CHAPTER 5

Market Segmentation

McGraw-Hill/Irwin Copyright © 2013 by the McGraw-Hill Companies, Inc. All rights reserved.
 MARKET SEGMENTATION

• Process of dividing a market into groups of similar

consumers and selecting the most appropriate
group(s) for the firm to serve
• Target market: Group or segment a company
selects to serve

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FIGURE 5.1 – A MODEL OF THE
MARKET SEGMENTATION PROCESS

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STEP1: DELINEATE THE FIRM’S
CURRENT SITUATION
• A firm must do a complete situational analysis
when embarking on a new or modified
marketing program
• Such an analysis aids in determining objectives,
opportunities, and constraints to be considered
when selecting target markets and developing
marketing mixes

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STEP2: DETERMINE CONSUMER NEEDS
AND WANTS
• Successful marketing strategies depend on
discovering and satisfying consumer needs and
wants
• At a strategic level, consumer needs and wants
are translated into operational concepts

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STEP3: DIVIDE MARKETS ON RELEVANT
DIMENSIONS
• Three important things should be considered
here:
• A priori versus post hoc segmentation
• Relevant dimensions to use for segmentation
• Bases for segmenting consumer and
organizational buyer markets

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A PRIORI VERSUS POST HOC
SEGMENTATION
• A priori segmentation: The marketing manager
decides on the appropriate basis for
segmentation in advance of doing any research
on a market
• Post hoc segmentation: People are grouped
into segments on the basis of research findings

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RELEVANCE OF SEGMENTATION
DECISION
• Selecting appropriate dimensions requires:
• Managerial expertise
• Managerial experience
• Previous research
• Purchase trends
• Managerial judgment
• Consideration and research of sought benefits

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BASES FOR SEGMENTATION

1-Benefit segmentation: Focuses on satisfying

needs and wants by grouping consumers on the
basis of the benefits they are seeking in a product.

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2-Psychographic segmentation: Focuses on
consumer lifestyles as the basis for segmentation
• Best-known psychographic segmentation is
VALS™, which stands for values and lifestyles

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VALSTM FRAMEWORK AND
SEGMENTS
• Vertical dimension segments people based on
the degree to which they are innovative and
have resources

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VALSTM FRAMEWORK AND
SEGMENTS
• Horizontal dimension represents primary
motivations for buying and includes three
different types:
• Consumers driven by:
• Knowledge and principles
• Goal of demonstrating success
• Desire for social or physical activity, variety, and
risk taking

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BASES FOR SEGMENTATION

3- Geodemographic segmentation: Identifies

specific households in a market by focusing on
local neighbourhood geography to create
classifications of actual, addressable, mappable
neighbourhoods where consumers live and shop
• Nielsen PRIZM is an example of a
geodemographic system

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STEP4: DEVELOP PRODUCT
POSITIONING
• Products can be positioned:
• By focusing on their superiority to competitive
products based on one or more attributes
• By use or application
• In terms of particular types of product users
• Relative to a product class
• Directly against particular competitors

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DEVELOP PRODUCT POSITIONING
• Positioning map: Visual depiction of consumer
perceptions of competitive products, brands, or
models
• Used to investigate how to position a product
• Constructed by:
• Surveying customers about various product
attributes
• Developing dimensions and a graph indicating the
relative position of competitors

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FIGURE 5.6 – POSITIONING MAP FOR
AUTOMOBILES

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STEP5: DECIDE SEGMENTATION
STRATEGY
• A firm may decide:
• Not to enter the market
• To segment but to be a mass marketer
• To market to one segment
• To market to more than one segment and design
a separate marketing mix for each

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DECIDE SEGMENTATION STRATEGY

• A viable segment must be:

• Measurable – Firms must be capable of
measuring its size and characteristics
• Meaningful – Should have sufficient sales and
growth potential to offer long-run profits
• Marketable – Can be reached and served by the
firm in an efficient manner

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STEP6: DESIGN MARKETING MIX
STRATEGY
• Selection of target market and designing the
market should go hand in hand
• Many of the marketing mix decisions are made
in conjunction with target market selection

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