Segmentation

Segmentation

By Syeda Maryium Fatima10th Feb. 2011

Consumers Have Different Needs

Market: An aggregate of people who, as individuals or as organizations, have needs for products in a product class and who have the ability, willingness, and authority to purchase such products

Segment: A group of individuals, groups, or organizations that share one or more similar characteristics which make them have relatively similar products needs

Segmentation: The process of identifying smaller markets (groups of people or organizations) that exist within a larger market

Segmentation: a process of Market Selection

Segmentation: Dividing a large heterogeneous market into homogeneous segments that can be reached more efficiently and effectively with product and services that match their

unique needs.

Segmentation

The more you know about a customer – age, gender, what he owns, what he spends and what his preferences are - the more likely it is that you can create and pitch a product or service that will hit a bull's-eye.

Identifying and interacting with your customers in ever-smaller groups is a tantalizing prospect - and now easier and more cost effective than ever, 

Segmentation

Segmentation is done to Provide distinct & unique value proposition

(allocate its resources more efficiently) Servicing, nurturing, developing as

profitable customers (increase the returns)

Segmentation

Segmenting consumer market. Segmenting business market. Segmenting international markets

1. Identify Basesfor Segmentation

2. Develop Profilesof Segments

3. Develop Measuresof Attractiveness

4. Select TargetSegment(s)

5. Develop Positioningfor Each Segment

6. Develop MarketingMix for Each Segment

MarketPositioning

MarketTargeting

Market Segmentation

Steps in Segmentation, Targeting, and Positioning

Steps in Segmentation, Targeting, and Positioning

1. Segmenting consumer markets There is no single way to segment the market. Different variables are

1. Geographic segmentation

2. Demographical segmentation

3. Psychographic segmentation

4. Behavioral segmentation

How to Segment Consumer MarketsHow to Segment Consumer Markets

CommonBases for

SegmentingMarkets

Geographic

Psychographic

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FIGURE 7.3

Segmentation Variables for Consumer Markets

I. Geographical segmentation

Dividing a market on the basis of location, states, regions, cities, neighborhood, climate, density.

Geographic location also relates to culture, language and business attitudes. For example, Middle Eastern, European, North American, South American and Asian companies will all have different sets of business standards and communication requirements.

For example pizza, KFC, many schools as roots, SLS, banks extending there business by opening different brnaches.

II. Demographic segmentation Variables

Perhaps the most widely used and most widely available. It includes age, gender, family size, family life cycle, income, occupation, education, religion, race, generation, nationality.

Demographic segmentation Variables ..Cont.

3 major factors of demographics are

1. Age n life cycle stage2. Gender3. Income

For example Clothing-age n life cycle KFC deals-kids, elders Video games-kids, teen ager Cosmetics-ladies

III. Psychographics segmentation Variables

2 major factors are:

1. Personality characteristics2. Lifestyle

Personality factor is very important as

Honda-22 years old, Vespa-older than 50 years. Lifestyles

Marketers segment markets according to how individuals choose to spend their time in various activities, their income, their interest and opinions, and their education. either achievers, strugglers or survivors depending on social class lower lowers, upper lowers, working class, middle class, upper middles, lower uppers, upper uppers

IV. Behavioral segmentation Variables

Behavioral often called “usage”. It is very easy to target. It may be

Occasional, as juice-breakfast, dates-ramadan. benefits, as variety of soaps for all types of benefits

customer try to have. user rate, as heavy users-cigarettes, average users,

light users, user status, as regular user, x-user, non-user. loyalty status, it can be with brand, company or

dealer/store. 3 situations can be completely loyal, somewhat loyal, not at all loyal.

readiness stage, attitude towards product.

Multivariable Segmentation

Typically using more than one variable or type of segmentation variable Use multiple Demographic Variables such as age,

gender, income & education. Use various Demographic, Psychographic,

Geographic, and Behaviorist Variables Art as much as science

So can come up with different segments using different variables and different analytical / statistical techniques.

Multivariable Segmentation

1. Geodemographic Segmentation (Combines Geographic and Demographic info)

2. Psychographics and Demographics Variables (VALS, based on values, attitudes, lifestyles, and demographic. Therefore, combines Psychographic and Demographic variables)

2. Industrial market segmentation Industrial market segmentation is a scheme for

categorizing industrial and business customers to guide strategic and tactical decision-making, especially in sales and marketing.

While similar to consumer market segmentation, segmenting industrial markets is not very much different but more challenging because of greater complexity in buying processes, buying criteria, and the complexity of industrial products and services themselves. Further complications include role of financing, contracting, and complementary products/services.

2. Industrial market segmentation The goal for every industrial market

segmentation scheme is to identify the most significant differences among current and potential customers that will influence their purchase decisions or buying behavior, while keeping the scheme as simple as possible. This will allow the industrial marketer to differentiate their prices, programs, or solutions for maximum competitive

advantage.

Two major categories for segmenting industrial markets

1. Macro segmentation

2. Micro segmentation

How to Segment Industrial Markets

Geographic Location -macro segmentation Size -macro segmentation Usage Rate - micro segmentation Industry/ Application -micro segmentation Technology -macro segmentation Buying Strategy -micro segmentation Type of Buying Situation -micro segmentation Decision making Unit -micro segmentation Innovativeness -micro segmentation Organizational factors -micro segmentation

Macro segmentation The division of a market into broadly defined groups, each

with its particular needs and wants, prior to further division or segmentation on the basis of more narrowly defined needs and wants.

Macro-segmentation  consists of identifying macro variables.

