Market segmentation Market segmentation is a concept in economics and marketing.

A market segment is a sub-set of a market made up of people or organizations with one or more characteristics that cause them to demand similar product and/or services based on qualities of those products such as price or function. A true market segment meets all of the following criteria: it is distinct from other segments (different segments have different needs), it is homogeneous within the segment (exhibits common needs); it responds similarly to a market stimulus, and it can be reached by a market intervention. The term is also used when consumers with identical product and/or service needs are divided up into groups so they can be charged different amounts for the services. The people in a given segment are supposed to be similar in terms of criteria by which they are segmented and different from other segments in terms of these criteria. These can be broadly viewed as 'positive' and 'negative' applications of the same idea, splitting up the market into smaller groups.Examples: Gender Price Interests

While there may be theoretically 'ideal' market segments, in reality every organization engaged in a market will develop different ways of imagining market segments, and create Product differentiation strategies to exploit these segments. The market segmentation and corresponding product differentiation strategy can give a firm a temporary commercial advantage. "Positive" market segmentation Market segmenting is dividing the market into groups of individual markets with similar wants or needs that a company divides into distinct groups which have distinct needs, wants, behavior or which might want different products & services. Broadly, markets can be divided according to a number of general criteria, such as by industry or public versus private. Although industrial market segmentation is quite different from consumer market segmentation, both have similar objectives. All of these methods of segmentation are merely proxies for true segments, which don't always fit into convenient demographic boundaries.Consumer-based market segmentation can be performed on a product specific basis, to provide a close match between specific products and individuals. However, a number of generic market segment systems also exist, e.g. the system provides a broad segmentation of the population of the United States based on the statistical analysis of household and geodemographic data.The process of segmentation is distinct from positioning (designing an appropriate marketing mix for each segment). The overall intent is to identify groups of similar customers and potential customers; to prioritize the groups to address; to understand their behavior; and to respond with appropriate marketing strategies that satisfy the different preferences of each chosen segment. Revenues are thus improved.Improved segmentation can lead to significantly improved marketing effectiveness. Distinct segments can have different industry structures and thus have higher or lower attractiveness Positioning Once a market segment has been identified (via segmentation), and targeted (in which the viability of servicing the market intended), the segment is then subject to positioning. Positioning involves ascertaining how a product or a company is perceived in the minds of consumers.This part of the segmentation process consists of drawing up a perceptual map, which highlights rival goods within one's industry according to perceived quality and price. After the perceptual map has been devised, a firm would consider the marketing communications mix best suited to the product in question. Using Segmentation in Customer Retention The basic approach to retention-based segmentation is that a company tags each of its active customers with 3 values:

Tag #1: Is this customer at high risk of canceling the company's service? One of the most common indicators of high-risk customers is a drop off in usage of the company's service. For example, in the credit card industry this could be signaled through a customer's decline in spending on his or her card. Tag #2: Is this customer worth retaining? This determination boils down to whether the post-retention profit generated from the customer is predicted to be greater than the cost incurred to retain the customer. Managing Customers as Investments. [1] [2] Tag #3: What retention tactics should be used to retain this customer? For customers who are deemed save-worthy, its essential for the company to know which save tactics are most likely to be successful. Tactics commonly used range from providing special customer discounts to sending customers communications that reinforce the value proposition of the given service. Process for tagging customers The basic approach to tagging customers is to utilize historical retention data to make predictions about active customers regarding: Whether they are at high risk of canceling their service Whether they are profitable to retain What retention tactics are likely to be most effective

The idea is to match up active customers with customers from historic retention data who share similar attributes. Using the theory that birds of a feather flock together, the approach is based on the assumption that active customers will have similar retention outcomes as those of their comparable predecessor. Price Discrimination Where a monopoly exists, the price of a product is likely to be higher than in a competitive market and the quantity sold less, generating monopoly profits for the seller. These profits can be increased further if the market can be segmented with different prices charged to different segments charging higher prices to those segments willing and able to pay more and charging less to those whose demand is price elastic. The price discriminator might need to create rate fences that will prevent members of a higher price segment from purchasing at the prices available to members of a lower price segment. This behavior is rational on the part of the monopolist, but is often seen by competition authorities as an abuse of a monopoly position, whether or not the monopoly itself is sanctioned. Examples of this exist in the transport industry (a plane or train journey to a particular destination at a particular time is a practical monopoly) where business class customers who can afford to pay may be charged prices many times higher than economy class customers for essentially the same service.

