Market Segmentation

Market
Segmentation
By Ranjan Kantha, KBS.
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 9-1
Selecting a Target Market
Before a marketing mix strategy can be
implemented, the marketer must identify,
evaluate, and select a target market.
9Market: people or institutions with
sufficient purchasing power, authority, and
willingness to buy
9Target market: specific segment of
consumers most likely to purchase a
particular product
Types of Markets
Consumer products: goods or services
purchased by an ultimate consumer for
personal use
Business products: goods or services
purchased for use either directly or
indirectly in the production of other goods
and services for resale
The key to classification is to identify the
purchaser and the reasons for buying the
goods.
Market Segmentation
The Division
Role ofofMarket
the totalSegmentation
market into smaller,
relatively homogeneous groups
No single marketing mix can satisfy

everyone. Therefore, separate marketing
mixes should be used for different market
segments.
Steps in Segmentation,
Targeting, and Positioning
6. Develop Marketing
Mix for Each Target Segment Market
5. Develop Positioning Positioning
for Each Target Segment
4. Select Target
Segment (s)
Market
3. Develop Measures
of Segment Attractiveness Targeting
2. Develop Profiles
of Resulting Segments
1. Identify Bases Market Segmentation
for Segmenting the Market
Target Market Selection Process
No Market Segmentation
Segmented by Sex
Segmented by Age
Basis for market segmentation
On the basis of consumer’s

On the basis of consumer responses
personal characteristics (non-
(behavioral correlates)
behavioral correlates)
Geographic Psychographic
Usage Loyal
Demographic Benefits
Socio-economic based status
Segmentation Based Over Consumer Characteristics
Geographic Segmentation Demographic Segmentation Psychographic
Nation Age
State Sex Lifestyle
Region Family Size Personality
Country Family Life cycle Value
Neighborhood Income
Density Occupation
Climate Education
Religion
Race
Generation
Nationality
Social Class
BASES FOR SEGMENTING BUSINESS MARKETS
Geographic
Behavioral
End User
Benefit Sought
User Status
Usage Rate
Loyalty Status
Readiness Stage Customer Size
Attitudes Major account/Dealer Account
Small Account
Product Application
Semi finished/Finished/spare
The Classic Segmentation Variables for
Consumer Markets
Geographic
Geographic Segmentation
Segmentation
Geographic segmentation calls for dividing the market into

different geographical units such as nations, states, regions,
countries, cities or neighborhoods
In India there are 5000 towns, 638000 villages and nearly 87% of
these villages have than 2000 people.
Product Preference, Across markets in India,

Air cooler
Coffee
Tea
Demographic
Demographic Segmentation
Segmentation
In demographic segmentation the market is divided in to

groups on the basis of variables such as age, family size,
family life cycle, gender, occupation, education, religions,
race, generation, nationality, and social class.
Often consumers needs, wants, usage rates, and product and brand
preferences are associated with demographic variables.
Age and life cycle stage. Consumers wants and abilities

change with age. Age and life cycle stage are important variables
to define segments.
HLL’s Pink Color Pears, J&J’s Baby soap and talcum powder,
television programs, magazine.
Demographic
Segmentation
life Stage. Defines a persons major concern such as getting

married, deciding to buy a house, sending the child to the school,
taking care of parents, children’s marriage, planning for
retirement, and so on.
Insurance Products.
Gender. Men and women tend to have different attitudinal and
behavioral orientations.
Gender differentiation has long been applied to products
categories such as clothing, hair style, cosmetics and magazines.
Income. Income segmentation is a long standing practice in a

variety of products and services. Income determines the ability of
consumers to participate in the market exchange process.
Nirma, Sachets.
Demographic
Segmentation
Generation. Each generation is profoundly influenced by

the times in which it grows up - the music, movies, politics,
and defining events of that period. Demographers call these
groups cohorts. Members of a cohort share the same major
cultural, political, and economic experiences.
Members of the same cohorts may differ in life stages (getting

married, sending children to school), physiographic (coping
with hair loss, arthritis, etc.) emotional effects (nostalgia about
the past), socio economics (retirement from job, receiving PF,
and gratuity). Meredith, Schewe and Karlovich.
Social Class. It has a strong influence on preference in

cars, clothing, home furnishing, leisure activities, reading
habits, and retailers.
Psychographic
Psychographic Segmentation
Segmentation
Psychographic is the science of using psychology and demographics

