Segmentation, Targeting, Positioning

Identifying Market Segments and Selecting Target Markets

Segmentation is the process of placing together consumers into groups such that consumer heterogeneity on specified characteristics is minimized within groups and maximized across groups e.g. value for money buyers as distinct from economy buyers.Segmentation can also be thought of as taking a market and dividing them into groups based on some common characteristic e.g. diet-colas, regular colas.

Levels of MarketSegmentation

Mass Marketing or Undifferentiated Marketing e.g. Ruf & Tuf Jeans, Model T Henry Ford

Segment Marketing - Cars

Niche Marketing – specialize to a narrowly definedcustomer group – Temple jewellery for South Indianwomen wanting to take part in cultural programmes

Local Marketing – Athica for IIMB and around

Individual Marketing

One to One Marketing

Mass customization – ability to prepare on amass basis individuallydesigned products

Segment Marketing

Flexible market offering – naked solution containing theNo frills product and discretionary options that arePriced extra such as A/C, power windows, moon roof

Homogenous preferences e.g. bite size candies, eclairs

(Patterns of SegmentMarkets)

Diffused Preferences – House Buildings

Clustered Preferences – distinct clusters in the Market also called natural market segmentse.g. car market

Why is segmentation useful ?

Segmentation helps firm tailor their marketing programs

focuses an actionable and accessible set of the market.

cuts of wasteful expenditures on unwanted consumers

matches needs and wants of specific groups of buyers to firm’s offerings

stimulates demands through multi-products for multi-segments

resource allocation to segment specific marketing mix activities will be mademore efficient

Segmentation is a way to plan rather than explain

Criteria for Segmentation

1. Measurable – size, purchasing power etc – finding the size of market for refurbished home appliances is not that easy.

2. Substantial – large enough for the firm to find it as a marketing

opportunity – Premium car market in India may not be substantial to warrant local manufacture

3. Accessible – segments can be effectively reached and served –in communication, serving last mile is not easy

4. Differentiable – segments should be differentiable from one another –if rural consumers and urban consumers showno difference in features of mobile handsets

5. Actionable – It should be possible for formulating marketing programs forserving the segment (it cannot add segment descriptors so easily) – how to sell money for value products such asexpensive watches and pens – not only the monetarily richbuy it, the mentally rich also buy – how to identify

Bases for Consumer Market Segmentation

Bases

Geographic - Rural / Urban; metropolis/city/town/village; modern retail stores/kirana stores / mandis/ haats

Demographic – Age, Family Size (nuclear or joint ), gender,Income, Occupation, Education, SEC, religion, race,Nationality, social class

Psychographic – Use of Psychology and demographics* Lifestyle (AIO) – Nike, Benetton, Gatorade* Personality – Femina – woman of substance* Values – HiDesign leather accessories – consumerswho hold the value ‘style and elegance in a classical sense’

Behavioral Segmentation – next slide

Behavioral Segmentation - based on buyer’s knowledge of, attitude towards, use of, or response to a product

Occasions – Marriage, Birth – Archies and Hallmark cards

Benefits – In soaps - Dettol – antiseptic, Lux – Beauty

User Status – Non users, first time users, potential users, regular user

Usage rate – Light users, medium users, heavy users

Buyer Readiness State – Cold Prospect, Hot Prospect

Loyalty status – Hard Core Loyals, Split Loyals, Shifting Loyals, Switchers

Attitude – enthusiastic, positive, indifferent, negative, hostile

Bases of Industrial Market Segmentation

Nested Basis

Nested Approach

DemographicOperating variables

Purchasing approachesSituational factorsPersonal Characteristics

Classification of Nests

Personal characteristics Purchase process Purchase

decision

Situational factors

Company variablesDemographicsPurchasing approaches

Operating variables

Inner middle nest

Innermost nest

Outer nests

Demographic VariablesIndustry, Company Size (Large, SMEs) , Location

Operating VariablesTechnology, User or Nonuser status (light, medium, heavy users)Customer requirements (few services or extended requirements)

Purchasing VariablesPurchasing function approach (centralized or decentralized), Power structure( technology top, finance top, marketing top), Nature of existing relationships( old firms or new firms), general purchasingpolicies ( leasing, service contracts, sealed bidding ) , purchasing criteria (quality, service, price)

Situational FactorsUrgency of requirement, size of order

Personal CharacteristicsLoyalty, attitude toward risk, some similarities between buyer-seller

Segment based on existing relationship

First time prospects, novices, sophisticates

Segment based on purchasing criteria –

price oriented customers, solution oriented customersstrategic value customers (enterprise selling or partners)

Super Segments

A set of segments sharing some exploitable similarityPerfume manufacturers target to modern women ratheronly to working women or rich women. Both segments havea similarity of attempting to obtain – independent identity

Methods to Segmentation

Self Selection

Profiling

Competitive Market Structuring

Attitudinal Segmentation - Survey Method

Self Selection

One of the powerful means of segmenting markets is to allow consumers toSelf select by mass-customizing the marketing offer

American Express works on self selection of customers on dimension ofextent of spending by offering different categories of rewards for light andheavy users ; Heavy users – 2 airline round trip tickets to extra-spending within six months; Light users – money towards purchase of car by saving in five years.

