Chapter SixChapter Six

Market SegmentationMarket Segmentation

QuickTime™ and aDV/DVCPRO - NTSC decompressor

are needed to see this picture.

Chapter ObjectivesChapter Objectives

• Identify the rationale for using a target marketing strategy.

• Identify the bases for consumer segmentation.• Identify the requirements necessary for effective

market segmentation.• Describe the three targeting strategies used by

companies.• Describe the six positioning strategies.

• Identify the rationale for using a target marketing strategy.

• Identify the bases for consumer segmentation.• Identify the requirements necessary for effective

market segmentation.• Describe the three targeting strategies used by

companies.• Describe the six positioning strategies.

The Market

Segmentation

Targeting

Positioning

Consumers are numerous and their needs and wants are too

diverse.

Why Market Segmentation?

Market Segmentation

Market SegmentationMarket Segmentation• Market segmentation involves identifying consumers who

are similar with regard to key traits, such as product-related needs and wants, and who would respond well to a similar marketing mix.

The company can then produce products that meet the precise needs and wants of target consumers.

ImportantImportant: • Segment has to be large enough and stable over time• Segment has to be “homogenous within, heterogeneous

between”• Most companies use more than one type of segmentation

Firms categorize potential consumers into segments. • The three levels of segmentation are Mass marketing,

Segment marketing and Micromarketing.

• Market segmentation involves identifying consumers who are similar with regard to key traits, such as product-related needs and wants, and who would respond well to a similar marketing mix.

The company can then produce products that meet the precise needs and wants of target consumers.

ImportantImportant: • Segment has to be large enough and stable over time• Segment has to be “homogenous within, heterogeneous

between”• Most companies use more than one type of segmentation

Firms categorize potential consumers into segments. • The three levels of segmentation are Mass marketing,

Segment marketing and Micromarketing.

Bases for SegmentationBases for Segmentation- Benefit

- Usage rate

- User status

- Loyalty status

- Buyer readiness

- Occasion

- Geographic

- Psychographic- Age

- Gender

- Ethnicity

- Income

- Education

- Occupation

- Behavioral

- Demographic

Consumers

Geographic SegmentationGeographic Segmentation

• Segmentation is based on geographic location, such as region, state, or city.

• Small companies normally focus on markets in close proximity.

• Often used by retailers

• Often used by small businesses

• Oldest segmentation base*

• Segmentation is based on geographic location, such as region, state, or city.

• Small companies normally focus on markets in close proximity.

• Often used by retailers

• Often used by small businesses

• Oldest segmentation base*

Demographic SegmentationDemographic Segmentation

• Based on statistics that describe the population, e.g., age, gender, life-cycle stage, etc.

ReasoningReasoning:

– Segments respond differently to different combinations of the 4 P’s. Therefore, in order to target segments more efficiently, marketers need to know their characteristics.

ExampleExample: – Clothing, cosmetics, and hair products are tailored

based on gender and age, as well as income.

• Most popular segmentation base*

• Based on statistics that describe the population, e.g., age, gender, life-cycle stage, etc.

ReasoningReasoning:

– Segments respond differently to different combinations of the 4 P’s. Therefore, in order to target segments more efficiently, marketers need to know their characteristics.

ExampleExample: – Clothing, cosmetics, and hair products are tailored

based on gender and age, as well as income.

• Most popular segmentation base*

Psychographic SegmentationPsychographic Segmentation• Demographics are closely linked to psychographics, which

include lifestyle, values, attitudes, interests, and opinions.

• The VALS2 typology provided by SRI Consulting Business Intelligence segments consumers psychographically.

• Demographics are closely linked to psychographics, which include lifestyle, values, attitudes, interests, and opinions.

• The VALS2 typology provided by SRI Consulting Business Intelligence segments consumers psychographically.

Innovators Successful, sophisticated, receptive to new technologies, their purchases reflect cultivated tastes for upscale products

Thinkers Educated, conservative, practical consumers who value knowledge and responsibility, they look for durability, functionality, and value

Achievers Goal -oriented, conservative, committed to career and family, they favor established, prestige products that demonstrate success to peers

Experiencers Young, enthusiastic, and im pulsive, they seek variety and excitement, and spend substantially on fashion, entertainment, and socializing

Believers Conservative, conventional, and focusing on tradition, family, religion, and community, they prefer established brands, favoring Americ an products

Strivers Trendy, fun loving, they are concerned about others’ opinions and approval

Makers Self -sufficient, they have skill and energy to carry out projects, respect authority, and are unimpressed by material possessions

Survivors Concerned with safety and security, they focus on meeting needs rather than fulfilling desires, are brand loyal, and purchase discounted products

Behavioral SegmentationBehavioral Segmentation

• Benefit segmentationBenefit segmentationBased on important differences between the benefits sought

You need to understand the consumers’ motivation to send the right signals!