to better understand consumers. In Psychographic Segmentation,
buyers are divided into different groups on the basis of
psychological/personality traits, lifestyle, or values.
McDonalds offered veg burger in India,
Titan offers, Edge, Regalia, Nebula and Raga to appeal to different
lifestyle segments.
A very popular segmentation systems is of “SRI Consulting Business
Intelligence’s (SRIC- BI) VALS”. As per this a study is conducted based
on responses to questions where four demographic and 35 attitudinal
questions are exercised.
Behavioral
Behavioral Segmentation.
Segmentation.
Buyers are divided into groups on the basis of their knowledge of,
attitude towards, use of, or response to a product.
Decision Roles. People play five roles in a buying decision, Initiator,
Influencer, decider, buyer, and user.
Behavioral Variables. Many believe that Occasions , Benefits, User
Status, Usage rate, Loyalty status, Buyer readiness stage, are the
best starting points to construct market segments.
Loyal Status: Hard Core, Split, Shifting, Switchers
Behavioral
Segmentation.
Behavioral
Segmentation.
Attitude Five attitude groups can be found in a market:

enthusiastic, positive, indifferent, negative, and hostile
Door-to-door workers in a political campaign use voter attitude to

determine how much time to spend with that voter. They thank
enthusiastic voters and remind them to vote; they reinforce those
who are positively disposed; they try to win the votes of indifferent
voters; they spend no time trying to change the attitudes of
negative and hostile voters.
Combining different behavioral bases can help to

provide a more comprehensive and cohesive view of a
market and its segments
Bases for Segmenting Business Markets
Business markets can be segmented with some of the same

variables used in consumer market segmentation, such as
geography, benefits sought, and usage rate, but business
marketers also use other variables.
Bonoma and Shapiro proposed segmenting the business market with

the variables shown below. The demographic variables are the most
important, followed by the operating variables — down to the personal
characteristics of the buyer.
Demographic
1. Industry: Which industries should we serve?
2. Company size: What size companies should we serve?
3. Location: What geographical areas should we serve?
Operating Variables
4. 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 Approaches
7. 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 soon?
9. Nature of existing relationships: Should we serve companies with
which we have strong relationships or simply go after the most
desirable companies?
10. General purchase policies: Should we serve companies that prefer
leasing? Service contracts? Systems purchases? Sealed bidding?
11. Purchasing criteria: Should we serve companies that are seeking
quality? Service? Price?
Situational Factors
12. Urgency: Should we serve companies that need quick and sudden
delivery or service?
13. Specific application: Should we focus on certain applications of
our product rather than all applications?
14. Size of order: Should we focus on large or small orders?
Personal Characteristics
15. Buyer-seller similarity: Should we serve companies whose people
and values are similar to ours?
16. Attitudes toward risk: Should we serve risk-taking or risk-
avoiding customers?
17. Loyalty: Should we serve companies that show high loyalty to
their suppliers?
Sequential Segmentation
Business marketers generally identify segments through a sequential

process.
Consider an aluminum company: The company first undertook
macro segmentation. It looked at which end-use market to serve:
automobile, residential, or beverage containers.
It chose the residential market, and needed to determine the most
attractive product application:
Semi finished material, building components, or aluminum mobile
homes. Deciding to focus on building components, it considered the
best customer size and chose large customers.
The second stage consisted of micro segmentation. The company
distinguished among customers buying on price, service, or
quality. Because the aluminum company had a high-service
profile, it decided to concentrate on the service-motivated
segment of the market
Business buyers seek different benefit bundles based on their
stage in the purchase decision process:
1. First-time prospects - Customers who have not yet purchased but
want to buy from a vendor who understands their business, who
explains things well, and whom they can trust.
2. Novices - Customers who are starting their purchasing relationship
want easy-to-read manuals, hot lines, a high level of training, and
knowledgeable sales reps.
3. Sophisticates - Established customers want speed in maintenance
and repair, product customization, and high technical support.
These segments may also have different channel preferences.
First-time prospects would prefer to deal with a company salesperson

instead of a catalog or direct-mail channel, because the latter provides too
little information.
Sophisticates, on the other hand, may want to conduct more of their

buying over electronic channels.
One proposed segmentation scheme classifies business buyers

into three groups, each warranting a different type of selling:
• Price-oriented customers (transactional selling). They want value

through lowest price.
• Solution-oriented customers (consultative selling). They want

value through more benefits and advice.
Strategic-value customers (enterprise selling). They want value

through the supplier co-investing and participating in the
customer's business.
Several cases of mismanagement by companies that
did not understand the business buyer:
• A packaging manufacturer decided to upgrade and rename sales reps
as packaging consultants at a cost of $10 million, but 90 percent of its
customers bought transactionally. The company failed and was
acquired by a major competitor who reintroduced a transactional
selling effort.
•A consulting firm replaced its long-term consultants with salespeople

