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Identifying Market Segments

and Targets

Copyright © 2009 Pearson Education, Inc.


Chapter 7- slide 1
Publishing as Prentice Hall
Market segmentation
• Divides a market into well-defined slices.
• A market segment consists of a group of
customers who share a similar set of
needs and wants.
• The marketer’s task is to identify the
appropriate number and nature of market
segments and decide which one(s) to
target.
Market Segmentation

Market segmentation is the process that


companies use to divide large,
heterogeneous markets into small
markets that can be reached more
efficiently and effectively with products
and services that match their unique
needs
Market segmentation
• Two broad groups of variables to segment consumer markets.
• Descriptive characteristics—geographic, demographic, and
psychographic—and asking whether these segments exhibit
different needs or product responses.
• Eg: Examining the differing attitudes of “professionals,” “blue
collars,” and other groups toward, say, “safety” as a product
benefit.
• Looking at behavioural considerations, such as consumer
responses to benefits, usage occasions, or brands, then seeing
whether different characteristics are associated with each
consumer response segment.
• Eg: Do people who want “quality” rather than “low price” in an
automobile differ in their geographic, demographic, and/or
psychographic makeup?
Market Segmentation

• Segmenting consumer markets


• Segmenting business markets
• Segmenting international markets
• Requirements for effective
segmentation
Market Segmentation
Segmenting Consumer Markets

Geographic Demographic
segmentation segmentation

Psychographic Behavioral
segmentation segmentation
Market Segmentation
Segmenting Consumer Markets
• Geographic segmentation divides the market into different
geographical units such as nations, regions, states, counties,
or cities
• Grassroots marketing, sometimes known as guerilla
marketing, starts from the ground up. concentrate on making
such activities as personally relevant to individual customers
as possible.
• Builds brand awareness from the ground up. Instead of
paying outside companies for expensive advertising, a
grassroots approach grows customer support organically
through word of mouth and good old-fashioned credibility.
• E.g.: Banks: Specialized Branches-Serve Big Corporate and
high net worth individuals…customized
Market Segmentation
Geographic segmentation
• Geographical markets also vary in their product
preferences and requirements…product inefficient
• Food habits changes
• Marketing to microsegments has become possible even for
small organizations as database costs decline, software
becomes easier to use, and data integration increases.
• http://www.censusindia.net/
• Shop outlets: Locations for new shop outlets can be
identified.
• Advertising: Areas for advertisement can be identified.
Segmentation can also reveal information for
advertisement media.
Market Segmentation
Geographic segmentation
• Product selection: Different geographic segments have
differing consumption patterns. Introducing different
products for different geographic segment can bring more
sales!
• Military recruitment: Military recruits have certain
demographic attributes. Focusing on geographic segments
with such profiles, military can find new recruits more
efficiently.
• Catalog sales: In catalog sales direct marketing, generally
demographic information of customers is not available.
Census information derived from geographic data can be
used to develop better customer segmentation and
predictive models
Market Segmentation
Segmenting Consumer Markets

• Demographic segmentation divides the market


into groups based on variables such as age,
gender, family size, family life cycle, income,
occupation, education, religion, race, generation,
and nationality.
Market Segmentation

