Market segmentation

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 What is Market
Segmentation?
The breaking down or building up of potential
buyers into groups called Market Segments
1. Markets are heterogeneous; segmentation
divides them into homogeneous sub units
2. The consumers in the various segments will
vary across segments but be homogeneous
within
3. It is the consumers who are segmented, not
product nor price
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 The STP Process
Segmentation is the process of classifying customers into
groups which share some common characteristic
Targeting involves the process of evaluating each segments
attractiveness and selecting one or more segments to enter
Positioning is arranging for a product to occupy a clear,
distinctive and desirable place relative to competing products in
the mind of the consumer

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 Steps in Market Segmentation,
Targeting, and Positioning

Market
Market Segmentation
Segmentation
1.
1.Identify
Identifybases
basesfor
for
segmenting
segmentingthethemarket
market
2.
2.Develop
Developsegment
segmentprofiles
profiles

Market
Market Targeting
Targeting
3.
3.Develop
Developmeasure
measureof of
segment
segmentattractiveness
attractiveness
4.
4.Select
Selecttarget
targetsegments
segments

Market
Market positioning
positioning
5.
5.Develop
Developpositioning
positioningfor
for
target
targetsegments
segments
6.
6.Develop
Developaamarketing
marketing
CHARU BISARIAmix for each segment
mix for each segment
 Market
Market Segmentation
Segmentation
Levels
Levels of Market
ofMass
Market Segmentation
Segmentation
Mass Marketing
Marketing
Same
Same product
product toto all
all consumers
consumers
(no
(no segmentation)
segmentation)
Segment
Segment Marketing
Marketing
Different
Different products
products to to one
one or or more
more segments
segments
(some
(some segmentation)
segmentation)
Niche
Niche Marketing
Marketing
Different
Different products
products to to subgroups
subgroups within
within segments
segments
(more
(more segmentation)
segmentation)
Micromarketing
Micromarketing
Products
Products toto suit
suit the
the tastes
tastes ofof individuals
individuals and
and locations
locations
(complete
(complete segmentation)
segmentation)
Local Marketing Individual Marketing
Tailoring brands/ promotions Tailoring products/ programs
to local customer groups CHARU BISARIA to individual customers
The Model-T Ford

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Fords Model T Followed a Mass
Market Approach

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Basic Market Preference Patterns

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 Preference Segments
Homogeneous preferences exist when
consumers want the same things
Diffused preferences exist when
consumers want very different things
Clustered preferences reveal natural
segments from groups with shared
preferences

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Baskin Robbins Focuses on
Local Marketing

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 Benefits of
Market Segmentation
1. Identifies opportunities for new product
development

2. Helps design marketing programs most

effective for reaching homogenous
groups of buyers

3. Improves allocation of marketing

resources
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 Advantages of Segmentation

1. The process of breaking up a homogeneous market

into heterogeneous segments forces the marketer to
analyse and consider both the needs of the market
and the companys ability to competently serve
those needs thereby making the company better
informed about its customers
2. Competitor offerings and marketing positioning must
also be analysed in this context so the company
must consider what its competitive advantages and
disadvantages are, helping it to clarify its own
positioning strategy
3. Limited resources are used to best advantage,
targeted at those segments that offer the best
potential
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 Benefits conferred by market
segmentation
Helps locate distinctive customer groups within a given market & helps distinguish
them from one another
Facilitates right choice of target market
Provides useful insights on the value sought by each segment
Facilitates effective tapping of the chosen market
Helps divide & conquer the market
Helps crystallise the needs of the target buyers & elicit more predictable responses
from them
As a result of the above, helps develop marketing offers/ programmes on a more
predictable base
Help tailor the marketing offers/programmes to suit each group
Helps achieve the specialisation required in product, distribution, promotion & pricing
for matching the customer group
Facilitates deep differentiation of offers based on the value sought
Makes the marketing effort more efficient & economic
Helps manage customers for profits, & capture the due value back from the market
Helps ensure that the market chosen matched the firms resources
Helps concentrate efforts on the most productive & profitable segments, instead of
frittering them over irrelevant or unproductive or unprofitable segments
Helps spot the less satisfied segments
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grab them as unique opportunities
Helps the firm create & occupy new segments on the basis of value
 Market Segmentation
Variables
Behavioral

Market Geographica
Socioeconomic Segmentation
Variables

Psychographic Benefits Sought

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Fundamental-Buyer
Related Questions

Who are they?

