An Introduction to Market Segmentation and Target

MarketingIn search of Competitive Advantage

William Baker ConsultingMarketing StrategyCommunication StrategyBrandingAdvertising

Award Winning Author, Professor and Consultant619-402-3990, wbaker@uakron.edu

Google Scholar Page: https://scholar.google.com/citations?hl=en&user=If0w9hoAAAAJ

Definition of Market SegmentationMarket Segmentation is the process of dividing the market into a subset of customers that are likely to have similar needs and wants and are likely to respond similarly to marketing efforts:

•Respond to the same set of product or service benefits and/or

•Respond to the same prices and/or

•Utilize the same distribution channels and/or

•Consumer the same media and/or

•Respond to the same advertising and promotional message appeals

Market SegmentationMeaningful market segments should meet the following criteria

•Homogenous Within Segment: Individuals within the segment should be as similar as possible with respect to their likely response to one or more marketing mix variables

•Heterogeneous Between Segments: Individuals in different segments should be as different as possible with their likely response to one or more marketing mix variables.

Indicators of a Need for Market Segmentation:

1. Products sold across a wide spectrum of customers and industries

2. Low market penetration

3. Significant customer base churn

4. Unclear understanding of the ‘ideal’ customer or customers

5. Low response rate on solicitation

6. Low acceptance/’win’ rates

Final Objective of Market Segmentation

Market Segments

It is your goal to:

Identify segments that have the greatest profit potential based on their requirements and your capabilities

Behavioral SegmentsWhere do You want to Compete?Where can you Compete?

Basic Performan

ce

Premium Performan

ce

Ultra Performan

ce

Quality Segmentation

Benefit Segmentation

Distribution Segmentation

Handling Comfort Styling

Mass Merchandis

erDepartme

ntSpecialt

y Online

Defining Market Segments:Demographics and Psychographics

Demographics and psychographics may be a primary means of defining segments, but more importantly they are critical to be able to effectively reach and relate to market segments.

In fact, psychographics are more important than demographics.

Demographics Psychographics1.Age 1. Activities, interests2.Income 2. Shopping behavior3.Stage of the family life cycle 3. Group memberships4.Education 4. Decision-making style5.Ethnicity 5. Risk propensity6.Social Class 6. Status orientation

Demographic/Psychographic SegmentsWhere do You want to Compete?Where can you Compete?

18-34 35-54 55+Age Segmentation

Lifecycle Segmentation

Lifestyle Segmentation

SingleMarried

with Children

Empty Nester

Urban Uptown

Middleburbs

Metro-City Blues

Rustic Living

In General, the Priority for Defining B2C Market Segments is:

Behavioral: You are defining segments on how they are likely to respond to pricing, benefits, distribution and promotional appeals

Geographic: Some markets vary on key factors such as competition, distribution availability, purchasing power, etc.

Demographic: Important for understanding segments and reaching segments, but in many cases, response to marketing mix variables varies too much within segments to define segment this way

Psychographic: Ditto with demographics, must also be concerned that sometimes these segments cannot be efficiently reached

All four can and should be used to describe the segments

B2B Market Segment Definitions

Industry/Category/NAIC (Automotive/Trucks/Braking Systems)

Total Sales

Number of Employees

Buying Center Characteristics (selling cycle length, number of decision-makers and influences, final decision-maker, bidding process)

Evaluating Market SegmentsMarket AUDIT BY SEGMENTKey Descriptive Elements for each segment:

•Market Size

•Market Growth Rate

•Number of Key Competitors

•Competitive Intensity

•Market Share of all competitors including your firm

Evaluating Market SegmentsCUSTOMER AUDIT BY SEGMENT

Factors Influence Attractiveness of Segment•Relative brand loyalty/churn•Relative brand equity •Relative satisfaction•Purchase frequency•Decision Process

Factors Helping You to Effectively, Understand Reach and Relate•Demographics of segment members•Psychographics of segment members

Benefit Segment A in Home Theatre

“Moderate Quality – Ease of USE”Benefit Segment B In Home Theatre“Superior Quality – Full Immersion”

Behavioral1.$1,500 - $2,000 purchases2.Seek moderate level of service3.Big Box Stores4.Seek 3D and easy connectivity to video gaming and DVR

Geography1.Suburban

Demographics and Psychographics1.Families w/children under 182.$50-$100k household income3.Family movie/TV show viewers

Market Audit$22 billion dollars (U.S.)14% growth rate8 major competitorsCompetitively Intense16% market share

Customer AuditComparable brand loyaltySuperior Brand EquitySuperior Brand SatisfactionSatisficing Decision Process

