MARKET SEGMENTATION

SegmentationMarket Segmentation is the process of dividing a market into distinct subsets of consumers with common needs or characteristics and selecting one or more segments to target with a distinct marketing mix.

WHY SEGMENTATION?Rather than trying to compete with an entire

market, company must identify parts of market that can serve better than competition

Segmentation helps sellers develop the right product and adjust prices, set distribution channels and advertising & promotions strategies effectively

Segmentation strategy differentiates offerings through styling, packaging, promo appeals, method of distribution

Segmentation helps sellers develop the right product and adjust prices, set distribution channels and advertising & promotions strategies effectively

HOW MARKET SEGMENTATION WORKS

Segmentation studies- to discover needs/wants on specific

consumer gaps- to guide repositioning of existing products

and add new market segment

HOW MARKET SEGMENTATION WORKS (..cont’d)

Segmentation research- to determine most appropriate media to place

ads through surveys and analysis of data- i.e AC Nielsen, Acorn,

Segmentation Strategies Segmentation versus aggregation strategies Consumer preference heterogeneity The Majority Fallacy The sales-costs tradeoff cannibalization Bases of segmentation

Segmentation vs. Aggregation Strategy

When should a firm pursue a segmentation versus aggregation strategy?

• Consumer Preference Heterogeneity • Majority Fallacy• Cost-Benefit Analysis

Consumer Preference Heterogeneity

How much Variability Exists in Consumer Preferences?

The Majority Fallacy

Strategy error which leads to the mistaken belief that the largest segment of a market is the most lucrative. In reality, however, it may be the least profitable one due to the intense rivalry among a large number of competitors

The sales-costs trade-off of segmentation

Bases of segmentation

Bases Examples

Geographic

Demographic

Psychographic

Behavioral

Postal ZIP code districts, metropolitan statistical areas, countries, states, provinces, regions, nations, continentsGender, age, education, occupation, incomemarital status, household size, ethnic background

Personality characteristics, attitudes, beliefs, lifestyles

Usage situations, usage frequency

Potential segmentation basesDetermined in advance (sex, race, age,

residential status)Objective (can be observed/measured)

General or behavioralInferred (assessed thru questionnaire)

General or behavioralSelf-selection bases

Segments define themselves thru response to campaign

Rarely indicates why response occurred

BASE FOR SEGMENTATION (..cont’d)Geographic segmentation- market divided by location/localizing the

marketing strategy- usually people in the same area share the

same needs and wants- different spending patterns/demands

Demographic segmentation- identifiable, measurable stats of a

population i.e age, sex, marital status etc- easier to measure, to assess size of target

market

Socio-cultural segmentation- family life cycle i.e passing through

similar phases in their formation - social class: education, occupation,

income- culture/subculture and cross-culture

affiliation

User-situation segmentation- Usage of product depends on occasion; i.e

greeting cards, drinks, airlines

Benefit segmentation- Rewarding consumers with product

benefits i.e microwave that requires less time to prepare meals

- Toothpaste - Socially active- Smokers- Children

Hybrid segmentation- Combination of two or more exciting

segmentation variables, commonly done by marketers

Hybrid SegmentationMarketers commonly segment markets by

combining several segmentations variables rather than relying on a single segmentation base.

Types of Hybrid segmentation coveredPsychographic-Demographic ProfileGeo-demographicsVALS

Psychographic-Demographic SegmentationWidely used in advertising campaigns to

answer three questionsWhom should we targetWhat should we say and When should we say it.E.g.. Newsweek audience profile-Newsweek

Asia .doc offering media buyers such carefully defined dual profiles of their audiences, mass media publishers and broadcasters make it possible for advertisers to select media whose audiences most closely resemble their target markets.

Geo-Demographic Segmentation

This type of hybrid segmentation scheme based on the notion that people who live close to one another are likely to have similar financial means, tastes, preferences, lifestyles,a and consumption habits.

VALS Draws on Maslow’s

Need Hierarchy and concept of social character

Three major self-orientations

Principle oriented –consumers whose choices are driven by their beliefs rather than their desires

Status oriented- consumers whose choices are guided by the actions, approvals and opinion of others

Action oriented-consumers who are driven by a desire for social or physical activity, variety and risk taking

Each of these self-orientations represent distinct attitudes, and lifestyles, decision making style.

Resources include the range of psychological, physical, demographic and material means the consumer has to draw upon.

Criteria for Effective Targeting of Marketing Segments

IdentifiableSufficientStable or growingAccessible

(reachable)in terms of both media and cost.