Lesson 1

MARKET
SEGMENTATION
The Business Venture and Its Market
Scanning of the Environment
Entrepreneurial
1. Physical Environment
1. Concepts and Principles
2. Societal Environment
2. Characteristics
3. Industry Environment
3. Skills
4. Internal Environment

Entrepreneurial Business
Competency Competency
Competitive &
distinctive
advantage

Nature & Form

of the Business
to Open

WHAT IS THE MARKET?

• When the product is produced to exploit business opportunity, it is
designed specifically for the defined market.

For example: Powdered milk products are available in the market.

Some are intended for infants, others are for young
adults and senior citizens. Their contents and
nutrients differ from one another.

• This entrepreneurial approach indicates that the business has clearly

identified the specific market for the product.
MARKET IDENTIFICATION – a strategic market approach and
process that is intended to define specific customer of the product.

THREE (3) STRATEGIC MARKETING APPROACHES

1. Market segmentation
2. Market targeting
3. Market positioning

MARKET SEGMENTATION – an entrepreneurial marketing

strategy designed primarily to divide the market into small segments
with distinct needs, characteristics or behavior (Kotler & Armstrong,
2014)
• The entrepreneurial must divide the total market and focus his
business strategy to a smaller market that is considered as
homogenous.
• The identified market segment will be market that can served better
by the entrepreneurial venture based on its competencies.
• This entrepreneurial approach is sometimes called niche
entrepreneurial marketing.

METHODS FOR SEGMENTING THE MARKET

1. Geographic Segmentation
2. Demographic Segmentation
3. Psychological Segmentation
4. Behavioral Segmentation
GEOGRAPHIC SEGMENTATION
• The total market is divided according to geographical locations in the
Philippines like provincial regions, cities, provinces, municipalities and
even barangay units.

VARIABLES THAT MUST BE CONSIDERED:

1. Climate
2. Dominant ethic group
3. Culture
4. Density (either rural or urban)
5. Classification of the geographical unit (e.g. first ,second, third class,
etc.)
GEOGRAPHIC SEGMENTATION
FOR EXAMPLE:

A telephone company is providing unlimited call and text

services throughout Luzon. The features of these services for
Sorsogon City may be different to those for consumers living in
Legaspi City.

• The company must make sure that their services will fit the needs
of respective market segments even though they belong to the
same geographical unit.
DEMOGRAPHIC SEGMENTATION
• The market is divided based on the demographic variables of the
consumers.

VARIABLES THAT MUST BE CONSIDERED:

1. Gender 5. Education
2. Age 6. Religion
3. Income 7. Ethnic Group
4. Occupation 6. Family size
DEMOGRAPHIC SEGMENTATION
• The most widely used and easiest method for segmenting the
market.
• Various researches determined that there exist a direct
relationship between demographic variable and the needs and
wants of customers.
PSYCHOLOGICAL SEGMENTATION
• The market is divided in terms of what the customers think and
believe.

VARIABLES THAT MUST BE CONSIDERED:

1. Needs and wants 5. Knowledge and awareness
2. Attitude 6. Brand concept
3. Social class 7. Lifestyle
4. Personality traits
PSYCHOLOGICAL SEGMENTATION
• Manufactures if branded pants and shirts usually segments the
total market based on brand concept and only serve the customers
who are brand-conscious.

• Entrepreneurs who own and manage elegant and luxury hotels

may have segmented the market based on social class.

• These entrepreneurs intend to cater to the needs and wants of the

upper class in the market.
BEHAVIORAL SEGMENTATION
VARIABLES THAT MUST BE CONSIDERED:
1. Perceptions
2. Knowledge
3. Reactions
4. Benefits
5. Loyalty
6. Responses
BEHAVIORAL SEGMENTATION
• Entrepreneurs who have constructed athletic gymnasium may
have divided the market based on the health benefits that their
users will derive from them.

• Their market intend to serve the needs and wants of health-

conscious customers.
POINTS TO CONSIDER IN
SEGMENTATION
1. Accessibility of the market segment. The market segment
must be accessible to the business.

