CHAPTER 5 © Pearson Education South Asia Pte Ltd 2013

CHAPTER 5
© Pearson Education South Asia Pte Ltd 2013. All rights reserved1
Identifying Market Segments and Selecting Target markets

Learning
Issues for
Chapter five
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 a company choose the most
attractive target markets?
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3
What is a
market
segment?
A subgroup of people or organizations
sharing one or more characteristics
that cause them to have relatively
similar product needs.
E.g Children segment, Adult segment

4
What is The Process
of market
segmentation?
?The process of dividing a market into
meaningful segments or groups.
?The purpose of market segmentation
is to enable the marketer to tailor
marketing mixes to meet the needs of
one or more specific segments.

5
The Importance
Of Market
Segmentation
?1.Helps marketers define customer needs and
wants more precisely.
?2.Helps marketers define objective more
accurately and better allocate resources
?3.Performancecan be better evaluated.
?4.Market segmentation can revive flagging or
declining sales
?5.The rapidly changing environment means that
segmentation is a continuous process.
?6.More effective marketing mix strategy

6
The need based
segmentation
procedure/
process
1. Needs based
segmentation-
Groups customers
based on similar
needs
2. Segment
Identification -For
each segment
determine the
segment
demographics,
lifestyle and usage
behaviors.
3. Segment
attractiveness –
Determine the
attractiveness of
each segment
4. Segment
profitability-
Determine
segment
profitability
5. Segment
positioning –
Create a value
proposition for
each segment.
6. Segment Acid –
Test-Test the
attractiveness of
each positioning
strategy.
7. Develop
marketing mix
strategy for each
segment.

Target
Marketing
•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
company’s market offering (market
positioning).
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5.1 Bases for Segmenting Consumer Markets
•There are 2 broad groups of variables to segment
consumer markets.
Regardless of which type of segmentation scheme we
use, the key is adjusting the marketing program to
recognize customer differences.
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•geographic, demographics, and psycho-graphic.
Descriptive
characteristics
•consumer responses to benefits, usage occasions,
or brands.
Behavioral
considerations

1.Geographic
Segmentation
The company can
operate in one or a
few areas, or
operate in all but
pay attention to
local variations.
It can tailor
marketing
programsto the
needs and wants of
local customer
groups in trading
areas,
neighborhoods, and
even individual
stores.
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Divide overall market
by location
Divide markets into
different geographical
units
nations, states,
regions,
counties, cities,
or
neighborhoods

Example of
Geographic
Segmentation
?Padini-DataranPahlawanMega mall store carries a wider
range and attracts a different clientele, mostly tourists and
expatriates, while a few hundred meters away, vinccistore at
AEON attracts locals.
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Geographic
Segmentation
: Grassroots
Marketing
In a growing trend called grassroots marketing, such
activities concentrate on getting as close and personally
relevant to individual customers as possible.
Example: HP in India
Workingwiththelocalgovernment,aswellasa
branchofHPLabsbasedinIndia,thecompany,
throughgrassrootsmarketing,providestheruralpoor
withaccesstogovernmentrecords,schools,health
information,cropprices,andsoon.
Itshopeistostimulatesmall,tech-basedbusinesses.
NotonlydoesthisbuildgoodwillandtheHPbrandin
India,italsohelpsthecompanydiscovernew,
profitablelinesofbusiness.
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Geographic
Segmentation
: Regional
Marketing
•Regional marketing means marketing right
down to a specific district.
•Some companies use mapping software to
show the geographic locations of their
customers.
•By mapping the densest areas, the retailer
can resort to customer cloning, assuming
that the best prospects live where most of
his customers come from.
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Geographic
Segmentation
: Regional
Marketing
•Some approaches combine geographic data with
demographic datato yield even richer descriptions of
consumers and neighborhoods.
•Called geo-clustering, it captures the increasing diversity
of the population.
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2.
Demographic
Segmentation
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Demographic
age
family life
cycle
income
education
gender
family size
generation
Race
Social
class
nationality
religion
occupation

