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Ibrahim Sameer 1
Ibrahim Sameer
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Introduction Market segmentation is defined as:
“The process of breaking down the total market for a product
or service into distinct sub-groups or segments, where each
segment might represent a distinct target market to be
reached with a distinctive marketing mix.”
The intention is to select groups of customers that the
company is best able to serve so that competitive pressure is
minimized.
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The Need for Segmentation & Targeting
The marketing concept puts customer needs at the centre of the
organization's decision making.
Market segmentation and strategies of targeting and positioning
recognize that within the total market for a product, demand will
differ to cater for specific tastes, needs and quantities of customers.
Effective segmentation is achieved when customers sharing similar
patterns of demand are grouped together giving rise to
‘homogeneous’ demand.
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Advantages of Target Marketing Marketing opportunities and ‘gaps’ (i.e sectors of unfulfilled
demand) in a market may be more accurately identified and
appraised.
Product and market appeals (through the marketing mix) can
be more finely tuned to the needs of the potential customer.
Marketing effort can be focused on the market segment(s)
that offer the greatest potential for the company to achieve its
objectives.
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Effective Segmentation Measurable/identifiable and lead to ease of identification (who is in each
segment?) and measurement (how many potential customers are in each
segment?).
Accessible and lead to the marketer being able to reach selected market targets
through marketing efforts.
Substantial segments that are sufficiently large to be worthwhile serving as
distinct market targets.
Meaningful segments that have different preferences/needs, and show clear
variations in market behavior/response to specialized marketing efforts.
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Segmentation Bases in Consumer Product Market
Geographic Segmentation
In international marketing, different countries may be deemed to constitute
different market segments. Within a country a market may be segmented into
regions that might represent individual salesperson’s territories.
Demographic Segmentation
This approach consists of a wide variety of bases, of which the more common
are: age, income, sex, education, nationality, family size, family life cycle, social
class/occupation. Demographic bases constitute the most popular for
segmentation in consumer product markets
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Segmentation Bases in Consumer Product Market (cont…)
Family Life Cycle
Family life cycle segmentation is based on the idea that consumers pass through a series
of phases in their lives. The stages are defined as:
Bachelor Stage. This is young single people who live at home, who have
limited financial commitments and a fairly large amount of disposable income.
Newly married couples, no children. In this stage there is likely to be two full
time salaries in the household, and a large amount of expenditure on products
such as furniture, cars etc.
Full nest 1. This is a couple that has started a family with the youngest child
under six years. Disposable income is low as financial commitments increase
and often income decreases.
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Segmentation Bases in Consumer Product Market (cont…)
Full nest 2. This is a family household with youngest child over six
years old. The financial position is improving, as often income starts to
increase.
Full nest 3. Older couples with dependent children. Here the amount
of disposable income increases further as children get older and
possibly start to get part time jobs. More income is spent on luxury
goods such as holidays etc.
Empty nest 1. Couple with no dependent children. Disposable income
increases further and needs of the household change, e.g. a change of
focus to saving for future retirement.
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Segmentation Bases in Consumer Product Market (cont…)
Life – Style Segmentation: This is referred to as psychographic segmentation. It is
based on the idea that individuals have modes and patterns of living that may be
reflected in the products and brands they purchase. For example, some individuals
prefer a ‘homely’ lifestyle, whereas others may have a ‘sophisticated’ lifestyle.
Direct or Behavioral Segmentation: The approaches to consumer segmentation
described so far have been examples of associative segmentation. They are used
where it is felt that differences in customer needs and purchasing behavior may be
associated with them. For example, if we use age to segment a market, we assume
that purchasing behavior in respect of a certain product is a function of age.
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Segmentation Bases in Consumer Product Market (cont…)
Loyalty Status: A direct approach to segmenting is the extent to which different
customers are loyal to certain brands (brand loyalty). Consumers fall into one of four
categories as far as loyalty status is concerned:
1. Hard core loyals have loyalty to a single brand (e.g brands AAAAAA).
2. Soft core loyals divide their loyalty between two or more brands (e.g brands
AABABBA).
3. Shifting loyals brand-switch, spending some time on one brand and then move to
another (e.g brands AAABBCCCAA).
