Marketing Management

Dawn Iacobucci

2010 South-Western, a part of Cengage Learning

Marketing Segmentation

Chapter 2
Marketing Framework
Why Segment?

Consumers needs and preferences vary

It is impossible for firms to satisfy
everyones needs with a single offering
Discussion Question

Can you think of a single product that

satisfies everyones needs/preferences?
Consider the following:
A 12 ounce can of Pepsi
Magic Kingdom at Disney World
A Ritz Carlton Hotel
What is Segmentation?

Segmentation
Breaking the heterogeneous market into
smaller, homogeneous markets

Segment
A group of customers who share similar
inclinations toward a brand
Groups of Customers
Groups of Customers

Mass Marketing
All customers are treated the same
Customer needs are not met
Butless expensive to implement

One-to-one Marketing
Each customer serves as own segment
More expensive to implement
Butcustomer needs are better met
Groups of Customers

Marketing Segmentation
Customers are broken into more
homogeneous groups
Groups are small enough that customer
needs are met
Butlarge enough to be profitable

Niche marketing
A segment is broken into smaller customer
groups with particular needs that the
company can serve well
Falls between segmenting and one-to one
Segmentation Bases

Marketers segment markets by

identifying variables(s) that help them
determine whether or not customers will
like their product

Segmentation bases
Factors that are utilized to group customers
Bases for Consumer Segmentation

Demographic
Easy to identify and commonly used
But be certain that variable helps determine
customer needs/preferences
Examples:
gender
age
household composition
lifestyle cycle
education
income, etc.
Bases for Consumer Segmentation

Geographic
Easy to identify and commonly used
But be certain that variable helps determine
customer needs/preferences
Examples
country
area of country
climate
urban vs. rural, etc.
Bases for Consumer Segmentation

Psychological
Harder to identify but maybe more insightful
in determining customer needs/preferences
Examples
attitudes
knowledge and awareness
wants and needs
affiliations, e.g., political party
traits, e.g., extraversion
expertise and involvement, e.g., hobbies
brand attributes sought, etc.
Bases for Consumer Segmentation

Psychological, cont.
VALS
System based on the idea that self-
expression, ideals & achievement determine
customers product/brand orientation
strivers, achievers, etc.
Bases for Consumer Segmentation

Behavioral
Cannot directly observe customers
psychology but can observe their behaviors
grocery scanner data, etc.
Examples
products purchased
user status
media habits
loyalty
frequency of usage, etc.
80/20: 80% of sales come from 20% of customers
Bases for B2B Segmentation

Demographic
Company size, NAICS industry, account
size, market share, number of employees,
etc.

Geographic
Country, sales force coverage, etc.
Bases for B2B Segmentation

Type of Firm
Non-profits, retailers, hospitals, degree of
formality and centralization, etc.

Attitudes
Care about price sensitivity, risk tolerance,
corporate culture, profitability, high vs. low
maintenance accounts, etc.
Discussion Questions
Which survey question below would
show greater promise as a
segmentation variable? Why?
Segmenting the Market

When segmenting the market,

marketers integrate two things
1. their knowledge of the marketplace with
2. appropriate customer data which gives
insight into similarities in customer
needs/preferences

Cluster analysis is the research

technique typically utilized in market
segmentation
Effective Segmentation

Utilizes Appropriate Data

Can you identify meaningful data?
Can you obtain/afford access to the data?

Allows Access to Customers

Can you access the customers that meet
your data specifications directly?
Is there a database?
Can you access the customers indirectly?
Are there activities they participate in, media they
frequently use, etc.?
Effective Segmentation

Has Profitability Potential

Is the profitability potential sufficient?
How frequently do customers purchase?
How price sensitive are they?
How deep ($) is their purchase?
How much growth potential exists?
Segments do not have to be large to be
profitable
Be careful to not too narrowly define segments
Always askIs the segmentation criteria
meaningful?
Effective Segmentation

Fits with Corporate Goals

Does the segment align with the firms
strengths, market image, etc.?
Is there limited competition for segment?

Is Actionable
Can you develop an actionable plan to
effectively target the segment?
Can you visualize who the segment is,
where they are, what they do, etc.?
Strategies

Breadth Strategy
Reaching multiple segments with a single
product
Strategies

Depth Strategy
Serving one segment with multiple products
Strategies

Tailored Strategy
Customizing products for each segment
Discussion Question

If you are selling cologne to a segment of

women and sales are flat, how would
you determine which way to expand?