MKE290 segmentation

Principles of Marketing (MKE 290)

Segmentation Overview

  • Segmentation is defined as the process of dividing a broad market into smaller groups of customers with shared characteristics.

  • Importance of Segmentation in Marketing:

    • Efficient use of resources

    • Relevance and personalization of marketing efforts

    • Gaining a competitive advantage over rivals

Segmentation Process

  1. Identifying the bases for segmenting the market

  2. Developing profiles of the resulting segments

Need-based Segmentation

  • Need-based segmentation involves dividing a market into distinct groups according to customer needs.

  • Reasons to focus on customer needs for market division:

    • Basis for customers' willingness to pay (WTP) and purchase decisions

    • Potential to create the most value for customers

  • Example: Model T Ford

  • Example: Under Armour

Traditional Segmentation Variables

  • After identifying ideal customer segments with common needs, it is essential to describe these segments based on their characteristics.

    • Importance of these variables:

    • Reach the segments: Know how to effectively reach the target segments.

    • Measure the size of the segments: Assess the number of potential customers in each segment before targeting.

    • Identify different segments: A common need can be shared by diverse groups, complicating the targeting strategy.

Types of Traditional Bases of Segmentation

  1. Behavioral Segmentation

  2. Geographic Segmentation

  3. Psychographic Segmentation

  4. Demographic Segmentation

Demographic Segmentation

  • Involves dividing the market based on observable demographic characteristics of the population, including:

    • Age

    • Family Size

    • Life Cycle

    • Income

    • Occupation

    • Education

    • Ethnic or Cultural Group

    • Gender

Geographic Segmentation

  • Dividing a market into different geographic units such as:

    • Nations

    • States

    • Regions

    • Counties

    • Cities

    • Neighborhoods

  • Geographic variables examples:

    • Country

    • Provinces/City

    • Population Size

    • Type of Region

    • Density

    • Climate

  • Examples of geographic segmentation in marketing:

    • Specific merchandise and offerings tailored to city or country, e.g., McDonald's, Starbucks

Example of Geographic Variables

  • Data on water consumption during the Olympic Gold Medal Hockey Game in Edmonton

    • Graph indicates fluctuations in water demand during game events

  • Implication: Effective marketing messaging can reflect geographical influences (e.g., promoting heat-tech technology in colder regions).

Psychographic Segmentation

  • Involves dividing a market based on:

    • Shared attitudes

    • Values

    • Beliefs

    • Motivations

    • Social class

    • Lifestyle

    • Personality

  • Examples & marketing strategies related to psychographic variables:

    • Patagonia's anti-consumerism campaign on Black Friday

    • Harley-Davidson's identity marketing strategy

Behavioral Segmentation

  • Dividing the market based on consumers’ product-related behaviors, including:

    • Knowledge

    • Attitudes

    • Usage behavior

    • Response to a product

  • Specific behavioral variables include:

    • Benefits sought

    • Usage rate and status

    • Loyalty status

    • Occasion-based behaviors

  • Notable tea brand example:

    • Questions regarding preferences like herbal vs. black tea and knowledge of the product category

Occasion-based Marketing

  • Marketing strategies focused on consumption habits, with an emphasis on usage frequency and customer loyalty.

Segmentation Strategy Guidelines

  • Start by focusing on the set of needs that your product satisfies to effectively segment the market.

  • Traditional segmentation variables provide additional data that can help identify, measure, and effectively reach target segments.

  • Choosing the right variables is critical: Use traditional variables when they correlate with underlying customer needs.

Supplemental Reading

  • Recommended reading: "Know Your Customers’ 'Jobs to Be Done'" (Harvard Business Review, 2016).

  • This material is available under Module Week 3 Application Exercise #2.

  • Next class session will be held on Thursday.