2. TABLE OF CONTENTS
Introduction
LEVELS OF SEGMENTATION
Levels of market segmentation
• Mass Marketing
• Micromarketing
• Segment Marketing
• Niche Marketing
• Local Marketing
• Individual Customer Marketing
Patterns of Market Segmentation
Market Segmentation Procedure
Effective Segmentation
SEGEMENTING CONSUMER AND BUSINESS MARKET
Bases for Segmenting Consumer Markets
Geographic Segmentation
Demographic Segmentation
Age and Life-Cycle stage
Life Stage
Gender
Income
Generation
Social Class
Psychographic Segmentation
Lifestyle
Personality
Values
Behavioral segmentation
Occasions
Benefits
User Status
Usage rate
Loyalty Status
Buyer-Readiness Stage
Attitude
2
4. INTRODUCTION
A company cannot serve all customers in a broad market such as computers or soft drinks. The customers
are too numerous and diverse in their buying requirements. A company needs to identify the market
segments it can serve effectively. Here we will examine levels of segmentation, patterns of segmentation,
market segment procedures, bases for segmenting consumer and business markets, and requirements for
effective segmentation. Many companies are embracing target marketing. Here sellers distinguish the major
market segments, target one or more of these segments, and develop products and marketing programs
tailored to each. Instead of scattering.
4
5. LEVELS AND PATTERNS OF SEGMENTATION
LEVELS OF MARKET SEGMENTATION
Mass Marketing
The seller engages in mass production, mass distribution, and mass promotion of
one product to all buyers. Mass marketing creates the largest potential market,
which leads to the lowest costs, which in turn can lead to lower prices or higher
margins. Now a day the explosion of advertising media and distribution channels
has made it difficult and increasingly expensive to reach a mass audience.
Micromarketing
Many companies are turning to micromarketing these days by choosing one of the
four levels; segments, niches, local areas, and individuals.
SEGMENT MARKETING
A market segment consists of a group of customers who share a similar set of
wants. A segment further contains a sector. E.g. A Car Company might say that it
will target young, middle-income car buyers. But the young, middle-income car
buyers will differ about their wants in a car; low cost or expensive car. So, the
young, middle-income car buyer is a sector.
Segment marketing offers several benefits over mass marketing, some of them are:
1. The company can create a more fine-tuned product or service offering and
price it appropriately for the target segment.
2.The company can more easily select the best distribution and communications
channels.
3. The company can also have a clearer picture of its competitors.
NICHE MARKETING
A niche is amore narrowly defined group seeking a distinctive mix of benefits.
Marketers usually identify niches by dividing a segment into sub segments.
An attractive niche has the following characteristics:
1.The customers in the niche have a distinct set of needs.
2.They will even pay a premium to the firm that best satisfies their needs.
3.The niche is not likely to attract other competitors.
4.The nicher gains certain economies through specialization.
5.The niche has size, profit and growth potential.
5
6. LOCAL MARKETING
Target marketing is leading to marketing programs tailored to the needs and wants
of local customer groups (trading areas, neighborhoods, even individual stores)
INDIVIDUAL CUSTOMER MARKETING
The ultimate level of segmentation leads to “segments of one,” “customized
marketing,” or “one-to-one marketing”. Ultimately every individual has a unique
set of wants and preferences. In past centuries, producers customized their
offerings to each customer: the tailor fitted a suit and a cobbler made shoes for
each individual.
Mass-customization
It is the ability of a company to prepare on a mass basis individually designed
products, services, programs, and communications, to meet each customer’s
requirements.
E.g. English Boot House has been in business since 1947. They launched their internet business in 2001.
Initially orders were mostly based from and Middle East. However in 2002, since acceptance of credit
cards for deliveries within through Gerry’s Pakistani shop.com, internal business has been very promising.
People who have used EBH shoes and are now living abroad still love to buy EBH
www.ebhshop.com offers one of the best collections of shoes you’ll ever see. www.ebhshop.com boasts
over 57 years of shared shoe industry experience with its founders, leading consumer-driven footwear
company in the country, and the leader in technically advanced comfort footwear.
