Socrates

European Commission Education and Culture

 SESSION III
MARKET SEGMENTATION

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 Location of Segmentation in
Marketing
“… it is at the heart of strategic marketing, since
it forms the basis by which marketers
understand their markets and develop
strategies for serving their chosen
customers better than the competition.”
(Jobber & Fahy, 2006)

‘Focussed competitors dominate their target

market segments – by fending off broad-
coverage competitors who have to
compromise to serve the segment, and
outperforming rivals with the same focus …
Focussed strategies also gain meaning from
the differences between the segments
covered and the rest of the market.’
(Day, 1994)

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 Definitions of Segmentation
‘Market segmentation – described as how we as marketers can divide the
market into groups of similar customers, where there are important
differences between those groups …’(Hooley, Saunders & Piercey, 1998)

‘The process of grouping customers in markets with some heterogeneity into

smaller, more similar or homogeneous segments. The identification of target
customer groups in which customers are aggregated into groups with similar
requirements and buying characteristics.’
(Dibb, Simkin, Pride & Ferrell, 2001)

‘The technique that is used by marketer to get to grips with the diverse nature of
markets is called market segmentation. Market segmentation may be
defined as ‘the identification of individuals or organisations with similar
characteristics that have significant implications for the determination of
marketing strategy.’ (Jobber, 2004)

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 Why Segment? (1/2)
Advantages of segmentation:

Target Provides the basis for the selection of

target markets – the chosen segment of
Enables a company to market the market a company has decided to
differentiate its offerings selection serve
between segments, and from its
competitors

Tailored
Differentiation Market
marketing
segmentation mix

Enables marketers to tailor

Enables the company to spot the a marketing mix that meets
opportunities/threats involved in the segment’s needs
serving/neglecting emerging or Opportunities
un-served markets
and threats
[D. Jobber (2004) Principals and Practice of Marketing, 4th ed., London:McGraw Hill]
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 Why Segment? (2/2)
Benefits of segmentation:

More precise market definition (know your consumers)

Identification of gaps in the market (unserved or underserved
consumers)

In mature markets identify segments that are still growing (PLC)

Better analysis of competition (real not peripheral)

More rapid response (easier to monitor)

Efficient resource allocation (better use of finite/scarce resources)

Effective strategic planning (segmentation is the first step)

Dangers of not segmenting when competitors do (loss of
competitive advantage)

Particularly useful for SMEs
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 Segmenting Consumer Markets

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 Behaviouristic segmentation
Given that the purpose of segmentation is to discover different behaviours among
customers in order to target them with a specific marketing mix, behavioural
variables can be considered the ultimate segmentation base

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 Psychographic segmentation

Usefulness is likely to depend on the product category

More likely to work when brand choice is a reflection of self-expression

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 Profile segmentation

Once behaviouristic and/or psychographic differences have been found,

profiling helps identify the people who exhibit them

Profile segmentation easiest to implement because data are readily
available

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 Geodemographics

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 Deciding on the Segmentation Base

The Gravity of Decision Spectrum

λ Shallow end of spectrum (products and/or services that save
time, effort or money): Price sensitivity, habits and
impulsiveness.
λ Mid spectrum (big-money decisions): Quality, design,
complexity and status.
λ Deepest end of spectrum (not only big-money but also strong
emotional investment): Core values and beliefs.

[D. Yankelovich & D. Meer (2008) Rediscovering Market Segmentation, Harvard Business Review, 84(2):122-131]

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 Bases of segmentation?

Tesco caters for two

market segments:
•Consumers looking
for low cost
•Consumers looking
for premium quality

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 Bases of segmentation?

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 Bases of segmentation?

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 Market segments should be

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 Target marketing – what is it?

• The next step in the STP process

• Having identified the market segment(s), target
marketing refers to the choice of which, and
how many, segment(s) to serve
• Two broad issues first need to be examined:
– Attractiveness of the market segment
– Company’s capability to serve the segment

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 Evaluating market
attractiveness
ν Political: Telecomms deregulation
ν Social: Next in fashion retailing
ν Environmental: The Body Shop

ν Aggressive markets less attractive

ν Market dynamics affected by entry of new
competitors
ν A true competitive difference?

ν Larger = more profitable

ν Growth markets vs. stagnant or declining
ν Must be profitable
ν High sensitivity increases competition
ν Negotiating muscle of buyers and suppliers
ν Are high costs associated with entering or
leaving a market segment?

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 Evaluating competitive
capability

Market segments may be attractive, but does the
company have the resources and capabilities to serve it?