2. Size of the market segment. The market segment must be

large enough to provide wealth to the entrepreneurial venture.

3. Distinction of the market segment. The market must be

easily differentiated from the total market.
 Lesson 2

MARKET
TARGETING
The Market Identification Process
Stage 1:
Market Stage 2: Stage 3:
Segmentation Market Targeting Market Positioning

Who is my
market?
MARKET TARGETING
• Aims to determine the set buyers with common needs and
characteristics.
• They are the market segment that the entrepreneurial venture
intends to serve.

• In the market targeting phase, the entrepreneur has already

divided the total market and is now in the process of:
1. Evaluating each market segment and
2. Selecting the target market segment or segments to serve
MARKET SEGMENT EVALUATION
1. Size of the segment and its expected growth

• Considered favorable indicators for doing business in that

particular location.
• Fail to consider that when there are too many players om a
particular segment, doing business in it become too competitive.
• Unfavorable for small entrepreneurial ventures in terms of capital
base .
• Entrepreneur, therefore, has to critically evaluate whether it is good
to compete in a market segment where other businesses already
exist.
MARKET SEGMENT EVALUATION
2. Structure of the Segment

• May use Michael Porter’s five (5) forces of competition in

evaluating the present and future structure of the segment.
• He must properly address the following questions:
a. What is the level of competition in the market segment? Are there strong
and aggressive competitions?
b. Are there existing and potential substitute products? Are the barriers to
substitute products strong?
c. Who are the present and potential buyers in the segment? Is the bargaining
power of the buyer strong in the segment?
d. How strong is the bargaining power of the suppliers in the segment?
Michael Porter’s five (5) forces of competition
1. Competitive Rivalry. This looks at the number and strength
of your competitors. How many rivals do you have? Who are
they, and how does the quality of their products and services
compare with yours?
a. Number of competition
b. Quality differences
c. Other differences
d. Switching costs
e. Customer’s loyalty
Michael Porter’s five (5) forces of competition
2. Supplier Power. This is determined by how easy it is for your
suppliers to increase their prices. How many potential suppliers
do you have? How unique is the product or service that they
provide, and how expensive would it be to switch from one
supplier to another?
a. Number of suppliers
b. Size of suppliers
c. Uniqueness of service
d. Your ability to substitute
e. Cost of changing
Michael Porter’s five (5) forces of competition
3. Buyer Power. Here, you ask yourself how easy it is for buyers
to drive your prices down. How many buyers are there, and how
big are their orders? How much would it cost them to switch
from your products and services to those of a rival? Are your
buyers strong enough to dictate terms to you?
a. Number of customers
b. Size of each order
c. Differences between competitors
d. Price sensitivity
e. Ability to substitute
f. Cost of changing
Michael Porter’s five (5) forces of competition
4. Threat of Substitution. This refers to the likelihood of your
customers finding a different way of doing what you do. For
example, if you supply a unique software product that
automates an important process, people may substitute it by
doing the process manually or by outsourcing it. A substitution
that is easy and cheap to make can weaken your position and
threaten your profitability.
a. Substitute performance
b. Cost of change
Michael Porter’s five (5) forces of competition
5. Threat of New Entry. Your position can be affected by
people's ability to enter your market. So, think about how easily
this could be done. How easy is it to get a foothold in your
industry or market? How much would it cost, and how tightly is
your sector regulated?
a. Time and cost of entry
b. Specialist knowledge
c. Economies of scale
d. Cost advantages
e. Technology protection
f. Barriers to entry
MARKET SEGMENT EVALUATION
2. Structure of the Segment

• The entrepreneur must study the different barriers that will lessen
the forces of the competition in every segment.

• Usually a highly competitive segments limits profitability and

growth of a particular venture.
MARKET SEGMENT EVALUATION
2. Structure of the Segment

• The strong bargaining power of the buyer can easily bring the prices
of the products down.

