Discussion 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?• How a consumer market is different from

organizational market?

NEED FOR SEGMENTING MARKETS

• Market segmentation looks at markets consisting of customers who differ in their wants and needs. Some firms adopt market segmentation because they lack the ability and competitiveness to cater to the mass market.

• But of late, market segmentation is being suggested as the best strategy for targeting the markets.

What is a Market Segment?

A market segment consists of a group of customers who share a similar set of needs ad wants.

Ford’s Model T Followed a Mass Market Approach

Pepsi in India

The Revolution brand of ready-made women’s

apparel successfully

focuses on the niche segment of plus-size clothes.

Four levels of Micromarketing

Segments

Local areas Individuals

Niches

MARKET SEGMENTATION LEVELS

• Segment Marketing: Marketers divide the target market into different segments on the basis of homogeneous needs. Although it is evident that no two customers are alike, these customers are segmented on the basis of a broad similarity with regard to some attributes such as tastes, preferences, etc.

• Individual marketing is the extreme level of segmentation in which marketers focus on individual customers. In fact, almost all the business-to-business marketing is individual marketing.

MARKET SEGMENTATION LEVELS

• Niche Marketing Niche marketing can be defined as the marketers’ effort to position their product or service in smaller markets that have similar attributes and have been neglected by other marketers. These smaller market segments should also be profitable.

• Local Marketing Most marketers who have a global presence tend to offer customized products to suit the local markets. ‘Think global act local’ has long been a buzzword. The prominence of local marketing has become so dominant that even if a product proves to be successful at the national or global level, it may fail utterly at the local level because of unmatched local tastes and preferences.

Segmenting Consumer Markets

GeographicGeographic

DemographicDemographic

PsychographicPsychographic

BehavioralBehavioral

Criteria for Segmenting Consumer Market • In geographic segmentation, the market is divided according to

geographical areas such as localities, regions, cities, states, countries, etc.

• In Demographic segmentation, the market is divided into groups based on demographic attributes such as age, gender, income, occupation, religion, race, nationality, social class, family size, family life cycle, etc.

• Though the markets segmented on the basis of demographic variables have common characteristics such as sex, age, income, etc., their psychographics such as motivation, values, belief, lifestyle, personality, etc., can differ significantly.

• Organizations can divide markets on the basis of behavior that customers show towards the usage of the products. Various variables for segmenting market on the basis of the purchase behavior of customers are occasions, benefits, user status, usage rate, loyalty, etc.

Effective Segmentation Criteria

MeasurableMeasurable

SubstantialSubstantial

AccessibleAccessible

DifferentiableDifferentiable

ActionableActionable

Dove Targets Women

TARGET MARKET SELECTION PROCESS

• Evaluating the Market Segments While evaluating the market segments, a firm must first evaluate the potential of the segment and also its own ability to tap it. Marketers need to ensure that the organization objectives are fulfilled while serving a particular segment of the market.

• Selecting the Market Segments After evaluating different market segments, the company or the marketer should decide which segments to target. Targeting the customers in a highly competitive environment is a complex process.

Selecting the Market Segments

• Single segment concentration

• Selective specialization 

• Product specialization

• Market specialization

• Full market coverage

Patterns of Target Market Selection

Patterns of Target Market Selection

Patterns of Target Market Selection

• Positioning is the battle for a place in the consumer’s mind. (Al Ries & Jack Trout)

• Positioning starts with a product. A piece of merchandise, a service, an institution, or even a person. But positioning is not what you do to a product. Positioning is what you do to the mind of the prospect.

• Positioning means owning a credible and profitable “position” in the consumer’s mind, either by getting there first, or by adopting a position relative to the competition, or by repositioning the competition.

Positioning

Types of Positioning

• By Product Benefit– Maggi Noodles : ‘Fast to cook. Good to eat’

– Colgate Dental Cream : ‘Stops bad breath. Fights tooth decay’

• By Price - Quality– Zenith Computers : MNC quality. Indian prices

– Tata Nano : Poorman’s Car

• By Use/Application / Occasion– Cadbury’s Dairy Milk : Aaj Pehli tarikh hai

– Raymond Wedding : For special occasion

Collection

Types of Positioning

• By User Group– Reid & Taylor : Bond with the Best– Bajaj Pulsar : Macho dudes

• By Product Category/Type– Fair & Handsome : Fairness cream for men– Coca Cola : ‘Thanda Matlab Coca Cola’

(generic)

• By Cultural Symbol– Air India : Maharaja– Harley Davidson : ‘Live to Ride, Ride to Live’

• By Competitor– Nestlé MUNCH : No specific date to eat chocolate

(VsCadbury's Dairy Milk)– Sansui : Better than the Best

Reaction to the Competition• The competitors’ reaction patterns to a firm’s competitive strategies should be

observed continuously, because it is necessary to attack the competitors in their vulnerable areas. Normally, there are four types of competitors based on their reaction patterns.

• The first type is the Slow Reactor. This type of competitor reacts very slowly to the competition. For example, Iodex launched its green colored pain reliever to fight the competition from Moov. This was actually a very late move.

• The second type of competitor is the Selective Competitor, who reacts only to certain types of strategies, perhaps to added product features or line extensions. E.g. – Tata Motors Vs. Mahindra & Mahindra

• The Tough Competitor, the third type, strongly retaliates to the slightest move of his competitors. This type of competition is clearly evident in the cola wars between Pepsi and Coca-Cola.