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 Market & Segment Choices (1/4)

Target market selection matrix

[G.J Hooley, J.A. Saunders & N.F. Piercy (1998) Marketing Strategy & Competitive Positioning, 2nd ed., London-Prentice Hall Europe]

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 Market & Segment Choices (2/4)

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 Market & Segment Choices (3/4)

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 Market & Segment Choices (4/4)
Market Segment Attractiveness
Unattractive Average Attractive
Strengths in Serving the Market
Current & Potential Company

Weak C
G

Average B
E

Strong A
D
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 Generic targeting strategies

• Undifferentiated marketing
• Differentiated marketing
• Focused marketing
• Customised marketing

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 Undifferentiated marketing

Marketing mix 1

Organisation Marketing mix Target market

• Product
Post
• Price Everybody
Office • Promotion
• Distribution

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 Undifferentiated marketing

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 Differentiated marketing

Marketing mix 1
Marketing mix 2
Marketing mix 3

Marketing Utilitarian
Mix 1 Customer

Marketing Trendy-
Mix 2
Casual
Levi’s Marketing Price
Mix 3
shopper

Marketing
Mainstream
Mix 4

Marketing
Mix 5 Traditionalist

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 Problems with differentiated
marketing
• The case of Gap Inc.
– A premium brand in smart-casual basics like khakis, chinos, jeans and t-
shirts
• Success enabled the brand to serve new segments
– Acquired Banana Republic 1983 – lifestyle brand targeting people with a
taste for travelling
– In response to new, cheaper competitors, Old Navy launched in 1994 –
“big, loud, fun and cheap”
• BUT – distinction between the brands became blurred
• Gap and Old Navy sold same basics at different price points
using same kind of advertising and promotion
• When customers noticed, they opted for the cheaper brand and
Gap suffered
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 Problems with differentiated
marketing
• Gap responded by re-launching its brand, going back to
basics and focusing on its core exclusivity, BUT -
• Now the brand was closer to Banana Republic!
• The result: confused customers and a massive profit loss
• What did Gap do next? In 2002 the new CEO tried to create
a clear distinction between market segments
– Gap: a return to classic image of basics
– Old Navy: stay aimed at the cost-conscious segment
– Banana Republic: a designer feel offering 25-35’s sophisticated
business and casual wear
• The future? Gap Inc. must work hard to differentiate its
marketing mix between the three brands
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 Focused marketing

Independent
Organisation Marketing mix e rved DIY shops
Uns
• Product
Cement Builders’
• Price Merchants
manufacturer • Promotion
• Distribution
Unse
rved National
DIY chains

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 Focused marketing

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 Customised marketing
Marketing mix 1
Marketing mix 2
Marketing mix 3
Organisation Individual mixes Individual customers
Marketing
Mix 1 Nissan

Industrial Marketing
Mix 2 Birdseye
electronic
systems Marketing
supplier Mix 3 Heinz

Marketing
Mix 4 Levi’s

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 Customised marketing

http://www.motiontours.com/sample.php?client=fosters
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 Steps for Segmentation -
M.McDonald & I.Dunbar (1/2)
Step 1 – Market Map Step 2 – Who buys

Step 3 – What, where, when Step 4 – Who buys what,

and how is it bought where, when and how

Step 5 – Why is it bought Step 6 – Segmenation

Step 7 – Check against Step 8 – Segment

criteria (e.g. size, reach…) attractiveness criteria
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 Steps for Segmentation -
M.McDonald & I.Dunbar (2/2)
Step 9 – Weight the Step 10 – Criteria
attractiveness criteria parameters

Step 11 – Score the Step 12 – Company

segments competitiveness

Segments should:
• Reflect the company’s strategy
• Indicate where sources of revenue or profit are located.
• Identify customers’ values, attitudes and beliefs to the offering
• Focus on behaviour
• Make sense to executives
• Accommodate or anticipate changes in markets and/or consumers
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 Cluster Analysis
A set of techniques for grouping objects or persons in terms of
their similarities in order to identify similar (homogeneous)
groups based on some pre-determined criterion. Aim is to
minimise within cluster variation and maximise between cluster
differences.

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 Steps in Cluster Analysis

λ Select clustering variables/bases (avoid multicolinearity).

λ Collect data from a representative sample. Identify and
deal with outliers.
λ Decide on: how to measure similarities; how to form
clusters (extraction method); how many clusters to form.
λ Interpret clusters: determine size of clusters; examine
cluster centroids; name clusters based on clustering
variables.
λ Validation with selected outcome variables.
λ Profiling with additional descriptive (demographic or
emporographic) variables.

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