Market Segmentation

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MARKET SEGMENTATION, TARGETING AND POSITIONINGLECTURE 4 : BHO1171 INTRODUCTION TO MARKETING

This lecture will explain:

• what constitutes a market

• market aggregation / mass market concepts using examples

• what market segmentation means and the reasons for segmenting markets

• What criteria (bases) can be used for segmenting markets (main focus of lecture)

• Bases for segmenting B2B markets

• What criteria can be used to determine if the segmentation is effective

• How to evaluate different segments – which segment to target?

• Once a target segment is chosen, marketing program can be developed

• Concept of positioning and why there is a need to position a product in the market

• Selecting the right competitive advantage – what criteria can be used to select the right differences to promote

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What are Markets?

• In Economics and Marketing - the term "market" denotes an aggregate of people who, as individuals or as organisations;

• have needs for products in a product class;• have the ability, willingness and authority to

purchase such products;• eg: Students are part of the market for textbooks,

calculators, paper, etc.

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TYPES OF MARKETS

• Markets can be divided into two categories:

• Consumer market - buy products for consumption - not for making profit.

• Organisational or industrial market -

purchase a specific kind of product for resale

use in producing other products

use in general daily operations.

eg: producers, resellers, government and institutions

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REQUIREMENTS FOR A MARKET

For a group of people to be a market - it must meet the following four requirements:

• must need or want a particular product • have the ability to purchase the product.• must be willing to use their buying power.• must have the authority to buy the specific products. eg:

Under 18s not allowed to buy alcohol in most States.

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Stages in Market Orientation

MassMarketing

MassMarketing

Product-VarietyMarketing

Product-VarietyMarketing

TargetMarketing

TargetMarketing

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HISTORICAL APPROACHES TO MARKETS

• Mass Marketing: In mass marketing the seller mass produces, mass distributes, and mass promotes one product to all buyers.

• Product-Variety Marketing: Here the seller produces two or more products that have different features, styles, quality, sizes, and so on.

• Target Marketing: Here the seller identifies market segments, selects one or more of them, and develops products and marketing mixes tailored to each.

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MASS MARKETING

• Also known as mass marketing or undifferentiated marketing

• A single marketing program is used to offer the same product to all consumers.

• This approach will not satisfy the needs and wants of every buyer completely.

• Used by marketers of standardised goods like sugar, salt, petrol, paint

• This approach is used when consumers perceive little or no difference between the products of different firms - when competing products seem virtually the same.

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MARKET AGGREGATION: THE STRATEGY FOR MASS MARKETING

• a large number of people must have the same basic need or want.

• a single marketing mix must satisfy various potential customers.

• Consumers are expected to compromise by accepting a product that may not suit their needs perfectly.

• Market is vulnerable to competitors.• Promotion and marketing activities create perception

of uniqueness and superiority - product differentiation.

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MARKET SEGMENTATION - STRATEGY OF SUBDIVIDING THE MARKET

• Why segment markets? - because markets consist of buyers and buyers differ in one or more respects.

• They differ in their: wants & resourcesgeographic locations

buying attitude & practices

Any of these may be used to segment a market.

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WHAT IS MARKET SEGMENTATION?

• Divide a market into distinct groups of buyers (each with relatively similar product needs).

• Segments are made up of groups of people with different needs, characteristics or behaviour

• Each segment may require separate products or marketing mixes

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EXAMPLE:GMH

Sellers look for broad classes of buyers who differ in their product needs or buying responses

• GMH has found that high and low-income groups differ in their car-buying needs and wants

• Young consumers’ needs and wants differ from those of older consumers

• Hence GMH has designed specific models for different income and age groups

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SEGMENTATION BENEFITS

• Firms segment the market to better service customers.

• Allows firms to compete more effectively.• With a segmented market firm can tailor a marketing

mix to a well defined target market.• What marketers look for are distinctive groups of

consumers within the total- segmentation allows them to meet needs more efficiently.