Market Segmentation
Market segmentation is the identification of portions of the market that are different from one another. Segmentation allows the firm to better satisfy the needs of its potential customers.
The Need for Market Segmentation

The marketing concept calls for understanding customers and satisfying their needs better than the competition. But different customers have different needs, and it rarely is possible to satisfy all customers by treating them alike. Mass marketing refers to treatment of the market as a homogenous group and offering the same marketing mix to all customers. Mass marketing allows economies of scale to be realized through mass production, mass distribution, and mass communication. The drawback of mass marketing is that customer needs and preferences differ and the same offering is unlikely to be viewed as optimal by all customers. If firms ignored the differing customer needs, another firm likely would enter the market with a product that serves a specific group, and the incumbant

firms would lose those customers. Target marketing on the other hand recognizes the diversity of customers and does not try to please all of them with the same offering. The first step in target marketing is to identify different market segments and their needs.
Requirements of Market Segments

In addition to having different needs, for segments to be practical they should be evaluated against the following criteria: Identifiable: the differentiating attributes of the segments must be measurable so that they can be identified. Accessible: the segments must be reachable through communication and distribution channels. Substantial: the segments should be sufficiently large to justify the resources required to target them. Unique needs: to justify separate offerings, the segments must respond differently to the different marketing mixes. Durable: the segments should be relatively stable to minimize the cost of frequent changes.

A good market segmentation will result in segment members that are internally homogenous and externally heterogeneous; that is, as similar as possible within the segment, and as different as possible between segments.

Bases for Segmentation in Consumer Markets

Consumer markets can be segmented on the following customer characteristics.

Geographic Demographic Psychographic Behavioralistic

Geographic Segmentation The following are some examples of geographic variables often used in segmentation. Region: by continent, country, state, or even neighborhood 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

Demographic Segmentation Some demographic segmentation variables include:

Age Gender

Family size Family lifecycle Generation: baby-boomers, Generation X, etc. Income Occupation Education Ethnicity Nationality Religion Social class

Many of these variables have standard categories for their values. For example, family lifecycle often is expressed as bachelor, married with no children (DINKS: Double Income, No Kids), full-nest, empty-nest, or solitary survivor. Some of these categories have several stages, for example, full-nest I, II, or III depending on the age of the children. Psychographic Segmentation Psychographic segmentation groups customers according to their lifestyle. Activities, interests, and opinions (AIO) surveys are one tool for measuring lifestyle. Some psychographic variables include:
Activities Interests Opinions Attitudes Values

Behavioralistic Segmentation Behavioral segmentation is based on actual customer behavior toward products. Some behavioralistic variables include:
Benefits sought Usage rate Brand loyalty User status: potential, first-time, regular, etc. Readiness to buy Occasions: holidays and events that stimulate purchases

Behavioral segmentation has the advantage of using variables that are closely related to the product itself. It is a fairly direct starting point for market segmentation.
Bases for Segmentation in Industrial Markets

In contrast to consumers, industrial customers tend to be fewer in number and purchase larger quantities. They evaluate offerings in more detail, and the decision process usually involves more than one person. These characteristics apply to organizations such as manufacturers and service providers, as well as resellers, governments, and institutions.Many of the consumer market segmentation variables can be applied to industrial markets. Industrial markets might be segmented on characteristics such as:
Location Company type Behavioral characteristics

Location In industrial markets, customer location may be important in some cases. Shipping costs may be a purchase factor for vendor selection for products having a high bulk to value ratio, so distance from the vendor may be critical. In some industries firms tend to cluster together geographically and therefore may have similar needs within a region. Company Type Business customers can be classified according to type as follows:
Company size Industry Decision making unit Purchase Criteria

Behavioral Characteristics In industrial markets, patterns of purchase behavior can be a basis for segmentation. Such behavioral characteristics may include:
Usage rate Buying status: potential, first-time, regular, etc. Purchase procedure: sealed bids, negotiations, etc

