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Market SegmentationMarket Segmentation

This Lecture has been adapted by:This Lecture has been adapted by:

MAXWELL, C. (2014) Marketing – Segmentation. England: South and City MAXWELL, C. (2014) Marketing – Segmentation. England: South and City College Birmingham.College Birmingham.

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Aim of Today’s LectureAim of Today’s Lecture

To introduce the concept of To introduce the concept of segmentation and how companies segmentation and how companies target their products and services to target their products and services to different / or all segments of the different / or all segments of the market.market.

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Objectives of Today’s Lecture Objectives of Today’s Lecture are:are:

Explain the concept of segmentation Explain the concept of segmentation in reference to how companies target in reference to how companies target their market when selling their market when selling products/services. products/services.

Explain the concept of segmentation Explain the concept of segmentation with reference to social class / socio with reference to social class / socio economic grouping.economic grouping.

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What is Segmentation?What is Segmentation?

Segmentation is Segmentation is about breaking about breaking up a larger up a larger market in to market in to small, more small, more manageable manageable chunkschunks

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Definition of SegmentationDefinition of Segmentation

Dividing a market into distinct groups Dividing a market into distinct groups of buyers with different needs, of buyers with different needs, characteristics or behaviour, who characteristics or behaviour, who might require separate products or might require separate products or marketing mixes.marketing mixes.

(Kotler et al 2001)(Kotler et al 2001)

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Market SegmentationMarket Segmentation

Segmentation is simply the process of Segmentation is simply the process of dividing a particular market into dividing a particular market into sections, which display similar sections, which display similar characteristics or behaviour. characteristics or behaviour.

There are a number of segmentation There are a number of segmentation variables that allow an organisation to variables that allow an organisation to divide their market into homogenous divide their market into homogenous groups. groups.

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Types of SegmentationTypes of Segmentation

PsychographicPsychographic GeographicGeographic DemographicDemographic Socio-economicSocio-economic

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Psychographic Psychographic SegmentationSegmentation

This type of segmentation classifies people This type of segmentation classifies people according to their values, opinions, according to their values, opinions, personality characteristics and interests. personality characteristics and interests.

Lifestyle segmentation deals with person Lifestyle segmentation deals with person instead of a product, and attempts to find instead of a product, and attempts to find out the lifestyle patterns shared by groups out the lifestyle patterns shared by groups of customers.of customers.

This can enable a organisation a insight This can enable a organisation a insight into their preferences for various products into their preferences for various products and services. Marketing Managers can and services. Marketing Managers can target products and promotion at particular target products and promotion at particular lifestyle groups.lifestyle groups.

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Geographic SegmentationGeographic Segmentation

An area can be divided by the:An area can be divided by the: TownTown the region or the countrythe region or the country

If an organisation is working on a global scale If an organisation is working on a global scale they may divide by global regions such as they may divide by global regions such as Europe, North America, South America, Asia Europe, North America, South America, Asia and Africa. and Africa.

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Demographic SegmentationDemographic Segmentation Age Age Businesses often target certain age groups. Good examples Businesses often target certain age groups. Good examples

are toothpaste – look at the variety of toothpaste products for are toothpaste – look at the variety of toothpaste products for children and adults) and toys (e.g. pre-school, 5-9, 10-12, teen, children and adults) and toys (e.g. pre-school, 5-9, 10-12, teen, family)family)

Gender Gender We all know that males and females demand different We all know that males and females demand different types of the same product. Great examples include the clothing, types of the same product. Great examples include the clothing, hairdressing, magazine, toiletries and cosmetics marketshairdressing, magazine, toiletries and cosmetics markets

Income Income Many companies target rich consumers with luxury goods Many companies target rich consumers with luxury goods (e.g. Lexus, Bang & Olufsen). Other businesses focus on products (e.g. Lexus, Bang & Olufsen). Other businesses focus on products that appeal directly to consumers on low incomes (e.g. Aldi and that appeal directly to consumers on low incomes (e.g. Aldi and Lidl (discounted groceries) and fast-fashion retailers such as TK Lidl (discounted groceries) and fast-fashion retailers such as TK Maxx)Maxx)

Social class Social class Many businesses believe that a consumers Many businesses believe that a consumers "perceived" social class influences their preferences for cars, "perceived" social class influences their preferences for cars, clothes, home furnishings, leisure activities and other products & clothes, home furnishings, leisure activities and other products & servicesservices

Social Class SegmentationSocial Class Segmentation Divides society into  6 distinct groups based Divides society into  6 distinct groups based

solely on occupationsolely on occupation

A    Professional staffA    Professional staff B    Middle managementB    Middle management C1   Junior managementC1   Junior management C2   Skilled manualC2   Skilled manual D     Semi-skilled and unskilled D     Semi-skilled and unskilled

workersworkers E     Those dependent on the state.E     Those dependent on the state.