Focus on the characteristics of the buying organization [as whole companies or institutions], thus dividing the market by:

Demographics:industry, company size, Size of business operating (small vs. big), Type of industry (steel- packaging , automobiles, general engineering) market products to, Type of customers( revenue expected, growth), customer location

Macro segmentation

Operating variables: company technology, product/brand use status, customer capabilities, Customer location – transportation cost, warehousing cost, technology & competitive factors,

Purchasing approaches: purchasing function, power structure, buyer-seller relationships, purchasing policies, industry growth rate

Situational factors: urgency of order, product application, size of order

Micro-segmentation

Micro-segmentation is the process of so thoroughly subdividing a market within the universe as to dramatically determine buying criteria. This allows a marketing department to develop marketing campaigns that appear to each user individually.

Requires greater focus, better understanding of the markets, market knowledge, decision making units & their criteria.

This requires the primary data, which can be collected through the sales force or by an agency research.

Micro-segmentation

Usage Rate- Purchasing objectives, Inventory requirements,

Buying Strategy- Quality, Delivery, Service, price.

Decision making Unit: Centralized or otherwise.

Innovativeness: Innovator or follower.

Organizational factors: Resources, PLC stage, & buying situation

Benefit of Market Segmentation : can Increase Profit

Increasing profits is the major objective of companies.  There are several ways in which effective segmentation

can boost profits. By better meeting customer needs, through better

positioning to chosen segments, we may be able to increase market share and hence volume.

By better meeting needs, we may also be able to increase price without sacrificing much volume.

By only targeting the most profitable segments, we may be able to reduce marketing costs.

Evaluating the segments

Evaluate segments on the basis of

1. Size / growth of segments.

2. Structural attractiveness of segment.

3. Company’s objectives and resources.

1. Size / growth of segments: # of customers, you should choose right size. Profit maximization and potential growth is the aim. Once segmented, we need to quantify the segments. The marketer must know the profitability & the level of competition in such segments. We would also like to know the growth potential of each segment. To do this the marketer uses certain forecasting methods

Evaluating the segments

2. Structural attractiveness of segment: Structure of any segment is form of1. Buyers2. Competitors3. Suppliers

I. Buyers: marketers will have maximum power of bargaining when there will be greater number of buyers available and will be maximum attraction for marketers.

Evaluating the segments

II. Suppliers: less attraction for marketers if suppliers have greater power of bargaining.

III. Competitors: less attraction for marketers where large number of competitors exists.

Evaluating the segments

3. Company's resources and objectives: Toyota and Mercedes have different segments and have different objectives.

Requirements for segmentation

A segment should be1. Measurable2. Assessable3. Sustainable4. Differentiable5. Actionable

1. Measurable size should be quantifiable, growth potential, its result will

be to forecast the production.2. Assessable It should be reachable, place efforts should meet that,

marketers can provide product efficiently.

Requirements for Segmentation

3. Sustainable Enough to give you profit. Segment should be very

commonly used. For example if an automobile manufacturer develop product for people whose height is greater than seven feet then what will be the segment’s sustainability.

4. Differentiability Reaction towards market should be different for each

segment. As for ladies and for gents fragrance company offers different products. For new borns the products are different.

5. Actionable Segment should only made when Need exists, demand exists, opportunity of business, and

shows growth potential. Then we will say segment is actionable.

Targeting and Target marketing strategy

One of the most significant uses of industrial market segmentation schemes is to make targeting and product positioning decisions. Companies chose to target some segments and downplay or avoid other segments in order to maximize their competitive advantage and the likelihood of success.

Target markets can include end user companies, procurement managers, company bosses, contracting companies and external sales agents.

Target marketing strategy: Four strategies are1. Un differential.2. Differential.3. Concentrated/niche.4. Micromarketing.

Targeting Strategies

Classic mass marketing, all things to all people approach

Ignore segments One marketing mix for all customers Rarely used today – Name an undifferentiated product? Mass production, mass consumption, mass promotion,

and mass distribution.

Differentiated Strategy (cont.)

The firm targets several separate segments and designs separate marketing strategies for each.

For most firms, this means they go for a small share of the larger, total aggregate market (one or two marketing mix for one or two segments (out of maybe six or seven)

Concentrated Marketing

The firm goes for a large share of a single (or very few) segments

Can be niche market, very profitable,

Micromarketing 1. Local marketing2. Individual marketing1. Local marketing

When you design a product only for local people.As banks offering services only for local people, or a spray of anti virus in a local area.

2. Individual marketingWhen you come at one to one marketing level. As blood donation, sew your clothes, buy the shoes of your size. Interior decoration.

Mass MarketingOne marketing mix for all

Segment MarketingOne or more mm targeted to

one or more segments

Niche MarketingOne or more mm targeted to

one or more sub-segments

Micro Marketing (1-1)One or more mm targeted to

specific individuals or communities

How to choose target market

Four factors to consider1. Company's resources.2. Degree of variability.3. Product life cycle stage.4. Market variability.

1. If you have limited resources then go for concentrated marketingIf resources are greater then go for differentiated marketing/ micromarketing.

How to choose target market

2. if variety in product chances are greater-differentiatedIf chances are low-un differentiated

3. For new product-undifferentiatedIf growth/maturity-differentiated

4. It is in terms of buyers need, tastesIf variance in needs are greater-differentiatedIf low-un differentiatedIf competitors are offering differentiated marketing then go for differentiated marketing and vice versa

Positioning

Once the target markets have been selected, the marketer should try & create positioning strategy for each target market

Positioning is a distinct place a product occupies in the mind of the target customers.

How Does McDonald’s Practice Market Positioning?

Product essentially same (no Indian Big Mac) Promotion (specific promotion campaigns

aimed at the Indian market Place (urban stores, suburban stores, express

stores, etc.) Price (junior discounts)