4. Switchers show no brand loyalty, often purchasing products that are lowest in price or
have a special offer (e.g brands BCBAACD).
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Segmentation in Organizational Product Market
The most frequently encountered bases:
Geographic e.g. Northeast and Southwest, Holland and France.
Type of application/end use e.g. cotton for clothing or that used for bed linen.
Product/technology e.g. plastic bottles and glass bottles.
Type of customer e.g. retailing sector or manufacturing.
Customer size e.g. by customer turnover or by the average value of orders.
Loyalty of customer
Usage rate e.g. heavy or light.
Purchasing procedures e.g. centralized or decentralized, the extent of specification buying,
quotation/tender procedures.
Benefits sought is based on the product needs that customers require from their purchase e.g. a car may be
needed for the company’s representatives, or for hiring out or as the chief executive’s personal car.
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Assessing & Selecting Market Segmentation
The marketer has to evaluate the various market segments.
The company must decide which segments in the market it is best able and
willing to serve. This decision must be based on company resources,
competition, segment potential and company objectives. Four
characteristics make a market segment attractive:
The segment has enough sales and profit potential.
The segment has the potential for growth.
The segment is not over competitive.
The segment has some unsatisfied needs that the company can serve well.
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Targeting Strategies Undifferentiated strategy – sometimes referred to as
mass marketing is when an organisation aims its
resources at the entire market with one particular
product in the hope that a sufficient amount of buyers
would be attracted. For example, Coca Cola used to do
this with its original Coca Cola drink.
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Targeting Strategies Concentrated strategy - where an organisation
concentrates its marketing effort on one particular
segment e.g. Rolls Royce cars aim its vehicles at the
premium segment.
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Targeting Strategies Differentiated strategies - where an organisation
targets several segments and develops distinct
products/services with separate marketing mix
strategies aimed at the varying groups. For example, an
airline can offer business class, first class and economy
class tickets with separate marketing programmes to
attract the different groups.
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Positioning Concept Positioning is the process of creating an image for a
product/service in the minds of target customers using
the marketing mix. Some products adopt a similar position
with their competitors so customers can make a direct
comparison, while some organisations want to create a very
distinct image in customer’s minds e.g. Rolls Royce is a top
quality, luxury car and it is expensive to reflect that high
quality.
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Positioning Concept Using a perceptual mapping grid organisations can ask
customers to plot where they think products should go
on a range of bases e.g. with cars customers could be
asked to give their views on car brands in terms of
bases such as speed and price for example.
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Positioning Concept
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Positioning Concept A company can’t sell to everyone as it would cost too much
so any organisation must be able to segment their market
and try to discover which one (or more) of these groups
should be targeted. Once a firm has targeted their groups
of customers they must decide what image customers
should have about their product and this is where
positioning and perceptual maps come in.
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Consumer Buyer Behavior
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Consumers are exposed to various experiences and influences. Some of
our responses to our environment are the results of our psychological
make-up.
Cultural & Social Influence
Marketers attempt to recognize how culture shapes and influences
behavior. Culture is a group of complex codes and passed down
through generations as determinants & regulators of human behavior
in society. These codes include attitudes, beliefs, values, language,
religion, art, music, food, housing and product preferences.
Consumer Buyer Behavior (cont…)
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Marketers should also consider following group as well in
the culture and social influence:
Family structure has changed from extended family to
nuclear family.
Working women increasing
Immigration communities in some countries.
Religion
Consumer Buyer Behavior (cont…)
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Social Class
Marketing research uses social class as the main criterion in identifying market
segments because such a classification reveals a lot about likely behavior.
Social class is an indicator of lifestyle and its existence exerts a strong influence
on individual consumers.
‘Eating out’ are once pleasures only enjoyed regularly by upper class members
of society. Today, ‘eating out’ marketers target a wide variety of consumers,
with a different marketing mix strategy being designed for each identifiable
group of consumers.
Consumer Buyer Behavior (cont…)
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Reference Group
A reference group plays a more intimate role in influencing
consumers.
This is a group of people whose standards of behavior influence a
person’s attitudes, opinions and values.
In general, people tend to imitate and seek advice from those
closest to them.
Reference groups can be small, for instance, the family group.
Model of Consumer Buying Behavior
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The basic steps in consumer buying behavior is shown
under the diagram.