They say “Imagine, more than 57 years of researching, studying, buying and selling shoes--shoes are our
life. Our sole mission is simple--to provide you, our customers with the best selection of shoes you can ask
for from the brands you know and want”.
www.ebhshop.com offers exceptional value and the utmost convenience with an extensive selection of
styles, and expert advice on footwear. There, buyers scour the market and work closely with manufacturers
in order to offer their consumers the best selection of styles from only the top quality brands. Shopping
with ebhshop.com is like having a friend in the business.
“Our service is built on a simple concept: the customer is always right. We stand behind this philosophy
with a 100% ebhshop.com Satisfaction Guarantee. Our knowledgeable and friendly shoe experts help you,
the ebhshop.com customer, with your selection, sizing, and the purchase of your new shoes. As for fit,
don’t even think twice about it, our sizing guide and Fit Assistant will ensure just the right fit and, with our
30-day Return Policy customers may return unworn shoes for any reason, no questions asked. It’s that
simple.
ebhshop.com—the brands you know and the styles you love”.
6
7. Choiceboard
Online companies today are offering customers a Choiceboard, which is an
interactive online system that allows individual customers to design their own
services and products by choosing from a menu of attributes, components, prices,
and delivery options.
Some of the advantages of Choiceboard are:
1.The Choiceboard facilitates up selling, cross-selling, and, and repeat business by
opening customer’s eyes to further possibilities and by satisfying their
preferences.
2.The Choiceboard provides real-time market research and insight into customer’s
current preferences.
3.The Choiceboard reduces costs for manufacturers and suppliers by avoiding the
production of unwanted goods and discounting to get rid of them.
E.g. ICI Dulux Pakistan provides the choiceboard to its online customers on
dulux.com. They provide you with the color schemes of paints; you can choose the
kind of surface you want to paint and they show you the available list of paint
types and colors. Dulux.com provides you a facility, so that you don’t need to visit
their outlets for information, you can simply log on to www.dulux.com
Similarly www.marriott.com facilitates you to make reservations, search for any
other hotel etc.
Customerization
It combines operationally driven mass customization with customized marketing
in a way that empowers consumers to design the product or service offering of
their choice. The firm no longer requires prior information about the customer, nor
does the firm need to own manufacturing. The firm provides a platform and tools
and rents out to customers the means to design their own products. Each business
unit will have to decide whether it would gain more by designing its business
system to create offerings for segments or for individuals. Companies that favor
segmentation see it as more efficient, requiring less customer information, and
permitting more standardization of market offerings. Those who favor individual
marketing claim that segments are a fiction, that individuals within so-called
segments differ greatly and that marketer can achieve much more precision and
effectiveness by addressing individual needs.
PATTERNS OF MARKET SEGMENTATION
Market segments can be build up in many ways, one way is to identify preference
segments. For example cookies buyers are asked how much they value sweetness
and saltiness in biscuits as two product attributes. Three different patterns can
emerge.
1. Homogeneous Preferences: shows a market where all the consumers
have roughly the same preferences. The market shows no natural
segments. We would predict that existing brands would be similar and
cluster around the middle of the scale in both sweetness & saltiness.
7
8. 2. Diffused Preferences: At the other extreme, consumer preferences
maybe scattered throughout the space, indicating that customers vary
greatly in their preferences. The first brand to enter the market is likely to
position in the center to appeal to the most people
3. Clustered Preferences: The market might reveal distinct preference
clusters, called natural market segments. The first firm in this market
has three options. It might position in the center, hoping to appeal to all
groups. It might position in the largest market segment (concentrated
marketing). It might develop several brands, each positioned in a
different segment. If the first firm developed only one brand, competitors
would enter and introduce brands in the other segments.
8
9. MARKET SEGMENTATION PRECEDURE
How can we identify market segments? One approach would be to classify
consumers demographically. A bank, for example, may decide to group its
customers by wealth, annual income, and age. Suppose it distinguishes five wealth
classes, seven income classes, and six age classes. This alone would create 210
market segments (5 × 6 ×7). But consumers in any one group do not really have
same needs, attitudes and preferences.