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EFFECTIVE USE OF MARKET SEGMENTATION

• can the market be identified and measured?

• is the segment large enough to be profitable?

• is the market reachable?

• is the segment responsive?

• the segment must be stable

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Bases for Segmenting Consumer Markets

CHARACTERISTICS

1. Demographic

2. Geographic

3. Behavioural

4. Psychographic

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Segmenting Bases

• Refer Table 7.1 pp219• Geographic

– region, city size, urban,rural,climate

• Demographic– income,age, gender, family life cycle,– social class, education, occupation, ethnicity

• Psychographic– personality, lifestyle, values

• Behavioural– benefits desired, usage rate

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EXAMPLE:GEOGRAPHIC SEGMENTATION

• Dividing the market into different zones - • Regions, States, Cities

• ICI’s fertiliser arm segments by geography - emphasising the right product in the right areas

• Can localise products, advertising, promotion and sales efforts to fit needs of individual areas

• People in different areas have different need and wants

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Segmenting by DemographicsExamples:

• Cars designed to appeal to women – Holden Barina, Suzuki Jimmy(what about the ute!) – gender segments

• CBA Visa card has ads in Cosmopolitan & Cleo

Pepsi targets different demographic segments in different ways: (age-life cycle stage)

• Ads to teens (dance-beat music, adventure, rapid scene movements)

• Ads to seniors (softer and more sentimental – closing the generation gap by sharing a common soft drink - Pepsi

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Segmenting by Psychographics

• Socioeconomic status has strong effect on preferences for cars, clothing,home furnishings, leisure, store choice

• Lifestyle: frozen dinners, low fat yoghurts, Solo soft drink

• Personality – creating products that correspond to consumer personalities – cosmetics, insurance, liquor, online share trades

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Segmenting by Behaviour

• Occasions: Valentine’s Day, Mother’s Day, marketing of greeting cards, Kodak single use cameras

• Benefit sought: eg tooth decay prevention, whiteness,tartar control, fluorigard

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BASES FOR SEGMENTATION BUSINESS MARKETS

• Demographics

• Operating Variables

• Purchasing Approaches

• Situational Factors

• Personal Factors

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MARKET TARGETING

• Market targeting is the process of evaluating each market segment’s attractiveness and selecting one or more segments to enter.

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Market Targeting: Evaluating Market Segments

Size andGrowth

Size andGrowth

StructuralAttractiveness

StructuralAttractiveness

CompanyObjectives and

Resources

CompanyObjectives and

Resources

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Requirements for Effective Segmentation

Requirementsfor

EffectiveSegmentation

Measurable

Substantial

Actionable Accessible

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Choosing a Market-Coverage Strategy

FactorsAffectingStrategy

Decisions

FactorsAffectingStrategy

Decisions

CompanyResources

Competitors’Strategies

MarketVariability

ProductVariability

Stage inLife Cycle

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Market Coverage Strategy

Remember that a market may consist of a number of segments: Do we need to cover all segments?

The market coverage strategy that works best will depend on:

• the company’s resources• how different the product is• the competitors’ marketing strategies• the nature of the market

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STRATEGIC POSITIONING

EXAMPLE: Shampoo Market• Shampoo market is highly fragmented - overflowing with

brands that promise: - body and control

- renewed life for dull hair

- elimination of split ends

- avoidance of dandruff.

• Effective marketers understand the value of establishing a solid position in the minds of consumers.

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Product Positioning Strategies

Against aCompetitor

Against aCompetitor

UsageOccasions

UsageOccasions

Away fromCompetitors

Away fromCompetitors

ProductAttributes

ProductAttributes

ProductClass

ProductClass

BenefitsOffered

BenefitsOffered

UsersUsers

BB

AA

EE DD

CCHHGG

FF

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PROCEDURE FOR IDENTIFYING AN APPROPRIATE POSITION

• (1) Determine the relevant product / market

• (2) Identify competitors.

