By Suneet Gill & Bernie Karlowicz

Overview

What is Market Segmentation?Market segmentation is a process of grouping

customers in markets with some heterogeneity into smaller, more similar or homogeneous segments with similar requirements and buying characteristics.

By carrying out market segmentation, companies are able to develop products and services that are appropriate for particular target segments and to be supported by an appropriate marketing mix.

Overview (Cont…)Market segmentation is the

first of three important steps in developing marketing strategy:Segmentation: Groups

customers with similar needs and responses.

Targeting: Determines which segments to serve.

Positioning: How the product (or product portfolio) should compete with others in the market.

Attributes Of Effective SegmentationMarket segmentation is

resorted to for achieving certain practical purpose. For example, it has to be useful in developing and implementing effective and practical marketing programs. For this to happen, the segments arrived at must meet certain criteria such as :

Segmentation CriteriaIdentifiable:

The differentiating attributes of the segments must be measurable so that they can be identified.

Accessible: The segments must be reachable through

communication and distribution channels.Sizeable :

The segments should be sufficiently large to justify the resources required to target them. A very small segment may not serve commercial exploitation.

Profitable:There is no use in locating segments that are

sizeable but not profitable.

Segmentation Criteria (Cont…)Unique needs :

To justify separate offerings, the segments must respond differently to the different marketing mixes.

Durable : The segments should be relatively stable to minimize

the cost of fréquent changes. Measurable :

The potential of the segments as well as the effect of a specific marketing mix on them should be measurable.

Compatible: Segments must be compatible with firm’s resources

and capabilities.

Why is it done?Segmentation is the basis for developing

targeted and effective marketing plans. Furthermore, analysis of market segments enables decisions about intensity of marketing activities in particular segments.

A segment-orientated marketing approach generally offers a range of advantages for both, businesses and customers.

Why is it done?Facilitates proper choice of target

marketingHigher ProfitsFacilitates tapping of the market,

adapting the offer to the targetStimulating InnovationMakes the marketing effort more

efficient and economicHigher market Shares

Adapting the offer to the target– ExampleFord Motor Company

Ford has gained useful insights through segmentation and adapted its offer to suit the Indian target market. For the Indian segment Ford made some changes in its cars in comparison to their European version. Modifications such as:a. Higher ground clearance to make the car

compatible to the rougher road surface in India.

b. Stiffer rear springs to enable negotiating the ubiquitous potholes on Indian roads.

c. Compatibility of engine with the quality of fuel available in India.

d. Higher resistance to dust.

Bases For Segmentation

Markets can be segmented using several relevant bases.

There are huge number of variables which leads to market segmentation.

They comprise easy to determine demographic factors as well as variables on user behavior or customer preferences.

Segmentation is done for consumer market and industrial market.

Bases for segmentation in consumer marketGeographic Segmentation- Segmentation of

customers based on geographic factors are:-Region:- Segmentation by continent / country /

state/district or city.Size:- Segmentation on the basis of size of a

metropolitan area as per its population size.Population Density- Segmentation on the basis

of population density such as Urban/Sub Urban/Country Side.

Climate- Segmentation as per climate conditions.

Bases for segmentation in consumer marketDemographic Segmentation:

Segmentation of customers based on demographic factors are:-

Age:-Segmentation is done on the basis of age of Person.

Income:- Segmentation is done based on the income level of the consumer.

Gender:- Segmentation is done on the bases of the gender.

Religion:- Segmentation Is done on the bases of the religion.

Bases for segmentation in consumer marketPsychographic Segmentation: Psychographic

Segmentation groups customers according to their life-style and buying psychology. Its factors are:-Activities.Interests. Opinions.Attitudes.Values.

Bases for segmentation in consumer marketBehavioralistic Segmentation: Markets

can be segmented on the basis of buyer behavior as well. Since all Segmentation is in a way related to buyer behavior. Marketers often find practical benefit in using buying behavior as a separate segmentation base in addition to bases like geographic, demographics, and psychographics.

Bases of segmentation in industrial marketIn contrast to consumers, industrial customers

tend to be fewer in number and purchase larger quantities. They evaluate offerings in more detail, and the decision process usually involves more than one person.

Industrial markets might be segmented on characteristics such as:Location.Company Type.Bhavioral Characteristics.

Bases of segmentation in industrial marketLocation: Industrial markets, customer location may

be important in some cases. Shipping costs may be a purchase factor for vendor selection for products having a high bulk to value ratio, so distance from the vendor may be critical.

Company Type: In this segmentation the type of industry, the size of the industry and the purchase criteria of that industry is taken into consideration.

Behavioral Characteristics: In industrial markets, patterns of purchase behavior can be a basis for

Segmentation as well.

Advantages of market segmentationVarious advantages of market segmentation

are:-Helps distinguish one customer group from

another within a given market.Facilitates proper choice of target market.Facilitates effective tapping of the market.Helps divide the markets and conquer them.Makes the marketing effort more efficient and

economic.

Market TargetingThe process of evaluating each segment and prioritizing which market segment(s) to address. • Develop measurements of segment attractiveness• Estimate profit potential • Identify targetable segments

Factors to Consider

Rating SegmentsUse the segmentation criteria defined earlier to rate segments.

Roger Best - Needs based market segmentation process

1. Needs-Based Segmentation• Group customers based on similar needs and benefits

2. Segment Identification• Determine characteristics and demographics of each

segment3. Segment Attractiveness

• Use criteria such as growth & access to determine segment attractiveness

4. Segment Profitability• Determine if segment can be acceptably profitable

5. Segment Positioning• Create a value-proposition and product-price positioning strategy

6. Segment Acid Test• Storyboard to test segment attractiveness with positioning

strategy

7. Marketing-Mix Strategy• Expand positioning strategy for complete marketing-mix aspects

Ethics and Market Targeting

Socially responsible marketing must balance between corporate interest, and the interests of those targeted. Often this ethical dilemma causes controversy for firms and their products.

Benefits of targeting• Focus on profitable segments• Develop fit between market strategy and strategic objectives• Improve communication with customer• Allows firms to determine where and how to market its products and services• Allows proactive decision making to occur within the firm• Allows a firm to focus on one specific market area, • Allows marketing campaigns to be more cost and time efficient. • Allows firms to build a reputation as being specialists.• Firms can stand out from their competitors

Market PositioningDeveloping a product offering that appeals to the

consumer and positions itself uniquely and favorably within the consumer’s mind relative to a competitor’s

product.

A products position is the totality of thought

attributed to it from the consumer.

Concepts• Functional – e.g. Solve a particular

problem or deliver a perceived benefit• Symbolic – Image, Social benefit,

Personal fulfillment• Empirical – Interactive , stimulative

1. Understand consumer psychology 2. Develop positioning plan for each target

segment3. Design marketing mix to communicate

product via positioning plan4. Position product in customer’s mind5. Protect the product’s established

position

• Customer Benefits – e.g. Blue Cross & Blue Shield• Price/Quality – e.g. Wal-Mart vs. Macys• Utility – e.g. iPhone, iPad, iPod• Product class – e.g. Method cleaning products• Symbolic – e.g. Nike Swoosh• Competitor – e.g. Wendy’s vs. McDonalds

• Clarity • Consistency• Credibility• Competitiveness

A process of creating a new position for an existing product.

Not necessarily your own!

Vs.

Questions?