Market Segmentation

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 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,

Resources 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 primarily motivated by ideals are guided 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.

expression of his or her primary motivation.

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 wellinformed 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 selfsufficiency. 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. 2. 3. 4.

Hardcore loyal-Consumer who buys only one brand all the time. Split loyal- consumer who are loyal to two or three brands. Shifting loyal-consumer who shifts loyalty from one brand to another. 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 submarket 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 micromarketing 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 marketof –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 lowincome, 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 2000offereing 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. RitzCarlton 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.