Market Segmentation

Segmentation- Segmentation involves subdividing markets, channels or customers into

groups with different needs, to deliver tailored propositions which meet these needs as
precisely as possible.

Market segmentation is the identification of portions of the market that are different from
one another. Segmentation allows the firm to better satisfy the needs of its potential
customers.

Levels of Market segmentation

Most companies are turning to micromarketing at one of four levels: Segments, niche,
local areas, and individuals.

1. Segment marketing:-

A market segment consists of a group of customers who share a similar set of needs and
wants. Rather than creating the segments, the marketer’s task is to identify them
and decide which one to target. Segment marketing offers key benefits over
mass marketing. The company can offer better design , price , disclose, and
deliver the product or service and also can fine tune the marketing program an
activities to better reflect competitors’ marketing.

2. Niche Marketing:-

A niche is a more narrowly defined customer group seeking a distinctive mix of benefits.
Marketers usually identify niches by dividing a segment into sub segments. For
example whereas hertz, Avis, Alamo, and others specialize in airport rental cars
for business and leisure travelers, enterprise has attacked the low budget
insurance replacement market by primarily renting to customer whose cars have
been wrecked or stolen.

3. Local Marketing:-

Target marketing is leading to marketing programmes tailored to the needs and wants of
local customer groups in trading areas, neighborhoods, even individual stores.
Retail firms such as Strabucks, Costco, Trader Joe’s and REI have all found
great success emphasizing local marketing initiatives but other types of firms are
also jumping in to actions.

4. Individual Marketing
The ultimate level of segmentation leads to “segments of one” “customized marketing” or
“one to one marketing”. Today customers are taking more individual initiatives
in determining what and how to buy.

Bases for segmenting consumer market

The major segmentation variables are Geographic, Demographic, Psychographic and

Behavioral Segmentation.

Geographic Segmentation

Geographical segmentation is call for dividing the markets into different geographical
units such as nations, states, region, countries, cities, or neighborhoods. The
company can operate in one or a few areas or operate in all but pay attention to
local variations. Major Retailers such as Walt Mart, Sears, Roebuck & Co; and
Kmart all allow local managers to stock products that suit the local community.

The following are some examples of geographic variables often used in segmentation.

• Region: by continent, country, state, or even neighborhood

• Size of metropolitan area: segmented according to size of population
• Population density: often classified as urban, suburban, or rural
• Climate: according to weather patterns common to certain geographic regions

Demographic Segmentation.

In Demographic segmentation we divide the market into groups on the basis of variables
such as age, family size, family life cycle, gender, income, occupation,
education, religion, race, generation, nationality, and social class. One reason
demographic variables are so popular with marketers is that they are often
associated with consumer needs and wants.

Here how certain demographic variables have been used to segment market:-

Age

Consumer needs and wants change with age although they may still wish to consumer the
same types of product. So Marketers design, package and promote products differently to
meet the wants of different age groups. Good examples include the marketing of
toothpaste (contrast the branding of toothpaste for children and adults) and toys (with
many age-based segments).

Life-cycle stage
A consumer stage in the life-cycle is an important variable - particularly in markets such
as leisure and tourism. For example, contrast the product and promotional approach of
Club 18-30 holidays with the slightly more refined and sedate approach adopted by Saga
Holidays.

Gender

Gender segmentation is widely used in consumer marketing. The best examples include
clothing, hairdressing, magazines and toiletries and cosmetics.

Income

Another popular basis for segmentation. Many companies target affluent consumers with
luxury goods and convenience services. Good examples include Coutts bank; Moet &
Chandon champagne and Elegant Resorts - an up-market travel company. By contrast,
many companies focus on marketing products that appeal directly to consumers with
relatively low incomes. Examples include Aldi (a discount food retailer), Airtours
holidays, and discount clothing retailers such as TK Maxx.

Social class

Many Marketers believe that a consumers "perceived" social class influences their
preferences for cars, clothes, home furnishings, leisure activities and other products &
services. There is a clear link here with income-based segmentation.

Lifestyle

Marketers are increasingly interested in the effect of consumer "lifestyles" on demand.

