or manufacturing more efficiently


a situation that occurs when sales of a new product cut into sales of a firm's existing products

5 step market segmentation process

1. Group potential buyers into segments 2. group products to be sold into categories 3. develop a market-product grid and estimate size of markets 4. select target markets 5. take marketing actions to reach target markets

Criteria for forming segments

1. simplicity and cost-effectiveness of assigning potential buyers to segments 2. potential for increased profit 3. similarity of needs of potential buyers within a segment 4. difference of needs of buyers among segments 5. potential of a marketing action to reach a segment

Geographic segmentation

Dividing a market based on different geographical units such as nations, states, regions, counties, cities, or neighborhoods

Demographic segmentation

Dividing a market based on some objective physical (gender, race), measurable (age, income), or other classification attribute (birth era, occupation) or perspective customers

Psychographical segmentation

Dividing a market based on some subjective mental or emotional attribute (personality), aspirations (lifestyle), or needs of perspective customers.

Behavorial segmentation

Dividing a market based on some observable actions or attributes by prospective customers, such as where they buy, what benefits they seek, how frequently they buy and why they buy.

Ways to Segment Consumer Markets

Geographical - region
Demographic - household size
Psychographic - lifestyle
Behavioral - product features and usage rate

Frequency Marketing

strategy that focuses on the usage rate of consumers

Segment Usage

Geographical - 88%
Behavioral - 65%
Demographic - 53%
Psychographic - 43%

Ways to Segment Organizational Markets

Geographic - statistical areas
Demographic - North American Industry Classification System codes
Demographic - Number of employees
Behavioral - Usage rate

Select Target Markets

A firm must take care to choose its target market segments carefully. If it picks too narrow a set of segments, it may fail to reach the volume of sales and profits it needs

Target Market Criteria

Market Size, Experienced growth, Competitive Position, Cost of reaching the segment, and Compatibility with the Organization's objectives and resources

Market Size

The estimated size of the market in the segment is an important factor in deciding whether it's worth going after.

Expected Growth

although the size of the market in the segment may be small now, perhaps it is growing significantly or is expected to grow in the future.

Competitive position

is there a lot of competition in the segment now or is there likely to be in the future? The less competition, the more attractive the segment is.

Cost of reaching the segment

a segment that is inaccessible to a firm's marketing actions should not be pursued. For example, if few people in the marketing area are reachable by newspaper or print ads, don't waste advertising money.

Compatibility with objectives and resources

judging the cost of pursuing and obtaining a particular market in contrast with the current goals and regulations/resources of the company

This chapter

is crap and won't shut up about Wendy's

Take Marketing Action

Step 5 in the segment and targeting process. 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.

Immediate Strategy

Using the current or past information to formulate a current approach to advertising and marketing.

Future Strategy

Changing customer tastes and competition mean you must alter your strategies when necessary. This involves 1. Looking at company headquarters 2. What competitors are doing and 3. What might be changing in your area.

Marketing Synergies

Running horizontally across the grid, each row represents an opportunity for efficiency in terms of a market segment. Often these come at the expense of product synergies because a single customer segment will likely require a variety of products, each of which will have to be designed and manufactured. The company saves money on marketing but spends more on production.

Product Synergies

Running vertically down the market-product grid, each column represents and opportunity for efficiency in research and development and production.

Product positioning

the place a product occupies in consumers' minds on important features relative to competitive products

product repositioning

changing the place a product occupies in a consumer's mind relative to competitive products

Head-to-head positioning

competing directly with competitors on similar products attributes in the same target market

Differentiation positioning

Seeking a less competitive smaller market niche in which to locate a brand. Companies also follow this strategy among brands within their own product line to minimize the cannibalization of a brand's sales or market share

Positioning Statement

A succinct written statement describing the ideas for the product or the brand that is not only used internally within the marketing department, but also for those in areas such as research and development and advertising

Customer positioning steps

1. identify the important attributes for a productor brand class 2. Discover how target customers rate competing products or brands with respect to these attributes 3. Discover where the company's product or brand is on these attributes in the minds of potential customers 4. Reposition the company's product or brand in the minds of potential customers

Simplicity and Cost-effectiveness

a marketing manager must be able to put a marketing segmentation plan into effect. This means identifying the characteristics of potential buyers in a market and then Cost-effectively assigning them to a segment

Potential for increased Profit

The best segmentation approach is one that maximizes the opportunity for future profit and return on investment (ROI). If this potential is maximized without segmentation, don't segment! For non-profit organizations, the criterion is the potential for serving clients more effectively.

Similarity of needs

Potential buyers within a segment should be similar in terms of common needs that, in turn, leads to a common marketing action, such as product features sought or advertising media used.

Difference of needs

If the needs of the various segments aren't very different, combine them into fewer segments. A different segment usually requires a different marketing action that, in turn, means greater costs. If increased sales don't offset extra costs, combine segments and reduce the number of marketing actions.

Reaching a segment

Reaching a segment requires a simple but effective marketing action. If no such action exists, don't segment.


Designed by Nielsen Claritas, this lifestyle segmentation system classifies every household in the US into one of 66 unique market segments based on the concept that, "birds of a feather flock together."

Usage Index

This emphasizes the importance of the Heavy-user segment. For example, giving light users an index of 100 and the heavy users an index of 640 means that for every $1 spent by light users, heavy users are spending $6.40. This is why business owners focus on the heavy-user segment.


Combining the products a firm sells into meaningful categories is as important as grouping customers into segments. When a firm has dozens or hundreds of products, they must be grouped in some way so buyers can relate to them.

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