CHAPTER 08 Market Segmentation

8/7/2019 CHAPTER 08 Market Segmentation

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CHAPTER 08

Levels of Market Segmentation:

Mass marketing: In Mass marketing, seller engages in mass production of oneproduct for all customers.Mass Marketing = seller uses mass production, massdistribution, and mass promotion of one product for all buyers. Ford & Model T(Model A came in colors)

a. creates the largest potential market,

b. lowest production costs

c. lower prices or higher margins.

d. Problem = increased splintering of market - consumers have more ways to shop -malls, shops. Superstores, catalogs, home shopping networks, Internet: No More one

size Marketing fits all

Market segment: A market segment consists of a group of customers who sharea similar set of needs and wants.

A flexible market offering has 2 parts: a naked solution whole segment value, discretionary options some value

Market segments defined in many ways One way - identify preference segments

Basic Market-Preference Patterns ice cream attributes -sweetness & creaminess Homogeneous preferences

Figure (a) - all consumers roughly samepreferences - no segments

Diffused preferences Figure (b) - consumers vary greatly in their

preferences scattered throughout the mapped space -

great variation in preferences. Several brands

would locate in different areas of the mappedspace and attract different markets

Clustered preferences(Figure (c))

distinct clusters = natural market segments. First co. has

choice of going to center to try to appeal to all segments orgoing after one or more segments, each with a specific

formulation-Increases as number of competition increases


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Niche MarketingA niche market is a focused, targetable portion of a market.Niche marketing is marketing a product or service in a small portion of a market that is notbeing readily served by the main stream product or service markets.Niche Market Examples:

Sector product Niche

Agriculture Organic vegetables Consumers wanting foods grown without pesticides

Agriculture Pasturized goat milk Consumers allergic to cow milk

A niche is a more narrowly defined customer group seeking a distinctive mix ofbenefits. Marketers usually identify niches by dividing a segment into subsegments. An attractive niche:

distinct set of needs

will pay a premium for it niche do not attract competitors niche gains economies through specialization niche has size, profit & growth potential

Niche marketers understand customers needs that they willingly pay a premiumfor products.

Local Marketing:Local marketing involves marketing programs tailored (Adjust to a specific

need or market) to the needs and wants of local customer groups - cities,neighborhoods and even specific stores.It is the customization ofmarketing mix variables based on consumer, competitor, and storecharacteristics. Local marketing important in countries with strong regional differences Reflects trend- grassroots marketing - get as close & personally relevant

to individual customers as possible

Customerization:"Designing a product according to the individual's requirement is called asCustomerization." Customerization is the customization of products or servicesthrough personal interaction between a company and the customer. A company

is customerized when it is able to dialogue with individual customers and respondby customizing its products, services, and messages on a one-to-one basis.Example: Dell Computers which have started selling online has brought thisconcept into the picture. It has given customers to design their own PC with theirchoice. They can take the Memory, Hard disk, Screen, etc. on their choice. Dellwill design compatibility and makes the customer aware of this product. Then itdepends on the customer whether to go for it or not. But 99.9% feel to go. In thisway it has made the customers to feel happy about their product and service.Company has gained a boost in their sales by this strategy & also helpscustomer satisfaction.


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Segmenting Consumer MarketsThe major segmentation variablesgeographic, demographic, psychographic,and behavioral segmentation are summarized in Table 8.1

Geographic SegmentationDividing the market into different geographical units such as nations, states, regions,countries, cities, or neighborhoods. The company can operate in one or a few areas, oroperate in all but pay attention to local variations. For example, Hilton Hotels customizesrooms and lobbies according to location.

Geographic segmentation can be a useful strategy to segment markets because it:

provides a quick overview of differences and similarities between consumersaccording to geographical unit;

can identify cultural differences between geographical units; takes into consideration climatic differences between geographical units;

recognizes language differences between geographical units.

Geographic segmentation and profiling are very vital processes of marketing strategy, asthey are formulated after conducting detailed studies of the customers who belong todifferent regional units. This type of market segmentation can be beneficial to identify thepreferences and needs of customers in a particular region, as per the weatherconditions, lifestyle, culture, etc. geographic segmentation can make a huge differencein the success of a global company.