• (3) Determine how consumers evaluate options

• (4) Learn how competitors are perceived

• (5) Identify gaps in positions held

• (6) Plan and carry out the positioning strategy

• (7) Monitor the position

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DEFINING A POSITIONING STRATEGY

• Identifying a Positional Direction

• Identifying Possible Competitive Advantage

• Selecting the Right Competitive Advantage

• Differences to Promote

• Communicating the Chosen Position

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IDENTIFYING A POSITIONAL DIRECTION

• See Pages 234-235 Kotler

• Brand position of department stores

• Brand repositioning strategies

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SOURCES OF COMPETITIVE ADVANTAGES

• Product Differentiation can be based upon features or performance.

• Services Differentiation may come from delivery, installation, repair, or training advantages.

• Personnel Differentiation is derived from a superior work force.

• Image Differentiation can be generated from effective use of symbols in association with product consumption.

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Promoting Differences

Criteriafor

DeterminingWhich

Differencesto

PromoteAffordableAffordable SuperiorSuperior

ProfitableProfitable

PreemptivePreemptive

DistinctiveDistinctive

ImportantImportant

Commun-icable

Commun-icable

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EXAMPLE: FORD MOTOR COMPANY

• A company that has evolved from a mass-marketer to a market-targeter.

• Ford originally made one car for the entire — didn’t even have a choice of colours.

• “You can have any colour car you want so long as it’s black” Henry Ford

• Over time, Ford added other cars to its line (product-variety marketing), and eventually developed cars for nearly every market segment (target marketing).

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EXAMPLE: PROCTER & GAMBLE

• Most companies that have been around for a long time have shown a similar evolution.

• Procter & Gamble, had been in existence more than 80 years when it introduced Ivory Flakes to supplement Ivory Soap (product variety)

• Was almost 90 years old when it first developed a product (Camay) to compete with an existing P&G product (Ivory) (“150 Years of P&G”, Advertising Age, August 20, 1987, p. 10).

• Today, P&G is one of the pre-eminent market targeting companies in the world.

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EXAMPLE:SEGMENTS IN THE BEER MARKET

• The beer market is segmented in many ways:

• region (through regional brewers and brands),

• income and social class (premium beers and imports versus budget beers),

• life style (“The original party animal”),

• purchase occasion (“Here’s to good friends”), and

• usage rate (“The one beer to have when you’re having more than one”).

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EXAMPLE:BENEFIT SEGMENTATION IN INDUSTRIAL

MARKETS• Service, selection, and reliability can all be used in benefit

segmentation of industrial markets.

• Suppliers who want to emphasise these characteristics must identify firms that need these benefits.

• By better satisfying these firms’ needs, the supplier is able to charge higher prices than competitors who offer fewer services or less selection.

• Other suppliers can find market segments that do not need these benefits, and sacrifice service, selection, and reliability to reduce costs and be able to sell at a lower price.

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Steps in Segmentation, Targeting, and Positioning (fig 7.1)

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Segmenting Business Markets

Basesfor Segmenting

BusinessMarkets

Basesfor Segmenting

BusinessMarkets

DemographicsPersonalCharacteristics

SituationalFactors

OperatingVariables

PurchasingApproaches

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Selecting Market Segments

Segment 1Segment 1

Segment 2Segment 2

Segment 3Segment 3

CompanyMarketing

Mix

CompanyMarketing

Mix

Segment 1Segment 1

Segment 2Segment 2

Segment 3Segment 3

CompanyMarketing

Mix

CompanyMarketing

Mix

Company Mix 1Company Mix 1

Company Mix 2Company Mix 2

Company Mix 3Company Mix 3

MarketMarket

A. Undifferentiated Marketing

B. Differentiated Marketing

C. Concentrated Marketing

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Identifying a Positional Direction (fig 7.4)

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Identifying a Re-Positioning Direction(fig 7.5)

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Identifying Possible Competitive Advantage

ProductProduct ServiceService

PersonnelPersonnel ImageImage

Areas for CompetitiveDifferentiation

Areas for CompetitiveDifferentiation