MARKETING SEGMENTATION

Organisations can rarely serve all of the customers in a particular market. Usually
they are too numerous, widely scattered and heterogeneous in their buying
behaviour. Also in anything more than the smallest market, the logistics involved in
communicating the marketing mix would be prohibitive.

Therefore, firms tend to identify the most attractive parts of their markets and
concentrate their marketing resources on reaching that segment. This is known as
TARGET MARKETING. It involves tailoring products and marketing mixes for a
specific market segment. e.g. Diet Cola.

Companies are becoming increasingly aware of the benefits of target marketing. It

helps them to identify market opportunities better and can develop the right
product for each target segment.

Instead of a shotgun approach, whereby marketing effort is scattered, a rifle

approach is more effective, whereby effort is concentrated on the buyers who have
the greatest purchase interest. Prices, distribution channels and advertisements,
can be adjusted to reach each market segment efficiently.

Definition of Marketing Segmentation

“The act of dividing a market into distinct groups of buyers, who may require
separate products and/or marketing mixes”.

Organisations must identify different ways of segmenting their markets, developing

profiles of the resulting segments and evaluating each segments attractiveness.

Markets consist of buyers, who may differ in several respects. e.g. Their needs,
resources, geographical locations, buying attitudes and buying practices. Any of
these variables can be used to segment a market.

As an example consider how the holiday market is segmented. The following are
practical examples of holidays, which are targeted towards specific audiences:

SAGA Holidays Specialising in the over 50’s range

(http://www.saga.co.uk/travel).

Club 18 – 30 Specialising in the 18 – 30 range

(http://www.jmc-holidays.co.uk/).

PGL Travel Ltd Specialising in holidays in adventure holidays for young

people (http://www.pgl.co.uk/).

Thomsons apply segmentation in their Plain and Simple and ‘A la Carte’ brochures
(http://www.thomsonholidays.co.uk/)

Page & Moy, on the other hand, operates in a niche market for luxury cruise
holidays (http://www.page-moy.co.uk/).
 Steps Involved in Market Segmentation

Market Segmentation Target Marketing Product Positioning

1. Identify basis for Develop measures Develop product
segmentation. for attracting positioning for each
segments segment
2. Develop profiles of
resulting segments Select the target Develop mix for each
segments segment

Criteria for Segmenting

1 Measurability The degree to which the company is able to collect

information that measures the nature of buying within the
segment, i.e. can we understand WHY people buy in the
way they do?

2 Accessibility The degree to which a company can apply its marketing

effort to REACH a selected segment.
e.g. How far does the media offer access to the
segment?

3 Substantiality Are the selected items large enough to profit terms to

merit a distinct marketing mix being aimed at them.

Segmentation and Communication

The above criteria applies a conceptual framework for analysing the contributions
of segmentation to the communications process. More specifically psychographic
bases such as life-style and personality identify why buyers buy and this can be
useful in establishing what should be said in the message itself.

BENEFIT SEGMENTATION is particularly important, which operates in the

framework of needs …. features … benefits. i.e. recognise a need and provide the
necessary features … but communicate the benefits!
Types of Targeting

Undifferentiated marketing:

A single marketing mix offered to an entire market, e.g. Wimpy and MacDonald’s
are aimed at all people irrespective of age, income, sex etc. This is rarely
successful since markets are not homogenous but consist of buyers who have
diverse wants, regarding price, product benefits, channels of distribution etc.

Differentiated marketing:

This is the policy of attacking the market by tailoring separate marketing / product
profiles for each segment. e.g. Ford have cars which attract a wide variety of
buyers.

Concentrated marketing:

Here an organisation concentrates on one segment of the market. e.g. Ferrari

concentrate on the select target market who are prepared to pay large sums of
money for an Italian sports car.

Marketing Mix

Company
Market Undifferentiated
Marketing

Mix 1
Segment 1
Company
Segment 2 Mix 2 Differentiated Marketing

Segment 3
Mix 3

Company
Segment 2 Concentrated
Marketing
Social Class Groupings as a Criteria for Segmentation

Social Social Head of Households occupation Approximate

Grade Status % of families

A Upper Middle Higher managerial, administrative or 3

Class professional
B Middle Class Intermediate managerial, administrative 10
or professional
Lower Middle Supervisory or clerical and junior
C1 Class managerial, administrative or 24
professional
Skilled
C2 Working Skilled manual workers 30
Class
D Working Semi and unskilled manual workers 25
Class
Those of
E lowest levels State pensioners or widows (no other 8
of earner) casual or lowest grade workers.
subsistence

A – Upper Middle Class: ‘The head of the household is a successful business or

professional man, senior civil servant, or has considerable private means. A young
man in some of these occupations who has not fully established himself may still
be found in grade “B”, though he should eventually reach grade “A”. In country or
suburban areas, “A” grade households usually live in large detached houses or in
expensive flats. In towns, they may live in expensive flats or town houses in the
better parts of town.’

