Market Segmentation

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Market Segmentation Contents Objectives 1 Introduction BOX 16.1 Booming phones 2 The market-segmentation concept 2.1 The economic rationale 2.2 The business benefits Asymmetric ticketing 3 The market segmentation process 4 Segmentation variables 4.1 Segmentation variables for consumers 4.1.1 Demographic segmentation 4.1.2 Geographic segmentation 4.1.3 Geodemographic segmentation 4.1.4 Socio-economic segmentation 4.1.5 Personality and lifestyle segmentation 4.1.6 Segmenting using behavioural variables 4.1.7 Purchase behaviour 4.1.8 Purchase and usage occasion 4.1.9 Benefit segmentation 4.1.10 User status and consumption behaviour 4.1.11 Product attitudes 4.2 Segmentation variables for business-to-business customers 4.2.1 Business demographics 4.2.2 Operating variables

4.2.3 Purchasing approach 4.2.4 Situational factors 4.2.5 Personal characteristics Box 16.2 The STP stages of market segmentation Box 16.5 New segment for Waterford crystal Lifestyles influence choice of cars Segmenting the haulage market Box 16.8 UK Standard Industrial Classification (SIC) 5 Segmentation analysis 6 Targeting 6.1 Strategies for targeting 6.1.1 Undifferentiated strategy 6.1.2 Concentrated strategy 6.1.3 Differentiated (multi-segment) strategy 6.2 Selecting target segments There's nothing wrong with kiddies clubs but 7 Positioning 7.1 Using perceptual mapping 7.2 Steps in determining positioning 7.3 Repositioning existing brands 7.4 Positioning problems Box 16.9 Options for repositioning Box 16.10 Repositioning alcopops 8 Getting the most out of market segmentation The essence of segmenatation Box 16.11 Questions that marketers ask about doing segmentation

Key segmentation questions: 9 Market segmentation: the future 10 Summary Further reading Discussion questions Mini Case: The electric vehicle market Discussion questions Section: Formulating and Implementing Marketing Strategy Objectives The objectives of this chapter are: to understand market segmentation and consider why it is used; to examine how companies segment markets; to explore different targeting stategies; to learn about the role and process of positioning in segmentation strategies; to consider how marketers can achieve the the most from market segmentaion. 1 Introduction THE chapter begins by reviewing the underlying rationale and business benefits of market segmentation. Next, the three stages of the market-segmentation process are considered. Segmentingthe grouping of customers with similar needsis dealt with first. This begins with a review of consumer and business-to-business segmentation variables and concludes by considering the role of statistical analyses in segmentation research. The targeting stage, which is looked at next, involves an examination of alternative targeting strategies and a review of the factors that must be considered by businesses making targeting choices. Positioning, the final stage to be examined, comprises an explanation of the underlying rationale, followed by a review of the process of positioning and repositioning. The chapter concludes by emphasizing the need for effective segmentation. The resources that businesses devote to implementing and reviewing their market segmentation are enormous. There is an implicit assumption that this investment is justified. Possible reasons for implementation problems are highlighted and guidance offered on how to get the best out of market segmentation. In the mobile phone market, the products and marketing programmes must be carefully designed to appeal to the needs of different customer groups. Box 16.1 shows how important it is for cellular operators to identify customer needs and use

