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Market Segmentation Overview
- 1. By Suneet Gill & Bernie Karlowicz
- 2. Overview What is Market Segmentation? Market segmentation is a process of grouping customers in markets with some heterogeneity into smaller, more similar or homogeneous segments with similar requirements and buying characteristics. By carrying out market segmentation, companies are able to develop products and services that are appropriate for particular target segments and to be supported by an appropriate marketing mix.
- 3. Overview (Cont…) Market segmentation is the first of three important steps in developing marketing strategy: Segmentation: Groups customers with similar needs and responses. Targeting: Determines which segments to serve. Positioning: How the product (or product portfolio) should compete with others in the market.
- 4. Attributes Of Effective Segmentation Market segmentation is resorted to for achieving certain practical purpose. For example, it has to be useful in developing and implementing effective and practical marketing programs. For this to happen, the segments arrived at must meet certain criteria such as :
- 5. Segmentation 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. Sizeable : The segments should be sufficiently large to justify the resources required to target them. A very small segment may not serve commercial exploitation. Profitable: There is no use in locating segments that are sizeable but not profitable.
- 6. Segmentation Criteria (Cont…) 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 fréquent changes. Measurable : The potential of the segments as well as the effect of a specific marketing mix on them should be measurable. Compatible: Segments must be compatible with firm’s resources and capabilities.
- 7. Why is it done? Segmentation is the basis for developing targeted and effective marketing plans. Furthermore, analysis of market segments enables decisions about intensity of marketing activities in particular segments. A segment-orientated marketing approach generally offers a range of advantages for both, businesses and customers.
- 8. Why is it done? Facilitates proper choice of target marketing Higher Profits Facilitates tapping of the market, adapting the offer to the target Stimulating Innovation Makes the marketing effort more efficient and economic Higher market Shares
- 9. Adapting the offer to the target– Example ord Motor Company Ford has gained useful insights through segmentation and adapted its offer to suit the Indian target market. For the Indian segment Ford made some changes in its cars in comparison to their European version. Modifications such as: a. Higher ground clearance to make the car compatible to the rougher road surface in India. b. Stiffer rear springs to enable negotiating the ubiquitous potholes on Indian roads. c. Compatibility of engine with the quality of fuel available in India. d. Higher resistance to dust.
- 10. Bases For Segmentation Markets can be segmented using several relevant bases. There are huge number of variables which leads to market segmentation. They comprise easy to determine demographic factors as well as variables on user behavior or customer preferences. Segmentation is done for consumer market and industrial market.
- 11. Bases for segmentation in consumer market Geographic Segmentation- Segmentation of customers based on geographic factors are:- Region:- Segmentation by continent / country / state/district or city. Size:- Segmentation on the basis of size of a metropolitan area as per its population size. Population Density- Segmentation on the basis of population density such as Urban/Sub Urban/Country Side. Climate- Segmentation as per climate conditions.
- 12. Bases for segmentation in consumer market Demographic Segmentation: Segmentation of customers based on demographic factors are:- Age:-Segmentation is done on the basis of age of Person. Income:- Segmentation is done based on the income level of the consumer. Gender:- Segmentation is done on the bases of the gender. Religion:- Segmentation Is done on the bases of the religion.
- 13. Bases for segmentation in consumer market Psychographic Segmentation: Psychographic Segmentation groups customers according to their life- style and buying psychology. Its factors are:- Activities. Interests. Opinions. Attitudes. Values.
- 14. Bases for segmentation in consumer market Behavioralistic Segmentation: Markets can be segmented on the basis of buyer behavior as well. Since all Segmentation is in a way related to buyer behavior. Marketers often find practical benefit in using buying behavior as a separate segmentation base in addition to bases like geographic, demographics, and psychographics.
- 15. Bases of segmentation in industrial market 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. Industrial markets might be segmented on characteristics such as: Location. Company Type. Bhavioral Characteristics.
- 16. Bases of segmentation in industrial market Location: 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. Company Type: In this segmentation the type of industry, the size of the industry and the purchase criteria of that industry is taken into consideration. Behavioral Characteristics: In industrial markets, patterns of purchase behavior can be a basis for Segmentation as well.
- 17. Advantages of market segmentation Various advantages of market segmentation are:- Helps distinguish one customer group from another within a given market. Facilitates proper choice of target market. Facilitates effective tapping of the market. Helps divide the markets and conquer them. Makes the marketing effort more efficient and economic.
- 18. Market Targeting The process of evaluating each segment and prioriti which market segment(s) to address. • Develop measurements of segment attractiveness • Estimate profit potential • Identify targetable segments
- 20. Rating Segments Use the segmentation criteria defined earlier to rate segments.
- 21. Roger Best - Needs based market segmentation process 1. Needs-Based Segmentation • Group customers based on similar needs and benefits 2. Segment Identification • Determine characteristics and demographics of each segment 3. Segment Attractiveness • Use criteria such as growth & access to determine segment attractiveness 4. Segment Profitability • Determine if segment can be acceptably profitable 5. Segment Positioning • Create a value-proposition and product-price positioning strategy 6. Segment Acid Test • Storyboard to test segment attractiveness with positioning strategy 7. Marketing-Mix Strategy • Expand positioning strategy for complete marketing-mix aspects
- 22. Ethics and Market Targeting Socially responsible marketing must balance between corporate interest, and the interests of those targeted. Often this ethical dilemma causes controversy for firms and their products.
