SEGMENTATION

Segmentation

It is often the key to developing a

sustainable competitive advantage. In a
strategic context, segmentation means the
identification of customer groups that
respond differently from other groups to
competitive offerings.
A segmentation strategy couples the
identified segments with a programme to
deliver an offering to those segments.

The development of a successful

segmentation strategy requires the
conceptualization, development, and
evaluation of a targeted
competitive offering.
Who are the biggest customers? The
most profitable? The most attractive
potential customers?

3 dimensions for Judging a

segmentation strategy
Can a competitive offering be
developed and implemented that will
be appealing to the target segment ?
Can the appeal of the offering and the
subsequent relationship with the
target segment be maintained over
time despite competitive responses ?

 Is the resulting business from the target

segment worthwhile given the
investment required to develop and
market an offering tailored to it ?
The concept of a successful
segmentation strategy is that within a
reduced market space, it is possible to
create a dominant position that
competitors will be unwilling or unable
to attack successfully.

Examples of Approaches to Defining

Segments
Customer Characteristics
Geographic
Type of organization
Size of firm
Lifestyle
Sex
Age
Occupation
Chapter 2 - External and
Customer Analysis

PPT 2-6

Figure 2.3

Examples of Approaches to
Defining Segments
Product-Related Approaches
User type
Usage
Benefits sought
Price sensitivity
Competitor
Application
Brand loyalty
Chapter 2 - External and
Customer Analysis

PPT 2-7

Figure 2.3

The first set of variables describes segments in

terms of
general characteristics unrelated to the product
involved.
Eg
a consulting company may specialize in the
hospitality industry.
A fast food firm may focus on a particular fast
growing ethnic group.
A bakery may confine itself to geographically
defined segments eg . to a particular
community or neighbourhood.

 Demographics are particularly powerful for

defining segments largely because a persons life
stage affects his or her activities, interests and
brand loyalty. Another reason is that
demographic trends are predictable.
Eg the US population over 65 is expected to
grow to 50 million in 2020 when more than 5
million people will be 85 or older. Gold Violin
recognizing this trend, has established itself as a
source of products designed for the active elderly.
Thus they have a talking watch, a bed- vibrating
alarm clock, a doorknob turner, a lighted handsfree magnifier ( all with attractive designs ) are
just some of the Gold Violin products that appeal
to this long ignored demographic segment.

 The second category of variables includes those

that are related to the product. One of the most
frequently used is usage.
A manufacturer of lawn equipment may design a
special line for a large consumer like Walmart, but
sell through distributors using another brand name
for other outlets. A bakery may follow a very
different strategy in serving restaurants that rely
very heavily on bakery products than in serving
those with fewer such products.

Segmentation

How should segments be defined?

Benefit Segmentation
Price Sensitivity
Loyalty
Applications
Multiple Segments versus Focus
Strategy

Chapter 2 - External and

Customer Analysis

PPT 2-11

Benefits
Benefits sought from products is a very useful
segmentation variable, as selection of
benefits
can determine a total business strategy.
Eg. for gourmet frozen dinners/entrees we
can segment the market into those who are
calorie- conscious, those who focus on
nutrition and health and those interested in
taste. Each segment would require a very
different marketing strategy.

Price sensitivity
In many product classes , there is a well - defined
breakdown between customers concerned first
about price and others who are willing to pay
extra for higher quality and features.
Eg general merchandise stores form a well
defined hierarchy from the discounters to the
prestige department stores.
Automobiles span the spectrum from Honda Civic
to the Lexus to the Rolls Royce.
Airlines have first class, business class and
economy.
In each case the segment dictates the strategy

Loyalty
Brand loyalty can be structured using a
loyalty matrix. Each cell represents a very
different strategic priority and can justify a
very different programme.
Generally. Loyal customers are taken for
granted. However, a study by Bain shows
that a 5 % increase in customer loyalty can
nearly double the lifetime profits generated
by customers in several industries including
banking, insurance, automobile service,
publishing and credit cards.

 The key is often to reward the loyal customers

by living up to expectations consistently,
providing an ongoing relationship, and
offering extras that surprise and delight.
The loyalty matrix suggests that the brand
fence sitters , including those of competitors,
should also have high priority. Using the
matrix involves estimating the size of each of
the six cells, identifying the customers in each
group and designing programmes that will
influence their brand choice and loyalty level

The Brand Loyalty Matrix: Priorities

Custome
Custome
rr
NonNoncustomer
customer

Chapter 2 - External and

Customer Analysis

Low
Low
Loyalty
Loyalty

Moderate
Moderate
Loyalty
Loyalty

Mediu
m

High

Highes
t

High

Zero

Low
to
Mediu
m
PPT 2-16

Figure 3.4

Loyal
Loyal

Applications
Some products and services, particularly
industrial products can best be segmented by
use or application. A portable computer may
be needed by some for use while travelling,
whereas others may need a computer at the
office that can be conveniently stored when
not in use. One segment may use a computer
for word processing .
Some might use a 4 wheel drive for light
industrial hauling and others may be buying it
primarily for recreation.