Reasons for
Popularity of
Demographic
Segmentation
1.Consumer needs, wants, usage rates, and
product and brand preferences are often
associated with demographic variables.
2.demographic variables are easier to
measure.
3.demographic characteristics is needed to
estimate the size of the market and the
media that should be used to reach it
efficiently.
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Age and Life-
Cycle Stage
•Consumer wants and abilities change with
age.
•Nevertheless, age and life cycle can be
tricky variables.
•Life stage defines a person’s major concern
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Safi Rania
Gold
?Safi Rania Gold targets the young segment who wants anti-
aging products. It has Rozita Che wan mature but youthful-
looking celebrity, endorse the product.
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Gender
Segmentation
•Gender differentiation has long been applied in
clothing, hairstyling, cosmetics, and magazines.
•Men and women have different attitudes and behave
differently, based partly on genetic makeup and
partly on socialization.
•Examples:
?Womentend to be more communal-
minded and mentend to be more self-
expressive and goal-directed.
?Men often like to read product
information; women may relate to a
product on a more personal level.
?Women influence 80% of consumer
purchase; make 75% of new home
decisions and purchase 60% of cars
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Gender
Segmentation
•Some traditionally more male-orientated
markets are beginning to recognize gender
segmentation, changing how they design
and sell their products.
•Example: Several Korean car manufacturers
have designed cars specifically for women.
Banks are also finding women a lucrative
segment in Japan.
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Income
•Income segmentation is a long-standing
practice in product and service categories esp.
for clothing, travel, financial services and
automobiles.
•However, income does not always predict the
best customers for a given product.
•Increasingly, companies are finding their
markets are hourglass-shaped as middle-
market consumers migrate toward both
discount and premium products.
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Example of
Income
Segmentation
: Banyan Tree
?Banyan Tree is a niche international chain of high-end
resorts and hotels catering to the affluent.
21
http://www.banyantree.com/en/em-uae-al-wadi/
http://www.banyantree.com/en/find-a-hotel-list#maldives

Example of
Income
Segmentation
: Kraft in Rural
Indonesia
•In Indonesia, for instance, such rising rural incomes
have not gone unnoticed and Kraft has adapted its
products to suit this segment.
•Rural consumers are still extremely price sensitive.
Television ads are thus adapted to make the products
more approachable and affordable.
•Kraft offers products in biscuit and soft cake forms, and
in smaller packages to be sold at snack kiosks in towns
and villages.
•Small packets costs 500 rupiah (6 cents) thereby
making it extremely affordable to the rural customer.
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Generation
•Each generationor cohort is profoundly
influenced by the times in which it grows up.
•Demographers call these groups cohorts.
•They share similar outlooks and values.
•Marketers often advertise to a cohort by using
the icons and images prominent in its
experiences.
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Gen Y
•A generation group of interest to marketers
is the Gen Y.
•Because Gen Y members are often turned
off by overt branding practices and “hard
sell,” marketers use different approaches to
reach and persuade them.
•These include online buzz, student
ambassadors, product placements in
computer games, and sponsoring cool
events.
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Gen Y in China
?China’s Gen Y are more entrepreneurial, more
Internet connected, and know more about
Westerners than Westerners know about them.
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3.
Psychographic
Segmentation
•Psychographics is the science of using psychology and
demographics to better understand consumers.
•In psychographic segmentation, buyers are divided into
different groups on the basis of :
1) psychological/personality traits,
2) lifestyle,
3 ) values.
•People within the same demographic group can exhibit
very different psychographic profiles.
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Psychographic
Segmentation
•One of the most popular commercially
available classification systems based on
psychographic measurements is Strategic
Business Insights’ VALSTMframework.
•VALS classifies adults into eight primary
groups based on personality traits and key
demographics.
•The segmentation system is based on
responses to a questionnaire featuring four
demographic and 35 attitudinal questions
(see Figure 8.1).
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Figure 8.1: The
VALS
Segmentation
System
© Pearson Education South Asia Pte Ltd 2013. All rights reserved28The main dimensions of the VALS segmentation framework are consumer motivation (the
horizontal dimension) and consumer resources (the vertical dimension).

