Market Segmentation

BHO1171 -4- School of HTM - VU 1

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


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.


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


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.


Stages in Market Orientation

MassMarketing

MassMarketing

Product-VarietyMarketing

Product-VarietyMarketing

TargetMarketing

TargetMarketing


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.


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.


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.


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.


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


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


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.


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


Bases for Segmenting Consumer Markets

CHARACTERISTICS

1. Demographic

2. Geographic

3. Behavioural

4. Psychographic


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


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


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


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


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


BASES FOR SEGMENTATION BUSINESS MARKETS

• Demographics

• Operating Variables

• Purchasing Approaches

• Situational Factors

• Personal Factors


MARKET TARGETING

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


Market Targeting: Evaluating Market Segments

Size andGrowth

Size andGrowth

StructuralAttractiveness

StructuralAttractiveness

CompanyObjectives and

Resources

CompanyObjectives and

Resources


Requirements for Effective Segmentation

Requirementsfor

EffectiveSegmentation

Measurable

Substantial

Actionable Accessible


Choosing a Market-Coverage Strategy

FactorsAffectingStrategy

Decisions

FactorsAffectingStrategy

Decisions

CompanyResources

Competitors’Strategies

MarketVariability

ProductVariability

Stage inLife Cycle


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


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.


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


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


DEFINING A POSITIONING STRATEGY

• Identifying a Positional Direction

• Identifying Possible Competitive Advantage

• Selecting the Right Competitive Advantage

• Differences to Promote

• Communicating the Chosen Position


IDENTIFYING A POSITIONAL DIRECTION

• See Pages 234-235 Kotler

• Brand position of department stores

• Brand repositioning strategies


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.


Promoting Differences

Criteriafor

DeterminingWhich

Differencesto

PromoteAffordableAffordable SuperiorSuperior

ProfitableProfitable

PreemptivePreemptive

DistinctiveDistinctive

ImportantImportant

Commun-icable

Commun-icable


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).


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.


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”).


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.


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


Segmenting Business Markets

Basesfor Segmenting

BusinessMarkets

Basesfor Segmenting

BusinessMarkets

DemographicsPersonalCharacteristics

SituationalFactors

OperatingVariables

PurchasingApproaches



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



MarketMarket

A. Undifferentiated Marketing

B. Differentiated Marketing

C. Concentrated Marketing


Identifying a Positional Direction (fig 7.4)


Identifying a Re-Positioning Direction(fig 7.5)


Identifying Possible Competitive Advantage

ProductProduct ServiceService

PersonnelPersonnel ImageImage

Areas for CompetitiveDifferentiation

Areas for CompetitiveDifferentiation