to sell quick consulting projects. They acquired many new clients but
lost most of their old clients, who wanted consultative selling.
• A container manufacturer selling consultatively to a major food

company was asked to join in some risk and gain sharing involving co-
development of radically new packaging approaches. It refused and
lost the account.
Benefit segmentation
Segmented on the basis of benefits sought by consumers
Toothpaste
General benefits that consumers seek are

cleanliness and hygiene in all segments.
Other key benefits are:-
Cosmetic Fluoride Herbal
Protection against Family health, Family health and

foul smell, modernity extra protection welfare.
and cosmic value. Eg- for children. Eg- Traditionally good
Colgate, Prudent Colgate Fluoride, for health.
Cibaca Fluoride. Eg-Neem, Dabur.
Steps in Segmentation Process
Needs-based segmentation
Segment identification Marketing-Mix

Segment attractiveness Strategy
Segment profitability
Segment positioning
Segment acid test

Patterns of Target Market Selection
Effective Segmentation Criteria
Measurable
Measurable
Substantial
Substantial
Accessible
Accessible
Differentiable
Differentiable
Actionable
Actionable
Evaluation of Market Segments - DAMP
9 Distinct – is each segment clearly different from
other segments?
9 Accessible – can buyers be reached through
appropriate promotional programmes and
distribution channels?
9 Measurable – is the segment easy to identify and
measure?
9 Profitable – is the segment sufficiently large to
provide a stream of constant future revenues and
profits?
Criteria for Effective Segmentation
Market segmentation cannot be used in all
cases. To be effective, segmentation must
meet the following basic requirements.
9The market segments must be
measurable in terms of both purchasing
power and size.
9Marketers must be able to effectively
promote to and serve a market
segment.
9Market segments must be sufficiently
large to be potentially profitable.
9The number of segments must match
the firm’s capabilities.
The Market Segmentation Process
Develop a Relevant Profile for each

Segment
Forecast Market Potential
Forecast Probable Market Share
Select Specific Market Segments
Targeting Strategies
Undifferentiated Marketing: when a firm

produces only one product or product line and
promotes it to all customers with a single
marketing mix
Differentiated Marketing: when a firm produces
numerous products and promotes them with a
different marketing mix designed to satisfy
smaller segments
Concentrated Marketing (niche marketing):
when a firm commits all of its marketing resources
to serve a single market segment
The firm goes for a large share of a single (or very
few) segments
Market Coverage Strategies
Company
Company
Marketing
Marketing Market
Market
Mix
Mix
A. Undifferentiated Marketing
Company
CompanyMix
Mix11 Segment
Segment11
Company
CompanyMix
Mix22 Segment
Segment22
Company
CompanyMix
Mix33 Segment
Segment33
B. Differentiated Marketing
Company Segment
Segment11
Company
Marketing
Marketing Segment
Segment22
Mix
Mix
Segment
Segment33
C. Concentrated Marketing
Single segment concentration strategy
¾ The firm selects a single segment or market and fully
concentrate its marketing efforts to try and seek maximum
advantage.
Semi-luxury segment
Single marketing mix
Car maker (Expensive)
Small car
segment Luxury car
(affordable, segment
less (very
expensive) expensive)
Multi-segments strategy
¾ Here the firm may select two or more then two or may be all the
segments and approach each segment with an appropriate
marketing mix programme.
Car maker
Marketing Mix Marketing Mix

Marketing Mix
Semi-luxury Luxury segment

Small car segment
segment
Undifferentiated Marketing Strategy
¾ The firm ignores the market segment differences and goes ahead
with 1 single product offer for all segments.
Essential commodity Single

manufacturer. marketing mix
Micromarketing: involves targeting potential
customers at a very basic level, such as by ZIP
code, specific occupation, lifestyle, or individual
household
IT IS CRITICAL TO UNDERSTAND THAT
Mass marketers do not often practice mass

marketing today
They practice differentiated marketing
Often they do not change the product to appeal