The Adoption Process The marketer’s task is to create awareness and then guide
the consumer through subsequent stages of the process.
Without awareness of the new product, consumers cannot
even consider it as a solution to need-related problems.
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The Adoption Process (cont…) In the context of consumer buying behavior we can see
how each adopter group possess distinct characteristics:
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The Adoption Process (cont…) Innovators (2.5%) are likely to be younger, better educated, and relatively affluent
with a higher social status.
Early adopters (13.5%) possess many characteristics of innovators, but tend to
belong to more ‘local’ systems. Although social relationships are less broadly based,
they tend to be opinion leaders and are influential within their particular group.
The early majority (34%) is a group that is slightly above average in socioeconomic
terms. They rely heavily on marketing for information and are influenced by the
opinion leaders of the early-adopter category. They adopt new products before the
average consumer.
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The Adoption Process (cont…) Late majority (34%) adopters are more likely to adopt because
the innovation has been accepted by earlier groups. Social
pressure or economic considerations are more influential in this
group than personal characteristics.
Laggards (16%) make up the cautious group. They tend to be
older, with lower socio-economic status. The innovator group
may be considering a newer product before laggards have adopt
the original innovation.
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Past Paper Review December 2009 / Q 7
(a) Explain each of the following methods of segmenting consumer
markets, and give an example in each case:
(i) Geographic/Geodemographic
(ii) Behavioural
(iii) Psychographic (13 marks)
(b) Family Life Cycle is a demographic segmentation method. Identify
and describe six of the stages of the Family Life Cycle. (12 marks)
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Past Paper Review (cont…) Answer (a)
Geographic/geodemographic. Geographic segmentation involves dividing
markets into different geographic areas such as countries, regions, counties
and/ or cities and is based on the assumption that consumers within the
particular region will have a similar need or taste. An example of geographic
segmentation would be the car industry that would segment the markets by
countries; some countries require right hand drive cars and some left.
Geodemographic segmentation is based on the assumption that people in
certain geographic areas share similar demographic profiles, and there are
various segmentation systems such as ACORN or MOSAIC that provide
demographic classifications for different neighbourhoods.
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Past Paper Review (cont…) Answer (a)
Behavioural segmentation divides a market according to a
consumer’s purchase behaviour patterns. Examples of behavioural
segmentation would be loyal customers, usage rates, occasions and
benefits sought. An example of benefits sought could be the watch
market where some watches are bought on price, some for quality,
some as fashion items and some for specific needs such as
waterproofing. An example of occasions would be the greeting card
market that develops products for specific occasions such as Christmas,
birthdays etc. 31
Past Paper Review (cont…) Answer (a)
Psychographic segmentation divides a market according to a
customer’s lifestyle, attitudes and beliefs. For example, consumers may
aspire to, or have, a particular lifestyle which generates its own needs,
for instance, professionals who have a need for a particular type of
clothing and accessories such as briefcases etc. Attitudes such as a
concern for the environment can be used as a segmentation criterion
and examples of environmentally friendly products such as cleaning
materials and recyclable packaging would be targeted at this particular
segment. 32
Past Paper Review (cont…) Answer (b)
Refer slide 7 -8
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Past Paper Review (cont…) December 2007 / Q – 2 (c)
Explain why it is necessary to “segment” a market. (5
marks)
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Past Paper Review (cont…) Answers
Segmentation is a way for organisations to divide up the mass market
into smaller groups of potential customers with similar characteristics.
This allows the organisation to understand the needs of a particular
segment or segments and adjust its marketing strategy to satisfy those
needs. There are different methods of segmenting a market, such as:
● geographic segmentation
● demographic segmentation e.g. age, sex, life cycle
● psychographic segmentation, such as attitudes, beliefs, lifestyle
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Past Paper Review (cont…) Answers
Once an organisation has segmented its market it can then decide which customer
groups to target. An organisation needs to decide whether to target just one
segment (often known as niche marketing) or multiple segments (known as
differentiated marketing). If an organisation decides not to segment its market or to
offer the same marketing strategy to all segments this is known as undifferentiated
marketing. By deciding which segments to target an organisation can then develop a
marketing strategy aimed at those segments which means resources and skills can
be applied in the most efficient manner. Target marketing also allows the
organisation to consider which segments the organisation is most able to compete
in and which will be most profitable for the organisation.