Profiling

Method of describing a set of consumers on marketCharacteristics and attaching a tag description to it.

Basic profiling of customers in toothpaste market

Segment 1 Segment 2

Demographic

Age 15-40 years 3-60 years

Family size Small (<4) Large (5+)

Education Well educated Moderately educated

Psychographics Conservative shopper Utilitarian shopper

Behavioral Quality seeking twice a day brusher, loyal

Economy seeking once-a-day brusher deal-prone

Possible segment descriptor

Upwardly mobile nuclear family

Conventional large family

Segment Profiling Based on Cluster Analysis

The severe sufferers

The severe suffers are the extreme group on the potency side of the Market. They tend to be young, have children, and be well educated.They are irritable and anxious people, and believe that they suffer more severely than others. They take the ailment seriously, fuss about it, pamper themselves, and keep trying new and different products in search of greater potency. A most advanced product with new ingredients best satisfies their need for potency and fast relief, and ties in with their psychosomatic beliefs.

The Active Medicators:

The Active Medicators are on the same side of the motivational spectrum. They are typically modern suburbanites with average income and education.They are emotionally well adjusted to the demands of their active lives.They have learned to cope by adopting the contemporary beliefs of seekinghelp for every ill, and use remedies to relieve even minor signs of ailments and every ache and pain. In a modern product they seek restoration of theircondition and energy, mental recovery, and a lift for their active lives.They tend to develop strong brand loyalties.

The Hypochondriacs

The hypochondriacs are on the opposite side of the motivational spectrum. They tend to be older, not as well educated, and women. They have conservative attitudes toward medication and a deep concern over health. They see possible dangers in frequent use of remedies, are concerned over side effects, and afraid of remedies with new ingredients and extra potency. To cope with these concerns they are strongly oriented toward medical authority, seeking guidance in treatment and what products they should use. They hold rigid beliefs about the ailment and are disciplined in the products they use and how frequently they use them. They want a simple, single-purpose remedy that is safe and free from side effects and backed by doctors or a reputable company.

The Practicalist:

The practicalists are in the extreme position on this side of the motivational spectrum. They tend to be older, well educated, emotionally the most stable, and least concerned over their ailment or the dangers of remedies. They accept the ailment and its discomforts as part of life, without fuss and pampering. They use a remedy as a last resort, and just to relieve the particular symptom. They seek simple products whose efficacy is well proved, and are skeptical of complicated modern remedies with new ingredients and multiple functions.

(Wells 1975, p.203; Journal of marketing research published by the AMA)

Competitive Market Structuring

C CF C CF C CF C CF

BRANDS

Cola

DietRegular

Diet

Regular

Non-cola

Market Structure of Soft drinks

Caffeine

Caffeine-Free

Decaffeinated Caffeinated

Hierarchical definition of the coffee market with perceptual maps in each submarket (Urban Johnson and Brudnick 1981)

Coffee Ground Instant

Mildness

Brimsanka

TasteMaxwell

HillsBrosFolger’s

Chuck Full o Nuts

Regular Freeze Dried Regular Freeze dried

Store brands

Mildness Mildness Mildness Mildness

Taste Taste Taste Taste

Nescafe’Folger’s

Maxwell house

Taster’s Choice

Maxium

High Point

Sanka Nescafe’

SankaTaster’s Choice

Brim

Competitive Market structuring can also be obtained, by putting brands Together in groups based on choice probabilities. In this way, market segmentsAre a group of consumers who are homogenous in terms of probabilities ofChoosing different brands in a product class

Coke, Pepsi – consideration set

Segment 1 Segment 2 Segment 3

Coke 0.50 0.30 0.70Pepsi 0.5 0.70 0.30

Descriptor Hedonist or Next Generation Seekers ofVariety Seeker Protagonist ‘Real Thing’

Attitudinal Segmentation – Survey Method

1. Whom to Interview.In a survey of finding segments of customers who are travelers / touriststo Europe, it is not appropriate to count only those who have been toEurope, because that accounts for a small percentage. You have totalk to potential travelers

2. Frame of reference for questioningWhen you are questioning customers on vacations do you take (a) overallexperience of vacations (b) last vacation

3. Find different ways of segmentationFor example : Vacation to Europe, segment on (a) Favourability towardsEurope (b) Segmenting on Income brackets © segmenting customersbased on desires sought on their last vacation

In a study on 1750 interviews for vacationing the following segments wereUncovered – (1) visit friends and relatives segments (2) good for family sight-Seeing (3) outdoor vacationeer (4) resort vacationeer (5) foreign vacationeer