Chapter 8 Cengage: Market segmentation

Market segmentation helps marketers define customer needs and wants more precisely. Because
market segments differ in size and potential, segmentation helps decision makers to more
accurately define marketing objectives and better allocate resources. In turn, performance can be
better evaluated when objectives are more precise.

Marketers segment markets for three important reasons. First, segmentation enables marketers
to identify groups of customers with similar needs and to analyze the characteristics and buying
behavior of these groups. Second, segmentation provides marketers with information to help
them design marketing mixes specifically matched with the characteristics and desires of one or
more segments. Third, segmentation is consistent with the marketing concept of satisfying
customer wants and needs while meeting the organization’s objectives.

In order to properly segment the market, each group must meet the following standards:

1. Substantiality: A segment must be large enough to warrant developing and maintaining a

special marketing mix. This criterion does not necessarily mean that a segment must have
many potential customers.
2. Identifiability and measurability: Segments must be identifiable and their size measurable.
Data about the population within geographic boundaries, the number of people in various
age categories, and other social and demographic characteristics are often easy to get, and
they provide fairly concrete measures of segment size.
3. Accessibility: The firm must be able to reach members of targeted segments with
customized marketing mixes. Some market segments are hard to reach—for example,
senior citizens (especially those with reading or hearing disabilities), individuals who do
not speak English, and the illiterate.
4. Responsiveness: Markets can be segmented using any criteria that seem logical. Unless
one market segment responds to a marketing mix differently than other segments,
however, that segment need not be treated separately.

Segmentation

1. Geographic: refers to segmenting markets by region of a country or the world, market

size, market density, or climate. Market density means the number of people within a unit
of land, such as a census tract. Climate is commonly used for geographic.
2. Demographic: age, gender, income, ethnic background, and family life cycle. Age:
millennials, Baby Boomers, Gen Xers. Gender: In the United States, women make 85
percent of purchases of consumer goods each year. Ethnic background: Head & Shoulders
recently introduced hair care products for textured hair. Family life cycle (FLC) is a series of
stages determined by a combination of age, marital status, and the presence or absence of
children. Income: present in every market.
3. Psychographic: Includes 3 aspects:
a. Personality: it reflects a person’s traits, attitudes, and habits. Clothing is the ultimate
personality descriptor. Clothing gives an idea of how people want to portray
themselves to others in society.
 b. Motives: emotional, Jaguar, and Cadillac appeal to customers with status-related
motives. Rational motives.
c. Lifestyle: the segmentation divides people into groups according to the way they
spend their time, the importance of the things around them, their beliefs, and
socioeconomic characteristics such as income and education.
d. Geodemographic segmentation: it clusters potential customers into neighborhood
lifestyle categories. It combines geographic, demographic, and lifestyle segmentations.
Geodemographic segmentation helps marketers develop marketing programs tailored
to prospective buyers who live in small geographic regions, such as neighborhoods, or
who have very specific lifestyle and demographic characteristics.
4. Benefit segmentation: the process of grouping customers into market segments according
to the benefits they seek from the product. it groups potential customers on the basis of
their needs or wants rather than on some other characteristic.
5. Usage-rate segmentation: it divides a market by the amount of product bought or
consumed. Segmenting by usage rate enables marketers to focus their efforts on heavy
users or to develop multiple marketing mixes aimed at different segments.

Extra valuable info:

 The business market consists of four broad segments: producers, resellers, government,
and institutions.
 Segmenting by customer type allows business marketers to tailor their marketing mixes
to the unique needs of particular types of organizations or industries.
 The personal characteristics of the buyers themselves (their demographic characteristics,
decision style, tolerance for risk, confidence level, job responsibilities, and so on) influence
their buying behavior and thus offer a viable basis for segmenting some business markets.
 If a marketer wishes to appeal to more than one segment of the market, it must develop
different marketing mixes.

Steps in Segmenting a Market

The purpose of market segmentation, in both consumer and business markets, is to identify
marketing opportunities.

Steps:

1. Select a market or product category for study

2. Choose a basis or bases for segmenting the market
3. Select segmentation descriptors
4. Profile and analyze segments: The profile should include the segments’ size, expected
growth, purchase frequency, current brand usage, brand loyalty, and long-term sales
and profit potential. This information can then be used to rank potential market
segments by profit opportunity, risk, consistency with organizational mission and
objectives, and other factors important to the firm.
 5. Select markets: natural decision.
6. Design, implement, and maintain appropriate marketing mixes: it’s fundamental to remark
the diminishing validation from a MM with the course of time. For instance, age brackets
are not static, they don’t classify very accurately the segment’s real desires and demands,
therefore, marketers must be on the lookout for new consuming patterns inside those
very segmentations (markets are VERY dynamic).

General strategies for selecting target markets:

Undifferentiated, concentrated, and multisegment targeting.

Cannibalization: occurs when sales of a new product cut into sales of a firm’s existing products.

CRM- Customer relationship management

There are at least four trends that will lead to the continuing growth of CRM: personalization, time
savings, loyalty, and technology.

1. Personalization: unique sets of needs and wants.

2. Time savings: consumers who no longer have the time to spend shopping and making
purchase decisions.
3. Loyalty: Consumers will be loyal only to those companies and brands that have earned
their loyalty and reinforced it at every purchase occasion.
4. Technology: Mass-media approaches will decline in importance as advances in market
research and database technology allow marketers to collect detailed information on their
customers. New technology offers marketers a more cost-effective way to reach
customers and enables businesses to personalize their messages.

Positioning

Developing a specific marketing mix to influence potential customers’ overall perception of a

brand, product line, or organization in general.

Effective positioning requires assessing the positions occupied by competing products,

determining the important dimensions underlying these positions, and choosing a position in
the market where the organization’s marketing efforts will have the greatest impact.

Product differentiation is a positioning strategy that some firms use to distinguish their
products from those of competitors

Position

The place a product, brand, or group of products occupies in consumers’ minds relative to
competing offerings.