MARKET SEGMENTATION

Presented by: Kulwinder Kaur

CONTENTS

• Concept and definition.• Approaches to Market segmentation.• Bases of Market segmentation.• Procedure for Market segmentation.• Market segment selection.• Market segmentation strategies• Benefits and limitations of Market segmentation.• Conclusion.

CONCEPT AND DEFINITION• The concept of market segment is based on the fact that the

market of commodities are not homogeneous but they are heterogeneous. Market represent a group of customer having common characteristics but two customer are never common in their nature, habits, hobbies income and purchasing techniques.

• Market segmentation is the process of dividing a potential market into distinct sub-markets of consumers with common needs and characteristics.

• According to Philip kotler , “ Market segmentation is sub-dividing a market into distinct and homogeneous subgroups of customers, where any group can conceivably be selected as a target market to be met with distinct marketing mix.”

APPROACHES TO MARKET SEGMENTATION

1.Mass Marketing :The term mass market refers to a large, undifferentiated market of consumers with widely varied backgrounds. Products and services needed by almost every member of society are suited for the mass market. Such items as electric and gas utilities, soap, paper towels and gasoline, for example, can be advertised and sold to almost anyone, making them mass market goodsMass Marketing –An attempt to appeal to an entire market with one basic marketing strategy utilizing mass distribution and mass media. Also called undifferentiated marketing.The appeal of mass marketing is in the potential for higher total profits. Companies that employ the system expect the larger profit to result from (1) expanded volume through lower prices and (2) reduced costs through economies of scale made possible by the increased volume.

Henry Ford applied the concept in the automobile industry. His Model T was conceived and marketed as a "universal" car—one that would meet the needs of all buyers.

2.Product VarietyAfter the mass marketing strategy another strategy with similar characteristics but overcoming its predecessor’s shortcomings came into existence. That is product variety strategy.An attempt to appeal to the entire market with a huge variety of products produced in mass is made.However, like Mass marketing in this case also the customers needs & wants are not taken into account while developing the product.E.g. when Maruti 800 was introduced into Indian roads, it was a variety product because it used two version Standard and Deluxe with different colours.

3.TargetMarketing:

Target marketing is a market segmentation and market coverage strategy whereby a product is developed and marketed for a very well-defined, specific segment of the consumer population. Target marketing is particularly effective for small companies with limited resources because it enables the company to achieve a strong market position in the specific market segment it serves without mass production, mass distribution, or mass advertising. It enables firms to capitalize on the respective serve market share

4.Micromarketing:It is a form of target marketing in which companies fit their marketing mixes to specific needs and wants of narrowly defined geographic, demographic, psychographic or behavioral segments. E.g. Liberty shoes are available in Delhi Metropolitan Area with different availability depending upon the types of customer, status, and economic background. Segments, Niches, Local areas and individuals are four levels of micro-marketing.

E.g. Baskin Robbins Focuses on Local Marketing

5.Customised Marketing

• With the advancement in manufacturing because of breakthrough in information technology, for example, use of computer-aided designs and manufacturing, it has now become possible to manufacture a product as per the individual customer needs or of a buying organisation.

• E.g. boutiques for females and childs.

6. Personalised MarketingMass production with product varieties, and target marketing for segments, which are further divided into customers on a local basis or on individual customer needs, the focus of the company is shifting more minutely. Personalised marketing is to retain customer loyalty with the company. It serves the person-customer need. Customerization – empower the consumers to design the product or service offering of their choice.E.g. For years, Dell Computers has invited customers to “build” their computers by selecting the various specifications for their machine.

BASES OF MARKET SEGMENTATIONGeographic

Demographic

Psychographic

Behavioral

Value Based

1.Geographic Segmentation• The region, the city, its density-urban/rural, climate etc. matters a lot in

segmenting the market on the basis of geographic segmentation.The following are some examples of geographic variables often used in

segmentation.• Region: by continent, country, state, or even

neighbourhood. Ex.- McDonalds globally, sell burgers aimed at local markets, for example, burgers are made from lamb in India rather then beef because of religious issues.

• Size of metropolitan area: segmented according to size of population.

• Population density: often classified as urban, suburban, or rural.

• Climate: according to weather patterns common to certain geographic regions.

Example of Geographic segmentation by Lifebuoy:

2.Demographic SegmentationIt divides the market on the basis of age, gender, marital status, income, education, family-size, family life cycle, occupation, religion and nationality.

