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Market segmentation why segment markets?
There are several important reasons why businesses should attempt to segment their markets carefully. These are summarised below: Better matching of customer needs Customer needs differ. Creating separate offers for each segment makes sense and provides customers with a better solution Enhanced profits for business Customers have different disposable income. They are, therefore, different in how sensitive they are to price. By segmenting markets, businesses can raise average prices and subsequently enhance profits Better opportunities for growth
Prof. ma !ankar "ishra, #sso. Professor, $BC!, ! %&' # niversity, Bhubaneswar
"arket segmentation can build sales. (or e)ample, customers can be encouraged to *trade+up* after being introduced to a particular product with an introductory, lower+priced product Retain more customers Customer circumstances change, for e)ample they grow older, form families, change ,obs or get promoted, change their buying patterns. By marketing products that appeal to customers at different stages of their life -*life+cycle*., a business can retain customers who might otherwise switch to competing products and brands Target marketing communications Businesses need to deliver their marketing message to a relevant customer audience. $f the target market is too broad, there is a strong risk that -/. the key customers are missed and -0. the cost of communicating to customers becomes too high 1 unprofitable.
By segmenting markets, the target customer can be reached more often and at lower cost Gain share of the market segment nless a business has a strong or leading share of a market, it is unlikely to be ma)imising its profitability. "inor brands suffer from lack of scale economies in production and marketing, pressures from distributors and limited space on the shelves. Through careful segmentation and targeting, businesses can often achieve competitive production and marketing costs and become the preferred choice of customers and distributors. $n other words, segmentation offers the opportunity for smaller firms to compete with bigger ones. Segment attractiveness #fter segmenting the market, businesses must select those segments that it aims to target.
(ive main factors influence attractiveness of a segment:
the
Segment si e - $t must be big enough to be worth targeting. "any larger businesses ignore small segments on the basis that, even if they were to dominate the market, it would have an insignificant effect on their overall sales and profits. This creates opportunities for smaller, more fle)ible businesses to e)ploit the segment. 2on't forget 3 it is not always easy to measure the si4e -and growth. of a segment. &ften a business has to make a ,udgement based on estimates.5 Segment growth - !egments with good long+term growth prospects are, by definition, the most attractive. 6owever, businesses should be aware that segment growth may vary 3 particularly if the segment is based on the 7life+cycle8 of one or a limited number of products. #lso,
faster growth segments are likely to attract more competition. Segment profitabi!ity - The segment should be capable of delivering profits of the right value, assuming it can be marketed to effectively. &therwise, why bother9 The required 7return on investment8 will be a key factor in determining whether a business invests in the segment. $t is important to work out which businesses are earning profits in the segment. $t might be that there is a dominant market !eader 3 who also dominates the segment profit + leaving little for e)isting operators or potential new market entrants. "urrent and potentia! competition - The strength of e)isting and potential competition is a key issue in deciding whether to target and enter a segment. Business capabi!ities - 2oes the business have the capabilities -e.g. brands, product
knowledge. to succeed in a segment9 "arketing history is littered with e)amples of businesses that entered segments with little or no knowledge or resources 3 and came unstuck:. Bases of segmentation $t is widely thought in marketing that than segmentation is an art, not a science. The key task is to find the variable, or variables that split the market into actionable segments There are two types of segmentation variab!es: -/. #eeds -0. $rofi!ers The basic criteria for segmenting a market are customer needs. To find the needs of customers in a market, it is necessary to undertake market research.
Profilers are the descriptive, measurable customer characteristics -such as location, age, nationality, gender, income. that can be used to inform a segmentation e)ercise. The most common profilers used in customer segmentation include the following: $rofi!er E%amp!es Geographic ; <egion of the country ; rban or rural Demographic ; #ge, se), family si4e ; $ncome, occupation, education ; <eligion, race, nationality Psychographic ; !ocial class ; =ifestyle type ; Personality type
Behavioural ; Product usage + e.g. light, medium ,heavy users ; Brand loyalty: none, medium, high ; Type of user -e.g. with meals, special occasions. &emographic segmentation &emographic segmentation consists of dividing the market into groups based on variables such as age, gender family si4e, income, occupation, education, religion, race and nationality. #s you might e)pect, demographic segmentation variables are amongst the most popular bases for segmenting customer groups. This is partly because customer wants are closely linked to variables such as income and age. #lso, for practical reasons, there is often much more data available to help with the demographic segmentation process.
