MKTG 504 - MARKET SEGMENTATION

Breaking the Market into Bits

Dr. Dennis PittaUniversity of Baltimore

MARKET

An aggregate of people who, as individuals or as organizations, have needs for products in a product class and who have the ability, willingness, and authority to purchase such products.

The Basics - the Market

People with needs,who have money (or something of value), anda willingness to trade that value to satisfy

those needs

Types of Markets

Consumer Market (made up of ultimate consumers)Industrial Market (made up of producer firms)Intermediate Market (wholesalers and retailers)Government Market (federal, state, county, or local agencies)Institutional Market (non-profit organizations)

Marketing’s Main Task

SATISFYING WANTS AND NEEDS

..........mostly wants....

Needs and Wants: Defined

NEED: Something that is lacking that is necessary for physical, psychological or social well-being.

WANT: Something that is lacking that is desirable or useful.

Examples of Needs:

FoodClothingShelterWarmthSafetyBelonging Knowledge

Examples of Wants

Food LOBSTER

Clothing TOMMY HILFIGER - FUBUShelter CONDO IN ST. BARTSWarmth HOT TUBSafety .357 MAGNUMBelonging RAVENS BOOSTER CLUBKnowledge UB – TOWSON MBA

Marketing Lesson #1

WANTS = DEMAND

Why do Wants = Demand?

____________________________________________________________________________________________

Why People Buy Products

FEATURESADVANTAGESBENEFITS

= WANTS SATISFIED!

Market Aggregation

The total market is not divided into segments.

Examples:Pabst Blue Ribbon BeerMiller High Life BeerCoke (a few years back)Salt

Market Aggregation Advantages

Lower Production and Marketing Costs

Market Aggregation Disadvantages

Vulnerability to Segmented Products

Market Segment

A group of individuals, groups, or organizations that share one or more characteristics which make them have relatively similar product needs.

Examples of Three Market Segments

Quantity

Age => Age X1

.................

.................

.................

II

III

I

Market Segmentation

A marketing strategy in which a large, heterogeneous market is broken down into small, more homogeneous segments, and a separate marketing program is developed for each segment.

Market Segmentation Advantages

Better match between market wants and product benefits.

Market Segmentation Disadvantages

Higher Marketing CostsHigher Production Costs

Suppose you want to develop and additional segment?

Balance is essential in developing another segment.

There must be a net advantage over the additional costs of serving a new segment with a new product.

Problems with Developing New Segments:

Cannibalism

New Competition

Criteria for Good Segments

IdentifiableReachableSignificantResponsiveStable

Identifiable

Can you identify the want …..out there…?

Reachable

Can you contact the segment (efficiently) ….using radio

…..TVnewspapermaildirectly (in a meeting)the Internetthe telephone

Responsive

Do they respond to your message?

Significant

Is the segment large enough or rich enough to justify serving them?

Stable

Will they have the same wants and needs in a year?

The Chevrolet Camaro example...

Potential Bases for Segmentation

Descriptive Bases Demographic variables Socioeconomic variables Geographic

Behavioral Bases User Status Usage Rate Benefits Sought Personality Life Style Social Class

Potential Bases for Segmentation

Demographic Variables: Age Sex Race Family Size Marital Status Religion Place of Residence

Socioeconomic Variables: Income Occupation Education

Exercise 1 - Use of Descriptive Variables in Segmentation

Richardson Vicks

The number of young adults age 20-24 who have skin problems now exceeds the number of teenagers with blemishes.

Segmentation response: CLEARSIL ADULT CARE

Williams-Sonoma

15 percent of its cookware customers are male. The company has been considering what to do to boost the sales of its catalogs.

Segmentation response: ______________________________________________

COCA-COLA

Coca-Cola’s research found that children of working class parents prefer to GULP their drinks. Coca-Cola, and other carbonated beverages, are difficult to gulp.Segmentation response: MELLO YELLOW - THE FASTEST DRINK IN THE WEST

Behavioral variables are more powerful means of segmenting markets than descriptive variables.

They can be viewed as determining variables.

Behavioral Variables

Product Usage*Benefits Sought**Personality and LifestyleOccasionsSocial Class

Heavy and Light Users of Common Consumer Products

HEAVY HALFHEAVY HALF LIGHT HALFLIGHT HALFPRODUCT (% USERS)PRODUCT (% USERS)

75%

71%

Soaps andSoaps anddetergents (94%)detergents (94%) 25%

29%

79% 21%

Toilet tissue (95%)Toilet tissue (95%)

Shampoo (94%)Shampoo (94%)

75% 25%

17%

17%

Paper towels (90%)Paper towels (90%)

Cake mix (74%)Cake mix (74%)

Laxatives (41%)Laxatives (41%)

83%

83%

13%

5%

87%

19%

===>Beer (40%)===>Beer (40%)

Dog food (30%)Dog food (30%)

Bourbon (20%)Bourbon (20%)

81%

95%

What is the implication on sales?