Dove targets Women

E.g.Kellogs

3.Psychographic SegmentationThis basis of segmentation is widely used by marketers. The important aspects of psychographic segmentation include:• Life- style: Conservative, liberal, health and fitness conscious, adventuresome, status-seekers.• Social- Class: Lower class, lower-middle class, middle class, rich class.• Cultural: Continental, Mughlai, Chinese, Indian, Royal, South Indian, Hindu Culture.• Personality: Extroverts, Introverts, Aggressive, Complaints.

4.Behavioural segmentation

The consumers are segmented on the basis of their behavior through need motivation,perception,learning-involvement, attitude, occasions, benefits, user-status, usage-rate, loyalty status, and buyer readiness stage. This is based on consumer response to their requirements.

E.g. Occasions: Cadbury Celebrations

Benefits: Head & shoulders

5.Value-Based Segmentation

This concept prescribes that segmentation should be the outcome of a match between the product feature’s and customer’s needs. The marketers must arm themselves with a new parameter for partioning their customers profitability.

PROCEDURE FOR MARKET SEGMENTATION:There are two methods by which market segments can be achieved:

1. Segmentation based on consumer characteristics and responses:

Some of the bases of segmentation are taken up as a starting point then the customers are divided with those segmentation bases: gender, age, lifestyles, family lifecycle, benefits sought etc. The differences amongst the resulting groups are statistically tested and mutually exclusive market segments are formed.

Fig.: Segmentation on prior basisTotal consumer respondents

Classify on social class basis (Rich/middle class/poor)

Statistical tests applied for each of social class-consumption pattern,

Further classification on basis of a)benefit segmentation or b) consumption pattern segmentation.

2. Segmentation without a prior basis:The marketers take a large sample based on their demographics, psychographics, social, cultural,etc. differences. Then the sample is put to Factor analysis for finding out factors that have common characteristics or responses. The factor cluster become the market segments.

Fig.: Segmentation without prior basis:

Total consumer Respondents

Use factor analysis

Factors clusters are delineated

These factor clusters are then analyzed for detailed view of the demographics, psychogarphics, social, culture ,etc. characteristics and responses. Similarities exist between consumer who have the listed characteristics.

MARKET SEGMENT SELECTIONOnce a marketer has evaluated the different segments for their size, growth and attractiveness and found that they are compatible with the company objectives and resources, the next step is to select the market segments. Kotler has suggested five patterns of target market selection:

MARKET SEGMENTATION STRATEGIESDepending upon the emerging patterns of market segmentation- Homogenous preference, diffused preferences and clustered preference, a company chooses its market segmentation strategy:

A.UNDIFFERENTIATED MARKETINGThe company treats the target market as one and does not consider that there are market segments that exhibit uncommon needs. Focus is on the centre of the target market to get maximum advantage . E.g. Coca-Cola sells Coke, Limca, Thums-uo etc. and does not distinguish the target audience.

B. DIFFERENTIATED MARKETING:It is a market coverage strategy in which the company goes for proper market segmentation as depicted by its analysis of the total market. The company goes for several products or segment approach which requires different marketing mixes for each of the market segment. E.g. This strategy is followed by Hindustan Lever Limited which sells different soaps and each of them has its own market.

C. CONCENTRATED MARKETING:Here the company follows one product one segment principle. It tries to position its product in the middle of the segment to attract maximum clientele. E.g. Ashok Leyland produces large chassis of machine which can be used for buses and trucks. By getting maximum knowledge about the segments need, it acquires special reputation.

BENEFITS AND LIMITATIONS OF MARKET SEGMENTATION:

Benefits:The Organisation gets to know its customers better.Provides guidelines for resource allocation.It helps focus the strategy of the organisation.Minimises aggregation of risk.Provides opportunities to expand market.Helps create innovation. Limitations:Targeting multiple segments increases marketing costs.Segmentation can lead to proliferation of products.Narrowly segmenting a market can hamper the development of broad-brand equity.

CONCLUSIONThe two main goals that any segmentation methodology should be able to address are:

1) At a strategic level, segmentation should be able to help an organization rapidly evaluate new business opportunities

Geographical expansion: Should the retail chain expand to north east?

Product expansion: Should the electronic manufacturer launch a smartphone?

2) At an operational level segmentation should yield information to help craft successful marketing offers for specific prospects.

Product: What product features are must haves vs. nice to haves?

Price: What is the price point that customers are willing to pay?

Communication: How to message to the target customers?

Distribution: Where do the target customers live?