Market Segmentation

To begin with…
• “There are no longer markets for products
that everyone likes a little, there are only
markets for products that somebody likes a
lot.”
• ”In the 1980s we looked for the customer in
each individual. Now we must look for the
individual in each customer.”
• ”If you went out of business, would anyone
miss you?”
Nokia 1992 Nokia 2006
 Characteristics of Markets
• Definition: Market is a group of actual or
potential customers of a particular offering
– Willingness to purchase the product
– Enough purchasing power to buy the offering
– The authority to make the purchasing decision
• All customers rarely have similar needs and
preferences
– User, payer, influencer, and maker of the final
purchase decision is not always the same person

Companies need to design and offer differentiated

products to specific target groups
Traditional Market
Segmentation
 Market Segmentation
• Identifying and profiling distinct groups of
buyers who differ in their needs, preferences
and behavior
• Aim: Each segment can be approached with
a unique marketing mix (4P)
• The groups that result from the market
segmentation process are called market
segments
– maximum similarity between individuals within a
segment
– maximum heterogeneity between different
segments
3 Phases of Marketing Strategy
The STP Model

S 1. Identify segmentation variables and

segment the market
Segmentation 2. Develop profiles of resulting segments

T 3. Evaluate the attractiveness of each

segment
Targeting 4. Select the target segment(s)

P 5. Identify possible positioning concepts

for each target segment (4P)
6. Select, develop and communicate the
Positioning chosen positioning concept
Levels of Segmentation
 Characteristics of Relevant
Segments
• Measurable
– size, purchasing power and characteristics of the
segment can be measured
• Substantial
– segments large enough; largest possible homogenous
group (from marketing point of view, maximizing
profitability)
• Accessible
– the segments can be effectively reached and served
• Differentiable
– segments conceptually different and respond differently
to the marketing-mix elements
• Actionable
– effective individual marketing programs can be
formulated and implemented
 Segmentation Variables
Identifier Variables Response Variables
(Who they are) (What they want)

• Consumer markets • Benefits desired:

• Demographic • Price, reliability, service
• Socio-economic
• Psychographic • Sensitivity to 4P

• Business markets • Purchasing behavior

• Size • Volume & Frequency
• Industry • Switching
• Geographic location • Channels
 Bases of Segmentation
• Geographic variables
– Region: by continent, country, state, or even
neighborhood
– Size of metropolitan area: segmented according to
size of population
– Population density: often classified as urban,
suburban, or rural
– Climate: according to weather patterns common to
certain geographic regions
 Bases of Segmentation
• Demographic variables
– Age
– Gender
– Occupation
– Education
– Income
– Ethnicity
– Family size
– Family lifecycle
– Religion
– Social class
 Bases of Segmentation
• Psychographic variables
– Personality attributes
• Attitudes, values, beliefs
– Motives
• Interests
– Lifestyles
• Activities
 Bases of Segmentation
• Behavioral variables
– Benefits sought
– Usage rate
– Brand loyalty
– User status: potential, first-time, regular, etc.
– Readiness to buy
– Occasions: holidays and events that stimulate
purchases
5 Patterns of Target Market
Selection
 5 Patterns of Target Market
Selection
• Single Segment:
– Choice for smaller firms with limited resources
• Selective Specialization:
– Product itself may or may not be different
– Products and markets different, one does not affect the
other
• Product Specialization:
– Specializes in product and tailors it for different markets
– Coffee, Car manufacturers?
• Market Specialization:
– Specializes in a segment, and offers many products
– Bluebird Departmental store??
• Full Market Coverage:
– Huge company with massive resources and strong
distribution channels
Ford 1915 Ford 2006
 Criteria for Segmentation
• Potential for increased profit and ROI.
• Similarity of needs of potential buyers within
a segment.
• Difference of needs of buyers among/across
segments.
• Feasibility of marketing action to reach a
segment.
Strategic Segmentation
The 3V Framework

Valued Customer Who to serve?

Value Proposition What to offer?

Value Network How to deliver?

