Market Segmentation

1. Market Segmentation

2. Segmentation, Targeting, Positioning • Markets • people and institutions with: • willingness to buy • purchasing power • authority to buy

3. Types of Markets • Classified by: • purchaser • reasons for buying the goods • Consumer products • goods/services purchased by the ultimate consumer for personal use • Business products • products used, either directly or indirectly,

4. Types of Markets (cont) • Business products (cont) • in the production of other goods and services for resale • Commercial products • industrial products not directly used in producing other products

5. The Role of Market Segmentation • Market Segmentation • process of dividing the total market into several homogeneous groups • no single marketing mix can satisfy everyone • separate mixes are used for different market segments • cannot be used in all cases

6. Basic Requirements of Segmentation • Market segments must be measurable in terms of both purchasing power and size • Marketeers must be able to effectively promote to and serve a market segment • Market segments must be sufficiently large to be potentially profitable • Number of segments must match the firm’s capabilities

7. Segmenting Consumer Markets • Geographic Segmentation • dividing overall market into homogeneous groups on basis of population location • Demographic Segmentation • dividing overall market into homogeneous groups based on characteristics such as: • age gender income level • occupation education household size • stage in the family life cycle

8. Segmenting Consumer Markets • Psychographic Segmentation • utilizing behavioral profiles developed from analysis of: • activities opinions • interests lifestyles • Product-Related Segmentation • dividing a population into homogeneous groups based on characteristics of the consumer’s relationship to the product

9. Geographic Segmentation • U.S. population = 268.1 MM (Census POP clock) • Not divided geographically evenly • Concentrated in large metropolitan states • Largest 3 states: CA, TX, NY • 5 smallest? • One of earliest segmentation bases used

10. Geographic Segmentation • Three categories of urban data classification: • MSA (Metropolitan Statistical Areas) • freestanding urban areas with an urban center population of at least 50K • CMSA (Consolidated Metropolitan Statistical Areas) • the 25 or so urban giants such as: • NYC Chicago Los Angeles

11. Geographic Segmentation • PMSA (Primary Metropolitan Statistical Areas) • urbanized county or counties with social and economic ties to nearby areas • Specific region segmentation • many products prone to regional preference • national firms develop products/marketing strategies for specific regions

12. Geographic Segmentation • Core regions • Most national brands get 40-80% of sales from core regions • Geographic segmentation useful when: • differences in preferences/purchasing patterns emerge along regional lines • categories such as region, urban/suburban/rural, and climate are principle preference definers

13. Geographic Segmentation • GIS Systems useful to: • record different layers of data on the same map • help businesspeople visualize marketing data

14. Demographic Segmentation • Most commonly used segmentation base • Focuses on variables as: • gender age household size income • occupation education lifecycle stage • Segmenting by gender • natural variable for certain markets • many products (magazines, fragrances,clothes) are gender-specific

15. Demographic Segmentation • Segmenting by Gender • many products once considered “male-specific” now successfully marketed to women • Segmenting by Age • age distribution, projected changes in age are important because consumer needs/wants differ among groups (the cohort effect)

16. Demographic Segmentation • Segmenting by Age • Generation X - 1966/1974 21% of pop • Baby Boomers - 1946/1965 42% of pop • Seniors 26% of pop • (33% by 2010) • some product markets shrink in declining age groups • 18-25 young adult population declining • requires stronger college/university ad campaigns

17. Demographic Segmentation • Segmenting by Ethnic Group • U.S. population changing • 2050 - 1/2 of U.S. population nonwhite • African Americans are largest minority group - 31MM (13%) • Hispanics 2nd largest minority group - 28MM (10%) • Hispanic growth rate 4X African American; 10X whites

18. Demographic Segmentation • Segmenting by Ethnic Group • Asian American population - fastest growing minority group • heterogeneous group • 12MM by 2000 • Segmenting by Family Lifecycle Stage • process of family formation and dissolution • underlying theme is life stage, not age • singles, young parents, empty nesters

19. Demographic Segmentation • Segmenting by Household Type • U.S. household = 5.8 persons in 1790 • 2.7 persons in 1997 • trend to smaller households results from: • lower fertility rates;singles/elderly living alone • tendency to postpone marriage or never marry • increasing desire of couples to limit number of children or remain childless • ease and frequency of divorce

