MARKETING PRINCIPLES UNIT Market Segmentation What is Market Segmentation? Identifying a target market by dividing the market into segments according.
MARKETING PRINCIPLES UNITMarket SegmentationWhat is Market Segmentation?Identifying a target market by dividing the market into segments according to customer needs and characteristics.Market segmentation helps marketers sell more efficiently. HOW?Market SegmentationThe aggregating of prospective buyers into groups (segments) that have common needs and will respond similarly to a marketing action.Used to identify different market segments:Homogeneity (common needs within segment)Distinction (unique from other groups)Reaction (similar response to market)Market Segmentation in DetailConsumer Market SegmentationDemographicsGeographicsPsychographics BehavioralBusiness Market SegmentationGeographicsCustomer TypeBuyer Behavior Consumer Market SegmentationAllows an organization to construct market segments for evaluation to help select appropriate target markets.Consumer Market SegmentationDemographicsGeographicsPsychographicsBehavioralDemographic VariablesCharacteristics about the consumer:Age: 76 million Baby Boomers 1946- 1964 51% of wealth40 million Generation X 1965- 1976 Conservative $77 million Generation Y 1977- 1997 ComputerizedGender: Male vs. FemaleIncome:Disposable income: Money after taxesDiscretionary income: Money after paying all living costsEthnicity:US Population is changing: California 1st state in which Caucasians are the minority. Geographic VariablesStatistics about where people live.People who live in the same area usually have similar needs.Businesses look at four (4) states for Hispanic markets: NY, TX, CA, and FL.It is said that one-half of the American population will be living in CA, TX, and FL in the near future. Why do you think this would be true or false?Psychographic VariablesPersonalities and LifestylesUsed when segmentation by age and gender is not sufficient.Involves family criteria.Focuses on attitudes and values.Behavioral VariablesBreaks down the areas of consumer usage rates and purchasing patterns, price sensitivity, brand loyalty, and benefits sought.The Circle of Life MarketingThink about Market Segmentation in this manner:Can you say Hakuna Matata for Market Segmentation?Business Market SegmentationSmaller number of potential customers than Consumer Markets.More likely to be price driven rather than brand driven.Demand in business markets tends to be more volatile than consumer markets.Examples: Banks, Airlines, Commercial FoodsBusiness Market SegmentationGeographicsCustomer TypeBuyer BehaviorGeographic SegmentationBased on regional variables:Customer ConcentrationRegional Industrial Growth RateInternational Macroeconomic FactorsCustomer TypeDepends upon the size of the organization/business, the industry, and position in the value chain.Can an organization provide enough products to reach low, mid-range, and high-value customers? Does the industry cater to various types of customers?Is there value to the customer for this product/service?Buyer BehaviorCustomers are affected by the following: Loyalty to suppliersUsage patternsOrder sizeQuestions to AskHow have values in terms of marketing have changed over the past 10 years?How has this influenced marketers?What are some of the changes experienced towards values?Disadvantages of Market SegmentationCosts more to differentiate packaging, promotion, etc. to more than one market.Research and identification is costly.Production costs increase when the product is changed to meet the needs of more than one market.Only used when the potential sales will exceed sales from marketing to one larger group.Risk is involved with smaller, diversified markets.Market IdentificationThe process of a marketer in identifying the most profitable areas to offer a new product or service.Uses market segmentation strategies.Consumer Market SegmentationBusiness Market SegmentationPresentation Resourcewww.quickmba.com/marketing/market-segmentation/ This presentation will focus on Market Segmentation, the two types of market segmentation, and variables within those two types. *Many of you may ask What is market segmentation? Well, market segmentation deals with identifying target markets. This is carried out by dividing the market into segments according to customer needs and characteristics. Basically, market segmentation helps organizations and businesses sell more efficiently, but how?*Market segmentation divides prospective buyers into groups, or otherwise known as segments, that have common needs and will typically respond similarly to a marketing action. For example, many teens in a specific area are really interested in purchasing a new brand of clothing. Market segmentation will allow marketers to identify these potential teen customers for a specific brand and take a marketing action, such as deciding to sell that brand in the local mall. Homogeneity, distinction, and reaction are used to identify different market segments. Homogeneity deals with common needs within a market segment. Distinction makes a specific segment unique from other groups. Reaction is what is expected of customers when marketing action occurs.