Case: European Airline Industry

Valued Customer

• Everyone • Infrequent travelers paying

• Business travelers most
valuable
from their own pockets
• Mainly leisure travelers but
increasingly cost-
minimizing business
travelers
Value Proposition
Value Network
In Summary
 Using Segmentation in
Customer Retention
• Segmentation is commonly used by
organizations to improve their customer
retention programs and help ensure that they
are:
– Focused on retaining their most profitable
customers
– Employing those tactics most likely to retain these
customers
Retention-based Segmentation
• The basic approach to retention-based
segmentation is that a company tags each of
its active customers with 3 values:
– Tag #1: Is this customer at high risk of canceling
the company's service? (Or becoming a non-user)
– Tag #2: Is this customer worth retaining?
– Tag #3: What retention tactics should be used to
retain this customer?
• Mostly used in service industries, where
customer purchases can be tracked
– Credit cards, hotels, dental services, etc
– However, with computerized database and online
purchases, can be used by any kind of company
Targeting & Positioning
 The Target Market
• The segment / group of segments
a company wishes to appeal to,
design products for, and tailor its
marketing activities toward.
 Criteria for Target Markets
• Size:
– The estimated size of the market to determine whether
or not it is worth going after.
• Expected Growth:
– The size of the market may be small, but if it is growing
significantly it may be worth going after.
• Competitive position:
– The less competition the more attractive the market.
• Cost of reaching the market:
– Is the market accessible to a firm’s marketing actions? If
not it should not be pursued.
• Compatibility with the organization’s objectives and
resources.
 Positioning
• The act of designing the company’s offering
and image to occupy a distinctive place in the
mind of the target market
• Not what you do to the product, its what you
do to the mind of the customer
• “How your target market defines you in
relation to your competitors.”
– What makes you unique
– What is considered a benefit by your target market 
 Positioning Criteria
• Features and benefits must be important to
the consumer
• Must be distinctive from the competition
• Difference must be communicable and visible
to buyers
• Pre-emptive and competitors unable to
replicate
• Affordable
• Profitable
 Positioning Strategies
• Product attributes
– Nokia’s 6600 ‘Zoom in’.
• Technical items
– BMW breathable fresh air filters.
• Benefits offered
– Crest toothpaste reduces cavities.
• Usage occasions
– Kit Kat, ‘have a break’.
• Users
– Johnson & Johnson changing focus to incorporate
adults as frequent users of their gentle Baby
Shampoo.
 Positioning Strategies
• Personalities
– Tiger Woods for Nike
• Activities
– Omega, the ‘first and only watch on the moon’.
• Origin
– Perrier ‘bottled at source’.
• Positioned against competitors
– Hertz Corporation versus Avis ‘We try harder’
• Positioned away from competitors
– 7-Up the number 1 ‘Un-cola’.
• Product class membership
– ‘I can’t believe it’s not butter’, the vegetable fat
spread, is clearly positioned against butter.
 USP & ESP
• Ad man Rosser Reeves states that every
company should have a unique selling
proposition (USP).
– The USP is the unique product benefit that a firm
aggressively promotes in a consistent manner to
its target market. The benefit usually reflects
functional superiority: best quality, best services,
lowest price, most advanced technology.
• Difficulty of maintaining functional superiority
forces firms to attempt a more emotional
influence by developing an emotional
selling proposition (ESP).
Positioning Challenge for Vodka
• A drink that is odorless, tasteless, colourless
• With a bottle that was opined as ‘too ugly’,
‘too chubby’, ‘too short’, too much like a blood
plasma bottle’
• Before launching in 1979, market research
gave devastating conclusions about the
product features
– Bottlenecks too short for bartenders to handle
– Swedish origin was unpopular for vodka
– The name seemed misspelled
– Vodka has no connoisseurs or industry experts like
wine
 Strategies
• The word Absolut was ‘punned’ in conjunction
with creative images of the bottle
• In time, Absolut achieved the status of a
lifestyle product, to the extent that it became
a brand statement
• The ads’ power comes from their simplicity –
two words and one image sells not just a
vodka, but a lifestyle
 Differentiation
• Marketers strive for competitive advantage
defined as a comparative advantage over the
competitor gained by offering greater value,
either by lower prices or by offering higher
quality benefits.
 Differentiating Markets
• Companies and their market offerings can be
differentiated along the lines of products,
services, personnel or image.
 Differentiating Markets
• Product differentiation
– Features and benefits
– Quality
– Performance
– Innovation
– Consistency
– Reliability
– Style and design
– Durability
– Repairability
 Differentiating Markets
• Services differentiation
– Delivery
– Installation
– Repair services
– Customer training services
– Consulting services
– Speed of service
 Differentiating Markets
• Image differentiation
– Images that reflect the ‘soul’ or ethos of the
company
 Differentiating Markets
• Value positioning
– A range of positioning alternatives based on the value an
offering delivers and its price.
• More for more
– Premium product and premium price, supported by a premium
image. E.g. Mont Blanc pens
• More for the same
– Brand offering comparable quality at a lower price. E.g. Lexus
versus the Mercedes-Benz.
• The same for less
– Value proposition e.g. Amazon.com
• Less for much less
– Trade off between luxury and necessity. E.g. Five star hotel
versus a budget hotel. Lower performance for much lower
cost.
• More for less
– No-name house brands versus the big brands.
Thank You!