• The fourth type is the Unpredictable Competitor who may or may not respond to the strategies of his competitors. This is usually the case with small firms, which attack the competitors if they are strong enough to persist in the attack or else refrain from attacking

DESIGNING COMPETITIVE STRATEGIES

• Market Leader Strategies

• Market Challenger Strategies

• Market Follower Strategies

• Market Nicher Strategies

Market Leader Strategies • A market leader has a considerable market share, a

significant presence in the industry and is acknowledged as the leader by other firms in the industry. E.g – Hero Honda

• A market leader has to constantly guard itself from other competing firms as they will always try to attack the leader at its weak spot or challenge it in its strong area.

• The market leader can adopt certain strategies to remain in that position by expanding the market area with new products or by extending the current products in the new markets. It can also show its customers the benefits of increasing the usage the product.

Market Challenger Strategies • Market challengers are those firms which occupy the second, third or

fourth positions in the market. E.g. – Bajaj Bikes• The firm which is in the second position can best adopt the strategy

of offensive attack against the market leader to grab a market share.• The challenger can attack firms of its own capacity; it can also attack

vulnerable areas of the leader, but it should have sufficient resources to sustain the attack, or it can attack the leader in its weak spots and try to leverage the maximum market share by such an attack.

• There is another strategy whereby the challenger can attack its competitors by offering the market all the benefits and features and all other facilities provided by its competitors. This strategy works when the firm has superior resources to sustain such an attack.

• The challenger can indirectly attack its competitors by entering into those markets where the competitors do not have a presence.

Market Follower Strategies

• Market followers prefer to follow the leader rather than attack it. Most follower firms manufacture products leveraging on the product innovations of the market leaders. E.g. - TVS

• If the follower attacks a market leader with the same quality offerings and at the same price, it might have to face severe attacks from the market leader.

• So, unless the follower firm has some strong point in its armor, it will not dare attack the market leader.

Market Nicher Strategies

• Companies following niche strategies do not like to attack the market leader and therefore, operate in a small segment of the market in which the leader is not interested. E.g. – Suzuki Hayabusa (1,349 CC, Rs 11 lakh); Yahama 'VMax‘ (1,679 cc, Rs 20 lakh)

• A niche marketer usually focuses all his resources to efficiently serve a small market segment and thus gains the loyalty of customers in this segment.

• The niche marketer then tries to ensure that customers in the segment remain loyal to it. It increases its efforts with increased focus and attention.

Differences between Organizational Markets and

Consumer Markets • Generally, the time spent in the purchase process by an

individual customer is much less compared to the time taken for the purchase process in organizations.

• Organizational buyers are fewer compared to individual buyers.

• The quantity of products or services needed by industrial buyers is significantly more than that required by individual customers.

• Consumer markets are mostly segmented on the basis of geographic, demographic and psychographic factors. Industrial or organizational markets are usually segmented on the basis of factors such as operating variables, purchasing approaches, situational factors and personal characteristics.

• The decision-making process for the purchase of industrial products also varies significantly from the decision-making process for purchase of consumer products.

DEFINING STRATEGIC MARKET PLANNING

• Strategic market planning is the process of communicating and sharing data between different departments of an organization to collectively formulate future strategies and implement them with maximum efficiency.

• Strategy formulation helps the decision-makers of the organization to proactively respond to the needs of the market and thus stay ahead of the competition.

• The corporate vision and mission paves the way for the creation of long-term and short-term objectives; the planned strategies are adopted to realize these objectives.

• The strategies adopted differ from company to company. However, there are five basic activities, which companies undertake. They are, setting the corporate mission, forming strategic business units (SBUs), allocating resources to each SBU, planning new business activities, and downsizing existing businesses.

Establishment of SBUs

• A strategic business unit is a separate and self-sufficient business unit operating in the market.

• Companies are operating in an ever changing and challenging environment. The spectrum of activities is widening and every company is trying to leverage as many opportunities as possible. The consequence is strategic business units (SBUs).

• Each SBU should be an individual business entity with an individual planning process. Each SBU should operate in a market where it has its own customers and competitors. And each SBU should be headed by a person who is responsible for its performance. 

Resource Allocation to SBUs

• Resource allocation to strategic business units is done by differentiating the company’s businesses according to their potential and identifying whether they are profitable.

• Two very popular models used for such estimations are the Boston Consulting Group Model and the General Electric Model.

BCG competitive advantage matrix

• In business level strategy, market share and product life cycle are important constructs.

• This model helps multi-business or single business organizations allocate organizational resources efficiently and effectively.

• The BCG growth-share matrix displays the positions of business units on a graph of the market growth rate against their market share relative to competitors. It contains four cells – question marks, stars, cash cows and dogs

General Electric model 

• In the General Electric model, the strategic business units are plotted in the matrix with nine cells.

• Each SBU is measured using criteria such as industry attractiveness and business unit strength.

• Each business unit in the model is represented by a circle. The circle size represents the size of the industry and in each circle the shaded portion depicts the market share of the business unit in that industry.

General Electric model 

Industry Attractiveness

• Market growth rate • Market size • Demand variability • Industry profitability • Industry rivalry • Global opportunities • Macroenvironmental

factors (PEST)

Business Unit Strength

• Market share • Growth in market share • Brand equity • Distribution channel access • Production capacity • Profit margins relative to

competitors

Thank You.