Roger Best proposed the seven-step approach to advocate the needs-based
segmentation approach
Description
1. Needs-Based Segmentation Group customers into segments based on
similar needs and benefits sought by
customer in solving a particular consumption
problem.
2. Segment Identification For each needs-based segment, determine
which demographics, lifestyles, and usage
behaviors make the segment distinct and
identifiable (actionable).
3. Segment Attractiveness Using predetermined segment attractiveness
criteria (such market growth, competitive
intensity, and market access), determine the
overall attractiveness of each segment.
4. Segment Profitability Determine segment profitability.
5. Segment positioning For each segment; create a “value
proposition” and product-price positioning
strategy based on that segment’s unique
customer needs and characteristics.
6. Segment “Acid Test” Create “segment storyboards” to test the
attractiveness of each segment’s positioning
strategy.
7. Marketing-mix strategy Expand segment positioning strategy to
include all aspects of the marketing mix:
product, price, promotion and place.
9
10. EFFECTIVE SEGMENTATION
Not all segmentation is useful. For example, table salt buyers could be divided
into blond and brunette customers, but hair color is not relevant to the
purchase of salt. Furthermore, if all salt buyers buy the same amount of salt
each month, believe all salt is the same, and would pay only one price for salt,
this market would be minimally segmentable from a marketing point of view.
To be useful, market segment must be:
• Measurable: The size, purchasing power, and characteristics of the
segment can be measured.
• Substantial: The segments are large and profitable enough to serve.
A segment should be the largest possible homogeneous group worth
going after with a tailored marketing program. It would not pay, for
example, for an automobile manufacturer to develop cars for people
who are under four feet tall.
• Accessible: The segments can be effectively reached and served.
• Differentiable: The segments are conceptually distinguishable and
respond differently to different marketing-mix elements and programs.
If married and unmarried women respond similarly to a sale on
perfume, they do not constitute separate segments.
• Actionable: Effective programs can be formulated for attracting and
serving the segments.
SEGMENTING CONSUMER AND BUSINESS MARKETS
The major segmentation variables – geographic, demographic, psychographic, and behavioral
segmentation.
GEOGRAPHIC SEGMENTATION
Geographic segmentation calls for dividing the market into different geographical units such as nation,
states, regions, countries, cities, or neighborhoods . The company can operate in one or a few
geographic areas, or operate in all but pay attention to local variations . For example Hilton Hotels
customizes rooms and lobbies according to the location of its hotels.
DEMOGRAPHIC SEGMENTATION
In demographic segmentation , the market is divided into groups on the basis of variables such as age ,
family life cycle , gender , income , occupation , education , religion , race , generation , nationality , and
social class. Demographic variables are the most popular bases for distinguishing customer groups. One
reason is that consumer wants, preferences, and usage rates are often associated with demographic
variables. Another is that demographic variables are easier to measure.
10
11. Age and Life-Cycle Stage
Consumer wants and abilities change with age. Age and life cycle can be tricky variables. For example, the
Ford Motor Company designed its Mustang automobile to appeal to young people who wanted an
inexpensive sports car . But Ford found that many mustangs were purchased by older buyers. It then
realized that its target market was not the chronologically young but the psychologically young.
Life Stage
Person in the same part of the life cycle may differ in their life stage. Life stage defines a person’s major
concern, such as going through a divorce, going into a second marriage, taking care of older parents,
deciding to cohabit with another person, deciding to buy a new home, and so on.
Gender
Men and women tend to have different attitudinal and behavioral orientations, based partly on genetic
makeup and partly on socialization practices.
Gender differentiation has long been applied in clothing, hairstyling, cosmetics and magazines. The
automobiles industry is beginning to recognize gender segmentation, since there are now more women car
owners, some manufacturers are designing features to appeal to women, although they stop short of
advertising the cars as women’s cars.
