Chapter 8: Market Segmentation

Market Segmentation

The process of dividing a broader market into smaller, more defined segments based on characteristics such as demographics, behaviors, needs, or preferences

when a business aims to tailor its marketing strategies to specific groups, enhancing targeting and effectiveness.

When do we use Market Segmentation?

Market Product Grid

A framework used to analyze the relationship between products and markets by displaying the potential targeting and positioning strategies.

Mass Customization

The process of delivering widely available products and services to as many customers as possible while also allowing them to customize certain features to meet their individual preferences.

Synergies

The concept that collaborating across different areas of a business can create greater overall value than if those areas operated independently, leading to improved efficiency and effectiveness.

Cannibalization

The process where a company's new product takes sales away from its existing products rather than increasing overall sales.

Step 1: Group Potential Buyers into Segments

The initial phase in the market segmentation process, which involves dividing a broad target market into subsets of consumers with common needs or characteristics, and then selecting the segments to focus on for marketing efforts.

Step 2: Group Products to be Sold into Categories

The phase following market segmentation, where businesses analyze the identified segments and select specific ones to target with tailored marketing strategies.

Geographic segmentation (B→C)

where prospective customers live or work

Demographic segmentation (B→C)

the process of dividing the market based on characteristics such as age, gender, income, education, and family size.

Psychographic segmentation (B→C)

the method of dividing the market based on lifestyle, personality traits, values, and social class.

Behavioral segmentation (B→C)

the process of dividing the market based on consumer behaviors, such as purchasing habits, brand loyalty, usage frequency, and benefits sought.

Customer lifetime value (CLV)

is a prediction of the total value a customer will bring to a business over the entire duration of their relationship.

Personas

are semi-fictional representations of ideal customers based on market research and real data about existing customers.

Geographical segmentation (B→B)

Statistical area

Demographic segmentation (B→B)

NAICS codes, Number of Employees

Behavioral segmentation (B→B)

usage rate

Step 3: Develop a Market Product Grid and Estimate Size of Markets

is the process of dividing a market into distinct groups of buyers based on their needs, characteristics, or behaviors, and then selecting which segments to target.

Step 4: Select Target Market

involves positioning the product and developing a marketing strategy tailored to the selected target segments.

Step 5: Take Marketing Action to Reach Target Markets

is the evaluation of the success of the segmentation and targeting strategy, ensuring that marketing efforts align with consumer needs and preferences.

Product Positioning

is the process of arranging for a product to occupy a clear, distinctive, and desirable place in the minds of target consumers relative to competing products.

Product Repositioning

is the act of changing the way a product is perceived in the marketplace, often to better meet the needs of a different target demographic or to respond to competitive pressures.

Head-to-head Positioning

is a competitive strategy where a brand directly challenges its rivals by matching or exceeding their product performance, features, or pricing, aiming to capture market share.

Differentiation Positioning

is a less-competitive strategy that focuses on distinguishing a brand or product from its competitors through unique features, benefits, or attributes, appealing to specific customer preferences.

Perceptual Map

a means of displaying in two dimensions the location of products or brands in the mines of consumers

They have common needs and respond similarly to marketing strategies.

Market segmentation involves aggregating prospective buyers into groups that have two key characteristics. What are they?

identifying market needs and executing the marketing program

The process of segmenting and targeting markets is a bridge between which two marketing activities?

Each cell in the grid shows the estimated market size of a given product sold to a specific market segment.

What factor is estimated or measured for each of the cells in a market-product grid?

Possible criteria include market size, expected growth, competitive position, cost of reaching the segment, and compatibility with the organization’s objectives and resources.

What are some criteria used to decide which segments to choose for targets?

Market Segments

the relatively homogenous groups of perspective buyers that result from the market segmentation process

Product Differentiation

a marketing strategy that involves a firm using different marketing mix actions to help consumers perceive a product as being different and better than competing products

Differences of Product Differentiation

physical features, size, color, nonphysical, image, price

80/20 Rule

a concept that suggests that 80% of a firms sales are obtained from 20% of its customers

Usage rate

quantity consumed or store visits during a specific period

Consumer Lifetime Value

$ Margin X Retention rate% / 1 + Discount rate% - Retention rate%

Retention rate

average percentage of customers that continue to patronize a restaurant annually

Discount rate

represents the time value of money adjusted for the risk associated with the company’s competitive status, its competitive environment, and general economic condition