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SEGMENTATION
AND TARGETTING
Dr. Vandana T Khanna
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Marketing Segmentation
Market segmentation is the process of
dividing a heterogeneous market into
homogenous sub-units
Kotler
The market segmentation is the strategy of
dividing the markets in order to conquer
them
A market segment consists of a group of
customers who share a similar set of needs and
wants.
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Why Segmentation?
Cut through superficial similarities to
identify real links
Try to carve out new segments across
existing one
Use motivators, not buying power to spot
segments
Segment by age-group to represent
distinct lifestyles
Makes the marketing efforts more efficient
and economic
Helps achieving specialization required in
product, distribution, promotion and
pricing
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Using Market
Segmentation
Mass marketing is losing popularity
Micromarketing can be undertaken at four
levels:
Segment Segment Segment Segment marketing marketing marketing marketing
Niche Niche Niche Niche marketing marketing marketing marketing
Local Local Local Local marketing marketing marketing marketing
Individual Individual Individual Individual marketing marketing marketing marketing
Mass Marketing
Same product to all consumers
(no segmentation)
Segment Marketing
Different products to one or more segments
(some segmentation)
Micromarketing
Products to suit the tastes of individuals or locations
(complete segmentation)
Niche Marketing
Different products to subgroups within segments
( more segmentation)
Using Market
Segmentation
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Using Market
Segmentation
Three patterns of preference segments are
typically identified:
Homogeneous preferences
Diffused preferences
Clustered preferences
(a) Homogeneous
preferences
Sweetness
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(c) Clustered
preferences
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Sweetness
(b) Diffused
preferences
C
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Sweetness
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Market Segmentation
Procedure
Step I Survey Stage
Attributes Attributes Attributes Attributes of of of of product product product product and and and and its its its its importance importance importance importance rating rating rating rating
Brand Brand Brand Brand awareness awareness awareness awareness and and and and brand brand brand brand ratings ratings ratings ratings
Product Product Product Product- -- -usage usage usage usage patterns patterns patterns patterns
Attitudes Attitudes Attitudes Attitudes towards towards towards towards product product product product category category category category
Demographics, Demographics, Demographics, Demographics, geographics, geographics, geographics, geographics, and and and and
psychographics psychographics psychographics psychographics of of of of the the the the respondents respondents respondents respondents
Step II Analysis Stage
Factors Factors Factors Factors
Clusters Clusters Clusters Clusters
Step III Profiling Stage
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Plot
Demographic
& Socio-eco
profile
Search for
Common
factors
Create
Clusters of
Customers
Create
Target
Segment
Check for
Economic
Power of
Segment
Check for
Ability of
Action
Symptoms
Are the
Links
Causes or
Symptoms
Causes
No
Is
Focused
Marketing
Possible
Yes
Ensure
Increase in
Customer
Value
How to Add Value Through Segmentation
Keep
Tracking
Segment
For
Changes
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Bases of Segmenting
Consumers
Demographic Psychographics Geographic Behavioral
and socio-
Economics
Usage Benefit Promotional Response Loyalty
Segmentation
Approaches
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Bases of Segmentation
Demographic & Socio-economic Segmentation
Age and life-cycle stage
Life stage
Gender
Income
Generation
Social class
Family size
Education
Religion
Age and Life-Cycle Stage
Age and Lifecycle Stage
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Consumer wants and
abilities change with
age. People in the
same part of the life
cycle may still differ
in their life stage.
These life stages
present opportunities
for marketers who
can help people cope
with their major
concerns.
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Life Stage Gender
Women:
Influence 80% of consumer
purchases
Make 75% of new home
decisions
Purchase 40% of cars
Income Generation
Gen X (1964-1978)
Baby Boomers (1946-1964)
Silent Generation (1925-1945)
Millennials (Gen Y) (1979-1994)
-78 Million people
-$187 annual spending power
Race and Culture
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Bases of Segmentation
Socio-economic Segmentation
A 1 and A 2 (9.5%) Graduates, White
Collared Workers and Professionals
B 1 and B 2 (17%) Typically SSC
Qualified, About 40% Graduates,
Occupation Clerk/Shopkeepers
C (19.5%) Skilled Workers, Clerks,
Salespersons, etc.
D (22.4%) Same as above, Occupation
Profile with SSC
E 1 and E 2 (31.6%) Unskilled Labor
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SEC Classification:
Urban Markets
SEC Rural Consumers
in India
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Bases of Segmentation
Geographic Segmentation
Region
City or Metro size
Density
Climate
Geo-clustering
Psychographic
Segmentation
Personality
traits
Lifestyle
Values
VALS Segmentation
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The Revolution brand of
ready-made womens
apparel successfully
focuses on the niche
segment of plus-size
clothes.