Unfortunately, there are many different lifestyle categorization systems, many of them
designed by advertising and marketing agencies as a way of winning new marketing
clients and campaigns!

Psychographic segmentation

Psychographic is a science of using psychology and demographics to better understand

the consumer. In psychographic segmentation buyers are divided into different groups on
the basis of psychological-personality traits, lifestyle or values.

People within the same demographic group can exhibit very different psychographic
profiles. One of the most popular commercially available classification system based on
psychographic measurement is SRI Consulting business Intelligence’s VALS framework.

The VALS™ Segments

VALS™ places U.S. adult consumers into one of eight segments based on their responses
to the VALS questionnaire. The main dimensions of the segmentation framework are
primary motivation (the horizontal dimension) and resources (the vertical dimension).

Primary Motivation Resources

Consumers buy products and services and
seek experiences that fulfill their
characteristic preferences and give shape,
substance, and satisfaction to their lives.
An individual's primary motivation
determines what in particular about the
self or the world is the meaningful core
that governs his or her activities.
Consumers are inspired by one of three
primary motivations: ideals, achievement,
A person's tendency to consume goods
and services extends beyond age, income,
and education. Energy, self-confidence,
intellectualism, novelty seeking,
innovativeness, impulsiveness,
leadership, and vanity play a critical role.
These personality traits in conjunction
with key demographics determine an
individual's resources. Different levels of
resources enhance or constrain a person's
and self-expression. Consumers who are expression of his or her primary
primarily motivated by ideals are guided motivation.
by knowledge and principles. Consumers
who are primarily motivated by
achievement look for products and
services that demonstrate success to their
peers. Consumers who are primarily
motivated by self-expression desire social
or physical activity, variety, and risk.

Descriptions of the VALS types:

• Innovators
• Thinkers
• Achievers
• Experiences
• Believers
• Strivers
• Makers
• Survivors

Innovators

Innovators are successful, sophisticated, take-charge people with high self-esteem.

Because they have such abundant resources, they exhibit all three primary motivations in
varying degrees. They are change leaders and are the most receptive to new ideas and
technologies. Innovators are very active consumers, and their purchases reflect cultivated
tastes for upscale, niche products and services.

Image is important to Innovators, not as evidence of status or power but as an expression

of their taste, independence, and personality. Innovators are among the established and
emerging leaders in business and government, yet they continue to seek challenges. Their
lives are characterized by variety. Their possessions and recreation reflect a cultivated
taste for the finer things in life.

Thinkers

Thinkers are motivated by ideals. They are mature, satisfied, comfortable, and reflective
people who value order, knowledge, and responsibility. They tend to be well educated
and actively seek out information in the decision-making process. They are well-
informed about world and national events and are alert to opportunities to broaden their
knowledge.
Thinkers have a moderate respect for the status quo institutions of authority and social
decorum, but are open to consider new ideas. Although their incomes allow them many
choices, Thinkers are conservative, practical consumers; they look for durability,
functionality, and value in the products they buy.

Achievers

Motivated by the desire for achievement, Achievers have goal-oriented lifestyles and a
deep commitment to career and family. Their social lives reflect this focus and are
structured around family, their place of worship, and work. Achievers live conventional
lives, are politically conservative, and respect authority and the status quo. They value
consensus, predictability, and stability over risk, intimacy, and self-discovery.

With many wants and needs, Achievers are active in the consumer marketplace. Image is
important to Achievers; they favor established, prestige products and services that
demonstrate success to their peers. Because of their busy lives, they are often interested
in a variety of time-saving devices

Experiencers

Experiencers are motivated by self-expression. As young, enthusiastic, and impulsive

consumers, Experiencers quickly become enthusiastic about new possibilities but are
equally quick to cool. They seek variety and excitement, savoring the new, the offbeat,
and the risky. Their energy finds an outlet in exercise, sports, outdoor recreation, and
social activities.

Experiencers are avid consumers and spend a comparatively high proportion of their
income on fashion, entertainment, and socializing. Their purchases reflect the emphasis
they place on looking good and having "cool" stuff.

