CH 08 Identifying Market Segments

Marketing Management

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Chapter-08

Identifying Market Segments

and Targets

Part : 03

Connecting with

Customers


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MARKETING MANAGEMENT12th edition

8 Identifying Market

Segments and Targets

Kotler Keller


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Chapter Questions What are the different levels of market

segmentation? How can a company divide a market into segments? How should a company choose the most attractive

target markets? What are the requirements for effective

segmentation?


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Market Segmentation

Market Segmentation : Dividing a market into distinct groups of buyers who have distinct needs, characteristics or behavior and who might require separate products.


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Mature consumers are a rapidly growing market

Market Segmentation


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Levels of Market SegmentationA) Mass Marketing : The starting point for discussing

segmentation is Mass Marketing in which a seller engages in mass production, mass distribution and mass promotion of one product for all buyers.

The argument for mass marketing is that it creates the largest potential market which leads to the lowest costs and lower prices.

The critics say the market is increasingly splintering, hence mass marketing is dying.

B) Micro-Marketing : Most companies are turning to Micro-Marketing at one of four levels : segments, niches, local areas, and individuals.


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Levels of Market Segmentation

Ford’s Model T Followed a Mass Market Approach


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Four Levels of Micromarketing

SegmentMarketing

Local Marketing

IndividualMarketing

NicheMarketing


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Levels of Micromarketing

a. Segment Marketing : Selecting a particular segment to target. A market segment consists of a group of consumers who share a similar set of needs and wants.

b. Niche Marketing : A niche is a more narrowly defined customer group seeking a distinctive mix of benefits. Marketers usually identify niches by dividing a segment into sub-segments.


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Levels of Micromarketing

An attractive niche is characterized as follows :

i. The customers in the niche will pay premium to the firm that best satisfies their needs.

ii. The niche is not likely to attract other competitors.

iii. The nicher gains certain economies through specialization; the niche has size, profit and growth potential.


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Niche Marketers: Tom’s

Niche Marketer Tom’s of Mainemakes environmentally friendlyproducts and participates in a

number of environmental actionprograms, like the ‘Tom’s of

Maine National Rivers Awareness Program’.


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Levels of Micromarketing c. Local Marketing : Marketing programs tailored to the needs

and wants of local customer groups, such as trading areas, neighbourhoods, individual stores. Local marketing reflects a growing trend called grassroots marketing in which marketing activities concentrate on getting as close and personally relevant to individual customers as possible.

d. Customerization : The ultimate level of segmentation leads to “segments of one”, “customized marketing”, or “one-to-one marketing”. A company is customerized when it is able to respond to individual customers by customizing its products, services and messages on one-to-one basis.Customization is certainly not for every company. It may be very difficult to implement for complex products such a automobiles etc.


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Segmenting Consumer Markets

Consumer Markets can be segmented on the basis of following variables.

A. GeographicB. DemographicC. PsychographicD. Behavioural Considerations


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Segmenting Consumer Markets

GeographicGeographic

DemographicDemographic

PsychographicPsychographic

BehavioralBehavioral


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Major Segmentation Variablesa. Geographic Segmentation

a. Geographic Segmentation : Dividing the market into different geographical units such as nations, states, cities etc.


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Major Segmentation Variablesb. Demographic Segmentation

b. Demographic Segmentation : Dividing the market on the basis of variables such as age, family life-cycle, gender, income, occupation, education, religion, generation, nationality and social class) (Age and Life-Cycle Stage, Gender, Income, Generation (Cohorts, Baby-Boomers, Generation X, Generation Y etc.), Social Class Segmentations).


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Major Segmentation Variablesc. Psychographic Segmentation

c. Psychographic Segmentation (Psychographics is the science of using psychology and demographics to better understand consumers) (It is dividing buyers into groups on the basis of psychological/personality traits) (VALS Segmentation System-See Next Slide).


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Toyota Scion targets Gen Y consumers

Scion is an attempt by Toyota to attract the Gen Y audience


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Major Segmentation Variablesc. Psychographic Segmentation VALS Segmentation System

VALS Segmentation System (One of the most popular commercially available classification systems based on psychographic measurements is SRI Consulting Business Intelligence’s VALS (Values, Attitudes and Lifestyles).

VALS system classifies US adults into eight primary groups based on personality traits and key demographics. VALS system is continually updated with new data through surveys.

In VALS, major tendencies of the four groups with higher resources are Innovators, Thinkers, Achievers, Experiencers.

In VALS, major tendencies of the four groups with lower resources are Believers, Strivers, Makers, Survivors.

Psychographic segmentation schemes, like VALS, are often customized by culture.