20. Demographic Segmentation • Segmenting by Household Type • important trend in last 20 years - declining % of so-called “traditional” families • 2 parents and their children • 1970 - 40% of all U.S. households • 1990s - 26% of all U.S. households • % of unmarried individuals living together has risen • new market segment = POSLSQ • people of opposite sex living in same quarters

21. Demographic Segmentation • Segmenting by Household Type • DINKS (double-income, no kids) is often attractive market • purchase of luxury goods high • Engel’s laws only partially valid, but remain useful generalizations for marketing manager

22. Psychographic Segmentation • Attempt to provide fuller, lifelike portraits of consumers than possible with demographic segmentation • Focuses on lifestyle • consumer’s mode of living • composite of individual’s social psychological makeup, including:

23. Psychographic Segmentation • Individual social psychological composite (cont) • needs • motives • perceptions • attitudes • family • job • social activity and culture

24. Psychographic Segmentation • Defined as the psychological profiles of different consumers • developed from asking consumers to agree or disagree with AIO statements • AIO statements • collection of several hundred statements dealing with activities, interests, and opinions individuals may hold

25. Psychographic Segmentation • AIO Statements (cont) • VALS 2 (values, attitudes, lifestyles) is a commercially available psychological segmentation system • developed by SRI International (1978) • Psychographics can be applied on a global basis • 5 global segments • cross national and cultural barriers

26. Psychographic Segmentation • 5 global segments: • strivers • achievers • the pressured • adapters • traditional

27. Product-Related Segmentation • Takes several different forms: • segment by benefits people seek when they buy a product • segment by usage rates for a product • segment by degree of brand loyalty that consumers feel toward product

28. Segmenting Business Markets • Overall process resembles consumer markets; methods differ • Business-to-business segmentations: • demographic • customer type • application • purchasing situation

29. Market Segmentation Decision Process • Five stages • seek bases on which to segment • develop relevant profiles for each segment • forecast market potential • forecast probable market share • select specific market segments • Gross vs. net vs. realizable potential

30. Strategies for Reaching Target Markets • Four basic strategies for achieving consumer satisfaction • Undifferentiated Marketing • firms that produce only one product or one product line and market it to all customers with a single marketing mix • Differentiated Marketing • firms that produce numerous products with different marketing mixes designed to satisfy smaller segments

31. Strategies for Reaching Target Markets • Four basic strategies for achieving consumer satisfaction (cont) • Concentrated Marketing • focusing efforts on profitably satisfying a smaller target market • not attempting to market product offerings to entire market • also called niche marketing • particularly appealing to small firms that lack financial resources of larger competitors

32. Strategies for Reaching Target Markets • Four basic strategies for achieving consumer satisfaction (cont) • Micromarketing • targeting potential customers at a very basic level: • ZIP codes occupations • lifestyles individual households individuals

33. Selecting and Executing Segmentation Strategies • Should take into account: • company resources • homogeneity • stage in the product’s life cycle • competitors’ strategies

34. Selecting and Executing Segmentation Strategies • Possible approaches - positioning to: • attributes price/quality competitors • application product user product class • Positioning map • graphically illustrates how consumers perceive competitive products within an industry • Repositioning • competitive environment/perception may require

35. High Resources Actualizers Principle Oriented Action Oriented StatusOriented Fulfilleds Achievers Experiencers Believers Strivers Makers Low Resources Strugglers Figure 7.07 VALS™ 2 Network

36. Figure 7.9 Market Segmentation Decision Process Identify Market Segmentation Process Select Specific Market Segments Stage I Develop a Relevant Profile for Each Segment Do Benefits Achieve Company Goals and Justify Development? Stage II Stage V Forecast Market Potential Estimate Cost-Benefit for Each Segment Stage III Analyze Competitive Forces Within Each Segment Determine Marketing Mix to Serve Each Segment Forecast Own Market Share for Each Segment Stage IV

37. Positioning Strategies • Based on Attributes • Based on Price/Quality • Based on Competitors • Based on Application • Based on Product User • Based on Product Class

38. Figure 7.12 Competitive Positioning Map for the Pain-Reliever Market Age=5 +/- 5 years Use=Fever Gentleness Age=70 +/- 10 years Use=Arthritis Tylenol Datril Generic acetominophen Extra-Strength Tylenol Age=30 +/- 10 years Use=Aches Bufferin Advil Effectiveness