Believers

Like Thinkers, Believers are motivated by ideals. They are conservative, conventional
people with concrete beliefs based on traditional, established codes: family, religion,
community, and the nation. Many Believers express moral codes that are deeply rooted
and literally interpreted. They follow established routines, organized in large part around
home, family, community, and social or religious organizations to which they belong.

As consumers, Believers are predictable; they choose familiar products and established
brands. They favor American products and are generally loyal customers.
Strivers

Strivers are trendy and fun loving. Because they are motivated by achievement, Strivers
are concerned about the opinions and approval of others. Money defines success for
Strivers, who don't have enough of it to meet their desires. They favor stylish products
that emulate the purchases of people with greater material wealth. Many see themselves
as having a job rather than a career, and a lack of skills and focus often prevents them
from moving ahead.

Strivers are active consumers because shopping is both a social activity and an
opportunity to demonstrate to peers their ability to buy. As consumers, they are as
impulsive as their financial circumstance will allow.

Makers

Like Experiencers, Makers are motivated by self-expression. They express themselves

and experience the world by working on it-building a house, raising children, fixing a car,
or canning vegetables-and have enough skill and energy to carry out their projects
successfully. Makers are practical people who have constructive skills and value self-
sufficiency. They live within a traditional context of family, practical work, and physical
recreation and have little interest in what lies outside that context.

Makers are suspicious of new ideas and large institutions such as big business. They are
respectful of government authority and organized labor, but resentful of government
intrusion on individual rights. They are unimpressed by material possessions other than
those with a practical or functional purpose. Because they prefer value to luxury, they
buy basic products.

Survivors

Survivors live narrowly focused lives. With few resources with which to cope, they often
believe that the world is changing too quickly. They are comfortable with the familiar
and are primarily concerned with safety and security. Because they must focus on
meeting needs rather than fulfilling desires, Survivors do not show a strong primary
motivation.

Survivors are cautious consumers. They represent a very modest market for most
products and services. They are loyal to favorite brands, especially if they can purchase
them at a discount.

Behavioral Segmentation
Behavioral segmentation divides customers into group’s basis of their knowledge of,
attitude toward, use of, or response to a product.

Behavioral segments can group consumers in terms of:

Occasions

Occasions can be defined in terms of the time of day, week, months, year or in terms of
other well defined temporal aspects of a consumer’s life. We can distinguish buyers
according to the occasions when they develop a need, purchase a product, or use a
product .When a product is consumed or purchased. For example, cereals have
traditionally been marketed as a breakfast-related product. Kelloggs have always
encouraged consumers to eat breakfast cereals on the "occasion" of getting up. More
recently, they have tried to extend the consumption of cereals by promoting the product
as an ideal, anytime snack food.

Usage

Some markets can be segmented into light, medium and heavy user groups

Buyers Rediness stage

Some people are unaware or the product, some are aware, some are informed, some are
interested, some desire the product, and some intend to buy.

Loyalty status

Marketers usually envision four groups based on brand loyalty status

1. Hardcore loyal-Consumer who buys only one brand all the time.
2. Split loyal- consumer who are loyal to two or three brands.
3. Shifting loyal-consumer who shifts loyalty from one brand to another.
4. Switchers- consumer who show no loyalty to any brand.

Many companies try to segment their markets into those where loyal customers can be
found and retained compared with segments where customers rarely display any product
loyalty. The holiday market is an excellent example of this.

Benefits Sought

An important form of behavioral segmentation. Benefit segmentation requires Marketers

to understand and find the main benefits customers look for in a product. An excellent
example is the toothpaste market where research has found four main "benefit segments"
- economic; medicinal, cosmetic and taste.

Attitude
Five attitudes about products are enthusiastic, positive, indifferent, negative and hostile.

Combining different behavioural basis can help to provide a more comprehensive

and cohesive view of the market and its segments

Bases for Segmentation in Industrial Markets

In 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. These characteristics apply to organizations such as
manufacturers and service providers, as well as resellers, governments, and institutions.

Many of the consumer market segmentation variables can be applied to industrial

markets. Industrial markets might be segmented on characteristics such as:

• Location
• Company type
• Behavioral characteristics

Location

In 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. In some industries firms tend to cluster
together geographically and therefore may have similar needs within a region.