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Bases of Segmentation
Behavioral Segmentation
Usage
Benefits
Occasions/Promotions
Response
Buyer Buyer Buyer Buyer- -- -readiness readiness readiness readiness stage stage stage stage
Attitude Attitude Attitude Attitude towards towards towards towards product product product product
Loyalty
Initiator
Influencer
Decider Buyer
User
Behavioral
Segmentation
Consumer Attitudes
Enthusiastic Positive Indifferent Negative Hostile
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Indian Market
Segmentation
Indian Markets
Urban Semi-Rural Rural Semi-Urban
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Indian Market
Segmentation
Urban Markets (Including Semi-Urban) is
defined as having population of more than 5000
with a density not less than 400 people per Sq
Km, with at least 75% of the male working
population engaged in non agricultural pursuits.
It covers 5284 cities and towns, out of which
784 towns are of a population of over 50,000.
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Classification of
Indian Markets
TOWN CLASS POPULATION NO. OF TOWNS
CLASS I 1,00,000 & Above 423
CLASS II 50,000 99,999 498
CLASS III 20,000 49,999 1386
CLASS IV 10,000 19,999 1560
CLASS V 5,000 9,999 1057
CLASS VI Less Than 5000 110
Total Number Of
Towns
5,284
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Indian Market
Segmentation
Semi-Rural Markets are basically districts and
talukas/sub-districts. There are 596 districts.
These form important link between cities and
villages.
Rural Markets are nearly 6,38,667 villages in
India. Around 72% of total population lives in
rural areas. According to census, population
density is less than 400 people per Sq Km, with at
least 75% of the male working population
engaged in agricultural pursuits.
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Indian Market
Segmentation
Business Market consists of all the organizations
that acquire goods and services used in the
production of other products or services that are
sold, rented or supplied to others.
Consumer Market consists of all individuals that
acquire goods and services primarily for their
own consumption.
Institutional Market consists of schools,
hospitals, nursing homes, prisons and other
institutions that provide goods and services to
people in their care.
Bases
for Segmenting
Business
Markets
Demographics
Personal
Characteristics
Situational
Factors
Operating
Characteristics
Purchasing
Approaches
Bases for Segmenting
Business Markets
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Segmenting
Business Markets
Rackman and Vincentis proposed a
segmentation scheme that classifies business
buyers into three groups:
Price-oriented customers: best served via
transactional selling
Solution-oriented customers: best served
by means of consultative selling
Strategic-value customers: best served by
means of enterprise selling
Political/
Legal
Cultural
Intermarket
Economic Geographic
Industrial Markets
Segmenting
Business Markets
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Bases for Segmenting
Business Markets
Macro segmentation :
Geographic location of the business
Customer type ( MNC / Indian Pvt / Public
Sector )
Customer size ( large / medium / small )
Product use ( where it enters the
production process )
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Bases for Segmenting
Business Markets
Micro segmentation :
Purchasing criteria
Purchasing strategy
Importance
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Segmentation
Segmentation through :
Experience
Observation
Strategic thinking
Cluster analysis
CUSTOMER BASED / PRODUCT
BASED SEGMENTATION
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Product Based
Segmentation
Product benefits: eg- watch ;
gift/accessory/ jewelry/durability/time
keeping
Benefits can be tangible / intangible:
clothes/cosmetics
Product usage rate: light / heavy /
medium eg- pc memory size depending
on requirements; package sizes
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Heavy and Light Users of
Common Consumer Products
HEAVY HALF LIGHT HALF
PRODUCT (% USERS)
Soups and
detergents (94%)
Toilet tissue (95%)
Shampoo (94%)
Paper towels (90%)
Cake mix (74%)
Cola (67%)
Beer (41%)
Dog food (30%)
Bourbon (20%)
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Cigarettes: beedi / Non filter / filter
lower / filter medium / premium
Chocolates :
Molded Molded Molded Molded chocolates chocolates chocolates chocolates : :: : embedded embedded embedded embedded with with with with nuts nuts nuts nuts
etc, etc, etc, etc, not not not not breakable breakable breakable breakable into into into into small small small small bars bars bars bars perk perk perk perk / // /
picnic picnic picnic picnic / // / 5 55 5- -- -star star star star
Sugar Sugar Sugar Sugar panned panned panned panned : :: : sugar sugar sugar sugar coated coated coated coated on on on on outside outside outside outside and and and and
filled filled filled filled with with with with caramel caramel caramel caramel or or or or cocoa cocoa cocoa cocoa gems gems gems gems
Countline Countline Countline Countline bars bars bars bars : :: : same same same same as as as as molded molded molded molded chocolates chocolates chocolates chocolates
but but but but broken broken broken broken into into into into small small small small bars bars bars bars cadbury cadbury cadbury cadbury diary diary diary diary
milk milk milk milk , ,, , fruit fruit fruit fruit & && & nut nut nut nut , ,, , KitKat, KitKat, KitKat, KitKat, etc etc etc etc
Choco Choco Choco Choco panned panned panned panned : :: : chocolate chocolate chocolate chocolate coating coating coating coating on on on on the the the the
