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TIØ4165Marketing Management

Segmentation and Targets

Arild Aspelund

IØT, NTNU

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Emerging Trends in Consumer Behavior

Metrosexual – Straight urban manwho enjoys shoppingand using groomingproducts

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Outline

• The purpose of segmentation

• Levels of segmentation

• Categories of segmentation variables

• Segmentation process and criteria

• Cost considerations

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Why Segmentation?

• Properties of ”mass markets” makes it hard to earn above-average rent on merely selling products to customers

• This is due to the unfortunate economic postulate that prices in the long run tend to equal marginal costs of production in perfect markets; that is…

– Homogeneous products – Perfect information symmetry– Perfect competition – No “friction” or switching costs

• It is therefore paramount to – Clearly identify your segment – where the customer that are willing to pay a disproportional

high price in sufficient volumes– Differentiate your product to offer superior value to your key segments– Monopolize your key segments through

• Shade information• Create favorable customer preferences• Loyalty

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Levels of Segmentation

• Mass marketing– Volumes to the masses!

• Segment marketing– Group of customers that share a similar set of needs and wants

• Niche marketing– Group of customers that share the same distinctive mix of benefits

• Local marketing– Tailored to meet the needs and wants of a local customer group

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Levels of Segmentation- Mass Marketing

• No customization or market adoption

• Cost oriented

• Volumes to the masses!

• Are there any examples of this in the modern Norwegian economy?

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Levels of Segmentation- Segment Marketing

• Groups of customers that share needs and wants

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Levels of Segmentation- Segment Marketing

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Levels of Segmentation- Niche Marketing

• Targeting a narrowly defined customer group seeking a distinctive mix of benefits

• Often identified by sub-segments

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Levels of Segmentation- Local Marketing

• Tailored to meet the needs and wants of a local customer group

• Endeavors to get as close and personally relevant to individual customers as possible

• An increasing trend in terms of “glocalization” and “customerization”

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Segmentation of Consumers

GeographicGeographic

DemographicDemographic

PsychographicPsychographic

BehavioralBehavioral

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Geographic Segmentation

• Dividing the market into multiple geographical units– Nations , states, regions, counties, cities or neighborhoods

• Firms may operate in only one, a few or all, but adopts local variations

• Many areas may have similarities and knowledge of such are valuable– Are there any similarities in the localization of new consumer concepts

such as Lidl?

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Demographic Segmentation

• Age and life-cycle stage– People’s needs and preferences change with age and life-cycle stage

– Defining the persons major concern

• Gender– No, in terms of consumer behavior we are not equal…

• Income– Goes without saying. Think of Maslow’s hierarchy…

• Generation– Generations share experiences, and to some extent outlooks and values

• Social class– A reference to Maslow again…

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Psychographic Segmentation

The VALS Segmentation System

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Behavioral Segmentation• Decision Roles

– Initiator, Influencer, Decider, Buyer, User

• Behavioral Variables– Occasions

– Benefits or value orientation

– User status• Nonusers, ex-users, potential users, first-time users and regular users

– Usage rate

– Buyer – readiness stage

– Loyalty status• Hard-core loyals, split loyals, shifting loyals, and switchers

– Attitude• Enthusiastics, positive, indifferent, negative, and hostile

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Behavioral Segmentation

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Segmentation Process

Needs-based segmentation

Segment identification

Segment attractiveness

Segment profitability

Segment positioning

Segment acid test

Marketing-Mix

Strategy

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Effective Segmentation Criteria

• Measurable– Can you measure your key variables?

• Substantial– Is it large and profitable enough?

• Accessible– Can they be effectively reached and served?

• Differentiable– Are they conceptually different from other groups and do they respond

differently to marketing actions?

• Actionable– Can you design an effective targeting program for attracting attention,

communicating and serving the target segment

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Selecting Target Markets I

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Selecting Target Markets II

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Selecting Target Markets III

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Cost Considerations

• Segmentation and targeting most likely increase sales, but also inflict costs in terms of – Product modification costs

– Manufacturing costs

– Administrative costs

– Inventory costs

– Promotion costs

• It is often nicer to think of increase of revenues per new customer, but a top manager would worry about new customer costs inflicted over the whole value chain

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Segmentation

• Some typical examples of firms and their segments

– Volvo

– Toyota

– Body Shop

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Summary and Continuation

• Summary– We have established an argument of why segmentation is a valuable tool

in terms of increasing profitability

– We have identified categories of segmentation variables

– We have also presented some features of good segmentation variables and a feasible way of conducting market segmentation

– Finally, we have touched upon the concept of targeting through the process of selecting market segments

• Continuation– Positioning and competition