The main demographic segmentation variables are summarised below: Age Consumer needs and wants change with age although they may still wish to consumer the same types of product. !o "arketers design, package and promote products differently to meet the wants of different age groups. >ood e)amples include the marketing of toothpaste -contrast the branding of toothpaste for children and adults. and toys -with many age+based segments.. Life-cycle stage # consumer stage in the life+cycle is an important variable + particularly in markets such as leisure and tourism. (or e)ample, contrast the product and promotional approach of Club /?+@A holidays with the slightly more refined and sedate approach adopted by !aga 6olidays.
Gender >ender segmentation is widely used in consumer marketing. The best e)amples include clothing, hairdressing, maga4ines and toiletries and cosmetics. Income #nother popular basis for segmentation. "any companies target affluent consumers with lu)ury goods and convenience services. >ood e)amples include Coutts bankB "oet C Chandon champagne and Dlegant <esorts + an up+market travel company. By contrast, many companies focus on marketing products that appeal directly to consumers with relatively low incomes. D)amples include #ldi -a discount food retailer., #irtours holidays, and discount clothing retailers such as TE "a)). Social class
"any "arketers believe that a consumers *perceived* social class influences their preferences for cars, clothes, home furnishings, leisure activities and other products C services. There is a clear link here with income+based segmentation. Lifestyle "arketers are increasingly interested in the effect of consumer *lifestyles* on demand. nfortunately, there are many different lifestyle categorisation systems, many of them designed by advertising and marketing agencies as a way of winning new marketing clients and campaigns: $sychographic segmentation Psychographic segmentation is sometimes also referred to as behavioura! segmentation.
This type of segmentation divides the market into groups according to customers' !ifesty!es( $t considers a number of potential inf!uences on buying behaviour, including the attitudes, e)pectations and activities of consumers. $f these are known, then products and marketing campaigns can be customised so that they appeal more specifically to customer motivations. The main types segmentation are: of psychographic
)ifesty!e 3 different people have different lifestyle patterns and our behaviour may change as we pass through different stages of life. (or e)ample, a family with young children is likely to have a different lifestyle to a much older couple whose children have left home, and there are, therefore, likely to be significant differences in consumption patterns between the two groups. &ne of the
most well+known lifestyle models, the 7sagacity !ifesty!e mode!*, identifies four main stages in a typical lifestyle:
2ependent -e.g., children still living at home with parents.B Pre+family -with their own households but no children.B (amily -parents with at least one dependent child.B and =ate -parents with children who have left home, or older childless couples..
Dach group is then further subdivided according to income and occupation. +pinions, interests and hobbies 3 this covers a huge area and includes consumers' political opinions, views on the environment, sporting and recreational activities and arts and cultural issues. The opinions that consumers hold and the activities they engage in will have a huge impact on the products they buy and
marketers need to be aware of any changes. >ood recent e)amples include the growth of demand for organic foods or products that are -or are 7perceived8 to be. environmentally friendly &egree of !oya!ty 3 customers who buy one brand either all or most of the time are valuable to firms. By segmenting markets in this way, firms can adapt their marketing in order to retain loyal customers, rather than having to focus constantly on recruiting new customers. $t is often said that it is ten times more profitable selling to e)isting customers than trying to find new ones. !o the moral is 3 work hard at keeping your customers. +ccasions 3 this segments on the basis of when a product is purchased or consumed( (or e)ample, some consumers may only purchase flowers, wine or bo)es of chocolates for celebrating birthdays or Christmas, whereas other consumers may buy these products on a weekly basis.
"arketers often try to change customer perception of the best time to consumer a product by promoting alternative uses for a product. (or e)ample, recently Eellogg's has attempted to change the image of cereals to that of an %any time' snack, rather than simply a breakfast meal. Benefits sought 3 this requires marketers to identify and understand the main benefits consumers look for in a product. Toothpaste, for e)ample, is not only bought to maintain healthy teeth and gums, but also because of its taste and in order to help combat bad breath: -sage 3 some markets can be segmented into light, medium and heavy user groups. Behavioura! segmentation Behavioural segmentation divides customers into groups based on the way they respond to, use or know of a product.