B – Middle Class: ‘In general, the heads of “B” grade households will be quite
senior people but not at the very top of their profession or business. They are quite
well off, but their style of life is generally respectable rather than rich or luxurious
… non-earners will be living on private pensions or on fairly modest private
means.’

C1 – Lower Middle Class: ‘In general it is made up of the families of small trades
people and non-manual workers who carry out less important administrative,
supervisory and clerical jobs, i.e. what are sometimes called “white-collar”
workers.’

C2 – Skilled Working Class: ‘Consists in the main of skilled manual workers and
their families: the serving of an apprenticeship may be a guide to membership of
this class.’

D – Semi Skilled and Unskilled Working Class: ‘Consists entirely of manual

workers, generally semi-skilled or unskilled.’

E – Those at lowest levels of subsistence: ‘Consists of old age pensioners, widows

and their families, casual workers and those who, through sickness or
unemployment, are dependent on social security schemes, or have very small
private means ...’
Definitions:

1. A household consists of either one person living alone or a group of

persons, usually but not always, members of one family, who live together
and whose food and other household expenses are managed as one unit.

2. The head of a household is that member of the household who either owns
the accommodation or is responsible for the rent, or, if the accommodation
id rent free, the person who is responsible for the household having it rent
free. If this person is a married woman whose husband is a member of the
household, then the husband is counted as the ‘head of household’.

3. Chief wage earner is the senior working member of the household.

Normally the oldest related male of 21 years of age or over in full-time
employment. If there is no male of 21 years or over then the oldest related
female of 21 years and over in full-time employment is taken. Non-related
persons living in the household cannot be chief wage earners.
Social Class and Behaviour – USA Classification

Upper Class
3%

Upper Middle Class

12%

{
Lower Middle Class
30%
Middle
Majority
35% Upper Lower Class

20%
Lower Lower Class

Upper Upper
Upper uppers are the social elite of society. Inherited wealth from socially
prominent families is the key to admission. Children attend private preparatory
schools and graduate from the best colleges.
Consumers in the upper upper class spend money as if it were unimportant, not
tightly but not with display either, for that would imply that money is important. For
some products a trickle-down influence may exist between social classes. The
social position of these individuals is so secure that they can deviate from class
norms if they choose to without losing status.

Lower Upper
Lower Upper includes the very high-income professional people who have earned
their position rather than inherited it. They are the nouveaux riches, active people
with many material symbols of their status. They buy the largest homes in the best
suburbs, the most expensive automobiles, swimming pools and other symbols of
conspicuous consumption, making them innovators and good markets for luxury
marketing offerings.

Upper Middle
The key word for upper middles is career. Careers are based on successful
professional or graduated degrees for a specific profession or the skill of business
administration. Members of this class are demanding of their children in
educational attainment.
The quality market for many products is the upper-middle class and gracious living
in a conspicuous but careful manner characterises the family’s life style. The home
is of high importance and an important symbol of the family’s success and
competence.

Lower Middle
Lower-middle class families are typical Americans, exemplifying the core
respectability, conscientious work habits,, and adherence to culturally defined
norms and standards. They believe in attending church and obeying the law and
are upset when their children are arrested for law violations. They are not
innovators. The home is very important to the lower-middle family and they want it
to be neat, well painted, and in a respected neighbourhood. They may have little
confidence in their own taste and adopt standardised home furnishings – perhaps
from Levitz or Wickes. This is in contrast to the upper-middle consumer who feels
freer to experiment with new styles and new arrangements and with the upper-
lower consumer who is not very concerned about the overall plan for furnishing the
home. The lower-middle consumer reads and follows the advice of the medium-
level shelter and service magazines in an attempt to make the house pretty.
The lower-middle class consumer works more at shopping than others and
considers purchase decisions demanding and tedious. He/She may have a high
degree of price sensitivity.

Upper Lower
Upper-lower social classes – the largest segment of society – exhibit a routine life,
characterised by a day-to-day existence of unchanging activities. They live in dull
areas of the city, in small houses or apartments. The hard hats are included in this
class, with many members working in uncreative jobs requiring manual activity or
only moderate skills and education. Because of unions and security, many may
earn incomes that give them considerable discretionary income.
The purchase decisions of the working-class are often impulsive but at the same
time may show high brand loyalty to national brands. Buying them is one way to
prove knowledge as a buyer, a role in which he/she feels (probably correct) that
he/she has little skill. The consumer has little social contact outside the home and
does not like to attend civic organisations or church activities. Social interaction is
limited to close neighbours and relatives. If he/she takes a vacation, it will probably
be a visit to relatives in another city. Upper lowers are concerned they may not be
confused with the lower lowers.

Lower Lower
The lower-lower social class contains the so-called disreputable people of the
society who may try to rise above their class on some occasions but usually fail to
do so and become reconciled to their position in society. An individual in the lower-
lower class often reject middle-class morality and gets his kicks wherever he can –
and this includes buying impulsively. This lack of planning causes purchases that
cost too much and may result in inferior goods. This person pays too much for
products, buys on credit at a high interest rate and has difficulty evaluating the
quality or value of a product.
Acorn Groupings

Factors taken into account.