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The VALS Segmentation

System


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Major Segmentation Variablesd. Behavioral Segmentation

d. Behavioural Segmentation (Dividing buyers on the basis of their knowledge of, attitude toward, use of, or response to a product) (Decision Roles (See Next Slide), Occasions, Benefits, User Status, Usage Rate, Buyer Readiness Stage, Loyalty Status, Attitude Segmentations (See Next Slide))


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Major Segmentation Variablesd. Behavioral Segmentation

Decision Roles

Initiator Influencer Decider Buyer User

Behavioral Variables

Occasions Benefits User Status Usage Rate Buyer-Readiness Loyalty Status Attitude


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Major Segmentation Variablesd. Behavioral Segmentation Decision Roles

People play five roles in a buying decision.

i. Initiatorii. Influenceriii. Decideriv. Buyerv. User


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Major Segmentation Variablesd. Behavioral Segmentation Behavioral Variables

Many marketers believe that behavioural variables are the best starting points for constructing market segments which are as follows.

i. Occasions (Buyers can be distinguished according to occasions when they develop a need, purchase a product, or use a product)

ii. Benefits (Buyers can be classified according to benefits they seek)

iii. User Status (Markets can be segmented into Non-Users, Ex-Users, Potential Users, First-time Users, Regular Users of a product)

iv. Usage Rate (Markets can be segmented into light, medium and heavy product users)


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Major Segmentation Variablesd. Behavioral Segmentation Behavioral Variables

v. Buyer-Readiness Stage (Markets can be segmented keeping in view buyer-readiness stages like aware, unaware, interested etc.)

vi. Loyalty Status (Markets can be segmented into four groups : Hard-Core Loyals, Split Loyals, Shifting Loyals, Switchers)

vii. Attitude (Five attitude groups can be found in a market : Enthusiastic, Positive, Indifferent, Negative, and Hostile)


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Segmenting for Business Markets

DemographicDemographic

Operating VariablesOperating Variables

Purchasing ApproachesPurchasing Approaches

Situational FactorsSituational Factors

PersonalCharacteristics

PersonalCharacteristics


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Bases for Segmenting Business Markets Business markets can be segmented with some of the

same variables used in consumer market segmentation such as geography, benefits sought, and usage rate, but business markets also use other variables.

a. Demographic (Industry, Company Size, Location)b. Operating Variables (Technology, User/Nonuser

Status, Customer Capabilities)c. Purchasing Approaches (Purchasing-Function

Organization, Power Structure, Nature of existing relationships, Purchase Policies, Purchasing Criteria)

d. Situational Factors (Urgency, Specific Application, Size of Order)

e. Personal Characteristics (Buyer-Seller Similarity, Attitude toward risk, Loyalty)


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Segmenting Business Markets

Marketing to Small Businesses (Small businesses are booming and have become extremely important for business marketers)

Sequential Segmentation (Business marketers generally identify segments through a sequential process. The company first undertakes Macro-Segmentation, and then Micro-Segmentation at the second stage).

Example : An aluminium company first undertook Macro-Segmentation in which it looked at end-use market , e.g. residential market, then most attractive product application, e.g. building components, then customer size, e.g. large customers. The second stage consisted of Micro-Segmentation like decisions on price, quality, service etc.


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Market Targeting Once the firm has identified its market-segment

opportunities, it has to decide how many and which ones to target. Marketers are increasingly combining several variables in an effort to identify smaller, better-defined target groups.

Effective Segmentation Criteria (To be useful, market segments must rate favourably on five key criteria : Measurable, Substantial, Accessible, Differentiable, Actionable)

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 objectives and resources. Some attractive segments may not mesh with the company’s long-run objectives or company may lack competencies or resources to offer superior value. After evaluating different segments, the company can consider five patterns of target market selection. (See Next Slide).


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Effective Segmentation Criteria

MeasurableMeasurable

SubstantialSubstantial

AccessibleAccessible

DifferentiableDifferentiable

ActionableActionable


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Market TargetingSelecting the Market Segments

After evaluating different segments, the company can consider five patterns of target market selection.

a. Single-Segment Concentrationb. Selective Specializationc. Product Specializationd. Market Specializatione. Full Market Coverage


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a. Single-Segment Concentration : Targeting only one segment. Risks involved if competitors invade the segment, therefore many companies prefer to operate in more than one segment) (Companies can try to operate in Supersegments. A Super-Segment is a set of segments sharing some exploitable similarity)

b. Selective Specialization : A firm selects a number of segments. This multisegment strategy has the advantage of diversifying the firm’s risk.

c. Product Specialization : The firm makes a certain product that it sells to several different market segments. The downside risk is that the product may be replaced by an entirely new technology.


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d. Market Specialization : The firm concentrates on serving many needs of a particular customer group. The downside risk is that the customer group may suffer budget cuts or shrink in size.

e. Full Market Coverage : The firm attempts to serve all customer groups with all the products they might need. Only very large firms can undertake a full market coverage strategy. Large firms can cover a whole market in two broad ways : Undifferentiated Marketing (when a firm ignores segment differences and goes after the whole market with one offer) or Differentiated Marketing (when a firm operates in several market segments and designs different products for each segment)


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Market TargetingManaging Multiple Segments

The best way to manage multiple segments is to appoint segment managers with sufficient authority and responsibility for building the segment’s business.


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Additional Considerations in Evaluating and Selecting Segments

Segment-By-Segment Invasion Plans

A company would be wise to enter one segment at a time. The competitors must not know to what segment(s) the firm will move next.

A company’s invasion plans can be thwarted when it confronts blocked markets. The invader must then figure out a way to break in. The problem of entering blocked markets calls for a Mega-Marketing approach.

Mega-Marketing : Mega-Marketing is the strategic coordination of economic, psychological, political and public relations skills, to gain the cooperation of a number of parties in order to enter or operate in a given market. Pepsi used Mega-Marketing to enter into Indian market.


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Additional Considerations in Evaluating and Selecting Segments Segment-by-Segment Invasion Plan


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Pepsi used Megamarketing in India


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Activity

CH 08 Identifying Market Segments

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