Company Type

Business customers can be classified according to type as follows:

• Company size
• Industry
• Decision making unit
• Purchase Criteria

Behavioral Characteristics

In industrial markets, patterns of purchase behavior can be a basis for segmentation. Such
behavioral characteristics may include:

• Usage rate
• Buying status: potential, first-time, regular, etc.
• Purchase procedure: sealed bids, negotiations, etc.
Benefits of segmentation

Segmenting your customers into groups according to their needs has a number of
advantages. It can help you to:

• identify your most and least profitable customers

• focus your marketing on the customers who will be most likely to buy your
products or services
• avoid the markets which will not be profitable for you
• build loyal relationships with customers by developing and offering them the
products and services they want
• improve customer service
• get ahead of the competition in specific parts of the market
• use your resources wisely
• identify new products
• improve products to meet customer needs
• increase profit potential by keeping costs down, and in some areas enabling you to
charge a higher price for your products and services
• group your customers by factors such as geographical location, size and type of
organisation, type and lifestyle of consumers, attitudes and behaviour

Requirements of Market Segments

In addition to having different needs, for segments to be practical they should be

evaluated against the following criteria:

• Identifiable: 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.
• Substantial: the segments should be sufficiently large to justify the resources
required to target them.
• 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 frequent
changes.

A good market segmentation will result in segment members that are internally
homogenous and externally heterogeneous; that is, as similar as possible within the
segment, and as different as possible between segments.

Target marketing
Target marketing recognizes the diversity of customers and does not try to please all of
them with the same offering. The first step in target marketing is to identify different
market segments and their needs.

We now look how companies evaluate and select target segments.

A) Evaluating Market Segments

In evaluating different market segments, a firm must look at three factors: segment size
and growth, segment structural attractiveness, and company objectives and resources.
The company must first collect an analyze data on current segment sales, growth rates,
and expected profitability for various segments. It will be interested in segments that have
the right size and growth characteristics.

B) Selected Target Market Segments

After evaluation different segments, the company must now decide which and how many
segments it will target. A target market consists of a set of buyers who share common
needs for characteristics that the company decides to serve.
Generally, target marketing can be carried out at several different levels. Companies can
target very broadly (undifferentiated marketing), very narrowly (micromarketing), or
somewhere in between (differentiated or concentrated marketing).

1. Undifferentiated marketing

Using an undifferentiated marketing (or mass marketing) strategy, a firm might decide to
ignore market segments and designs separate offers for each. Under this strategy the
marketer attempts to appeal to one large market with a single marketing strategy. While
this approach offers advantages in terms of lowering development and production costs,
since only one product is marketed, there are few markets in which all customers seek the
same benefits. While this approach was very popular in the early days of marketing (e.g.,
Ford Model-T), few companies now view this as a feasible strategy.

2. Differentiated marketing

Using a differentiated marketing (or segmented marketing) strategy, a firm decides to

target several market segments and designs separate offers for each. Marketers choosing
this strategy try to appeal to multiple smaller markets with a unique marketing strategy
for each market. The underlying concept is that bigger markets can be divided into many
sub-markets and an organization chooses different marketing strategies to reach each sub-
market it targets. Most large consumer products firms follow this strategy as they offer
multiple products (e.g., running shoes, basketball shoes) within a larger product category
(e.g., footwear).

3. Concentrated marketing
A third market strategy, concentrated marketing (or niche marketing), is especially
appealing when company resources are limited. Instead of going after a small share of a
large market, the firm goes after a large share of one or a few segments or niches. This
strategy combines mass and segmentation marketing by using a single marketing strategy
to appeal to one or more very small markets. It is primarily used by smaller marketers
who have identified small sub-segments of a larger segment that are not served well by
larger firms that follow a segmentation marketing approach. In these situations a smaller
company can do quite well marketing a single product to a narrowly defined target
market.