*There are two different categories of market segmentation, Consumer Market Segmentation and Business Market Segmentation. Consumer Market Segmentation is divided into four subsections: demographics, geographics, psychographics, and behavioral variables. Business Market Segmentation is divided into three subsections: Geographics, Customer types, and Buyer behaviors. *Consumer market segmentation targets individual consumers. This helps an organization or business construct market segments to select appropriate target markets. When these target markets are constructed correctly, marketing potential is maximized. The four subsections will be described in the following slides. *Demographic variables deals with the characteristics of individuals. Age is considered. Would a company want to market their new childrens clothing store in a retirement community? Gender is taken into account when creating target markets. Income is also a very important demographic variable. There are two types of income. Disposable income looks at money after taxes while discretionary income observes money after all living costs have been paid. A smart marketer would not place a very expensive brand-name store in a town that has a low average discretionary income. Ethnicity is also a demographic variable considered. It would be a great marketing decision to place an Asian food market in a community that has a large population of Asian-Americans. *Geographic variables observe statistics about where people live. It has been found that people who live in the same area usually have similar needs. By observing demographic and geographic variables together, researchers have been able to find that businesses look at four states for Hispanic markets. Those states are New York, Texas, California, and Florida. Do you think the following statement is true and why? It is said that one half of the American population will be living in California, Texas, and Florida in the near future.*Psychographic variables observe peoples personalities and lifestyles. This segmentation variable is used when segmentation by age and gender is not sufficient. These variables involve family criteria and focuses on attitudes and values. For example, if many teens, male and female, in a given community are very athletic, then this would be taken into account when constructing psychographic variables. One might decide that this community should have more sport stores than teen designer clothing stores. *Behavioral variables break down the areas of consumer usage rates and purchasing patterns, price sensitivity, brand loyalty, and benefits sought. A great example of this is gas companies. There will be many more and a larger variety of gas stations in a town that experiences a lot of travel. Many consumers also consider brand loyalty when purchasing gas. People who care about the oceans and the Earth may refuse to purchase gas from BP because of the Deepwater Horizons oil spill in the Gulf of Mexico that occurred in 2010. Others may or may not purchase a brand of gas because of the country that the fuel comes from. *Think about consumer market segmentation as the circle of life, I mean circle of marketing. The geographic variables answer where. The demographic variables answer what. The behavior variables answer How. And the psychographic variables answer who. To keep this fresh in your mind, think of this circle of marketing as Hakuna Matata for Market Segmentation. *Business Market Segmentation is much like Consumer Market Segmentation but it is a little different. Business markets have a smaller number of potential customers than consumer markets. They are also more likely to be price driven rather than brand driven. Demand in business markets is liable to change more rapidly than consumer markets. Some examples of business markets are airlines, banks, and commercial food suppliers. The three subsections of business market segmentation will be described in the following slides. *Geographic segmentation is based on three regional variables: customer concentration, regional industrial growth rate, and international macroeconomic factors. If a marketer were interested in candy and gum, they could take a look at this graph. On this graph, each zip code throughout the United States has been given an average spending by dollars. One can conclude that more money, on average, is spent on the Northeast coast than on the southeast coast on gum and candy. This will help the marketer determine where he or she will distribute his or her gum or candy. *Customer type depends upon the size of the organization or business, its industry, and the position in the value chain. In order to determine customer type, the following questions can be answered:Can an organization provide enough products to reach low, mid-range, and high-value customers? Does the industry cater to various types of customers?Is there value to the customer for this product/service?In order to better understand this, we can compare the customer types of a common fast food chain and a financial investment service. A fast food restaurant has customers of all ages. The menu has been altered to meet this customer type. There are kids meals, adult meals, and senior specials. A financial investment service, on the other hand, has a smaller age range of customers. For example, you would not walk into Fidelity and see an elementary aged child investing his money. *Buyer behavior is the final subsection of business market segmentation. It is affected by customers and their loyalty to suppliers, usage patterns, and order size. Buyers become accustomed to qualities and prices of products causing customers to become loyal to these suppliers. This loyalty also results in customers developing a pattern of purchases and immediate usage of the product or service. Consumer behaviors also impacts the size of the order placed on a regular basis by loyal customers. *Although market segmentation sounds great, there are some disadvantages. It costs more to differentiate packaging and promotion to more than one market. The research and identification of target markets can become very costly. Production costs increase when the product is changed to meet the needs of more than one market. Another disadvantage is that market segmentation is only used when the potential sales will exceed sales from marketing to one larger group. There is also risks involved with smaller, diversified markets. *