Income
Income segmentation is long- standing practice in such products and services categories as automobiles,
boats, clothing, cosmetics, and travel. However, income does not always predict the best customers for a
given product.
Generation
Many researchers are now turning to generation segmentation. Each generation is profoundly influenced by
the times in which it grows up- the music, movies, politics, and defining events of that period.
Demographers call these groups “cohorts”.
Social Class
Social class has a strong influence on preference in cars, clothing, home, furnishings, leisure activities,
reading habits, and retailers. Many companies design products and services for specific social classes.
PSYCHOGRAPHIC SEGMENTATION
In psychographic segmentation, buyers are divided into different groups on the basis of lifestyle or
personality or values. People within the same demographic group can exhibit very different psychographic
profiles.
11
12. Lifestyle
People exhibit many more lifestyles than are suggested by the seven social classes. People differ in
attitudes, interest, activities, and these affect the goods and services they consume. Companies making
cosmetics and furniture are always seeking opportunities in lifestyles segmentation, but lifestyle
segmentation does not always work.
Personality
Markers have used personality variables to segment markets. They endow their products with a “brand
personality” that corresponds to a target consumer personality. The company utilizes product features,
services, and image making to transmit the product’s personality.
Values
Some markers segment by core values. Core values go much deeper than behavior or attitude, and
determine, at a basic level, people’s choices and desires over the long term.
BEHAVIORAL SEGMENTATION
In behavioral segmentation, buyers are divided into groups on the basis of their knowledge of, attitude
toward, use of, or response to a product. Many marketers believe that behavioral variables-occasions,
benefits, user status, usage rate, loyalty status, buyer-readiness stage, and attitude—are the best starting
points for constructing market segments.
Occasions
Buyers can be distinguished according to the occasions when they develop a need, purchase a product, or
use a product. Occasions segmentation can help firms expand product usage. For example in Pakistan tea is
usually consumed at breakfast. A company can consider occasions of critical life events or transitions-
marriage, childbirth, illness, relocation, career change—as giving rise to new needs.
Benefits
Buyers can be classified according to the benefits they seek, people vary considerably in the benefits they
seek from the same product.
1. Road Warriors: premium products and quality service. (16%)
2. Generation F: fast fuel, fast service, and fast food. (27%)
3. True Blues: branded products and reliable service. (16%)
4. Home bodies: convenience. (21%)
5. Price Shoppers: Low price. (20%)
User Status
12
13. Markets can be segmented into nonuser, ex-users, potential users, first time users, and regular users of a
product. Market-share leaders tend to focus on attracting potential users because they have the most to gain.
Smaller firms focus on trying to attract current users away from the market leader.
Usage Rate
Markets can be segmented into light, medium, and heavy product users. Heavy users are often a small
percentage of the market but account for high percentage of total consumption.
Loyalty Status
Consumers have varying degrees of loyalty to specific brands, stores, and companies. Buyers can be
divided into four groups according to brand loyalty status:
1. Hard-core loyals: Consumers who are buy one brand all the time.
2. Split loyals: Consumers who are loyal to two or three brands.
3. Shifting loyals: Consumers who shift from one brand to another.
4. Switchers: Consumers who show no loyalty to any brand.
Buyer-readiness stage
A market consists of people in different stages of readiness to buy a product. Some are unaware of the
product, some are aware, some are informed, some are interested, some desire the product, and some
intend to buy. The relative numbers make a big difference in designing the marketing program.
Attitude
Five attitude groups can be found in a market: enthusiastic, positive, indifferent, negative, and hostile.
Door-to-door workers in political campaign use the voter’s attitude to determine how much time to
spend with that voter. They thank to enthusiastic voters and remind them to vote; they reinforce those
who are positively disposed; they try to win the votes of indifferent voters; they spend no time trying to
change the attitudes of negative and hostile voters.
