Ch. 8 Market Segmentation

What is market segmentation?

• process of dividing a market into meaningful, similar, and identifiable groups based on shared characteristics

4 basic criteria for segmentation

1. Sustainability: segment must be large enough to be profitable

2. Identifiability & measurability:  segment must be clearly define & measurable

3. Accessibility:  company must be able to reach the segment w/ marketing efforts

4. Responsiveness: segment must respond differently to a marketing mix

Applying the 4 basic criteria

• (1) college student, a large growing group who usually want coffee for early classes

• (2) Starbucks can identify & measure this segment using data form campus location, student demographics & purchase behavior

• (3) Student are reachable through social media for promotions & ads

• (4) segment responds well to any age as professors could also want coffee

Consumer market segmentation types

1. Geographic

2. Demographic

3. Psychographics

4. Behavioral (usage rate segmentation)

5. Benefit

(EXAMPLE BASED ON: Marketing Snow boots by Columbia Sportswear

Geographic Segmentation

• Dividing the market by location, climate, or population density

Demographic Segmentation

• Segmenting by age, gender, income, ethnicity, or life stage

  • Gen Alpha (2010-2014), Gen Z (1997-2010), Millennials (1981-1996), Gen X (1965-1980), Baby Boomers (1946-1964)

Psychographic Segmentation

• segmenting by personality, lifestyle, motives, or geodemographics (segmenting potential customers into neighborhood lifestyle

Behavioral Segmentation (Usage Rate)

• segmenting based on buying behavior or product usage (how, where, what they buy)

• divides market by amt. of product bought/consumed

  • 80/20 - 20% all customers generate 80% of demand

Benefit Segmentation

• segmenting based on the benefits consumers seek

Business Market Segmentation — Satisfiers & Optimizers

• Satisfiers: business buyers who choose a familiar supplier that meets their needs

  • ex) a small business orders office  supplies from a familiar vendor w/out comparing prices

• Optimizers: business buyers who evaluate multiple suppliers before choosing

  • ex) a hospital compares bids from several medical equipment companies

What is a target market? 3 Target market segmentation strategies

• a specific group a company aims to serve w/ a tailored marketing mix

  • ex) a skincare brand targets women aged 25-40 w/ sensitive skin

1. Undifferentiated

2. Concentrated

3. Multi-segment

Undifferentiated Targeting Strategy

• treating entire market as one group w/ a single marketing mix

  • ex) M&M’s targets anyone who wants sweets/chocolate

Concentrated Targeting Strategy

• focusing on a niche specific market segment

  • ex) Enterprise Rent-A-Car, number one in the car rental industry, started as a small company catering to people whose cars were in the shop

Multi-segment Targeting Strategy

• targeting multiple segments with different marketing mixes

  • ex) Toyota, markets SUVs to families and sports cars to young professionals

Cannibalization

• when a new product takes sales away from an existing product

  • ex) cell phone companies now offer refurbished smartphones, which gives consumers the option to purchase a lower-priced, secondhand cell phone rather than a new phone

What does Customer Relationship Management do? 4 Trends that lead to growth?

• strategy to manage customer interactions & data to improve relationships & personalize marketing

  • ex) Amazon recommends products based on past purchases

• 1) Personalization 2) Time Savings 3) Loyalty 4) Technology

Product positioning bases

1. Attribute

2. Price and quality

3. Use or application

4. Product user

5. Product class

6. Competitor

7. Emotion

Attribute

• positioning based on a product feature/benefit

  • ex) Crest toothpaste brand, advertising whitening power

Price and Quality

• positioning based on cost/perceived value

  • ex) Rolex using high price to signal luxury

Use or Application

• positioning based on how the product is used

  • ex) Gatorade is marketed for athletic performance and hydration

Product User

• positioning based on the type of customer — income, interest, age, gender

Product Class — Category

• positioning within a category of products

  • ex) almond milk is positioned as an alternative to dairy milk

Competitor

• positioning against a competing brand

Emotion

• positioning based on how the product makes consumers feel

  • ex) Pepsi ad pictured its product as one that encourages family mealtimes, friends’ hangouts, and activities such as dancing and football