1

Market Segmentation, Targeting for

Competitive Advantage
2
What is Market Segmentation?

Market segmentation: The act of dividing a market
into smaller groups of buyers with distinct needs,
characteristics, or behaviors who might require
separate products and/or marketing mixes.
How does market segmentation differ form product
differentiation?
3
The Steps in Segmenting a Market

Goal: Identify marketing opportunities
6 steps

Choose a basis or bases for segmenting the
market
Develop Segment Profiles

4
Steps in Segmentation contd
Step 3: Develop measure of segment attractiveness
Size, growth, purchase frequency, current brand usage,
loyalty and long-term sales/profit potential
Step 4: Select a target segment
Review definition (most likely to buy)
Major decision that determines the marketing mix
Step 5: Develop positioning for target segment

Step 6: Design, implement, and maintain
appropriate marketing mix
5
Levels of Market Segmentation
Through Market Segmentation, Companies Divide Large,
Heterogeneous Markets into Smaller Segments that Can be
Reached More Efficiently And Effectively With Products and
Services That Match Their Unique Needs.
Mass Marketing
Same product to all consumers
(no segmentation, i.e Coca-Cola)
Segment Marketing
Different products to one or more segments
(some segmentation, i.e. Marriott)
6
Niche Marketing
Different products to subgroups within segments
(more segmentation, i.e. Standard or Luxury SUVs)
Micromarketing
Products to suit the tastes of individuals and locations
(complete segmentation)
Levels of Market Segmentation
Local Marketing
Tailoring brands/ promotions to
local customer groups, i.e Sears

Individual Marketing
Tailoring products and programs to
the needs of individual customers,
i.e. Dell
7
Basic Market-Preference Patterns
(a) Homogeneous
preferences
Sweetness
C
r
e
a
m
i
n
e
s
s

(c) Clustered
preferences
C
r
e
a
m
i
n
e
s
s

Sweetness
(b) Diffused
preferences
C
r
e
a
m
i
n
e
s
s

Sweetness
8
The Segmentation Variables
Geographic Segmentation
Define Market is divided into geographical units
like nations, counties, states, cities, regions etc.
Four good reasons to use region:
Adapt better to sluggish or competitive markets
Data (via scanners, etc.) tells us what sells in a
region
Regional brand preference data
Faster to react to competition in a given region
9
Demographic Segmentation
Define Market is divided into groups on the basis of
variables such as age, gender, income, ethnic
background, education, occupation, religion,race
etc.
Age segmentation (know key characteristics)
Importance of 38 million children < 9
Teens- have allowances, specific preferences
Young adults
Baby Boomers
Seniors
10
Demographic Segmentation contd
Gender segmentation
Clothing, cosmetics, personal care items,
magazines and footwear make heavy use of
gender segmentation
Income segmentation
Housing, clothing, cars, and food

11
Psychographic Segmentation
Buyers are divided into groups based on the following
variables
Personality habits, traits and attitudes
Motives- economy, reliability, dependability
status-related vs. rational motives
Lifestyles- how do you spend your time and what
things do you have (i.e. H-D segments)
12

Behavioral Segmentation
Dividing the market into
groups based on variables
such as:
Occasions
Benefits
User status
Usage rate
Loyalty status
Readiness stage
Attitude toward product

13
Usage Rate
Dividing the market by the amount of product bought
or consumed
Heavy users, former, potential, first-time, light or irregular,
or medium
Heavy users account for large % of product sales, so the
marketing mix
80/20 principle 20 % of all customers generate 80% of
the demand
Goal: create a heavy user (frequency/loyalty programs)
Reward and retain heavy users

14
Measurable
Accessible
Substantial
Differential
Segments must be large or
profitable enough to serve.
Segments can be
effectively reached and
served.
Actionable
Size, purchasing power,
profiles of segments can
be measured.
Segments must respond
differently to different
marketing mix elements &
actions.
Must be able to attract and
serve the segments.
Effective Segmentation
15
Demographics
Operating Variables
Purchasing Approaches
Situational Factors
Personal Characteristics
Segmenting Business Markets


Business
Marketers Use
Many of the Same
Consumer
Variables, Plus:

16
Table 10-3: Major Segmentation Variables for Business
Markets
Demographic
1. Industry: Which industries should we serve?
2. Company size: What size companies should we serve?
3. Location: What geographical areas should we serve?
Operating Variables
4. Technology: What customer technologies should we focus on?
5. User or nonuser status: Should we serve heavy users, medium
users, light users, or nonusers?
6. Customer capabilities: Should we serve customers needing
many or few services?
Purchasing Approaches
7. Purchasing-function organization: Should we serve companies
with highly centralized or decentralized purchasing
organizations?
8. Power structure: Should we serve companies that are
engineering dominated, financially dominated, and so on?


17
Segmenting Consumer and Business
Markets
Business buyers seek different benefit
bundles based on their stage in
the purchase decision process.
1. First-time prospects
2. Novices
3. Sophisticates
18
Segmenting Consumer and Business
Markets
Rackman and Vincentis proposed a
segmentation scheme that classifies business
buyers into three groups
Price-oriented customers
(transactional selling)
Solution-oriented customers
(consultative selling)
Strategic-value customers
(enterprise selling)
19
Segmenting International Markets
Factors Used
to Segment
International
Markets

Geographic
Location

Economic
Factors
Political and
Legal Factors

Cultural
Factors
20
Target Market:
Target market: the group of people for whom
your company is designing, implementing
and maintaining a marketing mix in order to
meet the needs of that group (who is most
likely to buy your product)

21
Five Patterns of Target Market Selection
Single-segment
concentration
Product
specialization
M1 M2 M3
P1

P2

P3


Selective
specialization
M1 M2 M3
P1

P2

P3


M1 M2 M3
Full market
coverage
P1

P2

P3
Market
specialization
M1 M2 M3
P1

P2

P3
P1

P2

P3


M1 M2 M3
P = Product
M = Market
22
Segment-by-Segment
Invasion Plan
Customer Groups
Truckers Railroads Airlines
Large
computers
P
r
o
d
u
c
t

V
a
r
i
e
t
i
e
s

Personal
computers
Mid-size
computers
Company B
Company C
Company A
23

Evaluating Market Segments
Segment Size and Growth
Analyze current sales, growth rates and expected
profitability for various segments.
Segment Structural Attractiveness
Consider effects of: competitors, availability of
substitute products and, the power of buyers &
suppliers.
Company Objectives and Resources
Company skills & resources needed to succeed in that
segment(s).
Look for Competitive Advantages.
24
Socially Responsible Target Marketing
Smart targeting helps companies and
consumers alike.
Target marketing sometimes generates
controversy and concern.
Disadvantaged and vulnerable can be targeted.
Cigarette, beer, and fast-food marketers have
received criticism in the past.
Internet has come under attack because of the loose
boundaries and lack of control in marketing
practices.

25