(a) the level of unemployment;

(b) the proportion of students;
(c) the number of two car households;
(d) the proportion of the population working in a particular sector of industry or
commerce;
(e) social class;
(f) the age structure;
(g) five year migrancy;
(h) tenure type;
(i) the proportion of immigrants from the Commonwealth;
(j) the level of overcrowding;
(k) the level of basic housing amenities.

This analysis produced a solution of 36 “clusters” or groups of different types of

neighbourhood ranging from areas of very high status, such as Hampstead
Garden Suburb and Chalfont Street Peter (Neighbourhood Type 34) to areas of
acute social stress and high unemployment. e.g. the Gorbals and Drumchapel in
Glasgow (Neighbourhood Type 24). The 36 neighbourhood types can be
visualised as 11 neighbourhood groups, as follows:

Group A - Modern family housing for manual workers-growth areas;

Group B - Modern family housing, higher incomes – growth areas;
Group C - Older housing of intermediate status;
Group D - Very poor quality older terraced housing;
Group E - Rural areas;
Group F - Urban local authority housing;
Group G - Housing with highest level of overcrowding;
Group H - Low income areas with immigrants;
Group I - High status, non-family areas (including students);
Group J - Traditional high status suburbia;
Group K - Areas of elderly people (often resorts).
Socio-Economic Status – E.E.C.

Community Socio-economic status

Code

1 Farmers
2 Other agricultural workers
3 Employers in industry, construction, trade, transport and
services.
4 Own-account workers in industry, construction, trade, transport
and services.
5 Employers and own-accounting workers in liberal and related
professions.
6 Managers, legislative officials and government administrators.
7 Employees with liberal and related professions
8 Foremen and supervisors of manual workers (employees).
9 Skilled and semi-skilled manual workers (employees).
10 Labourers (employees).
11 Supervisors of clerical workers, sales workers and service
staff, government executive officials.
12 Clerical, sales and service workers.
13 Armed forces (regular members and persons on compulsory
military service).
14 Economically active persons not elsewhere classified.

(Sources: Gallop)
Segmentation in Industrial Markets

Industrial markets can be segmented using many of the techniques employed in

consumer market segmentation, such as geography, benefits sought and usage
rate.
Demographic factors are, however, likely to be the most important factors for
industrial segmentation, followed by the operating variables, down to the personal
characteristics of the buyer.

The following table lists major issues that individual marketers should consider
when determining which market segments to serve. In going after segments
instead of the whole market, the company can deliver greater value than
competitors and may be able to charge a premium for this value.

e.g. a Tyre manufacturer should decide which industries it wants to serve, noting
the following differences:

Car manufacturers seeking original equipment tyres for their brands will differ in
requirements. Luxury car manufacturers will require a much higher grade than
standard car manufacturers.

Tyres required by aircraft manufacturers will have to meet much higher safety
standards than tyres needed by farm tractor manufacturers.

Within a chosen target industry, a company can further segment by customer size.
The company may set up separate programmes for dealing with large and small
customers.

e.g. An office furniture supplier may divide its customers into:

Major Accounts
Accounts such as IBM, Prudential, etc. These would be handled by national
account managers working with field district managers.

Dealer Accounts
Small accounts that are handled through field sales personnel working with
franchised dealers.

In practice, industrial companies do not focus on one segmentation variable but

generally apply multi-attribute segmentation, whereby, a combination of
segmentation variables are applied.
Major Segmentation Variables for Industrial Markets

Demographic

Ø Industry: Which industries that buy this product should we focus on?
Ø Company size: What size companies should we focus on?
Ø Location: What geographical areas should we focus on?

Operating Variables

Ø User/non-user status: Should we focus on heavy, medium, light or non-

users?
Ø Customer capabilities: Should we focus on customers needing many
services or few services?

Purchasing Approaches

Ø Purchasing-function organisation: Should we focus upon companies with

highly centralised or decentralised purchasing organisations?
Ø Power Structure: Should we focus on companies that are engineering
dominated, financially dominated etc.?
Ø Nature of existing relationships: Should we focus on companies that we
have a long strong existing relationship with or simply go after the most
desirable companies?
Ø General purchasing policies: Should we focus on companies that prefer
leasing? Service contracts? Systems purchases?
Ø Purchasing criteria: Should we focus on companies who are seeking
quality? Service? Price?

Situational Factors

Ø Urgency: Should we focus on companies that need quick and sudden

delivery or service?
Ø Specific application: Should we focus on specific applications of our
product rather than all applications?
Ø Size of order: Should we focus on large or small orders?

Personal Characteristics

Ø Buyer-seller similarity: Should we focus on companies whose people and

values are similar to ours?
Ø Attitudes towards risk: Should we focus on risk-taking or risk avoidance
customers?
Ø Loyalty: Should we focus on customers who demonstrate high loyalty to
their suppliers?

(source: Bonoma & Shapiro, Segmenting the Industrial Market)