 The athletic shoe industry segments

into :
A) Serious athletes ( small in number,
but influential)
B) The Weekend warriors ( weekend
users)
C) The casual wearers ( using them
for street wear)

 80% of the market being composed

of the casual wearer segment and
not really needing performance,
several shoe firms have adopted
a style focus strategy as an
alternative to the performance
strategy adopted by firms such as
NIKe.

Multiple Segments vs Focus

Strategy
Walmart, the largest US retailer started by
concentrating on cities with populations under 25,000
in eleven south central states, a hitherto totally
neglected segment by its competitors the large
discount chains.

This rural geographic focus gave it several significant

SCAs viz.
an efficient and responsive warehouse supply system,
a low-cost motivated workforce
relatively inexpensive retail space
a lean and mean hands on management style.

Union Bank, Californias 8 eighth

largest bank makes no effort to serve
individual customers.
Instead it provides a service
operation tailored to business
accounts that is more committed and
comprehensive than those of its
competitors.

On the other hand.

Aggressive industries in many firms are moving towards multiple segment
strategies. Campbell Soup makes its nacho cheese soup spicier for
customers in Texas and California.
It offers a Creole Soup for Southern markets and a red- bean soup for
Hispanic markets.
In New York it links promotions with the New York Giants football
team and in S. Nevada mountains skiers are given hot soup samples.
Developing multiple strategies is costly and needs to be justified by an
enhanced

aggregate impact.

Market segmentation
Companies recognize they cannot appeal to
all buyers in the marketplace, at least not to
all buyers in the same way. Buyers are too
numerous, too widely scattered and too
varied in their needs and buying practices.
Also, companies themselves vary greatly in
their ability to serve different segments. Thus
a company must identify the parts of the
market it can serve best and most profitably.
It must design customer- driven marketing
strategies that build the right relationships
with the right customers.

Shotgun vs Rifle
Hence , most companies have moved away
from mass marketing and towards target
marketing.- identifying market segments,
selecting one or more of them and
developing products and marketing
programmes tailored to each.
Instead of scattering their marketing
efforts ( the shotgun approach) , firms are
focusing on the buyers who have greater
interest in the values they create best (the
rifle approach)

Customer-Driven Marketing Strategy:

Creating Value for Target Customers

Market Segmentation
Market Targeting
Differentiation and Positioning

The Process and Concepts

defined
Market segmentation involves dividing
the market into smaller groups of buyers
with distinct needs, characteristics, or
behaviours that might require separate
marketing strategies or mixes.
The company identifies different ways to
segment the market and develops profiles
of the resulting market segments.

Market Targeting

Consists of evaluating each ,market

segments attractiveness and
selecting one or more market
segments to enter.

 Next, the company decides on a

Value Proposition on how it will
create value for target customers
Differentiation involves actually
differentiating the firms market
offering to create superior value
Positioning consists of arranging for a
market offering to occupy a clear
distinctive, desirable place relative to
competing products in the minds of

Market Segmentation

Market Segmentation
Segmenting Consumer Markets

Geographic
segmentati
on

Demograph
ic
segmentati
on

Psychograph
ic
segmentatio
n

Behavioral
segmentati
on

Market Segmentation
Segmenting Consumer Markets

Geographic segmentation divides the

market into different geographical units such
as nations, regions, states, counties, or cities.
Many companies today are localising their
products.eg Citibank offers different mixes of
branch banking services depending on
neighbourhood demographics. Baskin
Robbins does 3 mile marketing
emphasizing local events and promotions
close to its local store locations.

 Many large companies are seeking to cultivate

as yet untapped geographic territory. Many
large companies are fleeing the competition
of major cities and suburbs to set up shop in
rural and semi - urban India eg smaller size
retail formats which offer a more intimate
neighbourhood store setting.
Walmart has complemented its supercenters
by opening small super market style Marketside grocery stores in markets where full size
stores are impractical.

