Market Segmentation

Market Segmentation

Characteristics of a Market

  • People or organizations with:
    • Needs or wants
    • Ability to buy
    • Willingness to buy
  • A group lacking any of these is NOT a market.

Market Segmentation Definition

  • Market: People or organizations with needs/wants and the ability/willingness to buy.
  • Market Segment: Subgroup sharing similar characteristics, causing similar product needs.
  • Market Segmentation: Dividing a market into meaningful, similar, identifiable segments.

Importance of Market Segmentation

  • Markets have diverse product needs and preferences.
  • Marketers can better define customer needs.
  • Decision-makers can define objectives and allocate resources accurately.

Criteria for Successful Segmentation

  • Substantiality: Segment must be large enough to warrant a special marketing mix.
  • Identifiability and Measurability: Segments must be identifiable and their size measurable.
  • Accessibility: Members of targeted segments must be reachable with the marketing mix.
  • Responsiveness: Segment must respond to a marketing mix differently for separate treatment to be needed.

Bases for Segmenting Consumer Markets

  • Geography
  • Demographics
  • Psychographics
  • Benefits Sought
  • Usage Rate

Geographic Segmentation

  • Region, market size, market density, climate.
  • Benefits: Sales generation, assessment of best-selling brands, appeal to local preferences, quicker reaction to competition.

Demographic Segmentation

  • Age, gender, income, ethnicity, family life cycle.
  • Gender: Women influence a large percentage of consumer goods purchases.
  • Income: Retailers can target different income levels.

Psychographic Segmentation

  • Based on personality, motives, lifestyles, and geodemographics.
    • Personality: Person’s traits, attitudes, and habits.
    • Motives: Appeal to emotional, rational, or status motives.
    • Lifestyles: How time is spent, importance of surroundings, beliefs, socioeconomic characteristics.
    • Geodemographics: Combines geographic, demographic, and lifestyle segmentation.

Benefit Segmentation

  • Grouping customers by benefits sought from the product.

Usage-Rate Segmentation

  • Dividing the market by amount of product bought or consumed.
  • 80/20 Principle: 20% of customers generate 80% of the demand.

Bases for Segmenting Business Markets

  • Company Characteristics
  • Buying Processes
  • Producers, resellers, government, institutions

Company Characteristics

  • Geographic location, company type, company size, product use.

Buyer Characteristics

  • Satisficers: Order from the first familiar supplier.
  • Optimizers: Consider numerous suppliers and study proposals carefully.
  • Demographic characteristics, decision style, tolerance for risk, confidence level and job responsibilities.

Steps in Segmenting Markets

  1. Select a market for study.
  2. Choose bases for segmentation.
  3. Select descriptors.
  4. Profile and analyze segments.
  5. Select target markets.
  6. Design, implement, and maintain marketing mix.

Strategies for Selecting Target Markets

  • Target Market: Group for which an organization designs, implements, and maintains a marketing mix.
  • Undifferentiated Strategy
  • Concentrated Strategy
  • Multisegment Strategy

Undifferentiated Targeting Strategy

  • Views the market as one big market with no individual segments; uses a single marketing mix.
    • Advantage: Potential savings on production and marketing costs.
    • Disadvantages: Unimaginative product offerings, more susceptible to competition.

Concentrated Targeting Strategy

  • Selects one segment of a market for targeting marketing efforts (niche).
    • Advantage: Concentration of resources, meets narrowly defined segment, small firms can compete, strong positioning.
    • Disadvantages: Segments too small or changing, large competitors may market to niche segment.

Multisegment Targeting Strategy

  • Chooses two or more well-defined market segments and develops a distinct marketing mix for each.
    • Advantage: Greater financial success, economies of scale.
    • Disadvantages: Higher costs, cannibalization.

CRM as a Targeting Tool

  • Direct and personal marketing efforts will grow.
  • Consumers will be loyal to companies that have earned their loyalty.
  • Mass-media approaches will decline as technology allows better customer tracking.

Positioning

  • Developing a specific marketing mix to influence potential customers’ overall perceptions.

Effective Positioning

  1. Assess positions occupied by competing products.
  2. Determine the dimensions underlying these positions.
  3. Choose a market position with the greatest impact.

Product Differentiation

  • Distinguishing products from competitors.

Perceptual Mapping

  • Graphing the location of products/brands in customers’ minds.

Positioning Bases

  • Attribute, price and quality, use or application, product user, product class, competitor, emotion.

Repositioning

  • Changing consumers’ perceptions of a brand in relation to competing brands.