Strategic Market Segmentation

Strategic Market
Segmentation
SUGGESTED READINGS
1. Strategic Marketing
by
David Cravens, 8th edition.
Chapter 4
2. Strategic Marketing
by
Wilson & Gilligan
Chapter 4 and 5
2
Strategic market segmentation (1)
• Levels and types of market segmentation
Levels and types of market segmentation
Vision
Strategic Strategic intent
Segmentation Product benefits
Resource allocation
Alignment
Managerial Planning
Segmentation
Marketing programs
Operational - Advertising
Segmentation - Sales
- Distribution
From Mass Markets to 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
Strategic market segmentation
• Market-driven strategy and segmentation
• Market segmentation, value opportunities and new market space
• Market targeting and strategic positioning
Segmentation and Market-Driven Strategy
SEGMENTS
VALUE
OPPORTUNITIES
CAPABILITIES/
SEGMENT
MATCH
TARGET(S)
POSITIONING
STRATEGY
• Activities and decisions in market segmentation
Market Segmentation Activities and Decisions
Market to be
Segmented
Strategic
Analysis Decide How
of Segments to Segment
Finer Form
Segmentation Segments
Strategies
Strategic market segmentation
• Activities and decisions in market segmentation
• Defining the market to be segmented
Product Variant Segmentation
Product Type Segmentation
Generic Segmentation
• Identifying market segments
• Segmentation variables
• Characteristics of people and organizations
• Consumer markets
• Organizational markets
• Product use situation segmentation
• Buyers’ needs and preferences
• Consumer needs
• Attitudes
• Perceptions
• Purchase behavior
Determinants of
Customer Perceived Value
Total customer benefit Total customer cost
Product benefit Monetary cost
Services benefit Time cost
Personal benefit Energy cost
Image benefit Psychological cost
13
What is Customer Perceived Value?
Customer perceived value is the difference between the prospective
customer’s evaluation of all the benefits and all the costs of an
offering and the perceived alternatives.
14
Steps in a Customer Value Analysis
• Identify major attributes and benefits that
customers value
• Assess the qualitative importance of different
attributes and benefits
• Assess the company’s and competitor’s
performances on the different customer values
against rated importance
• Examine ratings of specific segments
• Monitor customer values over time
15
FROM MARKET SEGMENTS TO STRATEGIC
SEGMENTS
• How to create differentiation
• too heavily oriented on the marketing mix
• Deeper differentiation required
• Three Vs
• Value customer-who to serve
• Value proposition
• Value network
16
SEGMENTS
Traditional marketing segmentation
• Identifying market segments
• Selecting appropriate segment
• Positioning the product to the target market segment
• Mass customization
• Dell’s experience
17
FROM MARKET SEGMENTS TO
STRATEGIC SEGMENTS
STRATEGIC SEGMENTS
• Are those segments that require distinct value networks, rather than
just changes in the marketing mix.
• Example of EasyJet
• A low-cost Airline created a value proposition using Strategic
Segmentation approach.
18
STRATEGIC SEGMENTS
Launch of EasyJet
• Train services in Europe
• Full cost airlines
• British Airways, Lufthansa
• How can your consumers travel at prices close to train fares and still
reach at the speed of Air Travel?
STRATEGIC SEGMENTS
EASYJET
• Low-cost carrier
• European carrier
• Quite successful
• ‘fly to Scotland for a pair of jeans.’
• Competitor to full-price carriers like British Airways, Lufthansa
• How 3Vs were used?
20
STRATEGIC SEGMENTS
Valued customer-who to serve
• Traditional carriers targeted everyone
• Mainly business travelers
• Travel mostly on company expenses
EasyJet
• Target those customers who pay from their own pocket,
• Predominantly entrepreneurs, small business owners
21
SEGMENTS
EasyJet
• Target those customers who pay from their own pocket
• Predominantly entrepreneurs, small business owners
• Large segment in Europe
• Were unhappy with offerings of full-price carriers
Two strategic segments identified
22
SEGMENTS
Valued-proposition-what to offer?
• Major differences between two segments
• Business segment
• Demanding
• Mostly company employees
• Freebies such as newspaper, meals
• Want seamless connections
• Less waiting
• Expenses borne by the company
23
SEGMENTS
Small business travel segment
• Entrepreneurs
• Leisure travelers
• Bear their own expense
• Willing to forgo these services
• Lower prices
• How EasyJet’s value proposition answers four issues
24
SEGMENTS
Which attributes that our industry takes for granted should be
eliminated?
• Free meals and travel agents to be eliminated.
• Sells food on aircraft
• Eliminated travel agents
• Tickets sold on internet
25
SEGMENTS
Which attributes should be reduced to below industry standards?
• Have the offering been overdesigned?
• What can be reduced
• Flexibility in flight changes and seat selection
• Non-refundable fares
• Seat on first-come, first-served basis
• Incentive for passengers to board earlier
26
SEGMENTS
Which attributes should be increased to above industry standards?
• Lower prices
• Punctuality
• Younger fleet of aircraft
27
SEGMENTS
Which new attributes should be created that the industry has never
offered?
• New sources of value creation
• One-way fares refund if the flight is delayed beyond four hours
28
SEGMENTS
Value curve
• Compare the value proposition of various players in the industry
• Full-price carriers are superior on every dimension
• Which attributes are most important to air travelers?
• Reach safely
• Low prices a concern
29
SEGMENTS
Why
• Low price means low quality
• Young fleet is the answer
• Punctuality concern
• Refund for delay beyond four hours
• Along with low prices it asks its to compare with full price carriers
• Offer superior proposition on the absolute necessary dimension
30
SEGMENTS
Value network-how to deliver?
• How to deliver valued proposition
• Easy Jet delivers lower price at a profit
• 20 to 25% lower
• Not using travel agents
• Encouraging bookings on internet
• not participating in large scale CRS
• No paper tickets
31
SEGMENTS
• Streamlined operations
• Fast turnaround
• Greater utilization
• single type of aircraft (Boeing 737)
• Reduces spare parts inventory
• Increases bargaining power with vendors
• Lower pilot training costs
• Elimination of business class means more seats can be
accommodated
32
SEGMENTS
FIVE PRINCIPLES OF EASYJET VALUE NETWORK
1. Avoid fixed costs wherever possible
No secretarial staff
2. Cover fixed costs quickly
Aircrafts remain in air for 11 hours
3. Eliminate variable costs wherever possible
Avoid use of travel agents
4. Keep variable costs low
Avoid landing at major ports
5. Convert fixed costs into revenue generators
Sell food items in aircraft
33
SEGMENTS
Different value network options for unique segments
• Each segment requires different value network
• Why full-price carriers do not succeed in low-cost operations
• Value networks are different
34
SEGMENTS
DRIVING MARKET INNOVATION USING THE 3Vs
• Are there customers who are either unhappy with all of the industry’s
offering or are not being served at all?
• Identification by EasyJet
35
SEGMENTS
• Can we radically redefine the value network for the industry with
much lower costs?
• Dell in personal computer
• Amazon.com
36
Segmentation Variables
Purchase
Behavior
Buyers’ Needs/ Characteristics