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Why Segment the Market?Why Segment the Market? Better matching of customer

needsCustomer needs differ. Creating Customer needs differ. Creating

separate products for each segment separate products for each segment makes sense and provides customers makes sense and provides customers with a better solutionwith a better solution

Better opportunities for growthMarket segmentation can build sales. Market segmentation can build sales.

For example, customers can be For example, customers can be encouraged to "trade-up" after being encouraged to "trade-up" after being introduced to a particular product with introduced to a particular product with an introductory, lower-priced productan introductory, lower-priced product

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More effective promotion

By segmenting markets, target By segmenting markets, target customers can be reached more often customers can be reached more often and at lower costand at lower cost

Gain a higher share of the market

Through careful segmentation and Through careful segmentation and targeting, businesses can often targeting, businesses can often become the market leader, even if become the market leader, even if the market is smallthe market is small

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Segments - holidaysSegments - holidays

Family Summer Sun

Family Summer

Sun Long-haul adventureLong-haul adventure

UK Short

Breaks

Cruises for

Seniors

19/04/2319/04/23 1515

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Limits of SegmentationLimits of Segmentation Lack of information and data: some Lack of information and data: some

markets are poorly researched with little markets are poorly researched with little information about what customers wantinformation about what customers want

Difficulty in measuring and predicting Difficulty in measuring and predicting consumer behavior: humans don’t all consumer behavior: humans don’t all behave in the same way all of the time.behave in the same way all of the time.

Hard to reach customer segments once Hard to reach customer segments once identified: it is one thing spotting a identified: it is one thing spotting a segment; it is another reaching target segment; it is another reaching target customers with an effective marketing customers with an effective marketing messagemessage

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Requirements of Requirements of SegmentationSegmentation

Before an organisation can target a Before an organisation can target a specific segment accurately, it must specific segment accurately, it must ask itself a number of questions.ask itself a number of questions.

It is important to evaluate the It is important to evaluate the effectiveness of a targeting strategy effectiveness of a targeting strategy and the viability of the segment, if and the viability of the segment, if this is not done then money will be this is not done then money will be wasted. wasted.

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The market which is segmented The market which is segmented must meet the following criteria:must meet the following criteria:

Measurability of segment:Measurability of segment:

Can you measure the size and growth Can you measure the size and growth of the segment?of the segment?

Is the segment growing?Is the segment growing?

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Accessibility of segmentAccessibility of segment: :

Is it easy for you to target and reach Is it easy for you to target and reach your segment? your segment?

Can they be reached with basic Can they be reached with basic communication tools such as radio communication tools such as radio and TV advertising? and TV advertising?

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Suitability of segment:Suitability of segment:

Is there enough spending power Is there enough spending power within the segment for the company within the segment for the company to sustain itself? to sustain itself?

Actionability of segment:Actionability of segment:

Does the organisation have enough Does the organisation have enough resources to reach their segments?resources to reach their segments?

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Reasons for choice of target Reasons for choice of target groupgroup

Once a business has identified the specific market Once a business has identified the specific market segment to target, the business needs to segment to target, the business needs to consider the following before choosing to consider the following before choosing to market tot he segment.market tot he segment.

1. 1. Will the identified segment be accessible? The Will the identified segment be accessible? The business must ensure that by having selected a business must ensure that by having selected a market segment, it can reach the potential market segment, it can reach the potential customers through effective marketing customers through effective marketing communication.communication.

2. 2. Will the business be able to service this Will the business be able to service this segment? E.g. A supermarket might identify a segment? E.g. A supermarket might identify a market for organic product produced within 30 market for organic product produced within 30 miles of the store, but it will not be able to miles of the store, but it will not be able to service this segment as their is no organic farm service this segment as their is no organic farm in the area.in the area.

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3. 3. What are the current and future prospects What are the current and future prospects for this segment? The business must for this segment? The business must calculate whether the segment to be calculate whether the segment to be targeted will provide a good return on the targeted will provide a good return on the investment.investment.

4. 4. How profitable will this market segment be? How profitable will this market segment be? It would be pointless targeting the segment It would be pointless targeting the segment with the product or service if the cost of with the product or service if the cost of production and distribution were so high.production and distribution were so high.

5. 5. Does the segment fit in with the mission Does the segment fit in with the mission statement of the business? The values of statement of the business? The values of the business are an important the business are an important consideration.consideration.

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SummarySummary

By answering the above five questions, By answering the above five questions, the business will find the choice of the business will find the choice of which specific market segment to which specific market segment to target easier. E.g. If a business is target easier. E.g. If a business is marketing fancy wheels for sports marketing fancy wheels for sports cars, the target market probably cars, the target market probably exclude anyone under the age of 17, exclude anyone under the age of 17, once the business has narrowed once the business has narrowed down who they think their specific down who they think their specific market segment might be, it is time market segment might be, it is time for them to test the theory. for them to test the theory.