MKT4131

Marketing Strategy, Leadership

and Planning

Consumer Focused Strategy

Industry Segmentation

Lecture 2
 Learning Outcomes

Structure of the
Aims of This Lecture Lecture:
• To understand the ways in which
companies can segment • Introduction
markets • What is Segmentation?
• Criteria for Segmentation
• To discern how marketers can • Segmentation Map
measure the effectiveness of
identified target segments • Segmentation Tools
• Summary
• Be able to differentiate among • AOB
the various ways in which
marketers can reach the
identified market segments
Introduction

Dimensions of industry /market definition

customer See slide 25

groups

technology, material

functions, uses
(adapted from Abell, 1993)

3
 Introduction

The STP Process

Segmentation Targeting Positioning Perceptual Mapping

See Lect 7

West, Ford, & Ibrahim (2015), Strategic Marketing, 3rd edition

 What is Segmentation?

What is Segmentation?

The process of identifying individuals or

organisations with similar characteristics
that have significant implications for the
determination of marketing strategy
Jobber (2004:210)
What is Segmentation..?

What is Segmentation?
• Dividing the market into groups so as to offer
targeted benefits
• Identified segments must be:
– measurable
– accessible
– profitable
– actionable
– within resource constraints
– ethically and legally acceptable
What is Segmentation..?

Benefits of Segmenting
• Focus on identified customer needs
• Products developed offering tailored benefits
• Greater customer satisfaction
• Continuous research to maintain competitive advantage
• Segments created on basis of similar characteristics
• Characteristics of individual customers are understood
• Marketing mix designed for target market
• Allows differentiated strategies and creates differential
advantage
 What is Segmentation..?

Why Segment?
• Market segmentation is
vital for company success
• Dividing the market into
reasonable segments is
the starting point
• Develop a series of
strategic goals &
strategies to reach the
identified target

West, Ford, & Ibrahim (2015), Strategic Marketing, 3rd edition

 What is Segmentation..?

Foundations for effective segmentation

• It is unlikely for any company to appeal to an entire

market
• Identify segments of consumers
• Tailor offerings to meet the wants & needs of that
particular group of consumers
• Market segmentation involves the identification of
subgroups of consumers with similar wants and
buying requirements
• This helps the firm configure its marketing mix
West, Ford, & Ibrahim (2015), Strategic Marketing, 3rd edition
Factors Influencing Segmentation..?

Preference Heterogeneity
 People are not all alike.
 Consumer preferences vary.
 How much heterogeneity exists?

© 2011 Cengage Learning. All Rights Reserved.

May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.
Factors Influencing Segmentation..?

Majority Fallacy
 Focusing on the larger, average segments.
 Neglecting the smaller, less typical segments.

Extreme groups
and sub-markets
may have less
competition
Average

© 2011 Cengage Learning. All Rights Reserved.

May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.
Factors Influencing Segmentation..?

Sales / Cost Trade-Off

 Costs tend to increase segments get smaller.

 Additional sales must offset these costs.

Costs Sales

1 1000 1 1000
Number of Different Brands

© 2011 Cengage Learning. All Rights Reserved.

May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.
Factors Influencing Segmentation..?

Cannibalization
 One brand “eats” share from another.
 P&G detergents
 Old Navy, Gap, Banana Republic

© 2011 Cengage Learning. All Rights Reserved.

May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.
 Criteria for Segmentation

Criteria for identifying segments

Behaviouristic

Psychographic Geography

Demographic
West, Ford, & Ibrahim (2015), Strategic Marketing, 3rd edition
 Criteria for Segmentation

Criteria for identifying segments

Geography
• Focuses on the where issue
• Local segmentation often used by small firms
• Keeps the market confined to a manageable area
• Global segmentation : The company sees the entire
world as its appropriate playing field
– Potential for cultural inappropriateness
• Need to also consider topography
– Costs of overcoming physical obstacles
West, Ford, & Ibrahim (2015), Strategic Marketing, 3rd edition
 Criteria for Segmentation…

Criteria for identifying segments

Demographic
• Using a series of demographic variables
– Gender
– Age
– Cohorts of society
o Moments and events in late adolescence / early adulthood (17-23 yrs)
o This may not work globally
– Level of Education
– Level of Income
– Occupation
– Religion
– Ethnicity
– Family size
– Family life cycle stage. Life conditions that have a potential impact of
product/service purchase decisions
– Social class/status
West, Ford, & Ibrahim (2015), Strategic Marketing, 3rd edition
 Criteria for Segmentation…

Criteria for identifying segments

Psychographic Bases
• Perceptual issues
• Combining individuals who are psychologically similar in their orientation
• Excellent potential for effective targeting segments, understanding how the
segments live their daily lives
• Lifestyle
– The ways in which individuals choose to live their lives
• Personality
– Similar personality types
– Kotler (2003) lists four main variations of personality: compulsive,
gregarious, authoritarian and ambitious
• Core Values
– Match its core values with those of the segments, building positive
associations
West, Ford, & Ibrahim (2015), Strategic Marketing, 3rd edition
 Criteria for Segmentation…