Behavioural segments can group consumers in terms of: Occasions Fhen a product is consumed or purchased. (or e)ample, cereals have traditionally been marketed as a breakfast+related product. Eelloggs have always encouraged consumers to eat breakfast cereals on the *occasion* of getting up. "ore recently, they have tried to e)tend the consumption of cereals by promoting the product as an ideal, anytime snack food. Usage !ome markets can be segmented into light, medium and heavy user groups Loyalty =oyal consumers + those who buy one brand all or most of the time + are valuable customers. "any companies try to segment their markets into those where loyal customers can be found and retained
compared with segments where customers rarely display any product loyalty. The holiday market is an e)cellent e)ample of this. The *mass+market* overseas tour operators such as Thomson, #irtours, G"C and (irst Choice have very low levels of customer loyalty + which means that customers need to be recruited again every year. Compare this with specialist, niche operators such as =askarina which has customers who have traveled with the brand in each of the last /H+0A years. Benefits Sought #n important form of behavioural segmentation. Benefit segmentation requires "arketers to understand and find the main benefits customers look for in a product. #n e)cellent e)ample is the toothpaste market where research has found four main *benefit segments* + economicB medicinal, cosmetic and taste.
Geographic segmentation >eographic segmentation tries to divide markets into different geographical units: these units include: ; <egions: e.g. in the E these might be Dngland, !cotland, Fales Iorthern $reland or -at a more detailed level. counties or ma,or metropolitan areas ; Countries: perhaps categorised by si4e, development or membership of geographic region ; City 1 Town si4e: e.g. population within ranges or above a certain level ; Population density: e.g. urban, suburban, rural, semi+rural ; Climate: e.g. Iorthern, !outhern >eographic segmentation is an important process + particularly for multi+national and global businesses and brands. "any such
companies have regional and national marketing programmes which alter their products, advertising and promotion to meet the individual needs of geographic units. Re.uirements for Effective Segmentation Clearly there are many ways to segment a market, but not all segmentations are effective. $ndeed, there is quite a gap between the sophisticated approaches to segmentation that are sometimes suggested and what is actually used by practitioners, (or e)ample, buyers of table salt may divide into blond and brunette customers, hut hair colour obviously docs not affect the purchase of salt. (urthermore, if all salt buyers bought the same amount each month, believed all salt is the same and wanted to pay the same price, the company would not benefit from segmenting this market. To be useful, market segments must have the following characteristics:
Measurabi!ity( The si4e, buying power and profiles of the segments need measuring. Certain segmentation variables are difficult to measure. (or e)ample, there arc @A million left+ handed people in Durope 3 almost equalling the entire population of Canada + yet few firms target them. The crucial problem may be that the segment is hard to identify and measure. There are no data on the demographics of left+ handed people and governments do not keep track of left+handedness in their surveys. Private data companies keep reams of statistics on other demographic segments, but not on left+handers.
- /ccessibi!ity( Can market segments be effectively reached and served9 There are many heavy drinkers, but their
imbibing is all they have in common. D)cept for a few $slamic states, heavy drinkers come from all countries, covering all ages, income groups and psychologies, and both genders. nless this group lives or shops at certain places or sees certain media, its members will be difficult to target. - Substantia!ity. The market segments are large or profitable enough to serve. # segment should be the largest possible homogeneous group worth pursuing with a tailored marketing programme. $t would not pay, for e)ample, for a car manufacturer to develop cars for persons whose height is less than four feet. - /ctionabi!ity( Dffective programmes need to attract and serve the segments. (or e)ample, although the "idland Bank identified seven market segments and developed Jector and &rchard accounts
for them, its resources were too small to develop special marketing programmes for each segment. $t had a limited advertising budget and had to serve all the segments using the same people in the branches. Targeting strategies &nce a firm has successfully identified the segments within a market, the ne)t step is to target these segments with products that closely match the needs of the customers within that segment. There are a number of targeting strategies, including: #iche0concentration marketing 3 this is concerned with targeting one particular, well+defined group of customers -a niche. within the overall market. Gordan's, the cereal company, adopted this approach by targeting groups of customers interested in organic products at a time when