• Age and life-cycle stage segmentation is


the process of offering different products or
using different marketing approaches for
different age and life-cycle groups
• Eg: Cable Packages
• Gender segmentation divides the market
based on sex (male or female)
• Hero Pleasure scooter, Allen Solly (For
Women), Emami (For Male)
Income segmentation divides the market into affluent or low-income consumers
Market Segmentation
Segmenting Consumer Markets : Socio-
Economic Classification
• The new SEC system is based on two variables:
• 1. Education of the Chief Earner: The options are
i. Illiterate
ii. Literate but no formal schooling or Schooling unto 4 years
iii. Schooling between 5–9 years
iv. High School pass
v. Some college (including a diploma but not a graduate)
vi. Graduate / Post Graduate (General)
vii.Graduate / Post Graduate (Professional)
Market Segmentation
Segmenting Consumer Markets : Socio-
Economic Classification
• 2. The number of Consumer durables(pre-decided from a list
of 11 items) owned by the family. The list of 11 items are:
Electricity Connection, Ceiling Fan, LPG Stove, Two Wheeler,
Color TV, Refrigerator, Washing Machine, Personal
Computer/Laptop, Car/Jeep/Van, Air Conditioner, Agricultural
Land
• There are 12 grades in the new system starting from A1 to E3.
• It divides the population into 3 classes:
• Upper most segment of the consuming class-A1,A2 and B1
• Middle segment- B2 and C
• The lower most segment—D, E1, and E2
• https://data.gov.in/dataset-group-name/socio-economic
Market Segmentation
Segmenting Consumer Markets : Generation
• Generation X: Those born between 1965 and 1981
• Their life has not been easy, since, after a period of upheaval,
finding a job was a great challenge.
• To work and produce was their philosophy of life, leaving no room
for idealism.
• Individualism, ambition and an addiction to work — or being a
workaholic — are the values with which they grew up.
• Baby Boomers: The parents of generation X had the worst part:
they lived through the postwar period. Born between 1945 and
1964
• They went through the entire period of technological evolution
and the rise and development of the media, as well as enjoying
stability in terms of both work and family and being active both
physically and mentally.
Market Segmentation
Segmenting Consumer Markets : Generation
• GENERATION Y OR THE MILLENNIALS: DIGITAL NATIVES
• Born between 1982 and 1994 and technology is part of their
everyday lives:
• Unlike previous generations, because of the economic crisis, the
world requires them to be better trained to get a job, as
competition is increasing.
• Generation X, digital natives are not satisfied with the world
around them and are ambitious and want to achieve their goals.
• However, the millennial generation is labelled as being lazy,
narcissistic and spoilt. In fact, in 2014, Time magazine
labelled them as the me-me-me generation.
Market Segmentation
Segmenting Consumer Markets : Generation
• Z OR CENTENNIAL GENERATION:
• Aged between eight and 23 years old, generation Z or the post-
millennial generation will take the lead in a few decades.
• Also labelled as centennials, for having been born into the world at the
turn of the century — the oldest were born in 1995 and the
youngest in 2010 — they arrived with a tablet and a smartphone
under their arms.
• It is a group of people that is marked by the Internet.
• Their mastery of technologies may make them neglect their
interpersonal relationships to a greater extent, but they are the ones
who give more of a voice to social causes on the Internet.
• They like to get everything they want immediately, a fact fostered by
the digital world in which they are immersed, and their lifestyle is also
influenced by youtubers.
Market Segmentation
Segmenting Consumer Markets : Generation
• They multi-task, but their attention span is limited. They are
independent and demanding consumers and will have jobs that do not
exist in today's world.
• As for the current generation, those born after 2010, they have been
termed the Alpha generation. What will their behaviour be like?
Market Segmentation
Segmenting Consumer Markets
• Psychographic segmentation divides
buyers into different groups based on social
class, lifestyle, or personality traits.
• Uses psychology and demographics
• Most Commonly available classification
systems based on psychographic
measurements is Strategic Business Insights'
(SBI) VALS FRAMEWORK (Values, Attitudes
and Lifestyles)
VALS Segmentation Systems
• VALS segments adults into eight distinct types—or
mindsets—using a specific set of psychological traits and
key demographics that drive consumer behaviour.
• Thinkers, Innovators, Believers, Achievers, Strivers,
Experiencers, Makers, Survivors
• Two critical concepts for understanding
consumers: primary motivation and resources
• The combination of motivations and resources determines
how a person will express himself or herself in the
marketplace as a consumer.
• Primary Motivation:
• It explains consumer attitudes and anticipates behaviour.
• VALS includes three primary motivations that matter for
understanding consumer behaviour: ideals, achievement,
and self-expression.
• Consumers who are primarily motivated by ideals are
guided by knowledge and principles.
• Consumers who are primarily motivated by achievement
look for products and services that demonstrate
success to their peers.
• Consumers who are primarily motivated by self-
expression desire social or physical activity, variety,
and risk.
• Resources:
• A person's tendency to consume goods and services
extends beyond age, income, and education.
• Energy, self-confidence, intellectualism, novelty
seeking, innovativeness, impulsiveness, leadership,
and vanity play a critical role.
• These psychological traits in conjunction with key
demographics determine an individual's resources.
• Various levels of resources enhance or constrain a
person's expression of his or her primary motivation.
•A fresh perspective by effectively "putting
them inside the head" of their customers
•Rich, customized, consumer profiles or
personas
•Distinctive communication styles of their
best targets.
Market Segmentation
Segmenting Consumer Markets
• Behavioral segmentation divides buyers into groups
based on their knowledge, attitudes, uses or responses to a
product.
I. Needs and Benefits-Eg: Soap: Dettol Vs Liril
II. Decision Roles: People play five roles in a buying decision:
Initiator, Influencer, Decider, Buyer, and User. Identify the
one who plays major role.
• E.g.: Women play a significant role in deciding on brands of
kitchen appliances and initiating the purchase of many
household products. Therefore many advertisements are
targeted at homemakers.
Market Segmentation
Segmenting Consumer Markets
III. User and Usage-Real User and Usage-Related Variables:
• Occasions-Eg: Greeting cards are used in festive
occasions…Christmas, new Year, Birthdays, Weddings,
Anniversaries, Valentine’s day and so on.
• Usage rate-Light, Medium and heavy product users.
• Buyer Readiness Stage: Unaware of the product, some are
aware, some are informed, some are interested, some desire
the product, and some intend to buy. The proportion of
consumers at different stages make a big difference in
designing the marketing program
• E.g.: Unaware consumers-Educate, inform and persuade
consumers.
• All are different stages and must be converted.
Market Segmentation
Segmenting Consumer Markets

