Copyright © 2003 Prentice-Hall, Inc. 10-1 Chapter 08 Identifying Market Segments and Targets.

Copyright © 2003 Prentice-Hall, Inc.

10-1

Chapter 08 Chapter 08 Identifying Market Identifying Market

Segments and TargetsSegments and Targets


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Kotler on Marketing ““Don’t buy Don’t buy

market share. market share. Figure out how Figure out how to earn it.”to earn it.”


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Chapter Objectives

The following topics will be covered in this chapter:The following topics will be covered in this chapter: Levels of Market SegmentationLevels of Market Segmentation - Segment Marketing- Segment Marketing

- Niche Marketing- Niche Marketing - Local Marketing- Local Marketing - Individual Marketing - Individual Marketing Bases for Segmenting Consumer MarketsBases for Segmenting Consumer Markets - Geographic Segmentation- Geographic Segmentation - Demographic Segmentation- Demographic Segmentation - Psychographic Segmentation- Psychographic Segmentation - Behavioral Segmentation- Behavioral Segmentation Bases for Segmenting Business MarketsBases for Segmenting Business Markets Market TargetingMarket Targeting


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Market Segmentation Target marketing requires marketers to take three Target marketing requires marketers to take three

major steps:major steps: Identify and profile distinct groups of buyers who differ in Identify and profile distinct groups of buyers who differ in

their needs and preferences (market segmentation).their needs and preferences (market segmentation). Select one or more market segments to enter (market Select one or more market segments to enter (market

targeting).targeting). For each target segment, establish and communicate the For each target segment, establish and communicate the

key distinctive benefit(s) of the company’s market offering key distinctive benefit(s) of the company’s market offering (market positioning).(market positioning).

The starting point for discussing segmentation is mass The starting point for discussing segmentation is mass marketing. marketing.

Mass Marketing: Mass Marketing: the seller engages in the mass the seller engages in the mass production, mass distribution and mass promotion of one production, mass distribution and mass promotion of one product for all buyers.product for all buyers.


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Levels of Market Segmentation Segment Marketing:Segment Marketing:

Market SegmentMarket Segment Flexible Market Offering (2 Parts)Flexible Market Offering (2 Parts)

Naked Solution: the product and service elements that all Naked Solution: the product and service elements that all segment members valuesegment members value

Discretionary Options: some segment members valueDiscretionary Options: some segment members value

One way to identify Preference SegmentsOne way to identify Preference Segments Homogeneous PreferencesHomogeneous Preferences Diffused PreferencesDiffused Preferences Clustered PreferencesClustered Preferences


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Figure : Basic

Market-Preference Patterns


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Levels and Patterns of Market Segmentation

Niche MarketingNiche Marketing

Ex: Crack, Itchguard, Meswak, Star CricketEx: Crack, Itchguard, Meswak, Star Cricket Local MarketingLocal Marketing

Ex: Matrimonial Service Providers Ex: Matrimonial Service Providers Individual Customer MarketingIndividual Customer Marketing

Customerization: combines operationally driven mass customization with customized marketing in a way that empowers consumers to design the product and service offering of their choice. Ex: Berger Color BankEx: Berger Color Bank


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Levels of Market Segmentation

Market Segmentation ProcedureMarket Segmentation Procedure Needs-Based Market Segmentation ApproachNeeds-Based Market Segmentation Approach


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Table : Steps in Segmentation Process

1. Needs-Based 1. Needs-Based SegmentationSegmentation

Group customers into segments based on similar needs Group customers into segments based on similar needs and benefits sought by customer in solving a particular and benefits sought by customer in solving a particular consumption problem.consumption problem.

2. Segment Identification2. Segment Identification For each needs-based segment, determine which For each needs-based segment, determine which demographics, lifestyles, and usage behaviors make the demographics, lifestyles, and usage behaviors make the segment distinct and identifiable (actionable).segment distinct and identifiable (actionable).

3. Segment 3. Segment AttractivenessAttractiveness

Using predetermined segment attractiveness criteria Using predetermined segment attractiveness criteria (such as market growth, competitive intensity, and (such as market growth, competitive intensity, and market access), determine the overall attractiveness of market access), determine the overall attractiveness of each segment.each segment.

4. Segment Profitability4. Segment Profitability Determine segment profitability.Determine segment profitability.

5. Segment Positioning5. Segment Positioning

6. Segment Acid Test6. Segment Acid Test

7. Marketing Mix 7. Marketing Mix StrategyStrategy

For each segment, create a “value proposition” and For each segment, create a “value proposition” and product-price positioning strategy based on that product-price positioning strategy based on that segment’s unique customer needs and characteristics.segment’s unique customer needs and characteristics.