Market Segmentation
Demographic segmentation

Demographic segmentation
divides the market into groups based
on variables such as age, gender,
family size, family life cycle, income,
occupation, education, religion, race,
generation, and nationality

Demographic factors are the most popular bases for segmenting customer groups.
The reasons for this :
Consumer needs, wants and usage rates often vary closely with demographic
variables.
Demographic variables are easier to measure than other variables.
Even when other segmentation bases are used marketers need to know characteristics
in order to assess the size of the target market and to reach it efficiently

Demographic
segmentation : Age and
Life
segmentation
Age andCycle
life-cycle stage
segmentation is the process of
offering different products or using different marketing approaches
for different age and life-cycle groups.
eg Leo Toys offers different toys for kids in different age groups.
HP targets adult buyers with The Computer Is Personal Again
campaign with ads featuring Price and Value.
But for teens it uses mostly online and viral media in its Society
for Parental Mind Control campaign fun ways to get a sweet
computer out of your parents. HP believes kids are the arbiters of
cool.

HDFC Standard Life Insurance has launched

pension plans for retired people so that they do
not have to depend on anyone for their
financial needs.
Companies marketing to mature customers
usually employ positive images and appeals.
Carnival Cruise Lines targets people of all age
groups through it sad for its Fun Ships
featuring an older person and child riding
waterslides stating, Fun has no age limit.

Demographic segmentation : Gender segmentation

Gender segmentation divides the market based

on sex (male or female).
This has been used in clothing, cosmetics,
toiletries and magazines. Eg retail stores in India
offers clothing only for girls.
More recently most womens cosmetic makers
have started marketing mens lines. Nivea
markets Nivea for men an advanced line of
enriching skincare and soothing aftershave
products designed for the active mens lifestyle
and offers a 4 step guide to perfect mens care.

 LOreal markets Hydra Energetic

moisturizer for men to soften the signs of
fatigue and stress.
Neglected gender segments can offer
new opportunities in markets ranging
from motorcycles to guitars. 10 years ago
2 wheelers were mainly targeted at men
and looked as a means of transportation.

 Today marketers like Bajaj and Hero

Honda
are targeting brands like Kristal DTSI
and Pleasure at young women.
These two wheelers are not bulky
and powerful but light and fun to ride
for young and fashionable women.

Pleasure
Why Should Boys Have All The Fun ?
Brand : Pleasure
Company: Hero Honda
Agency: FCB Ulka
November 2005 saw the launch of the scooter from
Hero Honda branded " Pleasure". The launch was a
bold one because of two reasons :
1. The scooter was going to compete with its
technology partner Honda.
2. Hero Honda was perceived as a bike manufacturer

Pleasure
Pleasure is a 102 cc scooter targeting the
young ladies. The launch makes sense
because the scooter segment is now
growing and is expected to touch 1 million
units. In the scooter segment , the ungeared
scooter segment is growing very fast. Hero
Honda wants to have a pie of this segment.
It is a paradox in that in the 1990's Hero
Honda disrupted Scooters with its 4 stroke
bikes and now it is introducing a scooter.

 Pleasure is positioned as a Pleasure

scooter. The company is targeting Ladies
and Ladies only ( that is clearly and
obviously cried out in the baseline and in
the ads). A sound strategy. If you are
targeting ladies, why should you expect
men to ride that scooter. So Hero Honda
has decided that the brand will be for
ladies.

 Pleasure is going to be sold through "

Just4her" showrooms where the
salesperson will be ladies . ( Men are going
to be pissed off by that)
The product comes with 8 flashy colours
and lot of features for the fairer sex like
broader seats, electric start etc. So as far
as the product concept goes, Hero Honda
have a winner at hand.

 The communication executed by FCB

Ulka which is splashed all over the
channels have an international look
and aimed at the ladies of age group
18 - 35. The segmentation is based
on the current techno boom and the
emerging empowered ladies
segment.
Will it work in the real world?

Market situation
There are some danger points in
Pleasure's paths. The product is pitted
against Honda Activa and Dio. Activa is a
formidable player and its reputation itself
is an entry barrier for Pleasure. Since the
pricing of Pleasure is comparable with that
of Dio, Pleasure should have to make sure
that it creates a meaningful
differentiation.

Demographic segmentation :
Income segmentation
Income segmentation divides the market into
affluent or low-income consumers.
Used for long by marketers of products and
services such as automobiles, clothing, cosmetics,
financial services, and travel
Many companies target affluent consumers with
luxury goods and convenience services.
Not all companies use income segmentation
targeting the affluent. Retailers such as Big Bazar
successfully target low and middle income groups.
Isse sasta kaun?

Psychographic
Segmentation
Psychographic segmentation
divides buyers into different groups
based on social class, lifestyle, or
personality traits.
There are two frameworks used for
the purpose of lifestyle analysis, viz,
the AIO and the VALS frameworks.

