CRAVENS

PIERCY

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McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
 4-2

Chapter Four

Strategic Market
Segmentation

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

 4-3

STRATEGIC MARKET
SEGMENTATION

Segmentation and market-

driven strategy
Identifying market segments
Forming segments
Finer segmentation strategies
Selecting the segmentation
strategy
 Segmentation and
4-4

Market-Driven Strategy
SEGMENTS

VALUE
OPPORTUNITIES

CAPABILITIES/
SEGMENT
MATCH

TARGET(S)

POSITIONING
STRATEGY
 From Mass Markets to 4-5

Micro Markets
OLD NEW

CONSUMERS Passively receive Empowered media users

whatever TV control and shape content
networks thanks to TiVo, iPod and
broadcast Internet

ASPIRATIONS To keep up with To standout from the

the crowd crowd

TV CHOICE Three networks Hundreds of channels

plus maybe a plus video on demand
PBS station

MAGAZINES Age of the big Age of the special interest

glossies: Time, magazine for every age
Life, Newsweek and affinity group

ADS Everyone hums Talking to a group of

the Alka-Seltzer one, ads go ever
jingle narrower

BRANDS Rise of the big, Niche brands, product

ubiquitous brands extensions and mass
from Coca-Cola customization mean many
to Tide product variations
Source: Anthony Bianco, “The Vanishing Mass Market”, Business Week, July 12 2004, 58-62
 4-6

Identifying the Health and Beauty

Supplies Market Segments

Level of Product Illustrative Need/Want

Competition Definition Competitors Satisfied

Generic Health & Consumer Enhancement

Beauty Product of Health &
Aids Companies Beauty

Product Shaving Gillette, Shaving

Type Equipment Remington,
Bic

Product Electric Braun, Electric

Variant Razors Norelco, Shaving
Remington,
Panasonic
Market Segmentation
4-7

Activities and
Decisions
Market to be
Segmented

Strategic
Decide How
Analysis
to Segment
of Segments

Finer Form
Segmentation Segments
Strategies
 4-8

Product Variant Segmentation

Product Type Segmentation

Generic Segmentation
 4-9

Segmentation Variables

Purchase
Behavior

Buyers’
Characteristics
Needs/ of People/
Preferences Organizations

Use
Situation
 4-10

Illustrative Segmentation
Variables
Consumer Industrial/
Markets Organizational
Markets
Characteristics Age, gender, Type of industry,
of people/ income, size, geographic
organizations family size, location, corporate
lifecycle stage, culture, stage of
geographic development,
location, producer/
lifestyle intermediary
Use situation Occasion, Application,
importance of purchasing
purchase, prior procedure
experience with (new task, modified
product, user rebuy, straight
status rebuy
Buyers’ needs/ Brand loyalty Performance
preferences status, brand requirements, brand
preference, preferences, desired
benefits sought, features, service
quality, proneness requirements
to make a deal
Purchase Size of purchase, Volume, frequency
behavior frequency of of purchase
purchase
 4-11

Requirements for
Segmentation

Identifiable
segments
Response Actionable
differences segments

Segmentation
Requirements

Stability Favorable
over time cost/benefit
 4-12

Approaches to
Segment
Identification
IDENTIFIERS CUSTOMER
OF CUSTOMER RESPONSE
GROUPS PROFILE

Characteristics Use Situation

of People and
Organizations

Buyers Needs
and Preferences

Purchase
Behavior and
Loyalty
 4-13

Segment Dimensions for

Hotel Lodging Services
 4-14

llustrative Example:
Gasoline Buyers
Road Higher-income, middle-aged 16% of
Warriors men, drive 25-50000 miles a year buyers
… buy premium with a credit card
… purchase sandwiches and drinks
from the convenience store
… will sometimes use carwash
True Men and women with moderate to 16% of
Blues high incomes, loyal to a brand and buyers
sometimes a particular station …
frequently buy premium, pay in cash
Generation Upwardly mobile men and women - 27% of
F3 (Fuel, half under 25 years of age - buyers
Food & Fast) constantly on the go … drive a lot
snack heavily from the convenience
store
Homebodies Usually housewives who shuttle 21% of
children around during the day and buyers
use whatever gas station is based on
town or on route of travel
Price Not loyal to brand or station and 20% of
Shoppers rarely buy premium … frequently on buyers
tight budgets.
 4-15

Illustrative Consumer
Perception Map

Expensive

GROUP
• Brand E II • Brand A
• Brand B
GROUP
V
Low High
Quality GROUP Quality
I
GROUP
III • Brand C
• Brand D
GROUP
IV

Inexpensive
 4-16

Finer Segmentation
Strategies

Logic of finer segments

– customized offerings
– diverse customer base
– close customer relationships
Finer segmentation
strategies
– microsegmentation
– mass customization
– variety-seeking strategy
 4-17

SELECTING THE
SEGMENTATION
STRATEGY
 Deciding how to segment
 Strategic analysis of market
segments
– Customer analysis
– Competitor analysis
– Positioning analysis
– Estimating segment attractiveness
– Segmentation “fit” and implementation
Strategic Analysis of 4-18

Market Segments

Customer
Analysis

Financial and
Market Competitor
Attractiveness Analysis

Positioning
Analysis
 Segment Financial
4-19

and Market
Attractiveness
Segment
X Y Z
Estimated
($ million)
Sales* 10 16 5

Variable costs* 4 9 3

Contribution margin* 6 7 2

Market share ~ 60% 30% 10%

Total segment sales 17 53 50

Segment position:

Business strength High Medium Low

Attractiveness # Medium Low High

*For a two-year period.

~Percent of total sales in the segment.
#Based upon a five-year projection.
 4-20

Segmentation “Fit” for

Implementation
Segment Attractiveness
and Internal Compatibility
Internal Compatibility
High Low

Attractive segments Attractive segments

that match with but with poor match
High company with company
capabilities capabilities

Market Segment
Attractiveness
Unattractive segments Unattractive segments
but with match to that do not match with
Low company company capabilities
capabilities