2. Market segmentation in a Competitive Environment.ppt

Copyright 2004 © Pearson Education Canada Inc.

Market Segmentation in a Competitive Environment

Prof. G.M. ChowdhuryIBA, DU

February 2013

04/08/23 10-1


Chapter ObjectivesChapter Objectives• We focus on the following questions:

– What are the different levels of market segmentation?

– How can a company divide a market into segments?

– How should a company choose the most attractive target markets?

– What are the requirements for effective segmentation?

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Market SegmentationMarket Segmentation

“Market Segmentation is the subdividing of market into homogeneous sub-set of customers, where any subset may conceivably be selected as market target to be reached with distinct Marketing Mix”

Philip Kotler, Marketing Guru

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Market segmentation, targeting and Market segmentation, targeting and positioning positioning • Marketers are to take three major steps:

– Identify and profile distinct groups of buyers who differ in their needs and preferences (market segmentation).

– Select one or more market segments to enter (market targeting).

– For each target segment, establish and communicate the key distinctive benefit(s) of the company’s market offering (market positioning).

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Segmentation profileSegmentation profile

• A segment profile is a detailed description of the market segment across a range of factors and measures. It is designed to provide the organization with a good understanding of consumers within each segment for comparison and strategy purposes.Certain customer issues may be defined using segmentation, like:– Characteristics of your target customers

– Customer lifestyle characteristics

– Where more of these customers live

– Untapped potential in a market

– Strategies for marketing your products and services04/08/23 10-5


Levels of Market SegmentationLevels of Market Segmentation

• Mass marketing (No segmentation)– engage in the mass production, distribution, and

promotion of one product for all buyers. Henry Ford epitomized this strategy when he offered the Model T Ford “in any color, as long as it is black.”

• Segment marketing– a large identifiable group within a market, with similar

wants, purchasing power, geographical location, buying attitudes, or buying habits.

» Niche marketing

» Local marketing

» Individual marketing

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Levels of Market Segmentation Levels of Market Segmentation ….. Contd.….. Contd.

• Niche Marketing – A niche is a more narrowly defined group, typically a small market

whose needs are not being well served. For example, ESPN targets a niche of sports lovers

• Local marketing– Marketing programs that are tailored to the needs and wants of

local customer groups. Citibank, for instance, adjusts its banking services in each branch depending on neighborhood demographics

• Individual marketing– The ultimate level of segmentation leads to “segments of one,”

“customized marketing,” or “one-to-one marketing.” For example the tailor in Bangladesh making a made to order suit.

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Market Segmentation ProcedureMarket Segmentation Procedure

• Survey stage– The researcher conducts exploratory interviews and focus

groups to gain insight into customer motivations, attitudes, and behavior.

• Analysis of findings stage– The researcher applies factor analysis to the data to remove

highly correlated variables, then applies cluster analysis to create a specified number of maximally different segments.

• Profiling stage– Each cluster is profiled in terms of its distinguishing

attitudes, behavior, demographics, psychographics, and media patterns, then each segment is given a name based on its dominant characteristic.

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Bases for Segmenting Consumer Bases for Segmenting Consumer MarketsMarkets

– Geographic Segmentation– Demographic Segmentation

• Age and Life-Cycle Stage• Gender• Income• Generation• Social Class

– Psychographic Segmentation• Lifestyle

• Personality

• Values

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Segmenting Consumer and Business Segmenting Consumer and Business MarketsMarkets

– Behavioural Segmentation• Occasions

• Benefits

• User Status

• Usage Rate

• Loyalty Status

• Buyer-Readiness Stage

• Attitude

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Major Segmentation Variables for Business MarketsMajor Segmentation Variables for Business Markets

Demographic

1. Industry: Which industries should we serve?

2. Company size: What size companies should we serve?

3. Location: What geographical areas should we serve?

Operating Variables

4. Technology: What customer technologies should we focus on?

5. User or nonuser status: Should we serve heavy users, medium users, light users, or nonusers?

6. Customer capabilities: Should we serve customers needing many or few services?

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Purchasing Approaches

7. Purchasing-function organization: Should we serve companies with highly centralized or decentralized purchasing organizations?