One heavy drinker (6+ per day) is worth scores of light drinkers (6 per year).

Capturing just this segment insures success!

Another example

Originally Lite by Meisterbrau aimed at ladies - light users.

Another example the rest of the story…

Miller bought the brand and repositioned it for men - Heavy users.

They fought - less filling - great taste

And drank a lot of it!

Product Usage Examples

Scheafer is the one beer to have when you’re having more than one.

That little pink pill: Correctol laxative

You’re in the Pepsi generation

Lite Beer from Miller

Benefits Sought in Products

Levi’s Jeans: DURABILITYElmer’s Glue-All : ADHESIONRevlon Cosmetics: HOPELego Toys: POSSIBILITIESClose-Up Toothpaste: WHITER TEETH

AND FRESH BREATH

The Best Segmentation Base

A combination of bases!Like…..BENEFITS + DEMOGRAPHICS

BENEFITS + PSYCHOGRAPHICS

USAGE RATE + BENEFITS

Steps in the Segmentation Process

Determine Market BoundariesDecide which Segmentation Bases to

UseAnalyze (Consider) Segmentation DataDevelop a Profile of Each SegmentTarget the Segments to be ServedDesign a Marketing Plan

Targeting Segments

Targeting a segment involves choosing the one or ones that are potentially most profitable.

Also important is response sensitivity - the likelihood that the segment will react favorably to a marketing program.

Reasons Not to Target the Largest Segment

Large segments do not always offer the best opportunity.

Often the largest segment faces very heavy competition.

Consumers in those segments may be very satisfied with the products or brands of competitors.

Differentiated Marketing

Differentiated marketing is a marketing strategy that aims at several market segments, varying the marketing mix for each segment.

Positioning

A process in which a marketer communicates with consumers to establish a distinct place for its product or brand in their minds.

On the following scale please place a check on the position that describes your beliefs about the brand:

Miller

Heavy taste Light taste|--------------------|--------------------|--------------------|--------------------|

Dark color Light color

|--------------------|--------------------|--------------------|--------------------| Budweiser

Heavy taste Light taste|--------------------|--------------------|--------------------|--------------------|

Dark color Light color

|--------------------|--------------------|--------------------|--------------------|

On the following scale please place a check on the position that describes your beliefs about the brand:

Miller

Heavy taste Light taste|--------------------|--------------------|--------------------|--------------------| -10 -5 0 5 10

Dark color Light color

|--------------------|--------------------|--------------------|--------------------| -10 -5 0 5 10 Budweiser

Heavy taste Light taste|--------------------|--------------------|--------------------|--------------------| -10 -5 0 5 10

Dark color Light color

|--------------------|--------------------|--------------------|--------------------| -10 -5 0 5 10

Heavy tasteHeavy tasteD

ark

Co

lor

Dar

k C

olo

r

Light tasteLight taste

Lig

ht co

lor

Lig

ht co

lor

o Budweiser

O MILLER LITE

O MILLER BEER

O GUINESS STOUT

High price/oz.High price/oz.

Lo

w in

cal

ori

esL

ow

in c

alo

ries

Low price/oz.Low price/oz.

Hig

h in

calories

Hig

h in

calories

Product & Brand Positioning

(a) Product-positioning(a) Product-positioningmapmap

(breakfast market)(breakfast market)

ExpensiveExpensive

Slo

wS

low

InexpensiveInexpensive

Qu

ickQ

uick

Baconandeggs

Pancakes Instantbreakfast

Coldcereal

Hotcereal

b) Brand-positioningb) Brand-positioningmapmap

(instant breakfast market)(instant breakfast market)

Brand C

Brand B

Brand A

High price/oz.High price/oz.

Lo

w in

cal

ori

esL

ow

in c

alo

ries

Low price/oz.Low price/oz.

Hig

h in

calories

Hig

h in

calories

Product & Brand Positioning

(a) Product-positioning(a) Product-positioningmapmap

(breakfast market)(breakfast market)

ExpensiveExpensive

Slo

wS

low

InexpensiveInexpensive

Qu

ickQ

uick

Baconandeggs

Pancakes Instantbreakfast

Coldcereal

Hotcereal

b) Brand-positioningb) Brand-positioningmapmap

(instant breakfast market)(instant breakfast market)

Brand C

Brand B

Brand A

What position does this one occupy?

The Night Time cough medicine

Why --- it originally was 25% alcohol

Antihistamines + alcohol = unconsciousness

Name the products....

The night-time cough remedy.It's after work, it's ______ time.We're No. 2, we try harder.______ fights cavities.The refrigerator deodorant. Here's to good friends. The quicker picker-upper.The number one in rent-a-car.

Upcoming Topics

Consumer Behavior