An Introduction to Market Segmentation and Target Marketing In search of Competitive Advantage W illiam BakerC onsulting M arketing Strategy C om m unication Strategy Branding Advertising Award W inning Author,Professorand Consultant 619-402-3990,[email protected]G oogle S cholarP age:https://scholar.google.com /citations? hl=en&user=If0w9hoAA AAJ
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An introduction to market segmentation and targeting
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An Introduction to Market Segmentation and Target
MarketingIn search of Competitive Advantage
William Baker ConsultingMarketing StrategyCommunication StrategyBrandingAdvertising
Award Winning Author, Professor and Consultant619-402-3990, [email protected]
Google Scholar Page: https://scholar.google.com/citations?hl=en&user=If0w9hoAAAAJ
Definition of Market SegmentationMarket Segmentation is the process of dividing the market into a subset of customers that are likely to have similar needs and wants and are likely to respond similarly to marketing efforts:
•Respond to the same set of product or service benefits and/or
•Respond to the same prices and/or
•Utilize the same distribution channels and/or
•Consumer the same media and/or
•Respond to the same advertising and promotional message appeals
Market SegmentationMeaningful market segments should meet the following criteria
•Homogenous Within Segment: Individuals within the segment should be as similar as possible with respect to their likely response to one or more marketing mix variables
•Heterogeneous Between Segments: Individuals in different segments should be as different as possible with their likely response to one or more marketing mix variables.
Indicators of a Need for Market Segmentation:
1. Products sold across a wide spectrum of customers and industries
2. Low market penetration
3. Significant customer base churn
4. Unclear understanding of the ‘ideal’ customer or customers
5. Low response rate on solicitation
6. Low acceptance/’win’ rates
Final Objective of Market Segmentation
Market Segments
It is your goal to:
Identify segments that have the greatest profit potential based on their requirements and your capabilities
Behavioral SegmentsWhere do You want to Compete?Where can you Compete?
Basic Performan
ce
Premium Performan
ce
Ultra Performan
ce
Quality Segmentation
Benefit Segmentation
Distribution Segmentation
Handling Comfort Styling
Mass Merchandis
erDepartme
ntSpecialt
y Online
Defining Market Segments:Demographics and Psychographics
Demographics and psychographics may be a primary means of defining segments, but more importantly they are critical to be able to effectively reach and relate to market segments.
In fact, psychographics are more important than demographics.
Demographics Psychographics1.Age 1. Activities, interests2.Income 2. Shopping behavior3.Stage of the family life cycle 3. Group memberships4.Education 4. Decision-making style5.Ethnicity 5. Risk propensity6.Social Class 6. Status orientation
Demographic/Psychographic SegmentsWhere do You want to Compete?Where can you Compete?
18-34 35-54 55+Age Segmentation
Lifecycle Segmentation
Lifestyle Segmentation
SingleMarried
with Children
Empty Nester
Urban Uptown
Middleburbs
Metro-City Blues
Rustic Living
In General, the Priority for Defining B2C Market Segments is:
Behavioral: You are defining segments on how they are likely to respond to pricing, benefits, distribution and promotional appeals
Geographic: Some markets vary on key factors such as competition, distribution availability, purchasing power, etc.
Demographic: Important for understanding segments and reaching segments, but in many cases, response to marketing mix variables varies too much within segments to define segment this way
Psychographic: Ditto with demographics, must also be concerned that sometimes these segments cannot be efficiently reached
All four can and should be used to describe the segments
Customer AuditLow Brand EquityOptimizing Decision Process
Criteria to Evaluate Market Segment Attractiveness
1. Fit with Resources and Capabilities
2. More Opportunities than Threats
3. Sales and profit potential1. Can sales and profit objectives be achieved with this segment?
4. Predisposition to buy brand1. Do members of this segment view your brand favorably?2. What perceptual obstacles must be overcome?3. Are they loyal to another brand?
Market Attractiveness – Business Position
Strong Position
Moderate Position
Weak Position
High Attractiveness
DANGER
Moderate Attractiveness
LowAttractiveness
CASH COW
Primary Target Market Definition Process
A complete B2C definition should include:O Benefits Sought
O User Type
O Geography
O Demographics
O Psychographics
Most Concrete
Least Concrete
Primary Target Market Analysis Objectives
O Create a target that is tightly defined both in terms of what they want and who they are.
What Who
O A larger target market is not a better target market
O Focus!
Primary Target Market Size
Your primary target market is ill-defined and too large if….
OYou “average” together too many different benefits sought to effectively relate to the customer.
OYou “average” together too many demo/psycho factors to effectively relate to the customer.
Finding Your Target Market
O A common approach to begin to identify a primary target market is to identify the heavy users of your brand.
O The profile of the heavy user often differs dramatically from the overall user profile which includes infrequent, low potential customers.
Find and Profile the Heavy Users Heavy vs. Light Users by Product Category
Users Heavy User Light UserHeavy/LightU.S. Adults Half Half Use
RatioShampoo 94% 79% 21% 3.8
Cake Mixes 74% 83% 17% 4.9
Cola 67% 83% 17% 4.9
Beer 41% 87% 13% 6.7
Bourbon 20% 95% 5% 19
$40,000 ‘Luxury’ Sedan Example
OTarget Market Portrait Painting
OUse of Logic and Creativity
Step One: Product Benefits Sought
Action: Identify the number and size of benefit segments
Example: The manufacturer of a small foreign automaker identifies four key benefit segments for luxury sedans: Comfort, styling, performance and status.
It selects the performance segment because: •The company has the capability to make competitive high performance cars
•The performance segment tends to be younger and, hence, less prone to have strong loyalties to any specific manufacturer.
Potential Index: 100--175
Step Two: User Type Action: Segment the category by user type. This includes brand/category usage (current brand user, user of competitors only, first time category user) and category purchase frequency (light, medium, heavy). Example: The company decides to target first time buyers of luxury sedans - They don't have the resources to compete against the major manufacturers who target the heavy user. - They don't think they can switch heavy users away from the top three or four makers.
Potential Index: 175--215
Step Three: Geography Action: Segment the market by geographic area (census region, states) and/or by type of neighborhood (e.g., urban, suburban, small town and rural) Example: The company decides to put its marketing emphasis in the suburban areas of the 10th through the 30th largest metro areas in the country. - Competitor activity is too intense in the top ten markets. - There is a lack of available dealerships in smaller markets
Potential Index: 215--274
Step Four: Demographics Action: Form segments on the basis of age, income, education, stage in the family life cycle, etc.
Example: The company decides to target college educated, married males earning $60,000-$100,000 per year whose children are pre-teen or older. - The income fits the $40,000 price tag of the automobile - Families with children younger than 11 rarely buy luxury sedans. - The specific parameters will permit more efficient purchasing of media.
Potential Index: 274--355
Step Five: Psychographics
Action: Segment the market according to consumer lifestyles, activities, opinions and beliefs Example: The manufacturer decides to target sports oriented households that are known to subscribe to an Internet sports service (e.g., espn.com) and/or a cable or satellite sports package (e.g., NFL Direct Ticket). - This provides a platform for emotionally connecting with this group. - It makes efficient reach more possible with online media - It provides a platform for sales and event promotions and sponsorships Potential Index: 355 - 470
Targeting StrategiesUndifferentiatedOne product targeted to a mass audience
DifferentiatedOne product targeted to each meaningful segment