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Market Segmentation, Targeting for Competitive Advantage

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What is Market Segmentation?

Market segmentation: The act of dividing a market into smaller groups of buyers with distinct needs, characteristics, or behaviors who might require separate products and/or marketing mixes.

How does market segmentation differ form product differentiation?

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The Steps in Segmenting a Market Goal: Identify marketing opportunities 6 steps

Choose a basis or bases for segmenting the market

Develop Segment Profiles

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Steps in Segmentation cont’d

Step 3: Develop measure of segment attractiveness Size, growth, purchase frequency, current brand usage,

loyalty and long-term sales/profit potential

Step 4: Select a target segment Review definition (most likely to buy…) Major decision that determines the marketing mix

Step 5: Develop positioning for target segment

Step 6: Design, implement, and maintain appropriate marketing mix

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Levels of Market Segmentation

Through Market Segmentation, Companies Divide Large, Heterogeneous Markets into Smaller

Segments that Can be Reached More Efficiently And Effectively With Products and Services That Match

Their Unique Needs.Mass Marketing

Same product to all consumers (no segmentation, i.e Coca-Cola)

Segment MarketingDifferent products to one or more segments

(some segmentation, i.e. Marriott)

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Niche MarketingDifferent products to subgroups within segments

(more segmentation, i.e. Standard or Luxury SUV’s)

MicromarketingProducts to suit the tastes of individuals and locations

(complete segmentation)

Levels of Market Segmentation

Local Marketing

Tailoring brands/ promotions to local customer groups, i.e

Sears

Individual Marketing

Tailoring products and programs to the needs of

individual customers, i.e. Dell

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Basic Market-Preference Patterns(a) Homogeneous(a) Homogeneous

preferencespreferences

SweetnessSweetness

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(c) Clustered(c) Clusteredpreferencespreferences

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(b) Diffused(b) Diffusedpreferencespreferences

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SweetnessSweetness

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The Segmentation Variables

Geographic Segmentation Define– Market is divided into geographical units

like nations, counties, states, cities, regions etc. Four good reasons to use region:

Adapt better to sluggish or competitive marketsData (via scanners, etc.) tells us what sells in a

regionRegional brand preference dataFaster to react to competition in a given region

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Demographic Segmentation

Define– Market is divided into groups on the basis of variables such as age, gender, income, ethnic background, education, occupation, religion,race etc.

Age segmentation (know key characteristics) Importance of 38 million children < 9 Teens- have allowances, specific preferences Young adults Baby Boomers Seniors

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Demographic Segmentation cont’d Gender segmentation

Clothing, cosmetics, personal care items, magazines and footwear make heavy use of gender segmentation

Income segmentation Housing, clothing, cars, and food

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Psychographic Segmentation

Buyers are divided into groups based on the following variables

Personality – habits, traits and attitudes Motives- economy, reliability, dependability–

status-related vs. rational motives Lifestyles- how do you spend your time and what

things do you have (i.e. H-D segments)

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Behavioral Segmentation

Dividing the market into groups based on variables such as: Occasions Benefits User status Usage rate Loyalty status Readiness stage Attitude toward product

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Usage Rate

Dividing the market by the amount of product bought or consumed Heavy users, former, potential, first-time, light or irregular,

or medium Heavy users account for large % of product sales, so the

marketing mix… 80/20 principle– 20 % of all customers generate 80% of

the demand Goal: create a heavy user (frequency/loyalty programs) Reward and retain heavy users

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Measurable Measurable

AccessibleAccessible

SubstantialSubstantial

DifferentialDifferential

• Segments must be large or profitable enough to serve.

• Segments can be effectively reached and served.

ActionableActionable

• Size, purchasing power, profiles of segments can be measured.

• Segments must respond differently to

different marketing mix elements & actions.

• Must be able to attract and serve

the segments.

Effective Segmentation

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DemographicsDemographics

Operating VariablesOperating Variables

Purchasing ApproachesPurchasing Approaches

Situational FactorsSituational Factors

Personal CharacteristicsPersonal Characteristics

Segmenting Business Markets

Business Marketers Use Many of the

Same Consumer Variables, Plus:

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Table 10-3: Major Segmentation Variables for Business Markets

Demographic1. Industry: Which industries should we serve?2. Company size: What size companies should we serve?3. Location: What geographical areas should we serve?Operating Variables4. 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?Purchasing Approaches7. 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?

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Segmenting Consumer and Business Markets

Business buyers seek different benefit bundles based on their stage in the purchase decision process.

1. First-time prospects

2. Novices

3. Sophisticates

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Segmenting Consumer and Business Markets

Rackman and Vincentis proposed a segmentation scheme that classifies business buyers into three groups

Price-oriented customers (transactional selling)

Solution-oriented customers (consultative selling)

Strategic-value customers (enterprise selling)

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Segmenting International Markets

Factors Used to Segment

International Markets

Geographic Location

EconomicFactors

Political and Legal Factors

Cultural Factors

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Target Market:

Target market: the group of people for whom your company is designing, implementing and maintaining a marketing mix in order to meet the needs of that group (who is most likely to buy your product)

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Five Patterns of Target Market Selection

Single-segmentSingle-segmentconcentrationconcentration

ProductProductspecializationspecialization

M1 M2 M3 P1

P2

P3

SelectiveSelectivespecializationspecialization

M1 M2 M3 P1

P2

P3

M1 M2 M3

Full marketFull marketcoveragecoverage

P1

P2

P3

MarketMarketspecializationspecialization

M1 M2 M3 P1

P2

P3

P1

P2

P3

M1 M2 M3

P = ProductP = ProductM =M = MarketMarket

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Segment-by-SegmentInvasion Plan

Customer GroupsCustomer GroupsTruckersTruckersRailroadsRailroadsAirlinesAirlines

LargeLargecomputerscomputers

Pro

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PersonalPersonalcomputerscomputers

Mid-sizeMid-sizecomputerscomputers

Company BCompany B Company CCompany CCompany ACompany A

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Evaluating Market Segments Segment Size and Growth

Analyze current sales, growth rates and expected profitability for various segments.

Segment Structural Attractiveness Consider effects of: competitors, availability of

substitute products and, the power of buyers & suppliers.

Company Objectives and Resources Company skills & resources needed to succeed in that

segment(s). Look for Competitive Advantages.

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Socially Responsible Target Marketing Smart targeting helps companies and consumers alike.

Target marketing sometimes generates controversy and concern. Disadvantaged and vulnerable can be targeted. Cigarette, beer, and fast-food marketers have

received criticism in the past. Internet has come under attack because of the loose

boundaries and lack of control in marketing practices.

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