4. Micro marketing

Micro marketing is the practice of tailoring products and marketing programs to suit the
tastes of specific individuals and locations. Rather than seeing a customer in every
individual, micro marketers see the individual in every customer. This newest target
marketing strategy attempts to appeal to targeted customers with individualized
marketing programs. For micro-marketing segmentation to be effective the marketer
must, to some degree, allow customers to “build-their-own” products. This approach
requires extensive technical capability for marketers to reach individual customers and
allow customers to interact with the marketer. The Internet has been the catalyst for this
target marketing strategy. As more companies learn to utilize the Internet micro-
marketing is expected to flourish. Micromarketing includes local marketing and
individual marketing.

a) Local marketing

Local marketing involves tailoring brands and promotions to the needs and wants if the
local customers-cities, neighborhoods, and even specific stores. Citibank provide
different mixes of banking services in each of its branches depending on neighborhoods
demographics.

Local marketing has some drawbacks it can drive up manufacturing and marketing cost
by reducing economies of scale. It can also create logistics problems as companies try to
meet the varied requirements of different regional and local market.

b) Individual marketing

In the extreme, micro marketing becomes individual marketing-tailoring products and

marketing programs to the needs and preferences of individual customer. Individual
marketing has also been labeled one to one marketing, mass customization, and market-
of –one marketing.

The wide spread of mass marketing has obscured the fact that for some centuries
consumers were served as individuals: the tailor custom- made the suit, cobbler design
the shoes for the individual, the cabinet maker made furniture to order.
 C) Choosing the target marketing strategy

Companies need to consider many factors when choosing a target-marketing strategy.

1. Which strategy is best depends on company resources. -- When the firm’s resources
are limited, concentrated marketing makes the sense.
2. The best strategy also opens on the degree of product variability-- Undifferentiated
marketing is most suited for uniform product such as grape fruit or steel.
3. Products that can vary in designs, such as cameras and automobiles, are most suited
to Differentiation or Concentration.
4. The Product’s Life- cycle stage also must be considered.

• When a firm introduces a new product, it may be practical to launch only one
version and undifferentiated marketing or concentrated marketing may make
the most sense.
• In the mature stage of the product life cycle, however, differentiated
marketing begins to make more sense.

5. Another factor is market variability—if most the buyers have the same tastes, buy the
same amounts, and react the same way to marketing efforts, undifferentiated
marketing is appropriate.
6. Finally competitors marketing strategies are important—when competitors use
differentiated or concentrated marketing, un differentiated marketing can be
suicial.conversly when competitors use undifferentiated marketing a firm can gain an
advantage by using differentiated or concentrate marketing.

Socially responsible target marketing

Small targeting helps companies to be more efficient an effective by focusing on the
segments that they can satisfy best and most profitably. Targeting also benefits
consumers—companies reach specific groups of consumers with offers carefully tailored
to satisfy their needs. The biggest issues usually involve the targeting of vulnerable or
disadvantaged customer with controversial or potentially harmful products.

Cigarette, bear, and fast food marketers have also generated much controversy in recent
years by their attempts to target inner-city minority consumers. For example, Mc Donald
and other chains have raw criticism for pitching their high-fat, salt-laden fare to low-
income, urban residents who are much more likely than are sub urbanized to heavy
consumers.

Positioning for competitive advantage

Beyond deciding which segments of the market it will target, the company must decide
what positions it wants to occupy in those segments. A product’s position is the way the
product is defined by consumer on important attributes-the place the product occupy in
consumers’ minds relative to competiting products. Positioning involves implanting the
brands unique benefits and differentiation in customers’ minds.

For example- Tide is positioned as a powerful, all-purpose family detergent: Ivory snow s
positioned as the gentle detergent for fine washables and baby clothes.

A) Choosing a positioning strategy

The positioning task consists of three steps:

• Identifying a set of possible competitive advantage upon which to build a

position.
• Choosing the right competitive advantages
• selecting an overall position strategy

The company must then effectively communicate and deliver the chosen position to the
market.

1) Identifying possible competitive advantages

To build profitable relationship with target customer, marketers must understand

customer needs better than competitor’s o an deliver more value. To the extent that a
company can position itself as providing superior value, it gains competitive advantage.

To find points of differentiation, marketers must think through the customer’s entire
experience with the company’s products or services.marketer can differentiate the
competitive advantage on the basis of product, services, channels, people or image.