Create ‘segment storyboard’ to test the attractiveness of Create ‘segment storyboard’ to test the attractiveness of each segment’s positioning strategieseach segment’s positioning strategies

Expand segment positioning strategy to include all Expand segment positioning strategy to include all aspects of the marketing mix.aspects of the marketing mix.


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Bases for Segmenting Consumer Markets

Bases for Segmenting Consumer MarketsBases for Segmenting Consumer Markets Geographic Segmentation Demographic Segmentation Psychographic Segmentation Behavioral Segmentation


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Table: Major Segmentation Variables for Consumer Markets

GeographicGeographic

RegionRegion South India, western Region, North, EastSouth India, western Region, North, East

City City Class-I Cities, Class-II Cities, Metro Cities, Cities with a Class-I Cities, Class-II Cities, Metro Cities, Cities with a Population of 0.5 Million o 1 Million, Cities with a Population of 0.5 Million o 1 Million, Cities with a Population of Over 1 MillionPopulation of Over 1 Million

Rural and Semi-Urban Rural and Semi-Urban AreasAreas

Urban, suburban, ruralUrban, suburban, rural

ClimateClimate Northern southernNorthern southern

DemographicDemographic

AgeAge Under 6, 6-11, 12-19, 20-34, 35-49, 50-64, 65+Under 6, 6-11, 12-19, 20-34, 35-49, 50-64, 65+

Family sizeFamily size Young, single; young, married, no children; young, Young, single; young, married, no children; young, married, youngest child under 6; young, married, youngest married, youngest child under 6; young, married, youngest child under 6 or over ; older, married, with children; older, child under 6 or over ; older, married, with children; older, married, no children under 18; older, single; othermarried, no children under 18; older, single; other


Table: Major Segmentation Variables for Consumer Markets

GenderGender Male, femaleMale, female

IncomeIncome Low, lower middle, middle, upper middle, and highLow, lower middle, middle, upper middle, and high

OccupationOccupationUnskilled worker, skilled worker, petty traders, shop Unskilled worker, skilled worker, petty traders, shop owners, businessman/industrialist, self-employedowners, businessman/industrialist, self-employed

EducationEducation

Illiterate, school upto 4 years, school between 5 to 9 Illiterate, school upto 4 years, school between 5 to 9 years, SSC/ HSC, non-graduate, years, SSC/ HSC, non-graduate, graduate/postgraduate (general), graduate/postgraduate (general), graduate/postgraduate (professional)graduate/postgraduate (professional)

PsychographicPsychographic

Socioeconomic Socioeconomic Classification (SEC)Classification (SEC)

A1, A2, B1, B2, C, D, E1, E2A1, A2, B1, B2, C, D, E1, E2

LifestyleLifestyle Culture-oriented, sports-oriented, outdoor-orientedCulture-oriented, sports-oriented, outdoor-oriented

PersonalityPersonality Compulsive, gregarious, authoritarian, ambitiousCompulsive, gregarious, authoritarian, ambitious


BehavioralBehavioral

OccasionsOccasions Regular, specialRegular, special

BenefitsBenefits Quality, service, economy, speedQuality, service, economy, speed

User StatusUser StatusNon-user, ex-user, potential user, first-time user, Non-user, ex-user, potential user, first-time user, regular userregular user

User RateUser Rate Light, medium, heavyLight, medium, heavy

Loyalty StatusLoyalty Status None, medium, strong, absoluteNone, medium, strong, absolute

Readiness StageReadiness Stage Unaware, aware, informed, interested, desirous, Unaware, aware, informed, interested, desirous, intending to buyintending to buy

Attitude Toward Attitude Toward ProductProduct

Enthusiastic, positive, indifferent, negative, hostileEnthusiastic, positive, indifferent, negative, hostile


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Segmenting Consumer Markets1. Geographic Segmentation: Nations States Regions Countries Cities or Neighborhoods

2. Demographic Segmentation2. Demographic Segmentation Age and Life –Cycle Stages: Johnson & Johnson, Disney, Age and Life –Cycle Stages: Johnson & Johnson, Disney,

MTV, Aastha ChannelMTV, Aastha Channel Life StageLife Stage GenderGender IncomeIncome GenerationGeneration


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Segmenting Consumer and Business Markets

Social ClassSocial Class

3. 3. Psychographic Segmentation:

- Personality- Personality

- Values - Values - One of the most popular commercially available classification One of the most popular commercially available classification

systems based on psychographic measurements is-the SRI systems based on psychographic measurements is-the SRI Consulting Business Intelligence’s (SRIC-BI) VALS Framework.Consulting Business Intelligence’s (SRIC-BI) VALS Framework.

