Market SegmentationA fundamental principle of marketing

•In the past, segmentation has been largely used as a guiding conceptual principle for developing marketing plans and strategies rather than a call for empirical data analysis.

•Today, some form of quantitative measurement is typically required if you want to segment.

•Segmentation is facilitated by the computer and other information technology.

•However, raw data are not segments, only the building blocks of segmentation.

Definition

Segmentation: “Aggregating prospective buyers into groups that (1) have common needs and (2) will respond similarly to a marketing action.”

Although not all these consumers are completely alike, they share relatively similar needs and wants

Marketing action: involves efforts, resources, and decisions--product, distribution, promotion, and price

The Principle of Segmentation

“It is more important to reach the people who count than to count the people you reach.”

•Based on the believe that individuals and businesses have differences.

•Defining and targeting segments is a way to leverage knowledge about individuals’ or companies’ differential responses.

Markets consist of buyers, and Markets consist of buyers, and buyers differ in one or more buyers differ in one or more respects, including...respects, including...• WantsWants• ResourcesResources• Buying attitudesBuying attitudes• Buying practicesBuying practices• Geographical locationsGeographical locations

MARKET SEGMENTATION LOGIC

Segmentation Variables

There is no single way to segment a market. A marketer has to try different segmentation variables, singly and in combination.

• Geographics • Demographics• Psychographics• Purchase Behavior• Category Networking

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No marketSegmentation

CompleteSegmentation

Market Segmentationby Income Classes1, 2, and 3

Market Segmentationby age classes A & B

Multi-dimensional Market SegmentationBy income-age class

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3

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1b 1a 2b

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Different Segmentations of a Market

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Sweetness Sweetness Sweetness

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Homogeneous Diffused ClusterPreferences Preferences Preferences

Basic Market-Preference Patterns Ice Cream Preference Example

Bases for Segmenting Bases for Segmenting Consumer Markets Consumer Markets

Geography – Region of the world– Country– Region of the country– State– City

Demography

– age

– gender

– family size

– family life cycle

– income

– occupation

– education

– ethnicity

– nationality

Psychographics

– social class

– lifestyle

– personality

Behavior– purchase occasions– benefits sought– user status– usage rate– loyalty status– readiness stage

Purchase Behavior Buyers are divided into groups on the basis of their knowledge,

attitude, use or response to a product.

• Use occasion– Regular occasion, special occasion

• Benefits sought– Quality, service, economy

• User status– Nonuser, ex-user, potential user, first-time, regular user

• Loyalty status– None, medium, strong, absolute

• Readiness stage– Unaware, aware, informed, interested, desirous, buyer

• Attitude toward product– Enthusiastic, positive, indifferent, negative, hostile

Network Category(A way to explain purchase behavior)

• Hierarchical Hypothetical Beverage Network Category– Superordinate Level

• Beverage– Basic Level

• Soft Drink– Subordinate Level

• All natural soft drink• Diet Cola• Orange juice• High preservative fruit juice

BEVERAGE

Liquid Thirst quenching Good with Food

SUPERORDINATELEVEL

carbonated colacold

slightly sweetPreservatives

SOFT DRINK SOFT DRINK

fruit

slightly sweet

nutritious

cold

all natural

B A S I

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ArtificialSweetener

All NaturalSoft Drink

diet cola diet

unusualhealthy

Orange Juice

breakfast

Fruit Juice w/Preservativesartificial tasteunhealthystores well

SUBORDINATE LEVEL

Network Category

Benefit Segmentation of the Toothpaste Market

Benefit Demographics Behaviorists Psychographics Brand

Segments Network

Economy Men Heavy users High autonomy Sale(low value oriented Brandsprice)

Medicinal Large Heavy users Hypochondriac, Crest(prevent families conservativesdecay)

Cosmetic Teens, Smokers High Macleans,(bright young adults, sociability, Ultrateeth) active Bright

Taste Children Spearmint High self- Colgate,(good lovers involvement, AimTasting) hedonistic

SEGMENTING BUSINESS MARKETS

Basis…..

• Demography

– industry

– company size

– location

• Operating variables– customer technologies– usage rate– user status – customer service requirements

• Purchasing approaches

– centralized vs. decentralized purchasing

– current vs. potential customers

– purchasing criteria

• Situational factors

– urgency of need

– application of product

– size of order

Requirements for Effective Requirements for Effective SegmentationSegmentation

• Measurability– The degree to which the size and purchasing power of the

segments can be measured. Some segments are hard to measure. (Teen smokers who are rebelling)

• Accessibility– The degree to which the segments can be effectively reached

and served. (Perfume and single women who frequent bars late at night.)

• Substantiality– The degree to which the segments are large, homogenous,

and/or profitable enough. (Cars for people who are 4 feet tall)• Actionability

– The degree to which effective programs can be formulated for attracting and serving the segments. (Airlines with small staff serving seven segments.)

Segments--Examples (1)• Air Travel

– Business/Executive: Inflexible; relatively price insensitive (Small number of people, but travel often)

– Leisure Traveler/Student: Relatively flexible; very price sensitive (other methods of travel--e.g., bus, car, train--are feasible; travel may not be essential) (Very large segment)

– Comfort Travelers: Comfort (e.g., space, food) important; willing to pay (Small segment)

Examples (2) SEGMENTATION FOR COSMETICS

Over the last decade, women have become more confident and the negatives attached to a well-dressed woman are on the wane. People have accepted color cosmetics as an essential part of daily grooming.

The color cosmetics market can be broadly divided into two segments: * Organized sector dominating 36%of the market. * Unorganized sector catering to 64% of the market

The segments that are targeted are as follows: * Age

Youth segment (15 - 24yrs): Elle 18 Core target (24+): Lakme Radiance

* Purchasing power Affluent segment: Aviance, Orchids Middle segment: Lakme Radiance Lower segment: Lakme does not exactly cater to the lower segment but the Elle-18 range it offers is low-priced and hence can satisfy this end of the market also.