13
14. Segmentation Variables Data
Geographic
World region Asia
Country Pakistan
Cities All major cities of Pakistan
Density Urban
Climate Hot and Dry
Demographic
Age All ages
Gender Male, Female
Family size 1-2, 3-4, 5+
Family life cycle Young, Single; Young, Married, no children; Young, Married with
children; Older, Married with children; Older, Married with no children
under 18; Older, Single; Other
Income Rs.30,000+
Occupation From middle class to upper class
Education Schools, Colleges, Universities
Religion Major religion of Islam, Christianity and Hinduism and small
percentage of others
Race Asian
Nationality Pakistani
Psychographic
Social class Working class, Middle class, Upper class.
Lifestyle Actualizes, Fulfilled, Believers, Achievers, Strivers, Experience’s
makers and Strugglers
Behavioral
Occasions Parties, Birthdays, Sports and Regular Occasions
Benefits Quality, Taste, Economy, Health
User status First time user
Attitude towards product Positive
14
15. MARKET TARGETING
Once the firm has identified its market-segment opportunities, it has to decide how many and which
one to target.
Evaluating and selecting the market segments
In evaluating different market segments, the firm must look at two factors: the segment’s overall
attractiveness and the company’s objective and resources. Having evaluated different segments,
company can consider five patterns of target market selection.
Single-segment concentration
Suzuki concentrates on the small-call market and Honda on the family car market. Through
concentrated marketing, the firm gains a strong knowledge of the segment’s needs and achieves a
strong market presence. Furthermore, the firm enjoys operating economies through specializing its
production, distribution, and promotion. If it captures segment leadership, the firm can earn a high
return on its investment.
Selective specialization
The firm selects a number of segments, each objectively attractive and appropriate. There may be little
or no synergy among the segments, but each promises to be a moneymaker. This multisegment
strategy has the advantage of diversifying the firm’s risk.
Product specialization
The firm makes a certain product that it sells to several segments. An example would be a microscope
manufacturer who sells to university, government, and commercial laboratories. The firm makes
different microscopes for the different customer groups and builds a strong reputation in the specific
product area. The downside risk is that the product may be supplanted by an entirely new technology.
Market specialization
The firm concentrates on serving many needs of a particular customer group. An example would be a
firm that sells an assortment of products only to university laboratories. The firm gains a strong
reputation in serving this customer group and becomes a channel for additional products the customer
group can use. The downside risk is that the customer group may suffer budget cuts.
15
16. Full market coverage
The firm attempts to serve all customer groups with all the products they might need. Only very large
firms such as IBM (computer market), General Motors (vehicle market), and coca-cola (drink market)
can undertake a full market coverage strategy. Large firms can cover a whole market in two broad
ways: through undifferentiated marketing or differentiated marketing.
In undifferentiated marketing, the firm ignores segment differences and goes after the whole market
with one offer.
Differentiated marketing typically creates more total sales than undifferentiated marketing. However,
is also increases the cost of doing business. The following costs are likely to be higher:
1. Product modification costs: Modification a product to meet different market-segment
requirements usually involves R&D, engineering , and special tooling costs.
2. Manufacturing costs: it is usually more expensive to produce 10 units of 10 different products
than 100 units of one product. The longer the production setup time and the smaller the sales
volume each product, the more expensive the product becomes. However, if each model is sold in
sufficiently large volume, the higher setup costs may be quite small per unit.
3. Administrative costs: The company has develop separate marketing plans for each market
segment. This requires extra marketing research, forecasting, sales analysis, promotion, planning,
and channel management.
4. Inventory costs: it is more costly to manage inventories containing many products.
5. Promotion costs: The company has to reach different market segments with different promotion
programs. The result is increased promotion-planning cost and media costs.
Because differentiated marketing leads to both higher sales and higher costs.
16
17. CONCLUSION
The tools for identifying market segments and selecting target markets all over the world is same and these
tools are also implemented in Pakistan. Companies make different segments for their own convenience and
target only those markets that in return gives the company most profit and that company can easily serve.
Identifying market segments and selecting target markets enable the company to serve their customer in a
better way. With marketers increasingly adopting more and more refined market segmentation schemes—
fueled by internet and other customization efforts—some critics claim that massmarketing is dead .
17