to different segments
They change price, place, and promotion

Selecting and Executing a Strategy
9No single, best choice strategy suits all
firms
9Determinants of a market-specific strategy:
Company resources
Product homogeneity
Stage in the product life-cycle
Competitors’ strategy
Product Positioning
Product
Product Product
Product
Class
Class Attributes
Attributes
Away
Away from
from Benefits
Benefits
Competitors
Competitors HH
GG
Offered
Offered
CC
AA
DD
Against
Against aa EE
BB
Usage
Usage
FF
Competitor
Competitor Occasions
Occasions
Users
Users
9 Positioning: a marketing strategy that emphasizes
serving a specific market segment by achieving a
certain position in buyers’ minds
9 Positioning is the act of designing company’s offer and
image so that it occupies a distinct place in the mind of
the customer
Attributes
Price/quality
Competitors
Application
Product user
Product class
Elements of Positioning
The product
The Company
The Competition
The Consumer
Procedure to develop Positioning strategy
Identify the need of the target in terms of
major attributes or benefits while buying a
product
Selecting one or more variable for
differentiation based on co’s strength
Communicate positioning to the target
Product differentiation
This is the act of designing a set of
meaningful differences to distinguish the
company offerings from competitor.
Ways of differentiation
9Better offering
9Newer offering
9Faster offering
9Cheaper offering
Differentiation variables Differentiation variables:
9 Product 9 Service
features delivery
performance installation
durability customer support
reliability 9 Personnel
reparability competence
style courtesy
design credibility
reliability
responsiveness
communication
Single-benefit positioning is usually best
9 best quality
9 lowest price
9 best value
9 most reliable
Helps to gain “positioning intensity”
People tend to remember # 1. But, what if you are #

2 or # 3?
If you are not # 1

9 strengthen current position
9 grab an unoccupied position
9 deposition or reposition the competition
9 achieve the largest size within a segment
Strategies lead to successful differentiation
Customer intimacy : knowing customer and

respond quickly to their specific and special
need
Product leadership : offering customer
innovative product that enhance the utility
than competitor’s product
Operational excellence : offering reliable
product at competitive price with easy
availability
Positioning Strategy
Benefit positioning :
Attribute positioning : Eg. Year of existence
Application positioning : Dettol, Rexona Deo
User positioning : Business Standard news paper for
banker
Competitive positioning : AKAI TV
Product class / leader positioning :
Quality / price positioning : Philips
Lifestyle positioning : Gold Flake for gracious people
By reference group positioning : Clinic all clear
Positioning Procedure
1. Identify competitor
2. Determine how competitors are
perceived and evaluated
3. Determine the competitors position
4. Analyze the customers preference
5. Making positioning decision
6. Monitoring the position
Positioning Errors
Under positioning : company having vague
idea of a brand. Brand is seen just another
entry in crowded market place
Over positioning : buyer have narrow image
of brand
Confused positioning : confused image
from company’s too many claims
Doubtful positioning : buyer may find hard
to believe the brands claim

Market Segmentation

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Market Segmentation

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Market

 No single marketing mix can satisfy

On the basis of consumer’s

Geographic Segmentation Demographic Segmentation Psychographic

Geographic segmentation calls for dividing the market into

Product Preference, Across markets in India,

In demographic segmentation the market is divided in to

Age and life cycle stage. Consumers wants and abilities

life Stage. Defines a persons major concern such as getting

Income. Income segmentation is a long standing practice in a

Generation. Each generation is profoundly influenced by

Members of the same cohorts may differ in life stages (getting

Social Class. It has a strong influence on preference in

Psychographic is the science of using psychology and demographics

Attitude Five attitude groups can be found in a market:

Door-to-door workers in a political campaign use voter attitude to

Combining different behavioral bases can help to

Business markets can be segmented with some of the same

Bonoma and Shapiro proposed segmenting the business market with

Business marketers generally identify segments through a sequential

These segments may also have different channel preferences.

First-time prospects would prefer to deal with a company salesperson

Sophisticates, on the other hand, may want to conduct more of their

One proposed segmentation scheme classifies business buyers

• Price-oriented customers (transactional selling). They want value

• Solution-oriented customers (consultative selling). They want

Strategic-value customers (enterprise selling). They want value

•A consulting firm replaced its long-term consultants with salespeople

• A container manufacturer selling consultatively to a major food

Segmented on the basis of benefits sought by consumers

General benefits that consumers seek are

Cosmetic Fluoride Herbal

Protection against Family health, Family health and

Segment identification Marketing-Mix

Segment acid test

 Develop a Relevant Profile for each

 Forecast Market Potential

 Forecast Probable Market Share

 Select Specific Market Segments

 Undifferentiated Marketing: when a firm

Marketing Mix Marketing Mix

Semi-luxury Luxury segment

Essential commodity Single

Mass marketers do not often practice mass

They practice differentiated marketing

Often they do not change the product to appeal

They change price, place, and promotion

 Helps to gain “positioning intensity”

 People tend to remember # 1. But, what if you are #

 If you are not # 1

 Customer intimacy : knowing customer and

Anda mungkin juga menyukai

No single marketing mix can satisfy

Develop a Relevant Profile for each

Forecast Market Potential

Forecast Probable Market Share

Select Specific Market Segments

Undifferentiated Marketing: when a firm

Helps to gain “positioning intensity”

People tend to remember # 1. But, what if you are #

If you are not # 1

Customer intimacy : knowing customer and