AIO framework

The AIO model frames long sets of

questions
using the measures in the next slide
to find out major dimensions of
lifestyles of consumers

AIO framework

VALS

Described in a separate Ppt

Behavioral segmentation
Segmenting Consumer Markets

Behavioral segmentation
divides buyers into groups
based on their knowledge,
attitudes, uses, or responses to
a product
Occasions
Benefits sought
User status
Usage rate
Loyalty status

Occasions
Buyers can be grouped according to when they
get the idea to buy, actually make their
purchase, or use the purchased item.
Eg Most consumers usually drink Orange Juice in
the morning, but orange growers have promoted
orange juice as a cool, healthful refresher , any
time in the day drink.
Internationally, Coca Cola presents Diet Coke as
n early morning pick me up in its Good
morning campaigns. In the Indian sub
continent ,,Coca Cola promotes its brands as a
family drink on occasions such as Diwali,
Christmas of family outings.

 Greeting card manufacturers create

greeting cards with appropriate
messages for all occasions such as
Valentines Day, Christmas day,
Diwali, New Years and birthdays.
In India you have a greeting card for
every occasion. Mothers day,
Fathers day,, Wonderful son, great
daughter, best niece, blah,blah.

Benefits sought

Benefit segmentation requires

finding the major benefits people
look for in the product class, the
kinds of people, who look for each
benefit , and the major brands that
deliver each benefit.

Eg a company manufacturing athletic wear segments its

market according to benefits that different consumers seek
from their activewear
Fit and Polish customers seek a balance between function
and style.
Serious Sports Competitors seek performance and function.
Value seeking moms have low sports interest and low
activewear involvement , they buy for the family and seek
durability.

User status
Markets can be segmented into non
users, ex- users, potential users,
first time users, and regular users
of a product.
Marketers want to reinforce and
retain regular users, attract targeted
non users, and reinvigorate
relationships with ex- users.

Usage rate
Markets can be segmented into light,
medium and heavy product users. Heavy
users are often a small percentage of the
market but account for a high percentage
of total consumption.
eg Burger King has Super Fans (Ages 18
-34) who make up 18 percent of the chains
customers but account for almost 50 % of
all consumers visits. Burger Kings ads are,
therefore, slanted towards these
consumers

Loyalty status
A market can be segmented by
consumer loyalty eg by :
Brands
( Colgate)
Stores
( Big Bazar/
Shopperss Stop)
Companies
(Toyota)

Buyers can be divided into groups

according to their degree of loyalty.
eg Apple , Harley Davidson have an
almost fanatic following of loyal
users. They buy only these brands all
the time.
Other consumers are only somewhat
loyal they are loyal to two or three
brands.
Still others show no loyalty while

Implications
By studying its loyalists a company can
pinpoint its target market and develop
sharply focused marketing appeals
By studying its less loyal buyers the
company can detect which brands are
competitive with its own
By studying consumers who are shifting
away from its brands a company can
learn about its marketing weaknesses.

Market Segmentation
Using Multiple Segmentation Bases

Multiple segmentation is used to

identify smaller, better-defined target
groups
Geodemographic segmentation is
an example of multivariable
segmentation that divides groups into
consumer lifestyle patterns

Market Segmentation
Using Multiple Segmentation Bases

PRIZM NE classifies every American

household into 66 unique segments
organized into 14 different social
groups, based on demographic,
behavioural and lifestyle factors
These groups segment people and
locations into marketable groups of
like-minded consumers that exhibit
unique characteristics and buying
behavior based on a host of
demographic factors

Market Segmentation : Segmenting Business Markets

Consumer and Business Markets use many

of the same variables to segment their
markets.
In addition, some other variables are also
used to segment Business Markets such as :

Operating characteristics
Purchasing approaches
Situational factors
Personal characteristics

Business Markets Segmentation

Demographic:
Industry
Company size
Location

Operating
variables:
Technology
User/non-user
status
Customer
capabilities

Situational
factors:
Urgency
Specific application

Purchasing
approaches:
Purchasing
organization
Power structure
Existing relationships
General policies
Purchasing criteria

Personal
characteristics:
Buyer-seller similarity
Attitude towards risk
Loyalty
9.65

 By going after segments instead of the

whole market, companies can capture just
the right value proposition to each
segment served and capture more value in
return.
Almost all companies serve at least some
business markets. Eg ICICI Bank targets
merchants, corporations, and SMEs with
specific tailor -made services for all.

 Many marketers believe that Buying

behaviour and benefits provide the
best basis for segmenting business
markets.