Behavioral1.$4,000 - $8,0002.Seek high level of service3.Specialty Stores4.Seek fully integrated immersive experience

Geography1.Urban

Demographics and Psychographics1.Single and Married w/out Children2.$125-$250k household income3.Status Seekers4.Sports and pay per viewing emphasis

Market Audit$8 billion dollars (U.S.)22% growth rate3 major competitorsmoderately Intense4% market share

Customer AuditLow Brand EquityOptimizing Decision Process

Criteria to Evaluate Market Segment Attractiveness

1. Fit with Resources and Capabilities

2. More Opportunities than Threats

3. Sales and profit potential1. Can sales and profit objectives be achieved with this segment?

4. Predisposition to buy brand1. Do members of this segment view your brand favorably?2. What perceptual obstacles must be overcome?3. Are they loyal to another brand?

Market Attractiveness – Business Position

Strong Position

Moderate Position

Weak Position

High Attractiveness

DANGER

Moderate Attractiveness

LowAttractiveness

CASH COW

Primary Target Market Definition Process

A complete B2C definition should include:O Benefits Sought

O User Type

O Geography

O Demographics

O Psychographics

Most Concrete

Least Concrete

Primary Target Market Analysis Objectives

O Create a target that is tightly defined both in terms of what they want and who they are.

What Who

O A larger target market is not a better target market

O Focus!

Primary Target Market Size

Your primary target market is ill-defined and too large if….

OYou “average” together too many different benefits sought to effectively relate to the customer.

OYou “average” together too many demo/psycho factors to effectively relate to the customer.

Finding Your Target Market

O A common approach to begin to identify a primary target market is to identify the heavy users of your brand.

O The profile of the heavy user often differs dramatically from the overall user profile which includes infrequent, low potential customers.

Find and Profile the Heavy Users Heavy vs. Light Users by Product Category

Users Heavy User Light UserHeavy/LightU.S. Adults Half Half Use

RatioShampoo 94% 79% 21% 3.8

Cake Mixes 74% 83% 17% 4.9

Cola 67% 83% 17% 4.9

Beer 41% 87% 13% 6.7

Bourbon 20% 95% 5% 19

$40,000 ‘Luxury’ Sedan Example

OTarget Market Portrait Painting

OUse of Logic and Creativity

Step One: Product Benefits Sought   

Action: Identify the number and size of benefit segments  

Example: The manufacturer of a small foreign automaker identifies four key benefit segments for luxury sedans: Comfort, styling, performance and status.  

It selects the performance segment because: •The company has the capability to make competitive high performance cars

•The performance segment tends to be younger and, hence, less prone to have strong loyalties to any specific manufacturer.  

Potential Index: 100--175

Step Two: User Type   Action: Segment the category by user type. This includes brand/category usage (current brand user, user of competitors only, first time category user) and category purchase frequency (light, medium, heavy).    Example: The company decides to target first time buyers of luxury sedans  - They don't have the resources to compete against the major manufacturers who target the heavy user. - They don't think they can switch heavy users away from the top three or four makers.

Potential Index: 175--215

Step Three: Geography  Action: Segment the market by geographic area (census region, states) and/or by type of neighborhood (e.g., urban, suburban, small town and rural)    Example: The company decides to put its marketing emphasis in the suburban areas of the 10th through the 30th largest metro areas in the country. - Competitor activity is too intense in the top ten markets. - There is a lack of available dealerships in smaller markets   

Potential Index: 215--274

Step Four: Demographics    Action: Form segments on the basis of age, income, education, stage in the family life cycle, etc.  

Example: The company decides to target college educated, married males earning $60,000-$100,000 per year whose children are pre-teen or older. - The income fits the $40,000 price tag of the automobile - Families with children younger than 11 rarely buy luxury sedans. - The specific parameters will permit more efficient purchasing of media.  

Potential Index: 274--355

 Step Five: Psychographics

   Action: Segment the market according to consumer lifestyles, activities, opinions and beliefs   Example: The manufacturer decides to target sports oriented households that are known to subscribe to an Internet sports service (e.g., espn.com) and/or a cable or satellite sports package (e.g., NFL Direct Ticket). - This provides a platform for emotionally connecting with this group. - It makes efficient reach more possible with online media - It provides a platform for sales and event promotions and sponsorships    Potential Index: 355 - 470

Targeting StrategiesUndifferentiatedOne product targeted to a mass audience

DifferentiatedOne product targeted to each meaningful segment

ConcentratedOne product targeted to one segment