What do they want to buy?
How do they want to buy?
When do they want to buy?
Where do they want to buy?
Why do they want to buy?
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Steps
Steps in
in Segmentation,
Segmentation, Targeting,
Targeting,
and
and Positioning
Positioning
6. Develop Marketing
Mix for Each Target Segment Market
5. Develop Positioning Positioning
for Each Target Segment
4. Select Target
Segment(s) Market
3. Develop Selection Criteria Targeting

2. Develop Profiles
of Resulting Segments
Market Segmentation
1. Identify Bases
for Segmenting the Market

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 Market
Market Segmentation
Segmentation
Bases
Bases for
for Segmenting
Segmenting Consumer
Consumer Markets
Markets

Geographic
Nations, states,
regions or cities

Demographic
Age, gender, family size
and life cycle,
or income

Psychographic
Social class, lifestyle,
or personality

Behavioural
Occasions, benefits
sought, user status,
usage rate, loyalty
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Segmentation variables

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Using
Using Multiple
Multiple Segmentation
Segmentation
Bases:
Bases: Geodemographics
Geodemographics

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 Behavioral Segmentation
Decision Roles Behavioral Variables
Initiator Occasions
Influencer Benefits
Decider User Status
Buyer Usage Rate
User Buyer-Readiness
Loyalty Status
Attitude
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 Figure 8.3 Behavioral
Segmentation Breakdown

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 The Brand Funnel Illustrates
Variations in the
Buyer-Readiness Stage
Aware
Ever tried
Recent trial
Occasional user
Regular user
Most often used

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Loyalty Status

Hard-core

Split loyals

Shifting loyals

Switchers
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 Market
Market Segmentation
Segmentation
Bases
Bases for
for Segmenting
Segmenting Business
Business Markets
Markets
Personal Demographics
Characteristics

Bases
Bases
for
for Segmenting
Segmenting
Business
Business
Situational Operating
Factors Markets
Markets Characteristics

Purchasing
Approaches

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Demographic Segmentation

Age
Age and
and Life
Life Cycle
Cycle
Life
Life Stage
Stage
Gender
Gender
Income
Income
Generation
Generation
Social
Social Class
Class

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Dove Targets Women

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Segmenting for Business Markets

Demographic
Demographic

Operating
Operating Variable
Variable

Purchasing
Purchasing Approaches
Approaches

Situational
Situational Factors
Factors
Personal
Personal
Characteristics
Characteristics
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Segmenting for Business Markets

Demographic segmentation
Industry, company size, location
Operating variables
Technology, usage status, customer
capabilities
Purchasing approaches
Situational factors
Urgency, specific application, size of
order
Personal characteristics
Buyer-seller similarity, attitudes toward
risk, loyalty

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Segmenting Business
Markets

Segmentation by customer size or geographic location

Four segments of business customers

Programmed buyers

Relationship buyers

Transaction buyers

Bargain hunters

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 Market
Market Segmentation
Segmentation
Bases
Bases for
for Segmenting
Segmenting International
International Markets
Markets
Industrial
IndustrialMarkets
Markets

Political/
Political/
Geographic
Geographic Economic
Economic Legal
Legal

Cultural
Cultural Intermarket
Intermarket

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 Segmenting International
Markets
Geographic segmentation
Location or region
Economic factors
Population income or level of economic development
Political and legal factors
Type / stability of government, monetary regulations, amount of
bureaucracy, etc.
Cultural factors
Language, religion, values, attitudes, customs, behavioral
patterns

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Each Market Segment
should be

Measurable Actionable

Differentiable Substantial

Accessible

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Requirements
Requirements for
for Effective
Effective
Segmentation
Segmentation
Measurable
Measurable Size, purchasing power, profiles
of segments can be measured.

