Market Segmentation, Targeting for Competitive Advantage

What is Market Segmentation?

Market segmentation: The act of dividing a market into smaller groups of buyers with distinct needs, characteristics, or behaviors who might require separate products and/or marketing mixes.How does market segmentation differ form product differentiation?

The Steps in Segmenting a Market

Goal: Identify marketing opportunities6 steps

Choose a basis or bases for segmenting the marketDevelop Segment Profiles

Steps in Segmentation contdStep 3: Develop measure of segment attractivenessSize, growth, purchase frequency, current brand usage, loyalty and long-term sales/profit potentialStep 4: Select a target segmentReview definition (most likely to buy)Major decision that determines the marketing mixStep 5: Develop positioning for target segment

Step 6: Design, implement, and maintain appropriate marketing mix

Levels of Market SegmentationThrough Market Segmentation, Companies Divide Large, Heterogeneous Markets into Smaller Segments that Can be Reached More Efficiently And Effectively With Products and Services That Match Their Unique Needs.Mass MarketingSame product to all consumers (no segmentation, i.e Coca-Cola)Segment MarketingDifferent products to one or more segments(some segmentation, i.e. Marriott)

Levels of Market SegmentationNiche MarketingDifferent products to subgroups within segments(more segmentation, i.e. Standard or Luxury SUVs)MicromarketingProducts to suit the tastes of individuals and locations (complete segmentation)

Basic Market-Preference Patterns

The Segmentation VariablesGeographic SegmentationDefine Market is divided into geographical units like nations, counties, states, cities, regions etc.Four good reasons to use region:Adapt better to sluggish or competitive marketsData (via scanners, etc.) tells us what sells in a regionRegional brand preference dataFaster to react to competition in a given region

Demographic SegmentationDefine Market is divided into groups on the basis of variables such as age, gender, income, ethnic background, education, occupation, religion,race etc.Age segmentation (know key characteristics)Importance of 38 million children < 9Teens- have allowances, specific preferencesYoung adultsBaby BoomersSeniors

Demographic Segmentation contdGender segmentationClothing, cosmetics, personal care items, magazines and footwear make heavy use of gender segmentationIncome segmentationHousing, clothing, cars, and food

Psychographic SegmentationBuyers are divided into groups based on the following variablesPersonality habits, traits and attitudesMotives- economy, reliability, dependability status-related vs. rational motivesLifestyles- how do you spend your time and what things do you have (i.e. H-D segments)

Behavioral SegmentationDividing the market into groups based on variables such as:OccasionsBenefitsUser statusUsage rateLoyalty statusReadiness stageAttitude toward product

Usage Rate Dividing the market by the amount of product bought or consumedHeavy users, former, potential, first-time, light or irregular, or mediumHeavy users account for large % of product sales, so the marketing mix80/20 principle 20 % of all customers generate 80% of the demandGoal: create a heavy user (frequency/loyalty programs)Reward and retain heavy users

Effective Segmentation MeasurableAccessibleSubstantialDifferentialActionable

Segmenting Business Markets

Table 10-3: Major Segmentation Variables for Business MarketsDemographicIndustry: Which industries should we serve?Company size: What size companies should we serve?Location: What geographical areas should we serve?Operating VariablesTechnology: What customer technologies should we focus on?User or nonuser status: Should we serve heavy users, medium users, light users, or nonusers?Customer capabilities: Should we serve customers needing many or few services?Purchasing ApproachesPurchasing-function organization: Should we serve companies with highly centralized or decentralized purchasing organizations?Power structure: Should we serve companies that are engineering dominated, financially dominated, and so on?

Segmenting Consumer and Business MarketsBusiness buyers seek different benefit bundles based on their stage in the purchase decision process.First-time prospectsNovicesSophisticates

Segmenting Consumer and Business MarketsRackman and Vincentis proposed a segmentation scheme that classifies business buyers into three groupsPrice-oriented customers (transactional selling)Solution-oriented customers (consultative selling)Strategic-value customers (enterprise selling)

Segmenting International MarketsFactors Used to Segment International Markets

Geographic Location

EconomicFactorsPolitical and Legal Factors

Cultural Factors

Target Market: Target market: the group of people for whom your company is designing, implementing and maintaining a marketing mix in order to meet the needs of that group (who is most likely to buy your product)

Five Patterns of Target Market Selection

Segment-by-SegmentInvasion Plan

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

Socially Responsible Target MarketingSmart targeting helps companies and consumers alike.Target marketing sometimes generates controversy and concern.Disadvantaged and vulnerable can be targeted.Cigarette, beer, and fast-food marketers have received criticism in the past. Internet has come under attack because of the loose boundaries and lack of control in marketing practices.