Criteria for identifying segments

VALS Typology
• A multi-based approach to segmentation incorporating both
psychological & demographics is developed by SRI International
• For the US market SRI identified eight separate groups for
segmentation purposes
– Actualizers (10 % of population)
– Fulfilleds (11% of population)
– Experiencers (13% of population)
– Achievers (14% of population)
– Believers (17% of population)
– Strivers (12% of population)
– Makers (12% of population)
– Strugglers (12% of population)

West, Ford, & Ibrahim (2015), Strategic Marketing, 3rd edition

 Criteria for Segmentation…

Criteria for identifying segments

Behaviouristic
• Grouping consumers having similar uses for, and responses to
particular products or services
– Usage rate
– Loyalty level
• Brand insistence, brand loyalty, split loyalty, shifting loyalty,
no loyalty
– Creation of special events
– Benefits segmentation
• In terms of key benefits that consumers seek from the use of
some product/service

West, Ford, & Ibrahim (2015), Strategic Marketing, 3rd edition

 Criteria for Segmentation…

Cross-border segmentation and

international challenges

• A variety of new challenges faced by companies going

outside their country borders
– Culture is single biggest challenge
– Study individual segments to determine choice drivers
– Combine secondary data with on-the-ground observations
– Phenomenology – studying consumers as they go through daily
activities
– Localization often depends on how similar are the uses of the
product in the new context to the home uses
– Diaspora marketing – using immigrants from the home country
as targets in new international markets

West, Ford, & Ibrahim (2015), Strategic Marketing, 3rd edition

 Segmentation Tools

Segmentation Tools
Main tools used are cluster analysis, conjoint analysis, discriminant
analysis and perceptual mapping:
• Cluster Analysis
 It is a multivariate technique
 Within-group differences are minimized and the between-group
differences are maximized
• Conjoint Analysis
 Uses a series of possible product/service attribute combinations
• Discriminant Analysis
 Identify a series of variables that help to discriminate the members
of one or more groups
• Multidimensional Scaling
 Visually demonstrate how particular consumers view the various
offerings
West, Ford, & Ibrahim (2015), Strategic Marketing, 3rd edition
Segmentation Tools

“You can’t just ask customers what they want and

then try to give that to them. By the time you get it
built, they’ll want something new.”
- Steve Jobs -

22
 Segmentation Map

Principles of Market Segmentation

Values
customer /
Attitudes
Who
client
characteristics “soft” Psychographics
Lifestyle
buys

Market Segments Socio-economic &

Size? demographic
Access?
“hard”
Differentiated? Geography

Benefits
Subjective Perceptions
Preference trade-offs
What is
bought customer /
and why client
behaviour Usage
Price sensitivity
Objective
Promotional response
Loyalty/ repeat purchase
Source: Palmer & Millier (2004)
Segmentation Example..
See Lect 7
Segmentation Example..

Clients Consumers Formalwear

Channels Casualwear
Industry
Segmentation and Sportswear
Business Definition
Jeanswear
Underwear
Beachwear

Business Model: designer brand End Users

/ industrial brands / retailers

Product Categories: jackets /

trousers / shirts / skirts
Technology
Raw Materials: wool / cotton /
linen / leather / silk / synthetics
Saviolo and Testa (2002)
Segmentation Example.. The Fashion Industry Price Segmentation

Versace

A 1% Couture: French Industry

Approach – tailor made very
Not comparable
to market price
special occasions i.e. J Lo
and ‘that dress’
6% ready to wear –
inspiration from couture (prêt
3 – 5 x average
à porter / designer)
market price

Offshoots of a
2 -3 x average
Balmain - £7.4K 11% Diffusion – designer labels:
designer’s D&G / Versace Jeans Couture / Prada / Gucci
luxury brand market price / Marc Jacobs / Designers create fashion lines
ie Vera Wang’s, H&M
1.5 – 2 x average
market price 20% Bridge – private labels:
Ellen Tracy / Dan Buchman / Ralph Lauren /
Marc Jacobs / DKNY

Average market 62% Mass market:

B price Gap / Old Navy / Cherokee /
Zara / Mossimo / H&M

A: Important where it is made

B: Need to be able to compete on price, quality, image etc
Saviolo and Testa (2002)
 Summary

• Identify segmentation variables and

segment the market
• Develop profiles of resulting segments
• Companies that approach the process of
segmentation, processing and positioning
as a series of logical steps, enhance their
chance of success.

Any
Questions?
West, Ford, & Ibrahim (2015), Strategic Marketing, 3rd edition