Accessible
Accessible Segments can be effectively
reached and served.

Substantial
Substantial Segments are large or profitable
enough to serve.

Differential Segments must respond

Differential differently to different marketing
mix elements & programs.

Actionable
Actionable Effective programs can be
designed to attract and serve
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the segments.
 Market Targeting
Specifying segments to
pursue

Organization

Differentiated Marketing

The organization pursues

several different market
segments simultaneously

Market
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 Market Targeting
Specifying segments to
pursue

Organization

Concentrated Marketing

The organization focuses

on a single market
segment

Market
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Strategies for Reaching
Target Markets

Differentiated
Undifferentiate Marketing
d Marketing
Concentrated Micromarketi
Marketing ng

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 Undifferentiated marketing: when a firm
produces only one product or product line
and promotes it to all customers with a
single marketing mix
Sometimes called mass marketing
Much more common in the past
Undifferentiated
Marketing

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 Differentiated marketing: when a firm
produces numerous products and
promotes them with a different
marketing mix designed to satisfy
smaller segments
Tends to raise costs
Firms may be forced to practice
differentiated marketing to remain
competitive
Differentiated
Marketing

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 Differentiated
Marketing
Procter and Gamble
Practicing
Differentiated
Marketing

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 Concentrated marketing (niche
marketing): when a firm commits all of its
marketing resources to serve a single
market segment
Attractive to small firms with limited resources
and to firms offering highly specialized goods
and services
Concentrated
Marketing

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 Micromarketing:
involves targeting
potential customers
at a very basic
level, such as by
ZIP code, specific
occupation, lifestyle,
or individual
household
The Internet may allow
marketers to make
micromarketing even
more effective

GeneSolutions
targeting a specificCHARU BISARIA
occupation
 Selecting and Executing a Strategy
No single, best choice strategy suits all
firms
Determinants of a market-specific strategy:
Company resources
Product homogeneity
Stage in the product life-cycle
Competitors strategy

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 Market Targeting
Evaluating Market Segments
Segment Size and Growth
Analyze current sales, growth rates and expected
profitability for various segments.
Segment Structural Attractiveness
Consider effects of: competitors, availability of substitute
products and, the power of buyers & suppliers.
Company Objectives and Resources
Company skills & resources needed to succeed in that
segment(s).
Look for Competitive Advantages.

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 Segments Structural
Attractiveness
A segment might have desirable size &
growth but lack profit potential
Porter has identified five forces that
determine the intrinsic long run profit
attractiveness of a market or segment
The company has to appraise the impact
on long run profitability of five groups-
Industry competitors, Potential entrants,
Substitutes, Buyers & Suppliers.
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 The five threats posed by Porters
models are
Threat of intense segment Rivalry-
A segment is unattractive if it already contains
numerous, strong or aggressive competitors.
The picture is even worse if the segment is
stable or declining, if capacity additions are done
in large increments, if fixed costs are high, if exit
barriers are high or if competitors have high
stakes in staying in the segment
These conditions will lead to frequent price wars,
advertising battles & new product introductions &
will make it expensive for the companies to
compete
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 Threat of new Entrants
A segment is unattractive if it is likely to attract new competitors who will
bring in new capacity, substantial resources 7 a drive for market share
growth
Whether new entrants can easily get in or not?
They will find it hard if there are high barriers to entry coupled with sharp
retaliation from incumbent firms.
The lower the barriers to entry & incumbent willingness to retaliate, the
less attractive the segment
A segments attractiveness varies with the height of the entry & exit
barriers
The most attractive segment to be the one in which entry barriers are
high & exit barriers are low Few new firms can enter the industry & poor
performing firms can easily quit
When both entry & exit barriers are high, profit potential is high but is
usually accompanied by more risk because poorer performing firms stay
in & fight it out
When entry & exit barriers are both low, then firms easily enter & leave
the industry, & the returns are stable & low
The worst case is when entry barriers are low & exit barriers are high,
here firms enter during good times but find it hard to leave during bad
times. The result is chronicCHARU
over capacity
BISARIA & depressed earnings for all
 Threat of Substitute Products
A segment is unattractive when there are actual
or potential substitutes for the product.
Substitutes place a limit on the potential prices
& profits that a segment can earn
The company has to watch closely the price
trends in the substitutes
If technology advances or competition increases
in these substitute industries, prices & profits in
the segment are likely to fall

