Market Segmentation in a Competitive Environment

Prof. G.M. Chowdhury IBA, DU

February 2013
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Copyright 2004 Pearson Education Canada Inc.

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Chapter Objectives
We focus on the following questions:
What are the different levels of market segmentation? How can a company divide a market into segments? How should a company choose the most attractive target markets? What are the requirements for effective segmentation?
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Copyright 2004 Pearson Education Canada Inc.

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Market Segmentation
Market Segmentation is the subdividing of market into homogeneous sub-set of customers, where any subset may conceivably be selected as market target to be reached with distinct Marketing Mix Philip Kotler, Marketing Guru

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Copyright 2004 Pearson Education Canada Inc.

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Market segmentation, targeting and positioning

Marketers are to take three major steps:
Identify and profile distinct groups of buyers who differ in their needs and preferences (market segmentation). Select one or more market segments to enter (market targeting). For each target segment, establish and communicate the key distinctive benefit(s) of the companys market offering (market positioning).
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Copyright 2004 Pearson Education Canada Inc.

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Segmentation profile
A segment profile is a detailed description of the market segment across a range of factors and measures. It is designed to provide the organization with a good understanding of consumers within each segment for comparison and strategy purposes. Certain customer issues may be defined using segmentation, like:
Characteristics of your target customers Customer lifestyle characteristics Where more of these customers live Untapped potential in a market Strategies for marketing your products and services 4/21/2013
Copyright 2004 Pearson Education Canada Inc.

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Levels of Market Segmentation

Mass marketing (No segmentation)
engage in the mass production, distribution, and promotion of one product for all buyers. Henry Ford epitomized this strategy when he offered the Model T Ford in any color, as long as it is black.

Segment marketing
a large identifiable group within a market, with similar wants, purchasing power, geographical location, buying attitudes, or buying habits. Niche marketing Local marketing Individual marketing
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Levels of Market Segmentation .. Contd.

Niche Marketing
A niche is a more narrowly dened group, typically a small market whose needs are not being well served. For example, ESPN targets a niche of sports lovers

Local marketing
Marketing programs that are tailored to the needs and wants of local customer groups. Citibank, for instance, adjusts its banking services in each branch depending on neighborhood demographics

Individual marketing
The ultimate level of segmentation leads to segments of one, customized marketing, or one-to-one marketing. For example the tailor in Bangladesh making a made to order suit.
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Copyright 2004 Pearson Education Canada Inc.

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Market Segmentation Procedure

Survey stage
The researcher conducts exploratory interviews and focus groups to gain insight into customer motivations, attitudes, and behavior.

Analysis of findings stage

The researcher applies factor analysis to the data to remove highly correlated variables, then applies cluster analysis to create a specified number of maximally different segments.

Profiling stage
Each cluster is proled in terms of its distinguishing attitudes, behavior, demographics, psychographics, and media patterns, then each segment is given a name based on its dominant characteristic.
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Copyright 2004 Pearson Education Canada Inc.

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Bases for Segmenting Consumer Markets

Geographic Segmentation Demographic Segmentation
Age and Life-Cycle Stage Gender Income Generation Social Class

Psychographic Segmentation
Lifestyle Personality Values
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Segmenting Consumer and Business Markets

Behavioural Segmentation
Occasions Benefits User Status Usage Rate Loyalty Status Buyer-Readiness Stage Attitude

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Major Segmentation Variables for Business Markets

Demographic 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 Variables 4. 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?

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Major Segmentation Variables for Business Markets

Purchasing Approaches 7. 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 relationships: Should we serve companies with which we have strong relationships or simply go after the most desirable companies? 10. Purchasing criteria: Should we serve companies that are seeking quality? Service? Price?

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Copyright 2004 Pearson Education Canada Inc.

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Major Segmentation Variables for Business Markets

Situational Factors 11. Urgency: Should we serve companies that need quick and sudden delivery or service? 12. Specic application: Should we focus on certain applications of our product rather than all applications? 13. Size of order: Should we focus on large or small orders?

Personal Characteristics 14. Buyerseller similarity: Should we serve companies whose people and values are similar to ours? 15. Attitudes toward risk: Should we serve risk-taking or risk-avoiding customers? 16. Loyalty: Should we serve companies that show high loyalty to their suppliers?

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Copyright 2004 Pearson Education Canada Inc.

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Levels and Patterns of Market Segmentation

Effective Segmentation
Measurable Substantial Accessible Differentiable Actionable

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MARKET TARGETING STRATEGIES

Evaluating Market Segments Firms must look at
segments overall attractiveness
such as size, growth, profitability, scale economies, and low risk

the companys objectives and resources

attractive segments could be dismissed because they do not mesh with the companys long-run objectives
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Copyright 2004 Pearson Education Canada Inc.

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MARKET TARGETING STRATEGIES .. Contd.

Selecting and Entering Market Segments
Single-Segment Concentration
Porsche concentrates on the sports car market

Selective Specialization
A radio station that wants to appeal to both older listeners well as under-25 listeners.

Product Specialization
A microscope manufacturer that sells microscopes to university laboratories, government laboratories, and commercial laboratories.
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MARKET TARGETING STRATEGIES .. Contd.

Selecting and Entering Market Segments
Market Specialization
a firm that sells an assortment of products only to university laboratories

Full Market Coverage

serve all customer groups with all of the products they might need. Examples include IBM (computer market) and GM (vehicle market)
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Five Patterns of Target Market Selection

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REAL WORLD EXAMPLES OF EFFECTIVE MARKET SEGMENTATION

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Examples .. Contd.
Demographics McDonald's segments by age, and directs different ads to different segments. Proctor and Gamble segments by gender and offers the "Secret" brand deodorant to women while marketing the Rogaine treatment for hair loss to men.
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Examples .. Contd.
Income Department store Neiman Marcus, Rolex watches and Rolls-Royce cars target the upper-income market segments of their respective industries. Wal-Mart is a successful example for retailing.
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Examples .. Contd.
Purchase history Backroads, the adventure travel firm studied what trips customers took, where they went, what season they preferred and whether they traveled with children. The company then proposed personalized packages to their customers and were able to substantially increase revenue.
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Examples .. Contd.
Causes Patagonia, a company selling high-end outdoor clothing, targets a high-income, environmentally aware market segment. It emphasizes quality and responsible production, appealing to outdoor enthusiasts and environmentalists.
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Examples .. Contd.
Niche
Magazine Soho, the publication targets small office, home office workers with a particular geographic emphasis on southeastern Wisconsin, USA. Hewlett-Packard markets all-in-one machines that print, fax and scan to segments of the home office market, while targeting larger businesses for higher-priced, single-function units. Advantages of niche marketing - Product Specialization - Narrows Competition - Reaches Target Audiences

- Price Setting Advantages

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