Marketing Management Study Notes

Market Segmentation

Introduction
Market segmentation = dividing up the whole mass market into
segments or groups of consumers who have similar needs and
wants.1
Th process of dividing a total market into smaller sub-groups or segments
where each segments consists of people/organizations with relatively
similar product needs.
The aim is to enable the marketer/the company to more precily address
and match the needs of the customers in the selected market segment.

One organisation can't satisfy the "needs and wants" of every single
person;
o Impossible and expensive
firms have to divide the market into sections and choose the
sections they would like to market their products at. Dividing the
market into sections based on their characteristics and behaviours is
known as segmentation. Firms commonly split the market based on
demographics, income, geography, behaviour, and psychographics.

Demographic Segmentation
Demographic segmentation is based on age, gender, race, ethnicity,
income, education, occupation, religion, social class family size and
family life cycle.
These characteristics often linked to peoples needs and wants/ and
purchasing power can be measured

Age: As people age their needs and wants change, some organisations
develop specific products aimed at age groups for example nappies for
babies and toys for children.

Gender segmentation is commonly used within the cosmetics, clothing, and

magazine industry. All Bar One within the UK have developed their bars to attract
the female audience, taking opportunity of the rise in the number of women who
now enjoy social drinking.

Income: often provides a way to divide markets because it strongly influences

consumers product needs.

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Life cycle segments: Products and services are also aimed at different life cycle
segments. Holiday companies cater specifically for families, single people aged
between 18-30 and for adults going on holiday without children.

Income Segmentation?
Income segmentation is another strategy used by many organisations.
Stores like Harrods, Harvey Nichols are predominantly aimed at the
affluent market. Daewoo aim their vehicles at price sensitive buyers who
require a bundle of benefits for the price. In today's globally competitive
environment brands are specifically developed and positioned within
particular income segments in order to maximise turnover.

Geographic Segmentation
Geographic segmentation variables such as climate, terrain, city size,
population density and urban/rural areas also influence customer product
needs
Market density: the number of potential customers within a unit of land
area
May be a useful segmentation variable because low density markets often
require different sales, advertising and distribution activities than high
density markets.
Geodemographic segmentation clusters people in postcodes areas and
smaller neighbourhood units based on lifestyle and demographic
information.
Allows for micromarketing: approach to market segmentation in hih
organisations focus precise marketing efforts on very small
geodemograhic markets.

Geographical segmentation divides markets into different

geographical areas. Marketers use geographic segmentation
because consumers in different areas may display certain
characteristics and behaviours in that particular region, for example,
in London UK certain parts of the West End of London are more
affluent then the East End and you will find particular products sold
in these regions based on their affluence.

An area can be divided by the town, the region or the country. If you
are an organisation working on a global scale you may divide by
global regions such as Europe, North America, South America, Asia
and Africa. McDonalds globally, sell burgers aimed at local markets,
for example, burgers are made from lamb in India rather then beef
because of religious issues. In Mexico more chilli sauce is added
than in other countries.
Psychographic variables
Market segmentation based on factors such as lifestyle and
personality
Psycographic segmentation can be used independently or with other
segmentations
Segmenting with focus on personality may be risky
Hard to measure personality

Behavioural Segmentation
Divide based on some features of consumer behaviour toward a product ,
commonly involving some aspects of product use. 2
Behavioural segmentation refers to why people purchase a product or
service.
Benefit segmentation: the division of a market according to benefits
that customers wants from the product.

By determining the desired benefits, marketers may be able to

divide people into groups seeking certain sets of benefits

The effectiveness of benefit segmentation depends on three conditions:

o The benefits sought must be identifiable

o Using these benefits, marketers must be able to divide people into

recognisable segments

o One or more of the resulting segments must be accessible to the

companys marketing efforts. 3

Behavioural segmentation can be broken down into; Benefit, this is the

benefit the consumer seeks from the product. How will the product
enhance their overall lifestyle. When purchasing a computer the benefit
sought may be ease of use or the need for speed.

