Market Segmentation

© 2009 John Wiley and Sons Australia

Markets: Segmentation, Targeting and Positioning

Lecture 4

Chapter 6


Chapter 6: Markets: segmentation, targeting and positioning

Learning Objectives: •explain the broad concept of a ‘market’ •understand the target marketing concept •identify market segmentation variables for consumer and business markets, and develop market segment profiles •select specific target markets based on evaluation of potential market segments •understand how to effectively position an offering to a target market in relation to competitors, and develop an appropriate marketing mix.


The market

Market • A group of customers with heterogeneous needs

and wants. • Consumers and businesses vary considerably in

their needs, wants and demands, and it is virtually impossible for an organisation to successfully appeal to every consumer or business.


Target marketing

Markets can have a variety of characteristics:

1.Buyers have common wants, needs and demands.

2.Buyers have unique wants, needs and demands.

3.The market contains subgroups.

Market segments • Subgroups within the total market that are

relatively similar in regards to certain characteristics.


Target marketing

Target marketing • An approach to marketing based on identifying,

understanding and developing an offering for those segments of the total market that the organisation can best serve.


Target marketing


R n R White Water Rafting – Target Market

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Target marketing

Mass marketing • Buyers have common wants, needs and

demands. A single product will meet the needs of most people in the market, with an undifferentiated approach.

• Producing large volumes at a low cost per unit (due to ‘economies of scale’) makes it possible to sell at a low price and capture very large markets, ensuring high levels of profitability.


Target marketing

One-to-one marketing • Providing a unique, customised offering to meet

individual customer needs. • A one-to-one approach often results in higher

unit costs and a more restricted market. • One-to-one conditions typically form the basis

for a focus or niche strategy. Many small services businesses take a one-to-one marketing approach, for example, hairdressers.


Target marketing

Differentiated targeting strategy • A marketing approach that involves developing a

different marketing mix for each target market segment.

• Market segmentation forms the basis of target marketing.

• A differentiation strategy entails high costs. To achieve high profits requires higher retail prices, high market share and strong customer loyalty.


Target marketing

• Product specialisation: Marketing efforts are concentrated on offering a single product range to a number of market segments.

• Market specialisation: Marketing efforts are focused on meeting a wide range of needs within a particular market segment.

• Product–market specialisation: Marketing efforts are concentrated on offering a single product to a single market segment.


Target marketing


Market segmentation

Segmentation variables: Characteristics that buyers have in common and that might be closely related to their purchasing behaviour.


Market segmentation at Virgin Australia

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Market segmentation

Segmenting consumer markets • The variables for segmenting consumer markets

fall into four broad categories: demographic, geographic, psychographic and behavioural variables.

• Effective segmentation involves choosing segmentation variables that are easy to measure and readily available, and linked closely to the purchase of the product in question .


Market segmentation by gender

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Market segmentation links market needs to an organization’s marketing program through marketing

mix actions


Reasons for segmenting markets

Market segmentation links market needs to an

organization’s marketing program through

marketing mix actions

Efficiency

Effectiveness


One Product and Multiple Market

SegmentsWhen

A firm produces only a single product or service, it:

Attempts to sell it to two or more market segments.

Avoids the extra costs of developing and producing

additional versions of the product.


Multiple Products and Multiple Market

Segments

Marketing different products is more expensive than

producing just one but is justified if it:

• Serves customers’ needs better.

•Doesn’t reduce quality or increase price.

• Adds to sales and profits.


Differentiated Strategy


Segments of One: Mass Customization

Made mass-produced goods affordable.

Encouraged customers to compromise their individual tastes

and settle for standardized products.


Market segmentation

• Geographic segmentation Market segmentation based on variables

related to geography.

• Useful geographic variables include: climate, local population, market density, region, topography and urban, suburban, rural footprint.

• Geo-demographic segmentation Combines demographic variables and

geographic variables to profile very small areas, such as suburbs.


Market segmentation

Demographic segmentation • Market segmentation based on demographic

variables, which are the vital and social characteristics of populations, such as age, education and income.

• Demographic variables are the most commonly used variables for market segmentation.


Market segmentation

Psychographic segmentation • Market segmentation based on the

psychographic variables of lifestyle, motives and personality attributes.

• Psychographic segmentation is based on the need to understand not who you are, but how you live your life. This is reflected in activities such as hobbies or choice of entertainment.


Roy Morgan Values Segments™


Market segmentation

Behavioural segmentation • Market segmentation based on actual purchase

and/or consumption behaviours. • Behavioural variables include: benefit

expectations, brand loyalty, occasion, price sensitivity and volume usage.



Market segmentation

Segmenting business markets • As business markets are often characterised by a

small number of buyers who might display a very close relationship with the seller, ‘customised’ or ‘one-to-one’ marketing is a good approach to use.

• Business marketers isolate business customers by using commercial industrial directories that contain detailed information on companies.


Market segmentation

Effective segmentation involves ensuring: • measurability – abstract variables can be difficult

to measure • accessibility – through distribution and

communication channels • substantiality – the segment must be of

sufficient size to allow profitability • practicability – segments are only of use if they

can be identified and serviced.


Market segmentation

• Market segment profile A description of the typical potential

customer in the market segment (i.e.. the common variables shared by members of market segments and how the variables differ between segments).

• Market segments must be sufficiently different from each other for a distinctive offer to be created for each segment, without risk of overlapping segments or sending confusing images and messages.


Demographic Segmentation

Demographic segmentation is about dividing the

market into various groups based on different

variables such as: age,

gender,

race,

religion,

nationality,

marital status,

income,

family size


Psychographics

Based on individual psychological characteristics,

rather than demographic or other factors

These include people's lifestyles and behaviors:

where they like to vacation,

the kinds of interests they have,

the values they hold, and

how they behave.


