Segmentation

By Syeda Maryium Fatima

10th Feb. 2011
Consumers Have Different Needs
Market: An aggregate of people who, as
individuals or as organizations, have
needs for products in a product class and
who have the ability, willingness, and
authority to purchase such products

Segment: A group of individuals, groups, or

organizations that share one or more
similar characteristics which make them
have relatively similar products needs

Segmentation: The process of identifying

smaller markets (groups of people or
organizations) that exist within a larger
market
Segmentation: a process of
Market Selection

 Segmentation: Dividing a large heterogeneous

market into homogeneous segments that can
be reached more efficiently and effectively
with product and services that match their
unique needs.
Segmentation
 The more you know about a customer – age,
gender, what he owns, what he spends and
what his preferences are - the more likely it is
that you can create and pitch a product or
service that will hit a bull's-eye.
 Identifying and interacting with your customers
in ever-smaller groups is a tantalizing prospect -
and now easier and more cost effective than
ever,
Segmentation
 Segmentation is done to
 Provide distinct & unique value proposition
(allocate its resources more efficiently)
 Servicing, nurturing, developing as
profitable customers (increase the returns)
Segmentation

 Segmenting consumer market.

 Segmenting business market.
 Segmenting international markets
Steps
Steps in
in Segmentation,
Segmentation,
Targeting,
Targeting, and
and
Positioning
Positioning 6. Develop Marketing
Mix for Each Segment
Market
5. Develop Positioning Positioning
for Each Segment

4. Select Target
Segment(s) Market
Targeting
3. Develop Measures
of Attractiveness

2. Develop Profiles
of Segments
Market Segmentation
1. Identify Bases
for Segmentation
1. Segmenting consumer
markets
 There is no single way to segment the market.
 Different variables are
1. Geographic segmentation
2. Demographical segmentation
3. Psychographic segmentation
4. Behavioral segmentation
How
How to
to Segment
Segment
Consumer
Consumer Markets
Markets

Geographic

Demographic
Behavioral /

Common
Product
Usage

Bases for
Segmenting
Markets

Psychographic
Segmentation Variables for Consumer
Markets

FIGURE 7.3
I. Geographical segmentation
 Dividing a market on the basis of location, states,
regions, cities, neighborhood, climate, density.

 Geographic location also relates to culture, language and

business attitudes. For example, Middle Eastern,
European, North American, South American and Asian
companies will all have different sets of business
standards and communication requirements.

 For example pizza, KFC, many schools as roots, SLS,

banks extending there business by opening different
brnaches.
II. Demographic segmentation
Variables
 Perhaps the most widely used and most widely available.
It includes
 age,
 gender,
 family size,
 family life cycle,
 income,
 occupation,
 education,
 religion,
 race,
 generation,
 nationality.
Demographic segmentation Variables
..Cont.
3 major factors of demographics are

1. Age n life cycle stage

2. Gender
3. Income

For example
 Clothing-age n life cycle
 KFC deals-kids, elders
 Video games-kids, teen ager
 Cosmetics-ladies
 III. Psychographics segmentation
Variables
2 major factors are:
1. Personality characteristics

2. Lifestyle

● Personality factor is very important as

Honda-22 years old, Vespa-older than 50 years.
● Lifestyles
Marketers segment markets according to how
individuals choose to spend their time in various
activities, their income, their interest and opinions,
and their education. either achievers, strugglers or
survivors depending on social class lower lowers, upper
lowers, working class, middle class, upper middles, lower
uppers, upper uppers
IV. Behavioral segmentation
Variables
 Behavioral often called “usage”. It is very easy to target.
 It may be
 Occasional, as juice-breakfast, dates-ramadan.
 benefits, as variety of soaps for all types of benefits
customer try to have.
 user rate, as heavy users-cigarettes, average users,
light users,
 user status, as regular user, x-user, non-user.
 loyalty status, it can be with brand, company or
dealer/store. 3 situations can be completely loyal,
somewhat loyal, not at all loyal.
 readiness stage,
 attitude towards product.
 Multivariable Segmentation
 Typically using more than one variable or type of
segmentation variable
 Use multiple Demographic Variables such as age,
gender, income & education.
 Use various Demographic, Psychographic,
Geographic, and Behaviorist Variables
 Art as much as science
 So can come up with different segments using
different variables and different analytical /
statistical techniques.
Multivariable Segmentation