Four groups
with HIGHER
resources
1.Innovators—Successful, sophisticated, active, and “take-
charge” people with high self-esteem. Purchases often
reflect cultivated tastes for relatively upscale, niche-
oriented products and services.
2.Thinkers—Mature, satisfied, and reflective people who are
motivated by ideals and value order, knowledge, and
responsibility. Favor durability, functionality, and value in
products.
3.Achievers—Successful career-and work-oriented people
who value consensus and stability. They favor established
and prestige products that demonstrate success to their
peers.
4.Experiencers—Young, enthusiastic, and impulsive people
who seek variety and excitement. Spend a comparatively
high proportion of income on fashion, entertainment,
and socializing.
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Four groups
with LOWER
resources
1.Believers—Conservative, conventional, and traditional
people with concrete beliefs. Favor familiar and
established products and are loyal to established brands.
2.Strivers—Trendy and fun-loving people who seek the
approval of others but are resource-constrained. Favor
stylish products that emulate the purchases of those with
greater material wealth.
3.Makers—Practical, self-sufficient, traditional, and family-
oriented people who focus on their work and home
context. Favor basic products with a practical or functional
purpose.
4.Strugglers—Elderly, resigned, and passive people who are
concerned about change. Loyal to their favorite brands.
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4.
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.
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Needs and
Benefits
•Not everyone who buys a product has the same needs or
wants the same benefits from it.
•Needs-based or benefits-based segmentation is a widely
used approach because it identifies distinct market
segments with clear marketing implications.
Procter & Gamble, for instance, has different shampoo
brands according to the needs of each segment.
•Head & Shoulders is for those who need to
control their dandruff problem;
•Pantene is for those who want to protect
their hair from environmental damage from
the sun;
•Rejoice is for those who want a mild
shampoo for everyday use.
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User and
Usage—
Real User and
Usage-related
Variables
Many marketers believe that behavioral
variables—
occasions, benefits, user status, usage rate,
loyalty status, buyer-readiness stage, and
attitude
are the best starting points for constructing
market segments.
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Decision Roles
•It is easy to identify the buyer for many
products.
•People play five roles in a buying decision:
initiator, influencer, decider, buyer, and
user.
•Different people are playing different roles,
but all are crucial in the decision process and
ultimate consumer satisfaction.
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Occasions
•Occasions are determined by a time of day,
week, month, year or other well-defined
temporal aspects of a consumer’s life.
•Buyers can be distinguished according to
the occasions when they develop a need,
purchase a product, or use a product.
•Occasion segmentation can help firms
expand product usage.
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User Status
•Markets can be segmented into non-
users, ex-users, potential users, first-
time users, and regular users of a
product.
•Each will require a different
marketing strategy.
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Usage Rate
•Markets can be segmented into light,
medium, and heavy product users.
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Buyer
Readiness
Stage
•Some people are unaware of the product,
some are aware, some are informed, some
are interested, some desire the product, and
some intend to buy.
•To help characterize how many people are
at different stages and how well they have
converted people from one stage to
another, some marketers employ a
marketing funnel.
•See Figure 8.2: The Brand Funnel.
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Figure 8.2: The Brand Funnel
?The relative numbers of consumers at different stages
make a big difference in designing the marketing program.
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Loyalty Status
Buyers can be divided into four groups according to
brand loyalty status:
1.Hard-core loyals—Consumers who buy
only one brand all the time.
2.Splitloyals—Consumers who are loyal
to two or three brands.
3.Shiftingloyals—Consumers who shift
loyalty from one brand to another.
4.Switchers—Consumers who show no
loyalty to any brand
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Marketing
Applications
A company can learn a great deal by
analyzing the degrees of brand loyalty:
i.By studying its hard-core loyals, the
company can identify its products’
strengths;
ii.By studying its split loyals, the
company can pinpoint which brands
are most competitive with its own;
and
iii.By looking at customers who are
shifting away from its brand, the
company can learn about its
marketing weaknesses and attempt
to correct them.
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Attitude
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ATTITUDE
GROUPS
ENTHUSIASTIC
POSITIVE
INDIFFERENTNEGATIVE
HOSTILE

Multiple Bases
•Combining different behavioral bases can
help to provide a more comprehensive and
cohesive view of a market and its segments.
•Figure 8.3 depicts one possible way to break
down a target market by various behavioral
segmentation bases.
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Figure 8.3: Behavioral Segmentation Breakdown
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45
Advantage -It is more descriptive and
precise than single variable segmentation
Disadvantages
1.More difficult to employ
2.The segment size becomes smaller
and reduces its economic significant
3.More difficult to obtain the required
secondary data.
Advantages &
disadvantages
of Multiple
Bases
segmentation

5.2
Market
Targeting
•Once the firm has identified its market-segment
opportunities, it has to decide how many and
which ones to target.
•Marketers are increasingly combining several
variables in an effort to identify smaller, better-
defined target groups.
•This has lead some researchers to advocate a
needs-based market segmentation approach.
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5.3 Effective
Segmentation
Criteria
1.Measurable—The size, purchasing power, and
characteristics of the segments can be measured.
2.Substantial—The segments are large and profitable
enough to serve. A segment should be the largest possible
homogeneous group worth going after with a tailored
marketing program.
3.Accessible—The segments can be effectively reached
and served.
4.Differentiable—The segments are conceptually
distinguishable and respond differently to different
marketing-mix elements and programs.
5.Actionable—Effective programs can be formulated for
attracting and serving the segments.
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Porter’s Five
Forces Model
and Segment
Attractiveness
Michael Porter has identified 5 forces that
determine the intrinsic long-run attractiveness of
a market or market segment:
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industry
competitors
potential
entrants
substitutes
buyerssuppliers