- 23. Benefits of targeting • Focus on profitable segments • Develop fit between market strategy and strategic objectives • Improve communication with customer • Allows firms to determine where and how to market its products and services • Allows proactive decision making to occur within the firm • Allows a firm to focus on one specific market area, • Allows marketing campaigns to be more cost and time efficient. • Allows firms to build a reputation as being specialists. • Firms can stand out from their competitors
- 24. Market Positioning Developing a product offering that appeals to the consumer and positions itself uniquely and favorably within the consumer’s mind relative to a competitor’s product.
- 26. A products position is the totality of thought attributed to it from the consumer.
- 27. Concepts • Functional – e.g. Solve a particular problem or deliver a perceived benefit • Symbolic – Image, Social benefit, Personal fulfillment • Empirical – Interactive , stimulative
- 28. • Understand consumer psychology • Develop positioning plan for each target segment • Design marketing mix to communicate product via positioning plan • Position product in customer’s mind • Protect the product’s established position
- 29. • Customer Benefits – e.g. Blue Cross & Blue Shield • Price/Quality – e.g. Wal-Mart vs. Macys • Utility – e.g. iPhone, iPad, iPod • Product class – e.g. Method cleaning products • Symbolic – e.g. Nike Swoosh • Competitor – e.g. Wendy’s vs. McDonalds
- 30. • Clarity • Consistency • Credibility • Competitiveness
- 31. A process of creating a new position for an existing product. Not necessarily your own! Vs.
- 32. Questions?
Notes de l'éditeur
- Facilitates proper …. Segmentation helps the marketers to distinguish one customer group from another within a given market and thereby enables him to decide which segment should form his target market. Higher Profits... It is often difficult to increase prices for the whole market. Nevertheless, it is possible to develop premium segments in which customers accept a higher price level. Such segments could be distinguished from the mass market by features like additional services, exclusive points of sale, product variations and the likes. Facilitates tapping… Segmentation also enables the marketer to crystallize the needs of target buyers. It also helps him to generate an accurate prediction of the likely responses from each segment of the target buyer. Stimulating Innovation … An undifferentiated marketing strategy that targets all customers in the total market necessarily reduces customers’ preferences to the smallest common basis. Only the identification of these needs enables a planned development of new or improved products that better meet the wishes of these customer groups and they will be willing to pay higher. Thus, increasing profits. Makes the marketing effort …. Segmentation ensures that the marketing effort is concentrated on well defined and carefully chosen segments. Higher market Shares… In contrast to an undifferentiated marketing strategy, segmentation supports the development of niche strategies. Thus marketing activities can be targeted at highly attractive market segments in the beginning. It strengthens the brand and ensures profitability. On that basis, organizations have better chances to increase their market shares in the overall market.
- Essentially you need to know which segments of a market make the most sense from a business perspective for your company, product, or service.
- Factors to consider Market size – firms need to be realistic. Match opportunity to capability Accessibility/Ability to penetrate – Targets must be within reach. Local / regional law, taxes, marketing channel access Sustainability/Defendable – If you set up shop somewhere, make sure you can hold on to it. This factor sort of ties in to the next two factors… Competition - Guard against and prepare for the inevitable. Manage supply chain through contracts, copyright, patents… “corner the market” Resource availability – make sure you have what you need to enter the target market. Materials, supply chain, plant & equipment
- Rating Segments List/Explain segment features Identifiable – use demographics to identify each unique market segment, and rate those segments based on desired demographic criteria Accessible – develop measurements to evaluate accessibility of the market, and rate each segment accordingly Attractiveness – again, develop measures to evaluate: Competition New entrants Defensible Discuss threats… and rate each segment accordingly Appropriate size Compatible Profitable Differentiable Measurable Actionable A lot of research was done in the area of evaluating segments. What came about was the realization that a “needs based market segmentation approach “ was needed to identify those niche markets. Roger best proposed an approach discussed on the following slide.
- Example – CK jeans got its commercials banned from television for racy advertising feature youth actors. Example – Controversy continues with McDonalds and the use of Ronald McDonald to target children The solicitation of products to children continues to be an especially big issue for firms and society, as a satisfactory balance does not yet seem to have been achieved in the eyes of the consumer.
- Example positioning bases Sport-minded Perceived benefit Value-added features Economic ---------------------- Coca Cola - Its “secret recipe” Harley Davidson – AMERICAN motorcycles Tiger woods – best golfer ever Nike – “Just do it” – quality, dependable Wall street journal – definitive source for economic news Volvo – safest cars on the road
- Type of product, its attributes, strengths, weaknesses, quality of, price, value If volvo started to make economy cars with a less attractive safety record, what would happen to volvo’s position in the auto market? Look what happened to tiger woods… his position in the minds of many has been completely undermind.
- Know what the consumer wants/needs/feels for a given target Determine positioning approach to use for any given target Marketing mix needs to be targeted to segment Position it Keep it up, don’t let it fall, don’t let a competitor out do you
- Discuss each, close with comment on a few other approaches not listed. This is NOT a definitive list
- The four C’s Clarity – product purpose and unique attributes that define it for the target Consistency – maintain the message, do not waiver – unless unsuccessful obviously Credibility – Back up you claims, stand in front of the product, symbol(s), BRAND. Offer warranties, guarantees, etc… Competitiveness – be willing and prepared to fight to maintain your position.
- Nyquil when first launched as a product was not positioned correctly. Customers complained about feeling drowsy after taking it. A quick innovative marketing campaign repositioned the product as “The Nightime, Sniffling, Sneezing, Coughing, Aching, Stuffyhead, Fever, So-You-Can-Rest Medicine.”, living on decades later. McDonald’s is in the midst of significant changes in its menu toward the trend of being healthier, in the hopes of repositioning itself in the market Tylenol successfully placed itself firmly in the “leading pain medication” position when it purposefully repositioned aspirin through a media blitz explaining the “dangerous side effects” of aspirin.