Preferences of People/
Organizations
Use
Situation
Strategic Segmentation
Why Pizza Hut did not the same success in home delivery model?
• Pizza Hut started home delivery
• Different Strategy
• Claimed the Pizza will be hot
• Touch strategy
• Give hot Pizza
• Consumers were to touch
• Feel of Hot Pizza
• Why it dis not work?
Pizza Hut Hot Dot delivery
• https://www.youtube.com/watch?v=MdFboW-
dT8o&ab_channel=AnupKrishnakumar
Pizza Hut
• A strategic segmentation
• Main business is restaurant based
• Dining model
• Place order
• Pizza prepared as per requirement
• Able to provide high variety
• The value chain and value network is different
Pizza Hut
• Home delivery
• Requires different network
• Need to keep simpler product range
• Quick preparation, cross functional training required
• How do you build two different competencies for
• Home delivery
• Dining/restaurant based model
Two different segments require different value networks
Major cause of failure
Why Low Cost Airlines are not that successful in India
• Each strategic segmentation
• Requires
• Unique value chain
India
Why Low Cost Airlines are not that successful in India
• Absence of low cost airports
• High taxation
• Higher fuel costs
• Makes the break-even higher to be able to make profits
• The demise of Air Deccan, Kingfisher Airlines
Why Rakesh Jhunjhunwala is entering airlines business
• Strategic changes
• Government
• Create more low-cost airports
• Udaan Policy
• Higher purchasing power
• Oil prices will remain soft
• Better operating efficiencies
• Ability to pump capital
Illustrative Segmentation Variables
Consumer Industrial/
Markets Organizational Markets
Characteristics Age, gender, income, Type of industry, size,
of people/ family size, lifecycle geographic location,
organizations stage, geographic corporate culture, stage of
location, development, producer/
lifestyle intermediary
Use situation Occasion, importance of Application, purchasing
purchase, prior Procedure (new task,
experience with product, modified rebuy, straight
user status rebuy
Buyers’ needs/ Brand loyalty status, brand Performance requirements,
preferences preference, benefits sought, brand preferences, desired
quality, proneness to make features, service
a deal requirements
Purchase Size of purchase, Volume, frequency
behavior frequency of purchase of purchase
• Forming market segments