outside outside outside outside & && & filled filled filled filled with with with with caramel caramel caramel caramel or or or or some some some some other other other other
ingredient ingredient ingredient ingredient nutties, nutties, nutties, nutties, tiffins tiffins tiffins tiffins etc etc etc etc
Product Based
Segmentation
Some Examples
Dr. Vandana Khanna
Segmentation :
Chocolates
product age Social class occasion
gems < 12 yrs M,UM, P Casual
CDM universal _ do _ All time
Roast almond ,
fruit & nut
universal UM,P gifts., regular
occasions
Tiffins,
caramels,
nutties
kids M,UM,P All time
eclairs kids M,UM,P All time
Perk & picnic 15-25 yrs M,UM,P snacking
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Other Bases for
Segmentation
Other Bases of Segmentation
Price Sensitive / Price Insensitive
Customer ( luxury products )
Emerging segments due to changing
preference of consumer ( electric cars /
mens grooming / changing technology /
naukri for women / secondshaadi.com )
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Examples of
Segmentation
Credit Cards :
Soaps :
Shampoos :
Hair Oils :
Clothes :
Movies :
Cooking Oils :
Refreshing Drinks :
Cars :
Two Wheelers :
Watches :
Dr. Vandana Khanna
Some Observations
Segmentation is a subjective art not an
absolute science
It is challenging to address multiple markets
with no common elements of the marketing
mix
Adjacent segments are addressed with some
element/s of the marketing mix in common
with each other
Case in Point: The Pizza delivery segment has a
similar product to the Pizza restaurant segment.
They differ in the distribution (place) & promotion
process. They both have similar pricing
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Measurable
Accessible
Substantial
Differential
Actionable
Segments must be large or
profitable enough to serve.
Segments can be effectively
reached and served.
Size, purchasing power,
profiles of segments can be
measured.
Segments must respond
differently to different
marketing elements & actions.
Must be able to attract and
serve the segments.
Effectiveness of
Segmentation
How Market Segmentation
Models Are Developed
Hypothesis
Generation
Market
Knowledge
Past segmentation
learning
Qualitative
Research
Focused Groups
One-on-One
Other
Quantitative
Research
Especially for
consumer markets
Expensive but
provides great
insight
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Segmentation Examples
Yellow Pages Publishers Association (B to B)
Major Automotive Corporation (B to C)
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Yellow Pages Publishers
Association (YPPA)
Problem: National advertising was not
growing
Sales efforts were not focused
No accepted hypothesis as to why or what
to do
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Advertiser
Segmentation
Interviews showed that consumer
dynamics drove role of the Yellow Pages in
business generation
Businesses where the consumer bought
infrequently and under pressure was
where the Yellow Pages were most
leverageable
Where consumers buy frequently and can
shop easily there is less leverage
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Segmentation and
Results
Categories ranked on Yellow Pages
leverage, and current advertising spend
Individual accounts targeted based on
potential
Testing program initiated, proving payback
of program upgrade
Results: Program in place 10+ years; $Bs
incremental profitability
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Major Automotive
Corporation
First time effort at market segmentation
despite 100 year history
Many factors make segmentation highly
complex:
Wide Wide Wide Wide range range range range of of of of products products products products and and and and price price price price points points points points
Wide Wide Wide Wide variation variation variation variation in in in in category category category category- -- -related related related related attitudes attitudes attitudes attitudes
and and and and needs needs needs needs
Complex Complex Complex Complex buying buying buying buying dynamics dynamics dynamics dynamics
External External External External factors factors factors factors can can can can change change change change drivers drivers drivers drivers very very very very
quickly quickly quickly quickly
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Internal Factors made the
Effort More Challenging
Top Management enthusiastic but had no
experience in the area
Little segmentation expertise at any level
Product Development buy-in uncertain
Which Brand gets which segment?
But there was no hesitation to give this
project the resources it needed
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Mother of all Consumer
Segmentation Projects
10,000 person random sample in US;
similar sample in Europe (new car buyers)
Three plus hour personal interview plus
self administered questionnaire
Measured purchase/ownership history,
attitudes (category related and other),
automotive-related needs and desires,
etc..highly comprehensive data base
from which to work
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Once the data was collected,
the analytic approach was key
After several attempts, automotive-
related attitudes, desires and needs
were chosen as the driving variables
Other dataincluding vehicle owned
was used to characterize the segments,
not to define them
Luxury was broken out separately
The final model employed an
approximately 30 segment solution
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The resultant model and learning
was very important to the
Corporation
While 30 segments is difficult to
conceptualize, the effort did lead to much
better targeting of vehicles to buyer
groups
With 10,000 individuals to work with,
regional and ethnic differences could be
better understood
Even model-level differences could be
understoode.g. Ford Expedition vs.