Porter’s Five
Forces Model
and Segment
Attractiveness
1.Threat of intense segment rivalry—A
segment is unattractive if it already contains
numerous, strong, or aggressive
competitors.
2.Threat of new entrants—The most
attractive segment is one in which entry
barriers are high and exit barriers are low.
3.Threat of substitute products—A segment
is unattractive when there are actual or
potential substitutes for the product.
Substitutes place a limit on prices and on
profits.
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Porter’s Five
Forces Model
and Segment
Attractiveness
4.Threat of buyers’ growing bargaining
power—A segment is unattractive if
buyers possess strong or growing
bargaining power.
5.Threat of suppliers’ growing bargaining
power—A segment is unattractive if the
company’s suppliers are able to raise
prices or reduce quantity supplied.
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Evaluating
and Selecting
the Market
Segments
•In evaluating different market segments, the firm
must look at two factors:
?The segment’s overall attractiveness
and
?The company’s objectives and
resources
•Does a potential segment have characteristics that
make it generally attractive, such as size, growth,
profitability, scale economies, and low risk?
•Does investing in the segment make sense given the
firm’s objectives, competencies, and resources?
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Segment
Attractiveness
?Energy drink, 100 Plus, considers the tertiary segment
attractive enough for it to allocate resources such as this
promotional banner put up at the National University of
Singapore’s Business School to welcome students when they
began their new academic year.
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Figure 8.4: Possible Levels of Segmentation
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Levels of
Segmentation

1)Full Market
Coverage
•The firm attempts to serve all
customer groups with all the
products they might need.
•In undifferentiated marketing,
the firm ignores segment
differences and goes after the
whole market with one offer.
•In differentiated marketing, the
firm operates in several market
segments and designs different
products for each segment.
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?Samsung identified six segments of mobile phone users based
on their need for style, infotainment, business, multimedia,
connection, and basic necessities. It has a slew of mobile
phones to address these varied needs.
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Undifferentiated
Marketing
•In undifferentiated marketing or mass marketing, the
firm ignores segment differences and goes after the
whole market with one offer.
•It designs a product and a marketing program that
will appeal to the broadest number of buyers.
•It relies on mass distribution and advertising.
•It aims to endow the product with a superior image.
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Undifferentiated
Marketing
•”the marketing counterpart to standardization and mass
production in manufacturing.”
•The narrow product line keeps down costs of research
and development, production, inventory, transportation,
marketing research, advertising, and product
management.
•The undifferentiated advertising program also reduces
costs.
•The company can turn its lower costs into lower prices to
win the price-sensitive segment of the market.
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Differentiated
Marketing
•The firm operates in several market segments and
designs different products for each segment.
•Creates more total sales than undifferentiated
marketing. However, it also increases the costs of
doing business.
•Leads to both higher sales and higher costs, nothing
general can be said about the profitability of this
strategy.
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Differentiated
Marketing –
Lenovo
Lenovo practices
differentiated marketing
to reach out more
effectively to consumer
and business customers.
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2)Multiple
Segment
Specialization
•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.
•Keeping synergies in mind, companies can try to operate in
supersegmentsrather than in isolated segments. A
supersegment is a set of segments sharing some exploitable
similarity.
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2)Multiple
Segment
Specialization
•With product specialization, the firm sells a certain
product to several different market segments. This
leads to a strong reputation in the specific product
area. The downside/risk is that the product may be
supplanted by an entirely new technology.
•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.
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3)Single-
segment
Concentration
•The firm markets to only one particular segment.
•Through concentrated marketing, the firm gains
deep knowledge of the segment’s needs and
achieves a strong market presence.
•The firm enjoys operating economies through
specializing its production, distribution, and
promotion.
•If it captures segment leadership, the firm can earn a
high return on its investment.
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Tiger
Motorcycles in
Thailand
Tiger’s bikes are targeted at a segment that Japanese producers
have overlooked—the thrifty, yet style-conscious, rural rider.
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Niche
Marketing
•More narrowly defined customer group seeking a
distinctive mix of benefits within a segment.
Marketers usually identify niches by dividing a
segment into sub-segments.
•Aim to understand their customers’ needs so well
that customers willingly pay a premium.
•However, there are risks. A market segment can turn
sour or a competitor may invade the segment.
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4)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.
•Customerizationcombines operationally driven
mass customization with customized marketing in a
way that empowers consumers to design the product
and service offering of their choice.
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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.
•Example, the fast-food industry has been
heavily criticized for marketing efforts
directed toward children.
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Ethical Choice
of Market
Targets
Socially responsible marketing calls for
targeting that serves not only the company’s
interests, but also the interests of those
targeted.
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