For example, a global business organization which specializes in clothing may divide themarket on the basis of the climate. This geographic segmentation of the market resultsin the sale of winter clothes in a country with cold weather, but at the same time may

promote other types of clothing in some other country. Hence, geographic segmentationvariables include regional climate, population density, economic status, etc.

Demographic Segmentation

The market is divided into groups on the basis of variables such as age, family size,family life cycle, gender, generation, education, occupation, income, religion, race,nationality, and social class.Demographic variables are easy to measure and are directly associated with consumerneeds and wants.The main demographic segmentation variables are summarized below:

Age and Life cycle Stage

The consumer needs and wants change with age. According to the age and life-cycle segmentation, consumers' age categories are divided into four segments:child, young adult, adult, and older adult. Some companies offer similar productsin different versions according to the age and life-cycle segmentation. Forexample, a vitamin manufacturer may offer a children's formula for ages 4-12, avitamin specially formulated for young teenagers, an adult version for adult menand women, and a high-energy formula for people over age 50. Some marketers


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will offer a product designed particularly for one specific segment of the agecycle, such as a shampoo developed for women over 40 to help with age-relatedHair changes.

Gender

Men & women tend to have different attitudinal & behavioral orientations. Womenhave traditionally been the main users of such products as hair coloring and cosmetics,and men the main users of tools and electronics. The best examples include clothing,hairdressing, magazines and toiletries and cosmetics.

Income, Education and Occupation: Income has long been an importantvariable for distinguishing market segments. Marketers usually are interested inaffluent consumers. The major problem of segmenting the market on the basis ofincome alone is that income simply indicates the ability to pay for a product, whilethe actual choice may be based on personal lifestyle, taste, and values-variablewhich are largely determined by education and occupation. Education,

occupation and income tend to be closely correlated in almost a cause-and -effect relationship. High-level occupation usually require advanced educationaltraining.Generation: Each generation is profoundly influenced by the times in which itgrows upthe music, movies, politics, and defining events of that period.

Social class

Many Marketers believe that a consumers "perceived" social class influences theirpreferences for cars, clothes, home furnishings, leisure activities and other products &services. There is a clear link here with income-based segmentation.

Demographic Segmentation Variables

TABLE 8.1


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Major Segmentation Variables for Consumer Markets

Geographicregion

Pacific, Mountain, West North Central, West SouthCentral, East North Central, East South Central, SouthAtlantic, Middle Atlantic, New England

City or metro

size

Under 5,000; 5,000-20,000; 20,000-50,000; 50,000-

100,000;Density Urban, suburban, rural

Climate Northern, southernDemographicage

Under 6, 6-11,12-19, 20-34, 35-49, 50-64, 65+

Family size 1-2,3-4,5+Family life cycle Young, single; young, married, no children; young,

married, youngest child under young, married, youngestchild 6 or over; older, married, with children; older, under18; older, single; other

Gender Male, female

Income Under $10,000; $10,000-$15,000; $15,000-$20,000;$20,000-$30,000; $30,000-$50,000; $50,000-3100,000;

$100,000 and overOccupation Professional and technical; managers, officials, and

proprietors; clerical sales; craftspeople; forepersons;operatives; farmers; retired; students; homemakers;unemployed

Education Grade school or less; some high school; high schoolgraduate; some college; college graduate

Religion Catholic, Protestant, Jewish, Muslim, Hindu, otherRace White, Black, Asian, HispanicGeneration Baby boomers, Generation Xers

Nationality North American, South American, British, French,German, Italian, Japanese

Social class Lower lowers, upper lowers, working class, middle class,

upper middles, lower uppers, upper uppersPsychographiclifestyle

Culture-oriented, sports-oriented, outdoor-oriented

Personality Compulsive, gregarious, authoritarian, ambitiousBehavioraloccasions

Regular occasion, special occasion

Benefits Quality, service, economy, speedUser status Nonuser, ex-user, potential user, first-time user, regular

userUsage rate Light user, medium user, heavy user

Loyalty status None, medium, strong, absoluteReadinessstage

Unaware, aware, informed, interested, desirous, intendingto buy

Attitude towardproduct

Enthusiastic, positive, indifferent, negative, hostile

CHAPTER 08 Market Segmentation

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