Positioning (marketing)
In marketing, positioning has come to mean the process by which marketers try to create an image or identity in the minds of their target market for its product, brand, or organization. Re-positioning involves changing the identity of a product, relative to the identity of competing products, in the collective minds of the target market. De-positioning involves attempting to change the identity of competing products, relative to the identity of your own product, in the collective minds of the target market. The original work on Positioning was consumer marketing oriented, and was not as much focused on the question relative to competitive products as much as it was focused on cutting through the ambient "noise" and establishing a moment of real contact with the intended recipient. In the classic example of Avis claiming "No.2, We Try Harder", the point was to say something so shocking (it was by the standards of the day) that it cleared space in your brain and made you forget all about who was #1, and not to make some philosophical point about being "hungry" for business. The growth of high-tech marketing may have had much to do with the shift in definition towards competitive positioning. An important component of hi-tech marketing in the age of the world wide web is positioning in major search engines such as Google, Yahoo and Bing, which can be accomplished through Search Engine Optimization , also known as SEO. This is an especially important component when attempting to improve competitive positioning among a younger demographic, which tends to be web oriented in their shopping and purchasing habits as a result of being highly connected and involved in social media in general.

Definitions
Although there are different definitions of Brand Positioning, probably the most common is: identifying a market niche for a brand, product or service utilizing traditional marketing placement strategies (i.e. price, promotion, distribution, packaging, and competition). Also positioning is defined as the way by which the marketers creates impression in the customers mind.Positioning is a concept in marketing which was first introduced by Jack Trout ( "Industrial Marketing" Magazine- June/1969) and then popularized by Al Ries and Jack Trout in their bestseller book "Positioning - The Battle for Your Mind." (McGraw-Hill 1981)This differs slightly from the context in which the term was first published in 1969 by Jack Trout in the paper "Positioning" is a game people play in todays me-too market place" in the publication Industrial Marketing, in which the case is made that the typical consumer is overwhelmed with unwanted advertising, and has a natural tendency to discard all information that does not immediately find a comfortable (and empty) slot in the consumers mind. It was then expanded into their ground-breaking first book, "Positioning: The Battle for Your Mind," in which they define Positioning as "an organized system for finding a window in the mind. It is based on the concept that communication can only take place at the right time and under the right circumstances" (p. 19 of 2001 paperback edition).

What most will agree on is that Positioning is something (perception) that happens in the minds of the target market. It is the aggregate perception the market has of a particular company, product or service in relation to their perceptions of the competitors in the same category. It will happen whether or not a company's management is proactive, reactive or passive about the ongoing process of evolving a position. But a company can positively influence the perceptions through enlightened strategic actions. Positioning Statement (As written in the highly revered book Crossing the Chasm. Copyright 1991, by Geoffrey Moore, HarperCollins Publishers) For (target customer) Who (statement of the need or opportunity) The (product name) is a (product category) That (statement of key benefit that is, compelling reason to buy) Unlike (primary competitive alternative) Our product (statement of primary differentiation) Differentiation in the context of business is what a company can hang its hat on that no other business can. For example, for some companies this is being the least expensive. Other companies credit themselves with being the first or the fastest. Whatever it is a business can use to stand out from the rest is called differentiation. Differentiation in todays over-crowded marketplace is a business imperative, not only in terms of a companys success, but also for its continuing survival.*

Brand positioning process

Effective Brand Positioning is contingent upon identifying and communicating a brand's uniqueness, differentiation and verifiable value. It is important to note that "me too" brand positioning contradicts the notion of differentiation and should be avoided at all costs. This type of copycat brand positioning only works if the business offers its solutions at a significant discount over the other competitor(s). Generally, the brand positioning process involves: 1. Identifying the business's direct competition (could include tertiary players that offer your product/service amongst a larger portfolio of solutions) 2. Understanding how each competitor is positioning their business today (e.g. claiming to be the fastest, cheapest, largest, the #1 provider, etc.) 3. Documenting the provider's own positioning as it exists today (may not exist if startup business) 4. Comparing the company's positioning to its competitors' to identify viable areas for differentiation 5. Developing a distinctive, differentiating and value-based brand positioning statement, key messages and customer value propositions.

Product positioning process

Generally, the product positioning process involves: 1. Defining the market in which the product or brand will compete (who the relevant buyers are)

2. Identifying the attributes (also called dimensions) that define the product 'space' 3. Collecting information from a sample of customers about their perceptions of each product on the relevant attributes
4. Determine each product's share of mind

5. Determine each product's current location in the product space

6. Determine the target market's preferred combination of attributes (referred to as an ideal

vector) 7. Examine the fit between: The position of your product The position of the ideal vector 8. interest and started a conversation, you'll know you're on the right track.

