Segmentation

What is it and why?

A market is a set of all consumers with needs or wants and the ability and willingness to buy.
Segmentation is the process of diving a market into meaningful and identifiable segments.
o Dividing the market into distinct groups of buyers with different needs, characteristics, or
behaviour, who might require separate products or marketing mixes.
o But then within each group, they are relatively homogenous (similar interests, values, etc.)
o Since individuals within a segment are likely to react in a similar manner, it is easier for marketers
to plan the marketing mix.
Why do we need segmentation?
o Consumer heterogeneity: Consumers have all different product wants and needs (a lot of
variation)
o So companies have to identify which parts of the market it can serve best.
Market segmentation allows more precise defn of customer w&n more accurate marketing
objectives improved resource allocation better marketing results.

Describing Segments
- Group potential buyers in segments: what are the criteria?
o Potential for increased profit
o Similar needs within a segment
o Difference of needs btwn other segments.
o Potential of a marketing action to reach a segment
o Simplicity and cost
- 4 segment variables/bases:
o Geographic
o Demographic
o Behavioural
o Psychographic

Demographic Segmentation
- Variables include age, gender, race, birth era, marital status, income, education, occupation.
- Demographic is low cost, easy to apply
Geographic Segmentation
- Region, city, population, density (rural vs urban vs suburban), climate
- Most useful for companies whose products satisfy needs that vary by region.
- Geographic is low cost, easy to apply
Behavioural Segmentation
- Benefits sought, usage rate (light use vs heavy), usage status (first- time user vs returning user), loyalty
status
- More closed to consumer needs and wants
Psychographic Segmentation
- Personality, self-values (life goals that motivate customers to by a certain product an inspiration),
lifestyle (pass-times, leisures, beliefs, etc),
- More closed to consumer needs and wants
- Often is used in combination with another segmentation base.
Combinations of bases
- Geodemographic: ie. People living in the same neighbourhood buy similar cars, appliances, etc.
Evaluating Segment Attractiveness
Criteria for Successful Segmentation
- Substantiality: Segment must be large enough to warrant a special marketing mix.
o Too small, and it wont generate sufficient profits
- Identifiability/Measurability: Segments must be easily identifiable, and their size measurable.
- Accessibility: Members of targeted segments must be reachable with marketing mix.
- Responsiveness: The whole point of segmentation, is that each segment will respond to a marketing mix
differently.

Targeting
Targeting: The process of evaluating the attractiveness of each market segment and selecting one or more
segments to serve.

Target Segmentation Strategies

Undifferentiated Segmentation Strategy/Mass Marketing
- When everyone might be considered a potential user of a product. (No segments and single marketing
mix)
- If the product/service is perceived to provide the same benefit to everyone, there is no need to develop
separate strategies for different groups.
- Effective for basic commodities (ie. Salt, sugar)
- Pros: Saves money on production and marketing costs
- Cons: More susceptible to competition.
Differentiated Segmentation Strategy
- When firms target several well-define market segments with a different offering for each (ie. The Gap has
3 store formats Banana, Gap, Old Navy; newest fashions, traditional, and economical)
- Firms use this strategy to help them obtain a bigger market share and increase the market for their
products overall.
o Allows them to appeal to more potential customers than if they had just one line.
- Also lowers risk. (operating in different segments helps diversify the business. ie. If one line is doing
poorly, it can be offset by the strong revenues from another line).
- But is expensive, so only feasible by large firms.
- 2 or more segments, with a different mix for each.
- Pros: Greater financial success, economies of scale
- Cons: High marketing costs, cannibalization concerns (ie. What if Bananas customizers suddenly decided
to switch to old navy instead?)
Concentrated Segmentation Strategy
- When the firm selects a single, primary target market, and focuses all its energy and resources on
providing a product to fit that markets needs.
- Often used by entrepreneurial startups (targeting a specific, niche market)
- Pros: Concentration of resources, small firms can compete, strong positioning
- Cons: Segments too small, or could decline; large competitors may enter if segments grow.
Micromarketing / One-to-one marketing
- When a firm tailors a product/service to suit an individual customers wants or needs (ie. Custom-made
products)
- Easier for small producers/ service providers to tailor to individual needs than large companies
o But still, Dell lets you make your own computer
o Known as mass-customization (providing one-to-one marketing to the masses.
o Pros: Strong positioning, consumers are happy
How Do You Choose the Target Market?
Based on
1. Segment size and expected growth
2. Segment structural attractiveness
3. Company resources
How?
- Collect and analyze data on current segment sales, growth rate, and expected profits.
- Do substitutable goods exist?
- Are there strong competitors?
A company should only enter segments where it can offer superior value and gain advantages over competitors.

Positioning

- Positioning: Developing a specific marketing mix to influence potential customers overall perception of a
brand, product line, or organization in general.
- How the marketing organization wants its brand to be known in the minds of its target customers.
Why Positioning?
- To distinguish its offerings from those of competitors.
- To achieve a clear, distinctive, and consistent image.
- Positioning is what determines consumers preference for a companys products or brands.
- Usually conducted via marketing communications.
o Closely related to branding and advertising.
- Adapt to trends and changes (re-positioning)

Positioning Strategies
Value
- The relationship of price to quality
- Different consumers = different value
- Focusing on brand names, price
Product Attributes
- Focusing on the attributes and characteristics that are most important
- Vary by target market
Benefits and Symbolism
- Symbols can create a position for the brand.
Competition
- Position against a specific competitor
- Position against an entire product classification

Effective Positioning
- Assess the positions of competing products
- Determine the dimensions of these positions
- Choose an effective market position
- Differentiate the companys marketing offer
A Perceptual Map
- A graphical representation of the consumers perceptions of our brand vs. our competitors.
- It is actually the consumers who determine the brands position.
- These maps allow you to see which quadrants are unoccupied, so you can find the opportunities of which
market to enter (where there are no current competitors).
Repositioning
- Aka rebranding: Where marketers change a brands focus to target new markets or realign the brands
core emphasis with changing market preferences.

Steps in STP Process:

1. Strategy or Objectives
2. Segmentation Base
3. Evaluate Market Segments
4. Select Target Markets
5. Identify and Develop Positioning Strategy

S Segment: Divide larger market into groups of people with similar demands and responses
T Target market: Evaluate segments and select one or more segments to enter.
P Position product: Create differentiation relative to competing products in minds of target customers