Lincoln Navigator
All Brands had a much better
understanding of who their customers
really were and who they could be
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Implementation was
tricky
Brands fought over attractive segments
Product Development not keen to develop
products for boring segments
Difficult to drive understanding of the
segments down into the Organization
Updating required on a regular basis
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Some final thoughts on
Segmentation
Critical to the entire marketing and sales
effort
Done right, an insightful Segmentation
Model is a major competitive advantage
Requires a knowledgeable Champion to be
responsible for completion and
installation.
To be successful, requires Top
Management and cross-functional buy-in.
And the discipline to focus on the right
segments!
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Example Coffee
Consumption
Demographic base: Age segmentation
Typical regular coffee consumer is over 35
years 75% of market
Non regular is under 35 years - 25% of
market
Behavior base: Benefit segmentation
Consume for taste enjoyment (coffee shop)
Consume for the wake up effect (Nestle)
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Market Targeting
Use focus benefits to build loyal
customers in chosen segments and sub-
segments
Provides added benefits to existing
products when entering new segments
Use customer tastes to carve out new
niches
Use focused brands to cover possibility of
emerging niches
Niche is specialized strategy aimed at target market having
significantly different needs from broader market. A niche is an
unserved or underserved segment of market.
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Target Marketing
Target marketing requires marketers to take
three major steps:
Market segmentation: Identifying and
profiling distinct groups of buyers who
differ in their needs and preferences.
Market targeting: Selecting one or more
market segments to enter.
Market positioning: Establishing and
communicating the key distinctive
benefit(s) of the companys market offering
to each target.
Target Marketing
Market Coverage Strategies
Segment 1
Segment 2
Segment 3
Segment 1
Segment 2
Segment 3
Company
Marketing
Mix
Company
Marketing
Mix
Company
Marketing Mix 1
Company
Marketing Mix 2
Company
Marketing Mix 3
Market
A. Undifferentiated Marketing (e.g. Post Office)
B. Differentiated Marketing (e.g. Lodha group)
C. Concentrated Marketing (e.g. Bosch)
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Undifferentiated Strategy
Single
Marketing
Mix
Target Market
Organization
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Differentiated Strategy
Organization
Marketing Mix 1
Target Market
Marketing Mix 2
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Concentrated Strategy
Single
Marketing
Mix
Target Market
Organization
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Target Marketing
Choosing a Market-Coverage Strategy
Company
Resources
Product
Variability
Products Stage
in the Product Life Cycle
Market
Variability
Competitors
Marketing Strategies
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Selecting Target
Market Segments
Evaluating and selecting market segments
requires assessing the segments overall
attractiveness in light of companys
objectives and resources.
Single market concentration
Selective specialization
Product specialization
Market specialization
Full market coverage
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Single-segment
concentration
Product
specialization
M1 M2 M3
P1
P2
P3
Selective
specialization
M1 M2 M3
P1
P2
P3
M1 M2 M3
Full market
coverage
P1
P2
P3
Market
specialization
M1 M2 M3
P1
P2
P3
P1
P2
P3
M1 M2 M3
P = Product
M = Market
Five Patterns of Target
Market Selection
Target Market Selection
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Toyota
Toyota Yaris
Unashamedly
targets female
buyers
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Market Targeting
Strategies
Targeting multiple segments may result in
cost economies
Super-segment targeting may be
appropriate
Blocked markets often require mega-
marketing counter measures
Be aware of ethical concerns
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Dr. Vandana Khanna
Steps for STP
Market Segmentation Market Targeting
Market Positioning
1. Identify segmentation
variables and segment
the market
2. Develop profiles of
resulting segments
3. Evaluate the
attractiveness
of each segment
4. Select the target
segment(s)
5. Identify possible
positioning concepts
for each target segment
6. Select, develop and
communicate the chosen
positioning concept
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Opportunity
Evaluation Matrix
Market
niche
criterion
Competitive
Activity
Buyer
Requirements
Demand/
Supply
Political,
Technological,
and
Socioeconomic
Forces
Organizational
Capabilities
Buyer
Type
Buyer
Needs
Means
for Buyer
Needs
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Fundamental-Buyer
Related Questions
Who are they?
What do they want to buy?
How do they want to buy?
When do they want to buy?
Where do they want to buy?
Why do they want to buy?
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STP Has Great Impact on
Strategy and Tactical
Development
Strategy
Target Market(s)
Offering Strategy
Offering
Product Line
Associated Service
Bundle
Marketing Tactics
Advertising and other
communication
(message and media)
Distribution Channels
Pricing
Sales force allocation
Promotion
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