8. Power structure: Should we serve companies that are engineering dominated, financially dominated, and so on?

9. Nature of existing relationships: Should we serve companies with which we have strong relationships or simply go after the most desirable companies?

10. Purchasing criteria: Should we serve companies that are seeking quality? Service? Price?

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Situational Factors

11. Urgency: Should we serve companies that need quick and sudden delivery or service?

12. Specific application: Should we focus on certain applications of our product rather than all applications?

13. Size of order: Should we focus on large or small orders?

Personal Characteristics

14. Buyer–seller similarity: Should we serve companies whose people and values are similar to ours?

15. Attitudes toward risk: Should we serve risk-taking or risk-avoiding customers?

16. Loyalty: Should we serve companies that show high loyalty to their suppliers?

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Levels and Patterns of Market Levels and Patterns of Market SegmentationSegmentation

• Effective Segmentation– Measurable– Substantial– Accessible– Differentiable– Actionable

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MARKET TARGETING MARKET TARGETING STRATEGIESSTRATEGIES

• Evaluating Market Segments

– Firms must look at• segment’s overall attractiveness

– such as size, growth, profitability, scale economies, and low risk

• the company’s objectives and resources– attractive segments could be dismissed because

they do not mesh with the company’s long-run objectives

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MARKET TARGETING MARKET TARGETING STRATEGIES ….. Contd.STRATEGIES ….. Contd.• Selecting and Entering Market Segments

– Single-Segment Concentration• Porsche concentrates on the sports car market

– Selective Specialization • A radio station that wants to appeal to both older

listeners well as under-25 listeners.

– Product Specialization• A microscope manufacturer that sells microscopes to

university laboratories, government laboratories, and commercial laboratories.

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MARKET TARGETING MARKET TARGETING STRATEGIES ….. Contd.STRATEGIES ….. Contd.

• Selecting and Entering Market Segments

– Market Specialization• a firm that sells an assortment of products only to

university laboratories

– Full Market Coverage• serve all customer groups with all of the products

they might need. Examples include IBM (computer market) and GM (vehicle market)

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Five Patterns of Target Market Five Patterns of Target Market SelectionSelection

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REAL WORLD EXAMPLES OF REAL WORLD EXAMPLES OF EFFECTIVE MARKET EFFECTIVE MARKET

SEGMENTATIONSEGMENTATION

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Examples ….. Contd.Examples ….. Contd.

Demographics

• McDonald's segments by age, and directs different ads to different segments.

• Proctor and Gamble segments by gender and offers the "Secret" brand deodorant to women while marketing the Rogaine treatment for hair loss to men.

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Income

• Department store Neiman Marcus, Rolex watches and Rolls-Royce cars target the upper-income market segments of their respective industries.

• Wal-Mart is a successful example for retailing.

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Purchase history

• Backroads, the adventure travel firm studied what trips customers took, where they went, what season they preferred and whether they traveled with children. The company then proposed personalized packages to their customers and were able to substantially increase revenue.

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Causes

• Patagonia, a company selling high-end outdoor clothing, targets a high-income, environmentally aware market segment. It emphasizes quality and responsible production, appealing to outdoor enthusiasts and environmentalists.

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Niche• Magazine Soho, the publication targets small office, home

office workers with a particular geographic emphasis on southeastern Wisconsin, USA.

• Hewlett-Packard markets all-in-one machines that print, fax and scan to segments of the home office market, while targeting larger businesses for higher-priced, single-function units.

Advantages of niche marketing

- Product Specialization

- Narrows Competition

- Reaches Target Audiences

- Price Setting Advantages04/08/23 10-24

2. Market segmentation in a Competitive Environment.ppt

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