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Part 2: Understanding marketing

Chapter 5: Market segmentation

Step 3: Segment the market

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When we finish this lecture you should• Know how to define generic markets and product

markets• Know what market segmentation is and how to

implement it• Understand how the segmentation process varies

in international markets• Know some of the computer-based approaches to

segmentation• Understand the three basic approaches to market-

oriented strategy planning• Know what positioning is and why it is useful• Understand what perceptual mapping is and why

it is useful

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Understanding markets

• Definition of segmentation‘One of the most important principles in marketing involves identifying and understanding the needs of particular groups of customers.’

(Marketing: Creating and Delivering Value, 4/e, Quester et al. p. 150)

• Marketers often aim their products at particular segments of the population

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A company’s market

• Definition of a market‘A market is a group of potential customers with similar needs, who are willing to exchange something of value for various need-satisfying goods and/or services.’(Marketing: Creating and Delivering Value, 4/e, Quester et al. p. 150)

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Figure 5.1 Narrowing down to target markets

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From generic markets to product markets

• Definition of generic market‘A market with broadly similar needs, with sellers offering various, and often diverse, ways of satisfying those needs.’(Marketing: Creating and Delivering Value, 4/e, Quester et al. p. 151)

• Definition of product market‘A market with very similar needs, with sellers offering similar, or substitute, products to satisfy those needs.’(Marketing: Creating and Delivering Value, 4/e, Quester et al. p. 151)

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Naming product markets and generic markets

What: 1.

product type (type of product/type of service)

To meet what: 2.

customer (user) needs

For whom: 3.

customer type

Where: 4.

geographic area

• A complete product-market definition includes a four-part description:

(Marketing: Creating and Delivering Value, 4/e, Quester et al. pp. 151–152).

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Figure 5.2 Relationship between generic-market and product-market definitions

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Market segmentation

• A two-step process of– Naming broad product markets and– Segmenting these broad product markets in order

to select target markets and develop suitable marketing mixes

• Involves – Disaggregating—breaking down all possible needs

into some generic markets and broad product markets

– Aggregating—clustering people with similar needs into a market segment

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Figure 5.3 A market grid diagram with submarkets

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Figure 5.4 a & b Every individual has a unique position in a market—those with similar positions can be aggregated into potential target markets: (a) product market showing three segments; (b) product market showing six segments

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Criteria for segmenting a broad product market• ‘Good’ market segments should meet the

following criteria:– Customers within a segment are homogeneous

Similar responses to marketing mix Similar segmenting dimensions

– Customers in different segments are heterogeneous

Different responses to marketing mix Different segmenting dimensions

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Criteria for segmenting a broad product market (continued)

– Segment is substantial Segment is big enough to be profitable

– Segmenting dimensions are operational Useful for identifying customers Helpful in deciding on the marketing mix

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Developing strategies in a broad product market

• Single target market approach– Select one homogeneous segment as the target

• Multiple target market approach– Select two or more target segments– Develop a different marketing mix for each

segment

• Combined target market approach– Combine submarkets into a single target market– Develop one marketing mix for the combined

target

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Figure 5.5 Target marketers versus combiners

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Figure 5.6 There may be different demand curves in different segments: (a) mass marketer sees one demand curve for its target market; (b) combiner sees one demand curve for its combined target market; (c) segmenter sees one demand curve for each submarket

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Figure 5.7 Possible segmenting dimensions for business/organisational markets

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Figure 5.8 Relationship of potential target-market dimensions to marketing mix decision areas

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Figure 5.9 Possible segmenting dimensions and typical breakdowns for consumer markets

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Examples of possible segmenting dimensions for consumer markets• Customer related

– Geographic location (fast-food outlets)– Age (insurance policies)– Sex (clothing)– Family size (refrigerators)– Income (cars)– Education (magazines)

• Situation related– Benefits offered (toothpaste)– Consumption/use patterns (cameras)– Brand familiarity (health care products)– Buying situation (soft drinks)

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Segmenting dimensionsqualifying and determining

• Qualifying dimensions– Segmenting dimensions relevant to the product

market– Are there characteristics typical of customers who

are at least potentially interested in the relevant product type?

• Determining dimensions– Segmenting dimensions that affect the purchase

of a specific product or brand– Why does a potential customer select one brand

over another?

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Segmenting international markets

• Success in international marketing requires even more attention to segmentation

• There are over 228 countries in the world• Each country has unique culture/s• Major differences in language, customs,

beliefs, religions, ethics, race and income distribution patterns

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Computer-based methodsof segmenting

• Clustering—search for similar patterns within sets of data

• Data mining—the detection of relevant patterns in a database

• Conjoint analysis—technique to assist marketing managers in determining how much importance customers place on certain elements of the company’s marketing mix

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Differentiation and positioning

• Competitive advantage—the marketing mix of a company is perceived to by the target market as superior to those of its competitors

• Positioning—how customers regard proposed and/or present brands’ images in a market in relation to competitor offerings

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Perceptual mapping

• Perceptual mapping can be used to– Show how (potential) customers view a company’s

current or potential offerings– Show how customers view competitors' offerings– See what kind of offerings different segments see

as ideal– See what offerings are likely to appeal to which

segments– Help with combining and segmenting—by

revealing which segments view the market in similar (or dissimilar) ways

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Figure 5.11 Hypothetical ‘product space’ map representing consumers’ perceptions of different home loans

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Repositioning

• Companies are sometimes faced with the problem of how to change their current positioning

• The positioning that has served the brand well for 10–20 years may have become stale or lost meaning

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What we will be doing in the next chapter

• In Chapter 6 we will be discussing consumer behaviour

• Chapter 6 covers– Buyer behaviour domestically and globally– The psychology of buying– The problem-solving processes that are used in

buying situations