Positioning concepts
More generally, there are three types of positioning concepts: 1. Functional positions Solve problems Provide benefits to customers

Get favorable perception by investors (stock profile) and lenders

2. Symbolic positions Self-image enhancement Ego identification Belongingness and social meaningfulness Affective fulfillment 3. Experiential positions Provide sensory stimulation Provide cognitive stimulation

Measuring the positioning

Positioning is facilitated by a graphical technique called perceptual mapping, various survey techniques, and statistical techniques like multi dimensional scaling, factor analysis, conjoint analysis, and logit analysis. POSE Analysis[1] offers a somewhat more sophisticated approach than perceptual mapping and allows one to not only determine the positioning of a brand but also the overal strength of a brand's proposition.

Repositioning a company
In volatile markets, it can be necessary - even urgent - to reposition an entire company, rather than just a product line or brand. When Goldman Sachs and Morgan Stanley suddenly

shifted from investment to commercial banks, for example, the expectations of investors, employees, clients and regulators all needed to shift, and each company needed to influence how these perceptions changed. Doing so involves repositioning the entire firm. This is especially true of small and medium-sized firms, many of which often lack strong brands for individual product lines. In a prolonged recession, business approaches that were effective during healthy economies often become ineffective and it becomes necessary to change a firm's positioning. Upscale restaurants, for example, which previously flourished on expense account dinners and corporate events, may for the first time need to stress value as a sale tool. Repositioning a company involves more than a marketing challenge. It involves making hard decisions about how a market is shifting and how a firm's competitors will react. Often these decisions must be made without the benefit of sufficient information, simply because the definition of "volatility" is that change becomes cult or impossible to predict

Marketing effectiveness
Marketing effectiveness is the quality of how marketers go to market with the goal of optimizing their spending to achieve good results for both the short-term and long-term. It is also related to Marketing ROI and Return on Marketing Investment (ROMI). Marketing expert Tony Lennon believes marketing effectiveness is quintessential to marketing, going so far as to say It's not marketing if it's not measured.[1] The concept of marketing effectiveness first came to prominence in the 1990s with the publication of Improving Marketing Effectiveness Shaw,R [2] which won the 1998 Business Management Book of the Year Award.

Introduction
Marketing effectiveness has four dimensions:
Corporate Each company operates within different bounds. These are determined by their size, their budget and their ability to make organizational change. Within these bounds marketers operate along the five factors described below. Competitive Each company in a category operates within a similar framework as described below. In an ideal world, marketers would have perfect information on how they act as well as how their competitors act. In reality, in many categories have reasonably good information through sources, such as, IRI or Nielsen. In many industries, competitive marketing information is hard to come by. Customers/Consumers Understanding and taking advantage of how customers make purchasing decisions can help marketers improve their marketing effectiveness. Groups of consumers act in similar ways leading to the need to segment them. Based on these segments, they make choices based on how they value the attributes of a product and the brand, in return for price paid for the product. Consumers build brand value through information. Information is received through many sources, such as, advertising, word-of-mouth and in the (distribution) channel often characterized with the purchase funnel, a McKinsey & Company concept. Lastly, consumers consume and make purchase decisions in certain ways. Exogenous Factors There are many factors outside of our immediate control that can impact the effectiveness of our marketing activities. These can include the weather, interest rates, government regulations and many others. Understanding the impact these factors can have on our consumers can help us to design programs that can take advantage of these factors or mitigate the risk of these factors if they take place in the middle of our marketing campaigns.

There are five factors driving the level of marketing effectiveness that marketers can achieve:

1. Marketing Strategy Improving marketing effectiveness can be achieved by employing a superior marketing strategy. By positioning the product or brand correctly, the product/brand will be more successful in the market than competitors products/brands. Even with the best strategy, marketers must execute their programs properly to achieve extraordinary results. 2. Marketing Creative Even without a change in strategy, better creative can improve results. Without a change in strategy, AFLAC was able to achieve stunning results with its introduction of the Duck (AFLAC) campaign. With the introduction of this new creative concept, the company growth rate soared from 12% prior to the campaign to 28% following it. (See references below, Bang) 3. Marketing Execution By improving how marketers go to market, they can achieve significantly greater results without changing their strategy or their creative execution. At the marketing mix level, marketers can improve their execution by making small changes in any or all of the 4-Ps (Product, Price, Place and Promotion) (Marketing) without making changes to the strategic position or the creative execution marketers can improve their effectiveness and deliver increased revenue. At the program level marketers can improve their effectiveness by managing and executing each of their marketing campaigns better. It's commonly known that consistency of a Marketing Creative strategy across various media (e.g. TV, Radio, Print and Online), not just within each individual media message, can amplify and enhance impact of the overall marketing campaign effort. Additional examples would be improving direct mail through a better call-toaction or editing web site content to improve its organic search results, marketers can improve their marketing effectiveness for each type of program. A growing area of interest within (Marketing Strategy) and Execution are the more recent interaction dynamics of traditional marketing (e.g. TV or Events) with online consumer activity (e.g. Social Media). (See references below, Brand Ecosystems) Not only direct product experience, but also any stimulus provided by traditional marketing, can become a catalyst for a consumer brand "groundswell" online as outlined in the book Groundswell. 4. Marketing Infrastructure (also known as Marketing Management) Improving the business of marketing can lead to significant gains for the company. Management of agencies, budgeting, motivation and coordination of marketing activities can lead to improved competitiveness and improved results. The overall accountability for brand leadership and business results is often reflected in an organization under a title within a (Brand management) department. 5. Exogenous Factors - Generally out of the control of marketers, external or exogenous factors also influence how marketers can improve their results. Taking advantage of seasonality, interests or the regulatory environment can help marketers improve their marketing effectiveness

