Identifying Market Segments and Targets

Segmentation, targeting, and positioning

To compete more effectively, many companies are now embracing target marketing. Instead of scattering their marketing efforts, they’re focusing on those consumers they have the greatest chance of satisfying.

Effective target marketing requires that marketers:

• 1. Identify and profile distinct groups of buyers who differ in their needs and wants (market segmentation).

• 2. Select one or more market segments to enter (market targeting).

• 3. For each target segment, establish and communicate the distinctive benefit(s) of the company’s market offering (market positioning).

Steps in Market Segmentation, Targeting,and Positioning

1. Identifysegmentationvariables andsegment themarket

2. Develop profiles ofresultingsegments

MarketMarketSegmentationSegmentation

3. Evaluateattractivenessof eachsegment

4. Select thetargetsegment(s)

MarketMarketTargetingTargeting

5. Identifypossible

positioningconcepts foreach target

segment

6. Select,develop, andcommunicate

the chosenpositioning

concept

MarketMarketPositioningPositioning

Levels of Market Segmentation

Mass Marketing

Same product to all consumers One size fits all Mass Marketing Lower cost (No segmentation)

Mass Marketing

Same product to all consumers One size fits all Mass Marketing Lower cost (No segmentation)

Segment Marketing

Different products to one/more segments Isolate broad segments & adapt offers

Fine-tuned products Fewer competitors (Some segmentation)

Segment Marketing

Different products to one/more segments Isolate broad segments & adapt offers

Fine-tuned products Fewer competitors (Some segmentation)

Micromarketing (Local, Individual, Self)

Products to suit the tastes of individuals or locations High cost Logistical problem (Complete segmentation)

Micromarketing (Local, Individual, Self)

Products to suit the tastes of individuals or locations High cost Logistical problem (Complete segmentation)

Niche Marketing

Different products to subgroups within segments Fewer or no competitors( More segmentation)

Niche Marketing

Different products to subgroups within segments Fewer or no competitors( More segmentation)

Basic Market-Preference Patterns

(a) Homogeneouspreferences

Sweetness

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iness

(c) Clusteredpreferences

Cre

am

iness

Cre

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Sweetness

(b) Diffusedpreferences

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iness

Sweetness

Steps in Segmentation Process

Description1. Needs-Based Segmentation

Group customers into segments based on similar needs and benefits sought by customer in solving a particular consumption problem.

2. Segment Identification

For each needs-based segment, determine which demographics, lifestyles, and usage behaviors make the segment distinct and identifiable (actionable).

3. Segment Attractiveness

Using predetermined segment attractiveness criteria (such as market growth, competitive intensity, and market access), determine the overall attractiveness of each segment.

4. Segment Profitability

Determine segment profitability.

5. Segment Positioning

For each segment, create a “value proposition” and product-price positioning strategy based on that segment’s unique customer needs and characteristics.

Effective Segmentation Criteria

Measurable Measurable

AccessibleAccessible

SubstantialSubstantial

DifferentialDifferential

Segments must be large or profitable enough to serve.

Segments can be effectively reached and served.

Size, purchasing power, profiles of segments can be measured.

Segments must respond differently to different marketing mix elements & actions.

Bases for Segmenting Consumer Markets

GeographicGeographic

DemographicDemographic

PsychographicPsychographic

BehavioralBehavioral

Geographic Segmentation

World Region or CountryWorld Region or Country

City or MetroCity or Metro

Rural and Semi-Urban Areas Rural and Semi-Urban Areas

Demographic Segmentation

• Dividing the market into groups Dividing the market into groups based on variables such as:based on variables such as:

– AgeAge– GenderGender– Family size or life cycleFamily size or life cycle– IncomeIncome– OccupationOccupation– EducationEducation– ReligionReligion– RaceRace– GenerationGeneration– NationalityNationality

Psychographic Segmentation

• Lifestyle is a person’s pattern of living as expressed in his or her psychographics.

• It involves measuring consumers’ major AIO dimensions—• activities (work, hobbies, shopping, sports, social events) • interests (food, fashion, family, recreation), and• opinions (about themselves, social issues, business,

products).

• Personality refers to the unique psychological characteristics that distinguish a person or group.

• Personality is usually described in terms of traits such as self-confidence, dominance, sociability, autonomy, defensiveness, adaptability, and aggressiveness.

The VALS Segmentation System

The VALS Segmentation System

The main dimensions of the VALS segmentation framework are consumer motivation (the horizontal dimension) and consumer resources (the vertical dimension). Consumers are inspired by one of three primary motivations: ideals, achievement, and self-expression

The four groups with higher resources are:

1. Innovators—Successful, sophisticated, active, “take-charge” people with high self-esteem. Purchases often reflect cultivated tastes for relatively upscale, niche-oriented products and services.

2. Thinkers—Mature, satisfied, and reflective people motivated by ideals and who value order, knowledge, and responsibility. They seek durability, functionality, and value in products.

3. Achievers—Successful, goal-oriented people who focus on career and family. They favor premium products that demonstrate success to their peers.

4. Experiencers—Young, enthusiastic, impulsive people who seek variety and excitement. They spend a comparatively high proportion of income on fashion, entertainment, and socializing.

The VALS Segmentation System

The four groups with lower resources are:

• 1.Believers—Conservative, conventional, and traditional people with concrete beliefs. They prefer familiar, U.S.-made products and are loyal to established brands.

• 2. Strivers—Trendy and fun-loving people who are resource-constrained. They favor stylish products that emulate the purchases of those with greater material wealth.