• Requirements for segmentation
• Response differences
• Identifiable segments
• Actionable segments
• Cost/benefits
• Stability
• Approaches to segment identification
• Customer group identification
• Forming groups based on response differences
Requirements for Segmentation
Identifiable
segments
Response Actionable
differences segments
Segmentation
Requirements
Stability Favorable
over time cost/benefit
American Express
• Purchase Behavior
• Group who pays annual fees
• Rarely uses for spending
• Another group uses competitor cards or cash
• Amex targets second group
• Why
• They spend and can switch
American Express
• Targets by offering incentives
• Free 2 airline tickets in 6 month
• Why
• They travel a lot
• It is expensive
• Yes but cheaper than getting new customers
• Spend a lot on identifying by doing market research
Identifying profitable segments
Approaches to Segment Identification
CUSTOMER
IDENTIFIERS
RESPONSE
OF CUSTOMER
PROFILE
GROUPS
E Characteristics
E Use Situation
of People and
Organizations
E Buyers Needs
and Preferences
E Purchase
Behavior and
Loyalty
Illustrative Consumer Perception Map
Expensive
GROUP
• Brand E II • Brand A
• Brand B
GROUP
V High
Low GROUP
Quality I Quality
GROUP
III • Brand C
• Brand D
GROUP
IV
Inexpensive
• Group I to V contains people with similar preferences regarding

expensiveness and quality.
• A to E are Brands positioned using the preference data obtained from
survey participants.
• As product manager for brand C
• Whom will you target
• Group V looks nearer
• To appeal this group
• Change somewhat group V consumers price perception.
• Offering a brand less expensive than Brand C to Group IV is another

possible action
• Helps marketer to understand which target segments to identify.
• 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 Market Segments
Customer
Analysis
Financial and Competitor
Market
Analysis
Attractiveness
Positioning
Analysis
Segmentation “Fit” for Implementation
Segment Attractiveness
and Internal Compatibility
Internal Compatibility
High Low
Attractive segments Attractive segments

High that match with but with poor match
company with company
capabilities capabilities
Market Segment
Attractiveness
Unattractive segments Unattractive segments
Low but with match to that do not match with
company company capabilities
capabilities
Did Indigo Airlines replicate the EasyJet in India?
• Indian market
• Transportation market
• Train/Rajdhani
• Full-Cost airlines
• There is space?
• But value network differs
• why
• Indian conditions
• Absence of low-cost airports
• Higher fixed costs
• As percentage of sale
• High gasoline prices
• Higher taxes
• Airlines still perceived to be luxury
• Price difference between full cost airlines and Low cost will be
narrower due to cost.
• A ‘low-cost’ airlines in the true sense is not sustainable in Indian
conditions.
• Think of How Uber uses strategic segmentation?

Strategic Market Segmentation

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Strategic Market Segmentation

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Strategic Market

CONSUMERS Passively receive Empowered media users

Product benefit Monetary cost

Services benefit Time cost

Personal benefit Energy cost

Image benefit Psychological cost

Buyers’ Needs/ Characteristics

• Forming market segments

• Group I to V contains people with similar preferences regarding

• Offering a brand less expensive than Brand C to Group IV is another

Attractive segments Attractive segments

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