• User status-Every product has its nonusers, ex-users,


potential users, first-time users, and regular
users…potential users
• Loyalty status:
 Hard-core loyal—Consumers who buy only one brand all
the time-Help identify the product’s strength
 Split loyal—Consumers who are loyal to two or three
brands
 Shifting loyal—Consumers who shift loyalty from one
brand to another
 Switchers—Consumers who show no loyalty to any brand.
Market Segmentation
Segmenting Consumer Markets

• Attitude: Five Consumer attitudes about product


are: Enthusiastic, positive, indifferent, negative
and hostile. Eg: Door-to-Door campaigns.
• During election use attitude to determine how
much time to spend with each voter.
• Benefits Sought:
Multiple Bases
Market Segmentation
Using Multiple Segmentation Bases
• Multiple segmentation is used to identify
smaller, better-defined target groups
• Geodemographic segmentation is an
example of multi-variable segmentation
that divides groups into consumer lifestyle
patterns
Market Segmentation
Segmenting Business markets
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?
Market Segmentation
Segmenting Business markets
Purchasing Approaches
7. Purchasing-function organization: Should we serve companies with a
highly centralized or decentralized purchasing organization?
8. Power structure: Should we serve companies that are engineering
dominated, financially dominated, and so on?
9. Nature of existing relationship: Should we serve companies with
which we have strong relationships or simply go after the most desirable
companies?
10. General purchasing policies: Should we serve companies that prefer
leasing? Service contract? Systems purchases? Sealed bidding?
11. Purchasing criteria: Should we serve companies that are seeking
quality? Service? Price?
Market Segmentation
Segmenting Business markets
Situational Factors
12. Urgency: Should we serve companies that need quick and sudden
delivery or service?
13. Specific application: Should we focus on a certain application of our
product rather than all applications?
14. Size or 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. Attitude toward risk: Should we serve risk-taking or risk-avoiding
customers?
17. Loyalty: Should we serve companies that show high loyalty to their
suppliers?
Market Segmentation
Segmenting International markets

Geographic Economic
location factors

Political- Cultural
legal factors factors
Market Segmentation
Segmenting Business Markets

Intermarket segmentation divides


consumers into groups with similar
needs and buying behaviors even
though they are located in different
countries
Flexible market offering
• B2B: Macro-segmentation followed by Micro-segmentation
• A flexible market offering is offered to all members of
segment. It consists of two parts:
 A naked solution containing the product and service
elements that all segment members value
 Discretionary options that some segment members value.
• Each option might carry an additional charge.
• Siemens Electrical Apparatus Division sells metal-clad
boxes to small manufacturers at prices that include free
delivery and a warranty, but it also offers installation, tests,
and communication peripherals as extra-cost options to
customers asking for it.
Market Segmentation
Requirements for Effective
Segmentation
To be useful, market segments must be:

