Segmentation and Targeting

 Basics
 Market Definition
 Segmentation Research and Methods
 Behavior-Based Segmentation
Market Segmentation
 Market segmentation is the
subdividing of a market into
distinct subsets of customers.

Segments

 Members are different between

segments but similar within.
Segmentation Marketing
Definition

Differentiating your product and

marketing efforts to meet the
needs of different segments, that
is, applying the marketing concept
to market segmentation.
 Primary Characteristics
of Segments
 Bases—characteristics that tell us why
segments differ (e.g. needs, preferences,
decision processes).

 Descriptors—characteristics that help us find

and reach segments.

 (Business markets) (Consumer markets)

Industry Age/Income
Size Education
Location Profession
Organizational Life styles
structure Media habits
A Two-Stage Approach
in Business Markets
Macro-Segments:

 First stage/rough cut

 Industry/application
 Firm size

Micro-Segments:

 Second-stage/fine cut
 Different customer needs, wants, values within macro-segment
Relevant Segmentation
Descriptor
Variable A: Climatic Region
1. Snow Belt
2. Moderate Belt
3. Sun Belt

Fraction of
Customers

Segment 1
Segment 2
Segment 3

0 100%

Likelihood of Purchasing Solar Water Heater

(a)
Irrelevant Segmentation
Descriptor
Variable B: Education
1. Low Education
2. Moderate Education
3. High Education

Fraction of
Customers
Segment 1
Segment 2

Segment 3

0 100%

Likelihood of Purchasing Solar Water Heater

(b)
 Variables to Segment
and Describe Markets
Consumer
Segmentation Needs, wants benefits,
Bases solutions to problems,
usage situation, usage rate.
Descriptors Age, income, marital status,
Demographics family type & size,
gender, social class, etc.
Psychographics Lifestyle, values, &
personality characteristics.
Behavior Use occasions, usage level,
complementary &
substitute products used,
brand loyalty, etc.
Decision Making Individual or group
(family) choice, low or high
involvement purchase,
attitudes and knowledge
about product class, price
sensitivity, etc.
Media Patterns Level of use, types of
media used, times of use,
etc.
Industrial
Needs, wants benefits, solutions to
problems, usage situation, usage rate,
size*, industrial*.
Industry, size, location, current
supplier(s), technology utilization,
etc.
Personality characteristics of
decision makers.
Use occasions, usage level,
complementary & substitute
products used, brand loyalty, order
size, applications, etc.
Formalization of purchasing
procedures, size & characteristics
of decision making group, use of
outside consultants, purchasing
criteria, (de) centralizing buying,
price sensitivity, switching costs, etc.
Level of use, types of media used,
time of use, patronage at trade shows,
receptivity of sales people, etc.
Segmentation in Action
We segment our customers by letter volume, by
postage volume, by the type of equipment they use.
Then we segment on whether they buy or lease
equipment.

Based on this knowledge, we target our marketing

messages, fine tune our sales tactics, learn which
benefits appeal to which customers and zero in on
key decision makers at a company.

—
Segmentation
If you’re not thinking segments, you’re not
thinking. To think segments means you
have to think about what drives customers,
customer groups, and the choices that are
or might be available to them.

—Levitt, Marketing Imagination

 STP as Business Strategy
Segmentation
 Identify segmentation bases and segment the market.
 Develop profiles of resulting segments.

Targeting
 Evaluate attractiveness of each segment.
 Select target segments.

Positioning
 Identify possible positioning concepts for each target segment.
 Select, develop, and communicate the chosen concept.

… to create and claim value

Overview of Methods for STP
 Clustering and discriminant
analysis

 Choice-based segmentation

 Perceptual mapping
- later
 Segmentation (for Carpet
Fibers)
Perceptions/Ratings for one respondent:
Customer Values

.. . . .
Strength
.
.A. .. ..
. .
.
D. . .
... ....
Distance between
(Importance)

.
B. .
.
segments C and D

.. .. . . C. .
A,B,C,D:
.. . . .. . .. .
Location of
segment centers. .. . .
Typical members:
A: schools
B: light commercial
C: indoor/outdoor
carpeting Water Resistance
D: health clubs
(Importance)
Targeting
Segment(s) to serve

.. . . .
.. ... .
. . .... .. . .
.
Strength
(Importance) . .
.. ... . . .
.. . . .. ... .
.. . .
Water Resistance
(Importance)
 Positioning
Product Positioning

.. .
Comp 1
Comp 2
Us
. .
.. ... .
.. . .
Strength
(Importance) . .
.. ... . . .
.. . . .. ... .
.. . .
Water Resistance
(Importance)
A Note on Positioning
Positioning involves designing an offering so that the
target segment members perceive it in a distinct and
valued way relative to competitors.

Three ways to position an offering:

1. Unique (“Only product/service with XXX”)
2. Difference (“More than twice the [feature] vs.
[competitor]”)
3. Similarities (“Same functionality as [competitor];
lower price”)

What are you telling your targeted segments?

Behavior-Based Segmentation
 Traditional segmentation
(eg, demographic,
psychographic)

 Needs-based segmentation

 Behavior-based segmentation
(choice models)
 Steps in a Segmentation Study
 Articulate a strategic rationale for segmentation (ie, why are
we segmenting this market?).

 Select a set of needs-based segmentation variables most

useful for achieving the strategic goals.

 Select a cluster analysis procedure for aggregating (or

disaggregating customers) into segments.

 Group customers into a defined number of different

segments.

 Choose the segments that will best serve the firm’s strategy,
given its capabilities and the likely reactions of competitors.
Segmentation: Methods
Overview
 Factor analysis (to reduce data
before cluster analysis).

 Cluster analysis to form segments.

 Discriminant analysis to describe

segments.