this understanding to develop suitable marketing mixes. Vodafone, Cellnet, Orange, and Mercury know that the needs of different customers vary. A business user who travels all over Europe, making several hours of calls each day, will not have the same requirements as an elderly couple who keep a phone in their car for emergencies. Different tariffs, hardware, and insurance schemes are needed to meet these diverse needs. To achieve customer satisfaction, cellular operators identify and single out customer groups at which to direct some or all of their marketing activity. In marketing terms these businesses have adopted a marketsegmentation approach, tailoring their products to meet the needs of different, specific customer groups. BOX 16.1 Booming phones The market for cellular phones enjoyed a global boom in the late 1990s. In 1996 the overall UK expenditure on telephone and telecommunications exceeded 8,000 million. A growing proportion of this spend was on calls from mobile phones. When mobile telephone technology was first introduced, its use was restricted primerily to the business domain. Today, there are packages to suit every pocket and situation. There were three distinct phases to this market growth. During the first, it was business people and sales representatives who used the technology to keep in touch with the office. In the second phase, tradespeople such as electricians, plumbers, and heating engineers adopted mobile phones so that they could respond to emergency and other calls. During the third phase, vulnerable and isolated groups, such as women travelling alone, were targeted. In 1996 with more than five million UK subscriptions, there was a mobile phone package for everyone. Cellular operators such as vodafone, Cellnet, Mercury One-2-One, and Orange developed product offers that reflected the varying requirements of different customer groups. Heavy users, often business customers, could opt to pay higher monthly tariffs in exchange for free talk time. For an additional charge, international call capability was offered on certain networks. Low tariffs and pay-asyou-go options were available for light users or those on a budget. Each operator prioritized particular customer groups and emphasized those aspects of its service that it belived would appeal. For example, Vodaforne made much of its international call capability, which made it popular with certain business users. Orange, meanwhile, became well known to consumers for its combination of clear targeting, novel branding, and innovative service packages. The company launched the first ever mobile phone loyalty scheme, offering free air time in exchange for every 60 seconds of calls. 2 The market-segmentation concept THE underlying principle of market segmentation is that individual customers have different product and service needs. The mass-marketing approach, in which a single marketing programme is used to attract all customers, is rarely appropriate.

At the beginning of the twentieth century, Henry Ford's customers were happy to be offered his Model T in any colour so long as it is black. In today's markets, with increasingly varied customer needs and ever more sophisticated marketing techniques, there are few situations in which a mass-marketing approach is feasible. Ford's current product range is evidence that customers expect their diverse requirements and buying behaviour to be met with an array of offerings. For example, the Scorpio for executives, the Mondeo aimed at fleet buyers, the Escort for family use, and the Maverick for customers desiring 4 x 4 off-road capability. Moving away from mass marketing towards a market-segmentation approach is a common way of dealing with diverse customer needs (Dibb and Simkin 1996). Although marketers recognize the breadth of customer needs, it is often unrealistic to customize products for individual customers. Businesses usually have neither the resources nor the inclination to deal with customers on an individual basis. To be competitive, they must accumulate customers into groups to reduce costs. They must then target the most attractive groups to enhance effectiveness. Market segmentation is the process by which this accumulation of customers is achieved, grouping those with similar needs and buying behaviour. If the process has worked properly, customers within a particular segment should have homogeneous product needs and consumption patterns that are distinct from those customers in other segments. Many companies believe that marketing success is linked to how effectively their customer base is segmented. This is because market segmentation helps companies to satisfy diverse customer needs while maintaining certain scale economies (Dibb and Simkin 1996). 2.1 The economic rationale Market segmentation is a key decision area for businesses undertaking marketing and strategic planning (McDonald 1995). The underlying rationale is that groups of customers that have been aggregated on the basis of similar needs and buying behaviour are likely to demonstrate a more homogeneous response to marketing programmes. Put simply, a business is more likely to be successful if it designs a specific marketing mix for a group of customers with similar needs. This assumption applies to businesses of all types, from confectionery manufacturers that promote their product ranges on the basis of the occasion on which they are consumed, to hotel groups that organize their property portfolios into sites geared to business or tourist occupancy. The origins of market segmentation are in economic pricing theory, which indicates that profits can be maximized when pricing levels discriminate between segments (Frank et al. 1972). Segmentation allows businesses to deal with diverse customer needs by focusing resources on particular customer groups with relatively homogeneous requirements (Choffray and Lilien 1978). Organizations that apply

segmentation to their business are, therefore, better able to fine-tune their customer offerings than those adopting a massmarketing approach (Blattberg and Sen 1976; Beane and Ennis 1987). 2.2 The business benefits Businesses use segmentation because they believe it will improve their marketing effectiveness and enhance their ability to c