• VALS (by SRI Consulting) provides examples of

how psychographic segmentation has been

successful used in such areas as product

introduction, product repositioning and targeted

direct mail campaigns.

• According to the VALS Framework, groups of

people are arranged in a rectangle and are

based on two dimensions.

VALS Psychographic Segments



VALS™ identifies eight consumer

segments

Copyright © 2010 by Strategic Business Insights. All rights reserved.

INNOVATORS Sophisticated,

Change Leading,

Active, Take Charge

THINKERS Information Seeking,

Satisfied,

Reflective

BELIEVERS Conservative,

Conventional,

Traditional

STRIVERS Trendy, Approval,

Seeking,

Disenfranchised

ACHIEVERS Successful, Career &

Family Oriented,

Moderate

EXPERIENCERS Risk Seeking,

Enthusiastic,

Impulsive

MAKERS Homegrown, Self

Sufficient, Macho,

Family Oriented

SURVIVORS Passive,

Risk Averse,

Constrained


• More and more companies are approaching global

market segmentation by attempting to identify

consumers with similar needs and wants reflected

in their behavior in the marketplace in a range of

countries.

Global Market Segmentation


Market targeting

Market targeting: The selection of target markets resulting from an evaluation of identified market segments.


Market targeting

• Market potential: The total sales of a product category that all organisations in an industry are expected to sell in a specified period of time, assuming a specific level of marketing activity.

• Sales revenue: Total volume of sales multiplied by the average selling price.

• Market share: The proportion of the total market held by the organisation.


Market targeting

• Company sales potential: An estimate of the maximum sales revenue and market share that an organisation can expect to achieve for a specific product.

• Potential: is influenced by the market potential, the level of marketing activity in the industry and the effectiveness of an organisation’s promotional spending.


Market targeting

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Positioning

Market positioning • The way in which target market segments

perceive an organisation’s offering in relation to competing offerings.

Company positioning • A positioning strategy designed to create a single

market perception of the entire organisation in relation to competitors.


Positioning

Brand positioning • A positioning strategy designed to create a

market perception of a particular brand, usually based on product attributes.


TOOTHPASTE PRODUCT POSITIONS


The target marketing process stage


Perceptual map of the Australian surfwear industry


HYPOTHETICAL PERCEPTUAL MAP FOR PAIN RELIEVERS


Chapter 6: Markets: segmentation, targeting and positioning

Summary: • Explain the broad concept of a ‘market’ • Understand the target marketing concept • Identify market segmentation variables for

consumer and business markets, and develop market segment profiles

• Select specific target markets based on evaluation of potential market segments

• Understand how to effectively position an offering to a target market in relation to competitors, and develop a marketing mix.


49

EXAMPLE: GMH

Sellers look for broad classes of buyers who differ in their product needs or buying responses

• GMH has found that high and low-income groups differ in their car-buying needs and wants

• Young consumers’ needs and wants differ from those of older consumers

• Hence GMH has designed specific models for different income and age groups


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EXAMPLE: GEOGRAPHIC SEGMENTATION

• Dividing the market into different zones -

• Regions, States, Cities

• ICI’s fertiliser arm segments by geography - emphasising the right product in the right areas

• Can localise products, advertising, promotion and sales efforts to fit needs of individual areas

• People in different areas have different need and wants


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EXAMPLE:STRATEGIC POSITIONING

Shampoo Market • Shampoo market is highly fragmented - overflowing with

brands that promise: - body and control

- renewed life for dull hair

- elimination of split ends

- avoidance of dandruff.

• Effective marketers understand the value of establishing a solid position in the minds of consumers.


52

EXAMPLE: FORD MOTOR COMPANY

• A company that has evolved from a mass-marketer to a market-targeter.

• Ford originally made one car for the entire — didn’t even have a choice of colours.

• “You can have any colour car you want so long as it’s black” Henry Ford

• Over time, Ford added other cars to its line (product-variety marketing), and eventually developed cars for nearly every market segment (target marketing).


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EXAMPLE: PROCTER & GAMBLE

• Most companies that have been around for a long time have shown a similar evolution.

• Procter & Gamble, had been in existence more than 80 years when it introduced Ivory Flakes to supplement Ivory Soap (product variety)

• Was almost 90 years old when it first developed a product (Camay) to compete with an existing P&G product (Ivory) (“150 Years of P&G”, Advertising Age, August 20, 1987, p. 10).

• Today, P&G is one of the pre-eminent market targeting companies in the world.


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EXAMPLE: SEGMENTS IN THE BEER MARKET

• The beer market is segmented in many ways:

• region (through regional brewers and brands),

• income and social class (premium beers and imports versus budget beers),

• life style (“The original party animal”),

• purchase occasion (“Here’s to good friends”), and

• usage rate (“The one beer to have when you’re having more than one”).


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EXAMPLE: BENEFIT SEGMENTATION IN INDUSTRIAL MARKETS

• Service, selection, and reliability can all be used in benefit segmentation of industrial markets.

• Suppliers who want to emphasise these characteristics must identify firms that need these benefits.

• By better satisfying these firms’ needs, the supplier is able to charge higher prices than competitors who offer fewer services or less selection.

• Other suppliers can find market segments that do not need these benefits, and sacrifice service, selection, and reliability to reduce costs and be able to sell at a lower price.

Market Segmentation

Documents

john wiley

sons australia

total market

restricted market

marketing approach

marketing efforts

high market share

market segments subgroups