this group of consumers represented a relatively small proportion of the overall market. Iiche markets can be targeted profitably by small firms who have relatively small overheads and, therefore, do not need to achieve the volume of sales required by larger competitors. The main disadvantages of niche markets are that the potential for sales growth and economies of scale may be limited, and the survival of the firm may be seriously affected if sales begin to decline. Mass0undifferentiated marketing 3 this is concerned with selling a single product to the whole market. This strategy is based on the assumption that, in respect to the product in question, customers' needs are very similar if not identical. The main benefit for the firm is that it can produce on a large scale, benefiting from
low unit production costs via economies of scale. These lower costs can be passed on to the consumer in the form of lower prices because, although profit margins on each item sold may be lower, high sales volume should generate large profits overall. The main disadvantage of mass marketing is that, increasingly in today's markets, consumers are less interested in standardi4ed products and often prepared to pay premium prices for products that cater for their specific needs. &ifferentiated0se!ective marketing 3 this is concerned with targeting each segment with a product with its own marketing mi) designed to match the needs of the consumers within the segment. By tailoring products to meet consumer needs more closely, firms are likely to increase consumer satisfaction and generate a greater degree of consumer loyalty.
The differentiated approach also allows the firm to spread risks, so that it will be less affected by a decline in demand from one segment. The main disadvantages of this approach include confusion amongst customers when faced with do4ens of brands and lost economies of scale from shorter production runs and the additional costs of having to advertise several rather than one brand. $ositioning Fhat most will agree on is that Positioning is something -perception. that happens in the minds of the target market. $t is the aggregate perception the market has of a particular company, product or service in relation to their perceptions of the competitors in the same category. $t will happen whether or not a companyKs management is proactive, reactive or passive about the on+going process of evolving a
position. But a company can positively influence the perceptions through enlightened strategic actions. $n branding, it is the 7added value8 or augmented elements that determine a brand's positioning in the market place. Positioning can be defined as follows: Positioning is how a product appears in relation to other products in the market Brands can be positioned against competing brands on a perceptua! map( # perceptual map defines the market in terms of the way buyers perceive key characteristics of competing products. The basic perceptual map that buyers use maps products in terms of their price and quality, as illustrated below:
$roduct positioning process >enerally, the product positioning process involves: /. 2efining the market in which the product or brand will compete -who the relevant buyers are. 0. $dentifying the attributes -also called dimensions. that define the product KspaceK @. Collecting information from a sample of customers about their perceptions of each product on the relevant attributes L. 2etermine each productKs share of mind
H.
2etermine each productKs current location in the product space M. 2etermine the target marketKs preferred combination of attributes -referred to as an ideal vector. N. D)amine the fit between: o The position of your product o The position of the ideal vector ?. Position. The process is similar for positioning your companyKs services. !ervices, however, donKt have the physical attributes of products + that is, we canKt feel them or touch them or show nice product pictures. !o you need to ask first your customers and then yourself, what value do clients get from my services9 6ow are they better off from doing business with me9 #lso ask: is there a characteristic that makes my services different9 Frite out the value customers derive and the attributes your services offer to create the first draft of your positioning. Test it on
people who donKt really know what you do or what you sell, watch their facial e)pressions and listen for their response. Fhen they want to know more because youKve piqued their interest and started a conversation, youKll know youKre on the right track.

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Market segmentation why segment markets?

Prof. ma !ankar "ishra, #sso. Professor, $BC!, ! %&' # niversity, Bhubaneswar

Prof. ma !ankar "ishra, #sso. Professor, $BC!, ! %&' # niversity, Bhubaneswar

(ive main factors influence attractiveness of a segment:

Prof. ma !ankar "ishra, #sso. Professor, $BC!, ! %&' # niversity, Bhubaneswar

Prof. ma !ankar "ishra, #sso. Professor, $BC!, ! %&' # niversity, Bhubaneswar

Prof. ma !ankar "ishra, #sso. Professor, $BC!, ! %&' # niversity, Bhubaneswar

Prof. ma !ankar "ishra, #sso. Professor, $BC!, ! %&' # niversity, Bhubaneswar

Prof. ma !ankar "ishra, #sso. Professor, $BC!, ! %&' # niversity, Bhubaneswar

Prof. ma !ankar "ishra, #sso. Professor, $BC!, ! %&' # niversity, Bhubaneswar

Prof. ma !ankar "ishra, #sso. Professor, $BC!, ! %&' # niversity, Bhubaneswar

Prof. ma !ankar "ishra, #sso. Professor, $BC!, ! %&' # niversity, Bhubaneswar

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