Market Segmentation
Segmenting International markets

 Geographic locations eg .Regions such as North

America, Western Europe, The Pacific Rim, the
Middle East, Asia or Africa.
Economic factors eg. Population income levels
or overall level of economic development.
Political and legal factors eg. Type and stability
of government, receptivity to foreign firms,
monetary regulations, amount of bureaucracy
etc.
Cultural factors eg. Common languages,
religions, values and attitudes, customs and
behavioural patterns.

Market Segmentation
Segmenting on the basis of geographical,
economic, political, cultural and other
factors assumes segments should consist
of clusters of countries.
But with new communication technologies
connecting consumers around the world,
marketers can define and reach segments
irrespective of location.

Intermarket segmentation
or Cross- market
segmentation
Divides consumers into groups with similar needs and buying behaviors even
though they are located in different countries.

eg. Lexus targets the worlds well to do. the global elite segment irrespective of
country,

Swedish furniture giant IKEA targets the aspiring global middle class. It sells
good quality furniture that ordinary people worldwide can afford.

Coca Cola creates special programmes to target teens who are its core consumers
of soft drinks the world over.

Market Segmentation
Requirements for Effective Segmentation

To be useful, market segments must

be:

Market Targeting
Selecting Target Market Segments

Target market consists of a set of

buyers who share common needs
or characteristics that the
company decides to serve

Target Marketing Strategies

Three factors used to evaluate segments:
Segment size and growth
Structural attractiveness
Competition, substitute products, power of
buyers/suppliers

Company objectives and resources

Figure 9.2

Sixth
Canadian Edition

Principles of Marketing,

9.74

Market Targeting
Target Marketing Strategies

Undifferentiated marketing
targets the whole market with one
offer
Mass marketing
Focuses on common needs rather
than whats different

Market Targeting
Target Marketing Strategies

Differentiated marketing
targets several different market
segments and designs separate
offers for each
Goal is to achieve higher sales and
stronger position
More expensive than
undifferentiated marketing

Market Targeting
Concentrated ( Niche Marketing )

Concentrated marketing targets

a small share of a large market
Limited company resources
Knowledge of the market
More effective and efficient
Eg Nirma started as a nicher,
selling only low priced detergents
to rural and semi rural customers.

Market Targeting
Target Market Strategies

Micromarketing is the practice of

tailoring products and marketing
programs to suit the tastes of
specific individuals and locations
Local marketing
Individual marketing

Market Targeting
Target Market Strategies

Local marketing involves

tailoring brands and promotion to
the needs and wants of local
customer groups
Cities
Neighborhoods
Stores

Market Targeting
Target Market Strategies

Individual marketing involves

tailoring products and marketing
programs to the needs and
preferences of individual customers
Also known as:
One-to-one marketing
Mass customization
Markets-of-one marketing

Market Targeting
Choosing a Target Market

Depends on:
Company resources
Product variability
Product life-cycle stage
Market variability
Competitors marketing strategies

Market Targeting
Socially Responsible Target Marketing

Benefits customers with

specific needs
Concern for vulnerable
segments
Children
Alcohol
Cigarettes
Internet abuses

Differentiation and Positioning

Product position is the way
the product is defined by
consumers on important
attributesthe place the
product occupies in consumers
minds relative to competing
products

Perceptions
Impressions
Feelings

Differentiation and Positioning

Positioning maps
show consumer
perceptions of their
brands versus
competing products
on important buying
dimensions.
Location of circle=
Where Consumers
position a brand
Size of circle =
Brands relative
market share .
Thus Land Cruiser is a
niche brand perceived
as relatively
affordable and more
performance oriented.

Differentiation and
Positioning

Choosing a Differentiation and Positioning Strategy

Identifying a set of possible

competitive advantages to build a
position
Choosing the right competitive
advantages
Selecting an overall positioning
strategy
Developing a positioning

Differentiation and
Positioning

Identifying Possible Value

Differences and Competitive
Advantages
Competitive advantage is an
advantage over competitors gained
by offering consumers greater value,
either through lower prices or by
providing more benefits that justify
higher prices

Differentiation and
Positioning

Selecting an Overall Positioning Strategy

Value
proposition
is the full mix
of benefits
upon which a
brand is
positioned

Differentiation and
Positioning

Choosing a Differentiation and Positioning Strategy

Identifying a set of possible

competitive advantages to build
a position by providing superior
value from:

Differentiation and
Positioning
Choosing the Right Competitive Advantage
Difference to promote should be:

Communication and
Delivering the Chosen
Position

Choosing the positioning is often

easier than implementing the
position.