1. Geodemographic Segmentation (Combines

Geographic and Demographic info)

2. Psychographics and Demographics Variables

(VALS, based on values, attitudes, lifestyles,
and demographic. Therefore, combines
Psychographic and Demographic variables)
2. Industrial market
segmentation
 Industrial market segmentation is a scheme for
categorizing industrial and business customers to
guide strategic and tactical decision-making, especially in
sales and marketing.

 While similar to consumer market segmentation,

segmenting industrial markets is not very much different
but more challenging because of greater complexity in
buying processes, buying criteria, and the complexity of
industrial products and services themselves. Further
complications include
 role of financing,
 contracting, and
 complementary products/services.
2. Industrial market
segmentation
 The goal for every industrial market
segmentation scheme is to identify the most
significant differences among current and
potential customers that will influence their
purchase decisions or buying behavior, while
keeping the scheme as simple as possible. This
will allow the industrial marketer to differentiate
their
 prices,
 programs, or
 solutions for maximum competitive
advantage.
Two major categories for
segmenting industrial markets

1. Macro segmentation
2. Micro segmentation
How to Segment Industrial
Markets
 Geographic Location -macro segmentation
 Size -macro segmentation
 Usage Rate - micro segmentation
 Industry/ Application -micro segmentation
 Technology -macro segmentation
 Buying Strategy -micro segmentation
 Type of Buying Situation -micro segmentation
 Decision making Unit -micro segmentation
 Innovativeness -micro segmentation
 Organizational factors -micro segmentation
Macro segmentation
 The division of a market into broadly defined groups, each with its
particular needs and wants, prior to further division or
segmentation on the basis of more narrowly defined needs and
wants.
 Macro-segmentation consists of identifying macro variables.
 Focus on the characteristics of the buying organization [as whole
companies or institutions], thus dividing the market by:

 Demographics:
industry, company size, Size of business operating (small vs.
big), Type of industry (steel- packaging , automobiles, general
engineering) market products to, Type of customers( revenue
expected, growth), customer location
Macro segmentation
 Operating variables: company technology,
product/brand use status, customer capabilities,
Customer location – transportation cost, warehousing
cost, technology & competitive factors,

 Purchasing approaches: purchasing function, power

structure, buyer-seller relationships, purchasing
policies, industry growth rate

 Situational factors: urgency of order, product

application, size of order
Micro-segmentation
 Micro-segmentation is the process of so thoroughly
subdividing a market within the universe as to dramatically
determine buying criteria. This allows a marketing department
to develop marketing campaigns that appear to each user
individually.

 Requires greater focus, better understanding of the markets,

market knowledge, decision making units & their criteria.

 This requires the primary data, which can be collected through

the sales force or by an agency research.
Micro-segmentation
 Usage Rate- Purchasing objectives, Inventory
requirements,

 Buying Strategy- Quality, Delivery, Service, price.

 Decision making Unit: Centralized or otherwise.

 Innovativeness: Innovator or follower.

 Organizational factors: Resources, PLC stage, &

buying situation
Benefit of Market Segmentation :
can Increase Profit
 Increasing profits is the major objective of companies.
 There are several ways in which effective segmentation
can boost profits.
 By better meeting customer needs, through better
positioning to chosen segments, we may be able to
increase market share and hence volume.
 By better meeting needs, we may also be able to
increase price without sacrificing much volume.
 By only targeting the most profitable segments, we
may be able to reduce marketing costs.
 Evaluating the segments

 Evaluate segments on the basis of

1. Size / growth of segments.
2. Structural attractiveness of segment.
3. Company’s objectives and resources.

1. Size / growth of segments: # of customers, you should

choose right size. Profit maximization and potential growth
is the aim. Once segmented, we need to quantify the
segments. The marketer must know the profitability & the
level of competition in such segments. We would also like
to know the growth potential of each segment. To do this
the marketer uses certain forecasting methods
 Evaluating the segments
2. Structural attractiveness of segment:
Structure of any segment is form of
1. Buyers
2. Competitors
3. Suppliers