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Threat of growing bargaining power
of Buyers
A segment is unattractive if A segment is unattractive
ifthe buyers possess strong or growing bargaining
power. Buyers will try to force prices down, demand
more quality or services & set competitors against each
other, all at the expense of sellers profitability
Buyers bargaining power grows when they become
more concentrated or organised, when the product
represents a significant fraction of the buyers cost, when
the product is undifferentiated, when the buyers
switching costs are low, when the buyers are price
sensitive because of low profits or when the buyers can
integrate backward

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Threat of growing bargaining power
of Suppliers
A segment is unattractive if the companys
suppliers are able to raise prices or reduce
quantity
Suppliers tend to be powerful when they
are concentrated or organised, when there
are few substitutes, when the supplied
product is an important input, when the
switching costs are high & when the
suppliers can integrate forward

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 Market Targeting
Market Coverage Strategies
Company
Company
Marketing
Marketing Market
Market
Mix
Mix
A. Undifferentiated Marketing
Company
Company
Marketing Segment
Segment11
MarketingMix
Mix11
Company
Company Segment
Segment22
Marketing
MarketingMix
Mix22
Company
Company Segment
Segment33
Marketing
MarketingMix
Mix33
B. Differentiated Marketing

Segment
Segment11
Company
Company
Marketing
Marketing Segment
Mix Segment22
Mix
Segment
Segment33
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C. Concentrated Marketing
 Market Targeting
Single-segment concentration
Selective specialization
Product specialization
Market specialization
Full market coverage-
1. Undifferentiated Marketing
2. Differentiated Marketing

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 Single segment concentration
The company selects a single segment
Through concentrated marketing the firm achieves a
strong market position in the segment owing to its
greater knowledge of the segments needs & the special
reputation it gains
The firm enjoys operating economies through
specializing its production, distribution & promotion. If it
captures leadership in the segment, the firm can earn a
high return on its investment
Risks-
Concentrated marketing involves higher than normal
risks. The particular market segment can turn sour

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 Selective Specialization
The firm selects a number of segments, each
objectively attractive & appropriate, given the
firms objectives & resources
There may be little synergy between the
segments, but each segment promises to be a
money maker
This strategy of multisegment coverage has the
advantage of diversifying the firms risk.
Even if one segment becomes unattractive, the
firm can continue to earn money in other
segments

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 Product Specialization
Firm concentrates on making a certain
product that it sells to several segments
The firm builds up a strong reputation in
the specific product area
Risk- if product were supplemented by an
entirely new technology

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 Market Specialization
The firm concentrates on serving many
needs of a particular customer group
Risk- if a market suddenly cut their budget
& reduces their purchases

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 Full Market Coverage

Firm attempts to serve all customer groups

with all the products that they might need.
Only large firms can undertake a full
market coverage strategy

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 Undifferentiated Marketing
The firm might ignore market-segment differences & go
after the whole market with one market offer
It focuses on what is common in the needs of buyers
rather than on what is different
It designs a product & a marketing program that will
appeal to the broadest number of buyers
It relies on mass distribution & mass advertising
Enjoys benefits of cost economies
The narrow product line keeps down production,
inventory & transportation costs
Advertising, market research & product management
costs are low which results in low prices to win price
sensitive segment of the market

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 Differentiated Marketing
Firm operates in several market segments &
designs different programs for each segment
Differentiated marketing creates more total
sales than undifferentiated marketing
The following costs are likely to be higher in
differentiated marketing
1. Product Modification costs
2. Manufacturing costs
3. Administrative costs
4. Inventory costs
5. Promotional costs
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 Patterns of
Target Market Selection

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 Patterns of
Target Market Selection

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 Patterns of
Target Market Selection

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Segment-by-Segment Invasion
Plan

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Crest Whitestrips Follows a
Multisegment Strategy

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Pepsi used Megamarketing in India

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