Occasion, when should a product be purchased? For example the demand

for turkeys increases during Christmas, flowers and chocolates on
Valentine's Day. Occasion segmentation aims to increase the reason to
buy factor and thus increase sales.

Usage rate divides customers into light, medium and heavy users. Heavy
users obviously contribute more to turnover then light or medium users,

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 the objective of an organisation should be to attract heavy users who will
make a greater contribution to company sales.4

Market Targeting Options5

Introduction
Before engaging in marketing campaigns and promotions businesses need to
decide who they would like to aim their products at. This involves analysing and
splitting (segmenting) the market into different sectors. The most effective way
to segment the market will depend on the product and the business producing
the product. After segmentation firms can adopt one of three strategies to target
customers;

Option 1 Undifferentiated Marketing

A strategy in which an organisation designs a single marketing mix and
directs this strategy at the entire market for a particular product.
Assumes all have similar needs
This assumption enables the organisation to satisfy most customers with a
single marketing mix cost efficient.
Does not address different needs and wants of various segments -
effectiveness: questionable.
The marketing mix: consists of one type of product with little or no
variation, one price, one promotional program aimed at everybody and
one distribution system to reach most customers in the total market. 6

4 http://www.learnmarketing.net/segmentation.htm

5 http://www.learnmarketing.net/targeting.htm

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 Undifferentiated Marketing is marketing that does not target a particular
segment of the market. Instead the firm adopts one marketing strategy
and hopes that it will appeal to as many people as possible. Sometimes
referred to as mass marketing, Undifferentiated Marketing usually involves
targeting the whole market with one product.
An Undifferentiated Marketing strategy can be cheaper than the other
strategies because there is only one product to produce, distribute and
market. It can also be cheaper because the firm is not targeting multiple
market segments. The disadvantage is the challenge involved in producing
a product (and marketing campaign) which is universally appealing
enough to make it profitable.7

Option 2 Differentiated Marketing Strategy

A strategy in which an organizationtargets two or more segments by
developing a marketing mix for each

May demand more production processes materials and people.

Higher costs and production

If a firm decides to target several segments of the market, it is engaging in

a differentiated marketing strategy. Under a Differentiated Marketing
Strategy, a firm will develop products and services with separate
marketing mix strategies for each of the segments chosen by the firm. An
airline company offering first (segment 1), business (segment 2) and
economy class tickets (segment 3) , with separate marketing programmes
to attract customers for each of the ticket types is an example of
differentiated marketing strategy.

Option 3 Concentrated Marketing

A strategy in which an organisation targets a single market segment using
one marketing mix for each

Allows for specialization

Can be risky decline in the segments demand the companys financial

strength also declines.

Concentrated Marketing occurs when a business concentrates its

marketing effort on one segment of the market. The firm will develop a
product that caters for the needs of that particular group.

For example Rolls Royce cars and the Harrods Group target the premium
segment of the market.

7 http://www.learnmarketing.net/targeting.htm
 Concentrated Marketing can have lower costs than the other two options.
It can be a good option for small or new businesses. The disadvantage is
that it reduces the number of customers that the firm is targeting. It also
means that the firm needs to be sure that they have selected the correct
segment of the market.

Summary
There are three targeting strategies that can be used by firms when aiming their
products and services at market segments. Undifferentiated marketing
implements one marketing strategy aimed at the whole market place,
differentiated marketing tailors marketing efforts for each market segment
chosen by the firm, whilst concentrated marketing tailors marketing strategy for
one particular segment of the market. Each of the three targeting strategies has
its advantages and disadvantages; these should be weighed up when deciding
which one to adopt.

Positioning
Product positioning refers to the decisions and activities intendend to
create and maintain a certain concept of the companys product, in
customers minds. When marketers introduce a product, the product is
positioned to ensure characteristics most desired by the target market are
highlighted.8

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