• 3. Makers—Practical, down-to-earth, self-sufficient people who like to work with their hands. They seek U.S.-made products with a practical or functional purpose.

• 4. Survivors—Elderly, passive people concerned about change and loyal to their favorite brands.

Behavioral Segmentation

Occasions

Regular occasion, special occasion

Benefits Quality, service, economy, convenience, speed

User status

Nonuser, ex-user, potential user, first-time user, regular user

Usage rate

Light user, medium user, heavy user

Loyalty status

Hard-core loyals, Split loyals, Shifting loyals, Switchers

Buyers Readiness stage

Unaware, aware, informed, interested, desirous, intending to buy

Attitude toward product

Enthusiastic, positive, indifferent, negative, hostile

Segmenting Business Markets

DemographicsDemographics

Operating VariablesOperating Variables

Purchasing ApproachesPurchasing Approaches

Situational FactorsSituational Factors

Personal CharacteristicsPersonal Characteristics

Business Marketers Use Many of the Same Consumer Variables,

Plus:

Major Segmentation Variables for Business MarketDemographic

• 1.Industry: Which industries should we serve?

• 2.Company size: What size companies should we serve?

• 3.Location: What geographical areas should we serve?

Operating Variables

• 4.Technology: What customer technologies should we focus on?

• 5.User or nonuser status: Should we serve heavy users, medium users, light users, or nonusers?

• 6.Customer capabilities: Should we serve customers needing many or few services?

Purchasing Approaches

• 7.Purchasing‑function organization: Should we serve companies with highly centralized or decentralized purchasing organizations?

• 8.Power structure: Should we serve companies that are engineering dominated, financially dominated, and so on?[

• 9. Nature of existing relationships: Should we serve companies with which we have strong relationships or simply go after the most desirable companies?

• 10. General purchase policies: Should we serve companies that prefer leasing? Service contracts? Systems purchases? Sealed bidding?

• 11. Purchasing criteria: Should we serve companies that are seeking quality? Service? Price?

Major Segmentation Variables for Business Market

Situational Factors

• 12.Urgency: Should we serve companies that need quick and sudden delivery or service?

• 13.Specific application: Should we focus on certain applications of our product rather than all applications?

• 14.Size of order: Should we focus on large or small orders?

Personal Characteristics

• 15.Buyer‑seller similarity: Should we serve companies whose people and values are similar to ours?

• 16.Attitudes toward risk: Should we serve risk‑taking or risk‑avoiding customers?

• 17.Loyalty: Should we serve companies that show high loyalty to their suppliers?

Segmenting International Markets

Bases for segmentation

Geographic Segmentation: Assumes that nations close to one another will have many common traits and behaviors although there are some exceptions 

Economic factors: GDP, Interest rate, Inflation rate, Unemployment levels, Devaluation/revaluation, Disposable and discretionary income, Currency markets, Global financial system

  Political & Legal factors: Type and stability of Govt. receptivity

of foreign firms, monetary regulations and the amount of bureaucracy.

  Cultural factors: Common languages, religions, values &

attitudes, customs & behavior

Market Targeting

Once the firm has identified its market-segment opportunities, it must decide how many and which ones to target. Marketers are increasingly combining several variables in an effort to identify smaller, better-defined target groups

How many and which segments to target?Segment Size and GrowthSegment Size and Growth

Analyze sales, growth rates and expected profitabilitySelect ‘right size and right growth’

Segment Structural AttractivenessSegment Structural AttractivenessCompetitorsAvailability of Substitute Products Power of Buyers & Suppliers.

Company Objectives and ResourcesCompany Objectives and ResourcesCompany objectivesCompany skills & resources relative to the segment(s).Look for Competitive Advantages.

Market Targeting: Market Coverage Strategies

Undifferentiated Marketing Firm relies on mass production, distribution and advertising Cuts down costs Intense competition & under satisfaction of customers

Differentiated Marketing Firm operates in several market segments with different

Mixes More total sales More costs: Product modification Manufacturing

Administrative Inventory Promotion

Concentrated Marketing Appealing when company resources are limited. Firm achieves a strong market position in niches & enjoys

operating economies

Market Coverage Strategies

Segment 1Segment 1

Segment 2Segment 2

Segment 3Segment 3

Segment 1Segment 1

Segment 2Segment 2

Segment 3Segment 3

Marketing MixMarketing Mix

Marketing MixMarketing Mix

Marketing Mix 1Marketing Mix 1

Marketing Mix 2Marketing Mix 2

Marketing Mix 3Marketing Mix 3

MarketMarket

A. Undifferentiated Marketing

B. Differentiated Marketing

C. Concentrated Marketing

Market Targeting: Selecting market segments

Market Targeting: Selecting market segments

Single-Segment Concentration Many companies concentrate on a single segment.Through

concentrated marketing, the firm gains a thorough understanding of the segment’s needs and achieves a strong market presence.

Selective Specialization Here the firm selects a number of segments, each objectively

attractive and appropriate. There may be little or no synergy among the segments, but each segment promises to be a moneymaker.

Product Specialization Another approach is to specialize in making a certain product for

several segments.Through a product specialization strategy, the firm builds a strong reputation in the specific product area.

Market Specialization With market specialization, the firm concentrates on serving many

needs of a particular customer group.Full Market Coverage Here a firm attempts to serve all customer groups with all of the

products they might need. Only very large firms can undertake a full market coverage strategy.