Target Market Selection

Target marketing tailors a marketing mix for one or more segments identified by market segmentation. Target marketing contrasts with mass marketing, which offers a single product to the entire market.Two important factors to consider when selecting a target market segment are the attractiveness of the segment and the fit between the segment and the firm's objectives, resources, and capabilities.
Attractiveness of a Market Segment

The following are some examples of aspects that should be considered when evaluating the attractiveness of a market segment:

Size of the segment (number of customers and/or number of units) Growth rate of the segment Competition in the segment Brand loyalty of existing customers in the segment Attainable market share given promotional budget and competitors' expenditures Required market share to break even Sales potential for the firm in the segment Expected profit margins in the segment

Market research and analysis is instrumental in obtaining this information. For example, buyer intentions, salesforce estimates, test marketing, and statistical demand analysis are useful for determining sales potential. The impact of applicable micro-environmental and macroenvironmental variables on the market segment should be considered. Note that larger segments are not necessarily the most profitable to target since they likely will have more competition. It may be more profitable to serve one or more smaller segments that have little competition. On the other hand, if the firm can develop a competitive advantage, for example, via patent protection, it may find it profitable to pursue a larger market segment.
Suitability of Market Segments to the Firm

Market segments also should be evaluated according to how they fit the firm's objectives, resources, and capabilities. Some aspects of fit include: Whether the firm can offer superior value to the customers in the segment The impact of serving the segment on the firm's image Access to distribution channels required to serve the segment The firm's resources vs. capital investment required to serve the segment

The better the firm's fit to a market segment, and the more attractive the market segment, the greater the profit potential to the firm.
Target Market Strategies

There are several different target-market strategies that may be followed. Targeting strategies usually can be categorized as one of the following: Single-segment strategy - also known as a concentrated strategy. One market segment (not the entire market) is served with one marketing mix. A single-segment approach often is the strategy of choice for smaller companies with limited resources. Selective specialization- this is a multiple-segment strategy, also known as a differentiated strategy. Different marketing mixes are offered to different segments. The product itself may or may not be different - in many cases only the promotional message or distribution channels vary. Product specialization- the firm specializes in a particular product and tailors it to different market segments. Market specialization- the firm specializes in serving a particular market segment and offers that segment an array of different products.

Full market coverage - the firm attempts to serve the entire market. This coverage can be achieved by means of either a mass market strategy in which a single undifferentiated marketing mix is offered to the entire market, or by a differentiated strategy in which a separate marketing mix is offered to each segment.

The following diagrams show examples of the five market selection patterns given three market segments S1, S2, and S3, and three products P1, P2, and P3. Single Segment S1 S2 S3 P1 P2 P3 P1 P2 P3 Selective Specialization S1 S2 S3 P1 P2 P3 Product Specialization S1 S2 S3 P1 P2 P3 Market Specialization S1 S2 S3 P1 P2 P3 Full Market Coverage S1 S2 S3

A firm that is seeking to enter a market and grow should first target the most attractive segment that matches its capabilities. Once it gains a foothold, it can expand by pursuing a product specialization strategy, tailoring the product for different segments, or by pursuing a market specialization strategy and offering new products to its existing market segment. Another strategy whose use is increasing is individual marketing, in which the marketing mix is tailored on an individual consumer basis. While in the past impractical, individual marketing is becoming more viable thanks to advances in technology.