Industry Segmentation and Competitive Advantage

 

Market Segmentation, Targeting for Competitive Advantage

1

 

 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?

2

 

 The Steps in Segmenting a Market 

Goal: Identify marketing opportunities



6 steps 



Choose a basis or bases for segmenting the market Develop Segment Profiles

3

 

Steps in Segmentation cont’d  

Step 3: Develop measure of segment attractiveness 







Size, growth, purchase frequency, current brand usage, loyalty and long-term sales/profit potential

Step 4: Select a target segment 

Review definition (most likely to buy…)  buy…)  



Major decision that determines the marketing mix

Step 5: Develop positioning for target segment Step 6: Design, implement, and maintain appropriate marketing mix 4

 

Levels of Market Segmentation Through Market Segmentation, Companies Divide Large, Heterogeneous Markets Markets into Smaller Segments that Can be Reached More Efficiently And Effectively With Products and Services That Match Their Unique Needs.

Mass Marketing Same product to all (no segmentation, i.econsumers Coca-Cola)

Segment Marketing Different products to one or more segments (some segmentation, i.e. Marriott) 5

 

Levels of Market Segmentation

Niche Marketing Different products products to subgroups within segments (more segmentation, i.e. Standard or Luxury SUV’s)  SUV’s)  

Micromarketing Products to suit the tastes of individuals and locations   (complete segmentation) Local Marketing

Individual Marketing

Tailoring brands/ promotions to

Tailoring products and programs to

local customer groups, i.e Sears

the needs of individual i.e. Dell customers, 6

 

Basic Market-Preference Patterns (a) Homogeneous preferences

  s   s   e   n    i   m   a   e   r    C

Sweetness

(b) Diffused preferences

(c) Clustered preferences

  s   s   e   n    i

  s   s   e   n    i

  m   a   e   r    C

  m   a   e   r    C

Sweetness

Sweetness 7

 

 The Segmentation Variables 

Geographic Segmentation 



Define –  – Market  Market is divided into geographical units like nations, counties, states, cities, regions etc. Four good reasons to use region:  Adapt better to sluggish sluggish or competitive competitive mark markets ets  Data (via scanners, etc.) tells us what sells in a region  Regional brand preference data  Faster to react to competition in a given region 

8

 

Demographic Segmentation 

Define –  – Market  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 < 9

Teens- have allowances, allowances, specific preferences  Young adults 



Baby Boomers



Seniors 9

 

Demographic Segmentation cont’d  

Gender segmentation 



Clothing, cosmetics, personal care items, magazines and footwear make heavy use of gender segmentation

Income segmentation 

Housing, clothing, cars, and food

10

 

Psychographic Segmentation 

Buyers are divided into groups based on the following

variables 

Personality – Personality  – habits,  habits, traits and attitudes

Motives- economy, reliability, dependability –  –   status-related vs. rational motives  Lifestyles- how do you spend your time and what things do you have (i.e. H-D segments) 

11

 

Behavioral Segmentation 

Dividing the market into groups based on variables such as:  Occasions  Benefits  User status  Usage rate  Loyalty status  Readiness stage 

 Attitude toward product 12

 

Usage Rate 

Dividing the market by the amount of product bought or consumed 





Heavy users, former, potential, first-time, light or irregular, or medium Heavy users account for large % of product sales, so the marketing mix…  mix…  80/20 principle –  – 20  20 % of all customers generate 80% of the demand  

Goal: create a heavy user (frequency/loyalty programs) Reward and retain heavy users

13

 

Effective Segmentation Measurable

Substantial Accessible

Differential

Actionable

• Size, purchasing power, profiles of segments can be measured. • Segments must be large or profitable enough to serve. • Segments can be effectively effective ly reached and served. • Segments must respond differently to different marketing mix elements &  &  actions. • Must be able to attract and serve the segments. 14

 

Segmenting Business Markets

Demographics BusinessUse Marketers Many of the Same Consumer  Variables,  V ariables, Plus:

Operating Variables

Purchasing Approaches Situational Factors Personal Person al Characteristics 15

 

 Table 10-3: Major Segmentation Variables ffor or Business Markets

Demographic 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 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?

7.

16

 

Segmenting Consumer and Business Markets Business buyers seek different benefit bundles based on their stage in the purchase decision process.



1.

First-time prospects

2.

Novices

3.

Sophisticates

17

 

Segmenting Consumer and Business Markets Rackman and Vincentis proposed a 

segmentation scheme that classifies business buyers into three groups 





Price-oriented customers (transactional selling) Solution-oriented customers (consultative selling) Strategic-value customers (enterprise selling)

18

18  

Segmenting International Markets Geographic Location

Cultural Factors 

Factors Used to Segment International Markets

Political and Legal Factors

Economic Factors 

19  

 Target Market: 

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

20  

Five Patterns of Target Market Selection Single-segment concentration

Product specialization

Selective specialization

M1 M2 M3

M1 M2 M3 M3  

M1 M2 M3

P1

P1

P1

P2

P2

P2

P3

P3

P3 Market specialization

Full market coverage

M1 M2 M3

M1 M2 M3 P = Product M =  = Market

P1

P1

P2

P2

P3

P3

21  

Segment-by-Segment Invasion Plan   s Large   e computers    i    t   e    i   r   a    V Mid-size    tcomputers   c   u    d   o   r Personal    Pcomputers

 

Customer Groups

Airlines

Railroads

Truckers

Company A

Company B

22 C Company

 

Evaluating Market Segments 

Segment Size and Growth 



Segment Structural Attractiveness 



 Analyze current sales, growth growth rates and expected profitability for various segments. Consider effects of: competitors, availability of substitute products and, the power of buyers & suppliers.

Company Objectives and Resources 



Company skills & resources needed to succeed in that segment(s). Look for Competitive Advantages.

23  

Socially Responsible Target Marketing 



Smart 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.

24