IV. Buyers: marketers will have maximum

power of bargaining when there will be
greater number of buyers available and
will be maximum attraction for marketers.
Evaluating the segments

II. Suppliers: less attraction for

marketers if suppliers have greater
power of bargaining.
III. Competitors: less attraction for
marketers where large number of
competitors exists.
Evaluating the segments

3. Company's resources and

objectives: Toyota and Mercedes
have different segments and have
different objectives.
 Requirements for segmentation

A segment should be
1. Measurable
2. Assessable
3. Sustainable
4. Differentiable
5. Actionable

1. Measurable
size should be quantifiable, growth potential, its result will
be to forecast the production.
2. Assessable
It should be reachable, place efforts should meet that,
marketers can provide product efficiently.
Requirements for Segmentation
3. Sustainable
Enough to give you profit. Segment should be very commonly
used. For example if an automobile manufacturer develop
product for people whose height is greater than seven feet then
what will be the segment’s sustainability.
4. Differentiability
Reaction towards market should be different for each segment.
As for ladies and for gents fragrance company offers different
products. For new borns the products are different.
5. Actionable
Segment should only made when
Need exists, demand exists, opportunity of business, and shows
growth potential.
Then we will say segment is actionable.
Targeting and Target marketing
strategy
 One of the most significant uses of industrial market segmentation
schemes is to make targeting and product positioning decisions.
Companies chose to target some segments and downplay or avoid
other segments in order to maximize their competitive advantage
and the likelihood of success.

 Target markets can include end user companies, procurement

managers, company bosses, contracting companies and external
sales agents.

 Target marketing strategy:

 Four strategies are
1. Un differential.
2. Differential.
3. Concentrated/niche.
4. Micromarketing.
 Targeting Strategies

 Classic mass marketing, all things to all people approach

 Ignore segments
 One marketing mix for all customers
 Rarely used today – Name an undifferentiated product?
 Mass production, mass consumption, mass promotion, and
mass distribution.
 Differentiated Strategy (cont.)

The firm targets several separate segments and designs separate

marketing strategies for each.
For most firms, this means they go for a small share of the larger,
total aggregate market (one or two marketing mix for one or two
segments (out of maybe six or seven)
 Concentrated Marketing

 The firm goes for a large share of a single (or very few)
segments
 Can be niche market, very profitable,
Micromarketing
1. Local marketing
2. Individual marketing
1. Local marketing
When you design a product only for local people.
As banks offering services only for local people, or
a spray of anti virus in a local area.

2. Individual marketing
When you come at one to one marketing level. As
blood donation, sew your clothes, buy the shoes
of your size. Interior decoration.
 Mass Marketing
One marketing mix for all

Segment Marketing
One or more mm targeted to
one or more segments

Niche Marketing
One or more mm targeted to
one or more sub-segments

Micro Marketing (1-1)

One or more mm targeted to
specific individuals or communities
How to choose target market
Four factors to consider
1. Company's resources.
2. Degree of variability.
3. Product life cycle stage.
4. Market variability.

1. If you have limited resources then go for

concentrated marketing
If resources are greater then go for differentiated
marketing/ micromarketing.
How to choose target market
2. if variety in product chances are greater-
differentiated
If chances are low-un differentiated
3. For new product-undifferentiated
If growth/maturity-differentiated
4. It is in terms of buyers need, tastes
If variance in needs are greater-differentiated
If low-un differentiated
If competitors are offering differentiated
marketing then go for differentiated marketing and
vice versa
Positioning

 Once the target markets have been

selected, the marketer should try &
create positioning strategy for each
target market
 Positioning is a distinct place a
product occupies in the mind of the
target customers.
 How Does McDonald’s Practice
Market Positioning?
● Product essentially same (no Indian Big Mac)
● Promotion (specific promotion campaigns
aimed at the Indian market
● Place (urban stores, suburban stores, express
stores, etc.)
● Price (junior discounts)