Product differentiation takes place along the continuum. Products can be differentiated on
features, performance, style and design. example Volvo provides new and better safety
features; Whirlpool designs its dish washer to run more quietly.

Firm can also differentiate the services that accompany a product. Companies gain
services differentiation through speedy, convenient, careful delivery. For example, bank
one has opened full service branches in super market to provide location convenience
along with Saturday, Sunday, and week day-evening hours

Companies differentiate their offers by providing customer training services or consulting

services—data, information systems and advisory services that buyers need.

Firm that practice channel differentiation gain competitive advantage through the way
they design their channel’s coverage, expertise, and performance. For example
amazing.com, dell and Avon set themselves apart with their high quality direct channels.
Companies can gain strong competitive advantage through people differentiation—hiring
and training better people than their competitors do. For example Disney people are
known to be friendly and upbeat.

Buyers may perceive a difference based on company or brand image differentiation. A

company or brand image should convey a product’s distinctive benefits and positioning.

2) Choosing the right competitive advantage

Suppose a company is fortunate enough to discover several potential competitive

advantages. It now must choose the ones on which it would build its positioning strategy.
It must decide how many differences to promote a one.

a) How many differences to promote

I) Many marketers think that company should aggressively promote only one benefit to
target market. Each brand should pick an attribute and tout itself as “number one”; on that
attribute. A company that hammers away at one of these positions a consistently delivers
on it probably will become best known and remembered for it.

II) Other marketer think that company should position themselves on more than one
differentiator .this may be necessary if two or more firms are claiming to be best on same
attribute for example unilever introduced the first three in one bar soap-lever 2000-
offereing cleansing, deodorizing and moisturizing benefits.

b) Which differences to promote that all brand differences are meaningful, not every
difference makes a good differentiator. Each difference has the potential to create
company cost as well as company benefits. Therefore the company must carefully select
the ways in which it will distinguish itself from competitors. A difference is worth
establishing to the extent that it’s satisfies following criteria:

• Important
• Distinctive
• Superior
• Communicable
• Preemptive
• Affordable
• Profitable

3) Selecting an overall positioning strategy

Consumer typically chooses products and services that give them the greatest
value. Thus, marketers want to position their brands on the key benefits that they
offer relative to competing brands.
 The full positioning of a brand is called the brand’s value proposition- the full
mix of benefits upon which the brand is positioned.

More for more More for the same More for less

The same for less

Less for much less

Price

More The Same Less

More

The Same

Less

More for More-“more for more” positioning involves providing the most upscale
product or service and charging a higher price to cover the higher costs. Ritz-
Carlton hotels, Mont Blanc writing instruments, Mercedes-Benz automobiles—
each claims superior quality, craftsmanship, durability, performance, or style and
charges a price to match.

More for the same

Companies can attack a competitor’s more-for-more positioning by introducing a

brand offering comparable quality but at a lower price. For example Toyota
introduced its Lexus line with a “more- for-the-same” value proposition.

The same for less

Offering “the same for less” can be a powerful value proposition-every one likes a
good deal. For example, Dell offers equivalent quality computer at a lower “price
for performance”.

Less for much less

A market almost always exists for products that offer less and therefore cost less.
Few people nee, want, or can afford “the very best” in everything they buy.
 More for less

Of course, the winning value proposition would be to offer “more for less”. Many
companies claim to o this. For example, Dell Computer to have better products
and lower prices for a given level of performance.

4) Developing a positioning statement

Company a bran positioning should be summed up in a positioning statement. The

statement should follow the form; to (target segment and
need)our(brand)is(concept)that(point of difference).for example “to busy professionals
who need to stay organised, palm is a electronic organizer that allows you to back up files
on your pc more easily and reliably than competitive products.

B) Communicating and delivering the choosing product

Once it has chosen a position, the company must take strong steps to deliver and
communicate the desired position to target consumers. All the company’s marketing mix
efforts must support the positioning strategy.

Positioning the company calls for concrete action, not just talk. If the company decides to
build a position on better quality and service, it must first deliver that position. Now
designing the marketing mix-product, price, place, and promotion-involves working out
the tactical details of the positioning strategy.