• Similarly suppliers with powerful forces can control the prices of

the product in one particular segment.
MARKET SEGMENT EVALUATION
3. Capability of the Business

• Another factor that must be carefully evaluated by the entrepreneur

is the internal environment of the business, including its resources.

a. Does the business have the required competency to take

advantage of the existing opportunity?
SEGMENTATION MATRIX
SIZE OF SEGMENT
- usually expressed in terms of estimated product demand
EXPECTED GROWTH
- expressed in terms of potential profitability of the segment
FORCES OF COMPETITION
- may be classified as strong, moderate, or weak
Sample Data for Segmentation Matrix
Segments Size Growth Potential Substitute Power of Power of Capability Priority of
New Products the Buyer the of the the
Entrants Supplier Business Segment

Segment 1 3.0 M 5% Strong Weak Strong Strong Low

Segment 2 1.0 M 3% Weak Weak Weak Weak High

Segment 3

Segment 4
MARKET SEGMENT SELECTION
The basic entrepreneurial marketing strategies relative to the selected
segment are the following:

a. Individual or one-on-one marketing

b. Segmentation marketing (differentiated or concentration) marketing
c. Mass or undifferentiated marketing

Undifferentiated marketing One-on-one marketing

(mass) (individual)
MARKET SEGMENT SELECTION
INDIVIDUAL MARKETING
The business provides a product that is suited or fitted to the particular
consumers. It is based on the concept that the consumers have different
needs and wants.

DIFFERENTIATED MARKETING
A variation of the segmentation marketing strategy. Entrepreneur covers
several segment based on the market segment evaluation of the total
market and designs a particular product for each segment based on the
market segment evaluation and the capability of the business.
MARKET SEGMENT SELECTION
DIFFERENTIATED MARKETING
…
The basic concept of differentiated marketing is for the business to exist
in almost all segment but to serve few customers only in one segment.

CONCENTRATED MARKETING
Another variation of segmentation marketing where the business selects
only a few segments but intends to serve a large number of customers in
in the chosen segments.
MARKET SEGMENT SELECTION
MASS or UNDIFFERENTIATED MARKETING
Takes into consideration the fact that the customers have common needs
and wants. The entrepreneur does not have differentiate them according
to there needs and wants but rather assumes that his/her product will
cater to all types of customers in general.
Application of Entrepreneurial Marketing Strategies
in Selected Segments
Entrepreneurial Marketing Strategies
Segment Marketing
Mass or
Individual or one-on-
Differentiated Concentrate or Niche Undifferentiated
one Marketing
Marketing Marketing Marketing

Products are tailored Several segments are Only one or few Products are mass
to the needs of covered and products segments are produced for the
individual are designed to suit covered, but the whole market where
consumers. the specific needs of product is designed consumers are not
particular segment. for the majority of differentiated.
the consumers in the
segment market.
Write True if the statement is correct and False if
the statement is incorrect.

1. In market targeting, the entrepreneur defines the customers by the way of

segmentation.
2. A market segment with large size and higher growth must be served.
3. A segment with strong barriers to the five forces of competition is a segment
that is worth considering.
4. It is expected that few competitors are existing in a large segment with a high
growth rate.
5. In one-on-one marketing strategy, the consumers are considered to have
similar needs and wants.
Write True if the statement is correct and False if
the statement is incorrect.

6. In concentrated marketing, the business focuses its effort to a large number

of consumers in one or few market segments.
7. The concept of mass marketing is usually applicable to consumable
commodity products.
8. In differentiated marketing, the business to serve few costumers in several
segments.
9. A market segment is composed of consumers with similar or the same
needs, wants, characteristics and preferences.
10. In undifferentiated marketing, the product us tailored to the needs of the
specific consumer.
Do the following tasks:

1. Discuss the concept of market targeting.

2. Identify the tow basics processes involved in market targeting.
3. Enumerate the important factors to be considered in evaluating the
segment.
4. Discuss the four marketing strategies relative to market segmentation.