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Past Paper Review (cont…) Finally once an organisation has decided which segments to target it
must develop a product proposition, this is known as positioning. It is a
way of using the marketing mix to differentiate its products from other
competitors in that market. By segmenting its market into small
groups an organisation can gain a close understanding and relationship
with its customers; this understanding will assist in developing a
unique product/brand position.
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Past Paper Review (cont…) June 2008 / Q 1
(a) Briefly explain the terms Segmentation, Targeting and Positioning. (3
marks)
(b) Briefly explain three different ways of segmenting a market and give an
example for each, using a brand or product you are familiar with. (9 marks)
(c) Briefly explain three different options available to an organisation when
choosing which segments to target, giving an example of each option. (9
marks)
(d) Explain two benefits an organisation may gain by segmenting its market. (4
marks)
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Past Paper Review (cont…) Answers (a)
Segmentation. Is a way of dividing a market into smaller groups of
consumers with similar characteristics.
Targeting. Is the analysis and evaluation an organisation undertakes
when deciding which segments to offer products to.
Positioning. Positioning describes the way an organisation develops a
unique competitive proposition for their products within a target
market.
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Past Paper Review (cont…) Answers (b)
Organisations segment their markets into groups of customers with similar
characteristics in order that they can adjust their marketing mix to meet the
needs of these customers. Below are three methods an organisation may use:
Demographic segmentation. Demographics is grouping customers by
criteria such as age (e.g. 16–18 years, or 50 plus), stage in their family life cycle
(e.g. single, married, married with children) or income (often defined as Social
Class where consumers are divided into six classifications such as A for Upper
Middle Class, B for Middle Class, C1 Lower Middle Class, C2 Skilled Working
Class, D Working Class and E low level subsistence.
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Past Paper Review (cont…) Answers (b)
An example of demographic segmentation can be seen in broadcasting
organisations that develop television channels such as Nickelodeon Junior,
which is aimed at children. Another example would be British Airways who
sell seats according to income, e.g. coach class aimed at low to middle
income, business class or first class aimed at higher income earners.
Situational segmentation. This is where a market is segmented by a
particular situation or occasion. An example would be Thornton’s
chocolate who produce chocolates for Easter, Christmas, Mother’s Day etc.
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Past Paper Review (cont…) Answers (b)
Geographic segmentation. Geographic segmentation is
where customers are grouped by location, e.g. a country or
a city/town. An example of geographic segmentation can
be seen in newspapers that segment their marketing
geographically and produce local papers for customers in
the local area, which contain local news.
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Past Paper Review (cont…) Answers (c)
Once an organisation has segmented its market, it needs to decide
which segments to target with its products. Below are the choices an
organisation can make when deciding which segments to target.
Undifferentiated marketing. This is where an organisation
markets its product/brand to the whole market without segmenting
or changing its marketing mix. An example would be Heinz baked
beans.
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Past Paper Review (cont…) Answers (c)
Niche marketing or single segment. This is where an organisation
chooses a single segment to sell its products to. Organisations choosing
Niche marketing are able to focus on a particular segment to gain a
deep understand of their needs. This allows the organisation to develop
their marketing mix specifically for the needs of this segment resulting
in closer customer satisfaction. An example of Niche marketing would
be an exclusive fashion brand such as Chanel which targets high-
income individuals only and restrict distribution of its products to
retail outlets aimed at them. 44
Past Paper Review (cont…) Answers (c)
Differentiated marketing. This is where an organisation
chooses to target two or more segments and varies its
product/brands accordingly to meet the different needs of
these segments. An example would be a car manufacturer
such as Mercedes who will design cars for different
segments, e.g. a saloon car for families and a sports car for
individuals. 45
Past Paper Review (cont…) Answers (d)
Organisations are able to gain a deeper understanding of
customer needs and therefore are able to produce products and
develop a marketing mix that are more closely suited to those
needs, resulting in more satisfied and loyal customers.
Targeting. Organisations are able to choose the segments that are
the most profitable for an organisation and/or most suited to the
strengths and capabilities of an organisation.
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Q & A
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