- The main dimensions are- The main dimensions are- Consumer MotivationConsumer Motivation (Horizontal (Horizontal Dimension) and Dimension) and Consumer ResourcesConsumer Resources (Vertical Dimension) (Vertical Dimension)


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VALS Network

Primary Motivation

Ideals Achievement Self-Expression

Thinkers Achievers

StriversBelievers

High ResourcesHigh Innovation

Low ResourcesLow Innovation

Experiencer

Makers

Survivors

Innovators


- Consumers are inspired by one of the three primary motivations- Ideals: those primarily motivated by ideals are guided by knowledge

and principles. Achievement: those primarily motivated by achievements are guided

by products and services that demonstrate success to their peers.. Self-expression: those primarily motivated by self-expression are

guided social or physical activity, variety and risk.

The four groups with higher resources are: Innovators-Successful, sophisticated, active, ‘take-charge’ people

with high self-esteem. Purchases often reflect cultivated tastes for relatively upscale, niche-oriented products and services.

Thinkers- Mature, satisfied, and reflective people who are motivated by ideals and who value order, knowledge and responsibility. They seek durability, functionality and value in products.

VALS Network


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VALS Network•Achievers- Successful, goal-oriented people who focus on career and family. They favor premium products that demonstrate success to their peers.•Experiencers- Young, enthusiastic, impulsive people who seek variety and excitement. They spend a comparatively high proportion of income on fashion, entertainment and socializing.

The other four groups with lower resources are:Believers- Conservative, conventional and traditional people with concrete beliefs. They prefer familiar products and are loyal to established brands.Strivers- Trendy and fun-loving people who are resource-constrained. They favor stylish products that emulate the purchases of those with greater material wealth.Makers- Practical, down-to-earth, self-sufficient people who like to work with their hands. They seek products with a practical or functional purpose.Survivors- Elderly, passive people whoa re concerned about change. They are loyal to their favorite brands.


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Segmenting Consumer Markets

4. Behavioral Segmentation:4. Behavioral Segmentation: Decision Roles-Decision Roles- - Initiator, ex- doctors- Initiator, ex- doctors

- Influencer, ex- pharmaceutical companies- Influencer, ex- pharmaceutical companies

- Decider, ex-patients’ relatives- Decider, ex-patients’ relatives

- Buyer, ex-patients’ relatives- Buyer, ex-patients’ relatives

- User, ex-patient- User, ex-patient

Behavioral Variables-Behavioral Variables- Occasions, ex- Archies & HallmarksOccasions, ex- Archies & Hallmarks Benefits, ex- Clinic, Pantene, Sunsilk, Head & ShoulderBenefits, ex- Clinic, Pantene, Sunsilk, Head & Shoulder


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Segmenting Consumer and Business Markets

User Status, ex- non-users, ex-users, potential users , first time User Status, ex- non-users, ex-users, potential users , first time users etcusers etc

Usage Rate, ex- light, medium, heavyUsage Rate, ex- light, medium, heavy Loyalty Status-Loyalty Status-

Hard-core loyals- loyal to only one brand all the timeHard-core loyals- loyal to only one brand all the time Split loyals- loyal to two or three brandsSplit loyals- loyal to two or three brands Shifting loyals- shift loyalty from one brand to anotherShifting loyals- shift loyalty from one brand to another Switchers- show no loyalty to any brandSwitchers- show no loyalty to any brand

Attitude, ex-enthusiastic, positive, indifferent, negative and Attitude, ex-enthusiastic, positive, indifferent, negative and hostilehostile


Behavioral Segmentation Breakdown

Loyal toOther Brand

SwitcherLoyal to

Brand

Light User

Regular User

Heavy User

Negative Opinion

Neutral Favorable Opinion

Target Market

Unaware Aware

Not Tried Tried

RejectorNot Yet

Tried Repeated


The Conversion Model

It measures the strength of consumers’ psychological commitment to brands and their openness to change.

The model segments users of a brand into four groups, based on- Strength of Commitment, from Low to High.

