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MARKET SEGMENTATION
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SegmentationMarket Segmentation is the process of dividing a market into distinct subsets of consumers with common needs or characteristics and selecting one or more segments to target with a distinct marketing mix.
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WHY SEGMENTATION?Rather than trying to compete with an entire
market, company must identify parts of market that can serve better than competition
Segmentation helps sellers develop the right product and adjust prices, set distribution channels and advertising & promotions strategies effectively
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Segmentation strategy differentiates offerings through styling, packaging, promo appeals, method of distribution
Segmentation helps sellers develop the right product and adjust prices, set distribution channels and advertising & promotions strategies effectively
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HOW MARKET SEGMENTATION WORKS
Segmentation studies- to discover needs/wants on specific
consumer gaps- to guide repositioning of existing products
and add new market segment
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HOW MARKET SEGMENTATION WORKS (..cont’d)
Segmentation research- to determine most appropriate media to place
ads through surveys and analysis of data- i.e AC Nielsen, Acorn,
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Segmentation Strategies Segmentation versus aggregation strategies Consumer preference heterogeneity The Majority Fallacy The sales-costs tradeoff cannibalization Bases of segmentation
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Segmentation vs. Aggregation Strategy
When should a firm pursue a segmentation versus aggregation strategy?
• Consumer Preference Heterogeneity • Majority Fallacy• Cost-Benefit Analysis
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Consumer Preference Heterogeneity
How much Variability Exists in Consumer Preferences?
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The Majority Fallacy
Strategy error which leads to the mistaken belief that the largest segment of a market is the most lucrative. In reality, however, it may be the least profitable one due to the intense rivalry among a large number of competitors
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The sales-costs trade-off of segmentation
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Bases of segmentation
Bases Examples
Geographic
Demographic
Psychographic
Behavioral
Postal ZIP code districts, metropolitan statistical areas, countries, states, provinces, regions, nations, continentsGender, age, education, occupation, incomemarital status, household size, ethnic background
Personality characteristics, attitudes, beliefs, lifestyles
Usage situations, usage frequency
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Potential segmentation basesDetermined in advance (sex, race, age,
residential status)Objective (can be observed/measured)
General or behavioralInferred (assessed thru questionnaire)
General or behavioralSelf-selection bases
Segments define themselves thru response to campaign
Rarely indicates why response occurred
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BASE FOR SEGMENTATION (..cont’d)Geographic segmentation- market divided by location/localizing the
marketing strategy- usually people in the same area share the
same needs and wants- different spending patterns/demands
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Demographic segmentation- identifiable, measurable stats of a
population i.e age, sex, marital status etc- easier to measure, to assess size of target
market
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Socio-cultural segmentation- family life cycle i.e passing through
similar phases in their formation - social class: education, occupation,
income- culture/subculture and cross-culture
affiliation
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User-situation segmentation- Usage of product depends on occasion; i.e
greeting cards, drinks, airlines
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Benefit segmentation- Rewarding consumers with product
benefits i.e microwave that requires less time to prepare meals
- Toothpaste - Socially active- Smokers- Children
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Hybrid segmentation- Combination of two or more exciting
segmentation variables, commonly done by marketers
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Hybrid SegmentationMarketers commonly segment markets by
combining several segmentations variables rather than relying on a single segmentation base.
Types of Hybrid segmentation coveredPsychographic-Demographic ProfileGeo-demographicsVALS
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Psychographic-Demographic SegmentationWidely used in advertising campaigns to
answer three questionsWhom should we targetWhat should we say and When should we say it.E.g.. Newsweek audience profile-Newsweek
Asia .doc offering media buyers such carefully defined dual profiles of their audiences, mass media publishers and broadcasters make it possible for advertisers to select media whose audiences most closely resemble their target markets.
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Geo-Demographic Segmentation
This type of hybrid segmentation scheme based on the notion that people who live close to one another are likely to have similar financial means, tastes, preferences, lifestyles,a and consumption habits.
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VALS Draws on Maslow’s
Need Hierarchy and concept of social character
Three major self-orientations
Principle oriented –consumers whose choices are driven by their beliefs rather than their desires
Status oriented- consumers whose choices are guided by the actions, approvals and opinion of others
Action oriented-consumers who are driven by a desire for social or physical activity, variety and risk taking
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Each of these self-orientations represent distinct attitudes, and lifestyles, decision making style.
Resources include the range of psychological, physical, demographic and material means the consumer has to draw upon.
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Criteria for Effective Targeting of Marketing Segments
IdentifiableSufficientStable or growingAccessible
(reachable)in terms of both media and cost.