39. Figure 8.9 An Integrated Model of the Consumer Decision Process • Interpersonal Determinants • Cultural Influences • Social Influences • Family Influences Problem Recognition Search Feedback • Personal Determinants • Needs and Motives • Perception • Attitudes • Learning • Self-Concept Alternative Evaluation Purchase Purchase Act Purchase Evaluation

40. Business-to-Business Segmentation Bases • Demographic Segmentation • Size • Geographic Location • Customer Type • Broad Categories • Industry • SIC Codes • End-use Application • Purchasing Situation

41. Figure 9.2 Standard Industrial Classification (SIC) System SIC 3211510 Window and Cast Flat Glass SIC 32110 Flat Glass SIC 3210 Glass Products SIC 320 Stone, Clay and Glass Products SIC 32 Stone, Clay, Glass and ConcreteProducts SIC 20-39 Manu-facturing Basic Industry (Two-Digit) Major Group (Two-Digit) Industry Group (Three-Digit) Specific Industry (Four-Digit) Product Class (Five-Digit) Product (Seven-Digit)

42. Characteristics of the Business Market • Geographic Concentration • Sizes and Numbers of Buyers • Purchase Decision Procedures • Buyer-Seller Relationships

43. Fig. 8.01 Five Forces Determining Segment Structural Attractiveness T30 Potential Entrants (Threat of Mobility) Suppliers (Supplier power) Industry Competitors (Segment rivalry) Buyers (Buyer power) Substitutes (Threats of substitutes)

44. Fig. 8.02 T31 Barriers and Profitability Exit barriers Low High Low, stable returns Low, risky returns Low Entry Barriers High, stable returns High, risky returns High

45. T32 Fig. 8.03 Product / Market Battlefield for Toothpaste Customer segmentation Children / Teens Age 19-35 Age 36+ Plain toothpaste Colgate-Palmolive Procter & Gamble Colgate-Palmolive Procter & Gamble Colgate-Palmolive Procter & Gamble Toothpaste with fluoride Colgate-Palmolive Procter & Gamble Colgate-Palmolive Procter & Gamble Colgate-Palmolive Procter & Gamble Gel Colgate-Palmolive Procter & Gamble Lever Bros. Colgate-Palmolive Procter & Gamble Lever Bros. Colgate-Palmolive Procter & Gamble Lever Bros. Product segmentation Striped Beecham Beecham Smoker’s toothpaste Topol Topol

46. Fig. 8.04 T33 Strategic Groups in the Major Appliance Industry • Group A • Narrow line • Lower mfg. cost • Very high service • High price High • Group C • Moderate line • Medium mfg. cost • Medium service • Medium price Quality • Group B • Full line • Low mfg. cost • Good service • Medium price • Group D • Broad line • Medium mrg. cost • Low service • Low price Low High Low Vertical Integration

47. Fig. 9.01 T34 Steps in Market Segmentation, Targeting,and Positioning Market Segmentation Market Targeting Market Positioning 1. Identify segmentation variables and segment the market 2. Develop profiles of resulting segments 3. Evaluate attractiveness of each segment 4. Select the target segment(s) 5. Identify possible positioning concepts for each target segment 6. Select, develop, and communicate the chosen positioning concept

48. Fig. 9.03 T35 Basic Market-Preference Patterns (a) Homogeneous preferences (b) Diffused preferences (c) Clustered preferences Creaminess Creaminess Creaminess Sweetness Sweetness Sweetness

49. Fig. 9.04 T36 Heavy and Light Users of Common Consumer Products PRODUCT (% USERS) HEAVY HALF LIGHT HALF Soups and detergents (94%) 75% 25% 71% 29% Toilet tissue (95%) 79% 21% Shampoo (94%) 75% 25% Paper towels (90%) 83% 17% Cake mix (74%) 83% 17% Cola (67%) 87% 13% Beer (41%) 81% 19% Dog food (30%) 95% 5% Bourbon (20%)

50. Fig. 9.05 Five Patterns of Target Market Selection T37 Single-segment concentration Selective specialization Product specialization M1 M2 M3 M1 M2 M3 M1 M2 M3 P1 P2 P3 P1 P2 P3 P1 P2 P3 Market specialization Full market coverage M1 M2 M3 M1 M2 M3 P1 P2 P3 P1 P2 P3 P = Product M = Market