1. Convertible- most likely to defect

2. Shallow- uncommitted to the brand and could switch, some are actively considering alternatives

3. Average- also committed to the brand they are using, but, not as strongly- they are unlikely to switch brands in the short term

4. Entrenched- highly unlikely to switch brands in the foreseeable future


The Conversion Model

The model also classifies non-users of a brand into four groups, based on their – Balance of Disposition ad Openness to Trying the Brand, from Low to High.

1. Strongly Unavailable- unlikely to switch the brand- their preference lies strongly with their current brands

2. Weakly Unavailable- not available to the brand because their preference lies with their current brand, although not very strongly

3. Ambivalent- as attracted to the brand as they are to their current brands

4. Available- most unlikely to be acquired in the short run


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Bases for Segmenting Business MarketsDemographics:

1. Industry: Which industries should we serve?2. Company size: What size companies should we serve?

3. Location: What geographical areas should we serve?

Operating Variables4. Technology: What customer technologies should we focus on?

5. User or nonuser status: Should we serve heavy users, medium users, light users, or nonusers?

6. Customer capabilities: Should we serve customers needing many or few services?

Purchasing Approaches7. Purchasing-function organization: Should we serve companies with highly

centralized or decentralized purchasing organizations?

8. Power structure: Should we serve companies that are engineering dominated, financially dominated, and so on?

9. Nature of existing relationship: Should we serve companies with which we have strong relationships or simply go after the most desirable companies?


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Bases for Segmenting Business Markets

10. General purchasing policies: Should we serve companies that prefer leasing? Service contract? Systems purchases? Sealed bidding?

11. Purchasing criteria: Should we serve companies that are seeking quality? Service? Price?

Situational Factors12. Urgency: Should we serve companies that need quick and sudden delivery

of services?

13. Specific application: Should we focus on certain application of our product rather than all applications?

14. Size or order: Should we focus on large or small orders?

Personal Characteristics15. Buyer-seller similarity: Should we serve companies whose people and

values are similar to ours?

16. Attitude toward risk: Should we serve risk-taking or risk-avoiding customers?

17. Loyalty: Should we serve companies that show high loyalty to their suppliers?


Market Targeting Effective Segmentation Criteria:Effective Segmentation Criteria:

Measurable:Measurable: size, purchasing power and characteristics size, purchasing power and characteristics of the segments can be measured.of the segments can be measured.

Substantial: Substantial: segments are large and profitable enough segments are large and profitable enough to serve.to serve.

Accessible: Accessible: segments can be effectively reached and segments can be effectively reached and served.served.

Differentiable: Differentiable: segments are conceptually segments are conceptually distinguishable and respond differentlydistinguishable and respond differently

Actionable: Actionable: effective programs can be formulated for effective programs can be formulated for attracting and serving the segments.attracting and serving the segments.

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Market Targeting Evaluating and Selecting the Market SegmentsEvaluating and Selecting the Market Segments

Single-Segment ConcentrationSingle-Segment Concentration

A firm selects and serves only one segment. Ex- Maternity A firm selects and serves only one segment. Ex- Maternity Hospitals & ClinicsHospitals & Clinics

Selective SpecializationSelective Specialization A firm selects a number of segments, each objectively attractive A firm selects a number of segments, each objectively attractive

and appropriate. Ex- Luxand appropriate. Ex- Lux

Market SpecializationMarket Specialization

A firm makes a certain product that it sells to several different A firm makes a certain product that it sells to several different market segments. Ex- Microscope producers for university, market segments. Ex- Microscope producers for university, government and commercial laboratories.government and commercial laboratories.


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Market TargetingFull Market Coverage:The firm attempts to serve all customer groups with all the products they might need.

Only large companies can undertake a full market coverage strategy. Ex: Microsoft, Coca-Cola ,General Motors, etc

•Undifferentiated Marketing: the firm ignores segment differences and goes after the whole market with one offer.

•Differentiated Marketing: the firm operates in several market segments and designs different products for each.


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Market Targeting Higher costs using differentiated marketing Higher costs using differentiated marketing

include:include: Product Modification CostProduct Modification Cost Manufacturing CostManufacturing Cost Administrative CostAdministrative Cost Inventory CostInventory Cost Promotion CostPromotion Cost


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Market Targeting Additional Considerations

Segment-By-Segment Invasion Plans

Figure: Segment-by-Segment Invasion Plan


Ethical Choice of Market Targets

- Marketers must target segments carefully to avoid consumer backlash

- Singles and elderly people may not want to be identified as singles or olds.

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Market Targeting


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Thank You

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Copyright © 2003 Prentice-Hall, Inc. 10-1 Chapter 08 Identifying Market Segments and Targets.

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