• Usage rate segmentationUsage rate segmentation Based on the extent to which consumers are

nonusers, occasional users, medium users, and heavy users

Allocate resources for new products primarily to heavy users (prime target)

• Benefit segmentationBenefit segmentationBased on important differences between the benefits sought

You need to understand the consumers’ motivation to send the right signals!

• Usage rate segmentationUsage rate segmentation Based on the extent to which consumers are

nonusers, occasional users, medium users, and heavy users

Allocate resources for new products primarily to heavy users (prime target)

Behavioral Segmentation (cont.)Behavioral Segmentation (cont.)• User status segmentationUser status segmentation Users of competitors’ products, ex-users, potential users,

first- time users, and regular usersDon’t focus marketing efforts on regular users only . . . new users can offer great potential.

• Loyalty status segmentationLoyalty status segmentation Degree of brand preference, commitment, retention,

allegiance, and the extent to which consumers engage in repeat purchase

By consistently providing high quality, a company can gain valuable customers.

• Buyer-readiness stage segmentationBuyer-readiness stage segmentationBased on individuals’ stage of readiness to buy the product Some consumers might not even be aware of product, some can’t afford it, others don’t need it, etc.

• User status segmentationUser status segmentation Users of competitors’ products, ex-users, potential users,

first- time users, and regular usersDon’t focus marketing efforts on regular users only . . . new users can offer great potential.

• Loyalty status segmentationLoyalty status segmentation Degree of brand preference, commitment, retention,

allegiance, and the extent to which consumers engage in repeat purchase

By consistently providing high quality, a company can gain valuable customers.

• Buyer-readiness stage segmentationBuyer-readiness stage segmentationBased on individuals’ stage of readiness to buy the product Some consumers might not even be aware of product, some can’t afford it, others don’t need it, etc.

Behavioral Segmentation (cont.)Behavioral Segmentation (cont.)• Occasion segmentationOccasion segmentation

Based on the time or the occasion when the product should be purchased or consumed

ExamplesExamples:

– On Halloween, candy is sold in large packages that include small portions.

– On Valentine’s Day, candy is presented in red and heart shaped packages.

• Occasion segmentationOccasion segmentation

Based on the time or the occasion when the product should be purchased or consumed

ExamplesExamples:

– On Halloween, candy is sold in large packages that include small portions.

– On Valentine’s Day, candy is presented in red and heart shaped packages.

*Note segmentation for servicesBusiness markets can also be segmented according to geographic location, behavioral dimensions, buyer readiness stage, degree of loyalty, and other dimensions.

Requirements for Successful Segmentation Requirements for Successful Segmentation • MeasurabilityMeasurability:

– The ability to identify segment and to estimate its size • SubstantialitySubstantiality:

– The segment should be large enough that investment will yield a profit.• StabilityStability:

– The stability of consumer segment preferences over time• AccessibilityAccessibility:

– The ability of the company to communicate with the target market• ActionabilityActionability:

– The ability of the company to design effective programs that can effectively serve the market

• Differential responseDifferential response: – The segment should respond differently to strategies than other segments.

• MeasurabilityMeasurability: – The ability to identify segment and to estimate its size

• SubstantialitySubstantiality: – The segment should be large enough that investment will yield a profit.

• StabilityStability: – The stability of consumer segment preferences over time

• AccessibilityAccessibility: – The ability of the company to communicate with the target market

• ActionabilityActionability: – The ability of the company to design effective programs that can

effectively serve the market• Differential responseDifferential response:

– The segment should respond differently to strategies than other segments.

Target Marketing DecisionsDifferentiated Concentrated Undifferentiated

Positioning the BrandPositioning the Brand• Positioning entails placing the brand in the consumer’s

mind in relation to other competing products.

• Positioning entailsPositioning entails:

– Identifying competitors

– Determining how the competitors are perceived and evaluated by target

consumers

– Determining the competitors’

positions in the consumers’ mind

– Analyzing the customers

– Selecting the position

– Monitoring position

• Positioning entails placing the brand in the consumer’s

mind in relation to other competing products.

• Positioning entailsPositioning entails:

– Identifying competitors

– Determining how the competitors are perceived and evaluated by target

consumers

– Determining the competitors’

positions in the consumers’ mind

– Analyzing the customers

– Selecting the position

– Monitoring position

Attribute/Benefit PositioningAttribute/Benefit Positioning• Attribute/Benefit Positioning • Attribute/Benefit Positioning

Attribute 1

Benefit 1

Consumers’ perceived position of product relative to competitors’ product

Positioning by Perceptions and Preferences

Positioning the Brand (cont.)

Additional Positioning Strategies

Positioning the Brand (cont.)

Additional Positioning Strategies

• Price/Quality Positioning• Use or Application

Positioning• Product User Positioning • Product Class Positioning• Competitor Positioning

• Price/Quality Positioning• Use or Application

Positioning• Product User Positioning • Product Class Positioning• Competitor Positioning

Source: Courtesy of Bozell Worldwide, Inc. as agent for the National Fluid Milk Processor Promotion Board.