Measurable Accessible Substantial


(size, purchasing (effectively reached (large and profitable
power and and served) to serve. Largest
characteristics) Homogenous group)

Differentiable Actionable
Market Segmentation
Requirements for Effective Segmentation • High
and low
• High
and
High
• Low and
Low
• Low and
High
Market Targeting
• Target market consists of a set of buyers who share
common needs or characteristics that the company
decides to serve.
• Evaluating and Selecting the Target Market
Segments:
• Segment size and growth
• Segment structural attractiveness
• Company objectives and resources
• Eg: How well does a potential segment score on the
five criteria?
• Eg: Does investing in segment makes sense given
the firm’s objectives, competencies and resources?
Market Targeting
Strategic Criteria for Targeting Segments

Corporate
Strength Go for it! Hmm….

Hmm…. Avoid
Less Capable

Market is Market
attractive doesn’t look
promising
Market Targeting
Market Targeting
Competitive Analysis

High Quality

Low Quality

Low Price High Price


Market Targeting
Strategic Segment Comparison
Characte Size Growth Competit Fit Priority
ristic-> (USD) ors
Segment 1 5% Few Yes
1
Segment 2 3% 1 Big Ok ?
2

Segment 1 3% Few, Ok ?
3 weak

Segment 2 1% Few, No
4 weak
Undifferentiated marketing targets the whole market with
one offer (Big Firms)
– Mass marketing
– Focuses on common needs rather than what’s different
– Good when all consumers have roughly same
preferences and the market show no natural segments.
– Pros and Cons
Market Targeting
Target Marketing Strategies

Differentiated marketing targets several


different market segments and designs
separate offers for each
• Goal is to achieve higher sales and
stronger position
• More expensive than undifferentiated
marketing
• But increased cost of sales
Market Targeting
Target Marketing Strategies
Multiple Segement Specialization:
• With selective specialization, a firm selects a subset of all
the possible segments, each objectively attractive and
appropriate. There may be little or no synergy among the
segments, but each promises to be a moneymaker.
• The multisegment strategy also has the advantage of
diversifying the firm’s risk.
• A supersegment is a set of segments sharing some
exploitable similarity.
• For example, many symphony orchestras target people who
have broad cultural interests, rather than only those who
regularly attend concerts.
Market Targeting
Target Marketing Strategies

Multiple Segement Specialization:


• A firm can also attempt to achieve some synergy with product
or market specialization.
• With product specialization, the firm sells a certain product to
several different market segments. A microscope manufacturer
sells to university, government, and commercial laboratories,
making different instruments for each and building a strong
reputation in the specific product area. The downside risk is that
the product may be supplanted by an entirely new technology.
• With market specialization, the firm concentrates on serving
many needs of a particular customer group, such as by selling
an assortment of products only to university laboratories.
Market Targeting
Target Market Strategies

• Single Segment Concentrated –


• Firms markets to only one particular segment.
• Porche concentrates on the sports car market.
• Marketing targets a small share of a large market
• Limited company resources
• Knowledge of the market
• More effective and efficient
• Eg: Niche Marketing
Marketing Targeting
Target Market Strategies

• Micromarketing is the practice of tailoring products


and marketing programs to suit the tastes of specific
individuals and locations
• Customized Marketing
 Local marketing-Local marketing involves tailoring
brands and promotion to the needs and wants of
local customer groups (Cities or Neighborhoods or
stores)
 Individual marketing
Market Targeting
Target Market Strategies
Individual marketing involves tailoring
products and marketing programs to the
needs and preferences of individual
customers
• Also known as:
– One-to-one marketing
– Mass customization
– Markets-of-one marketing
Market Targeting
Choosing a Targeting Strategy
Depends on:
• Company resources
• Product variability
• Product life-cycle stage
• Market variability
• Competitor’s marketing strategies
Market Targeting
Socially Responsible Target Marketing
• Benefits customers with specific needs
• Concern for vulnerable segments
• Children
– Alcohol
– Cigarettes
– Internet abuses
Differentiation and Positioning

Product position is the way the product


is defined by consumers on important
attributes—the place the product
occupies in consumers’ minds relative
to competing products
– Perceptions
– Impressions
– Feelings

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