Market Segmentation

Agenda
What is market segmentation? Why is segmentation necessary? How to segment the market?

What is Market Segmentation?

The breaking down or building up of potential buyers into groups called Market Segments. Market segmentation involves aggregating prospective buyers into groups that (1) have common needs and (2) will respond similarly to a marketing action.

Market Segments
Market segments are the relatively homogeneous groups of prospective buyers that result from the market segmentation process.

Why Segment Markets?

Satisfy diverse needs by developing different products to suit various consumer needs. One Product and Multiple Market Segments. Multiple Product and Multiple Market Segments. Segments of One: Mass Customization. Build-to-Order (BTO)

How to Segment Market?

Steps in segmenting and targeting markets 1 Group potential buyers in segments
Identify Market Needs

2 Group products to be sold into categories

3 Develop a market-product grid and estimate size of markets 4 Select target markets 5 Take marketing actions to reach target markets

Execute marketing program

Two Ways to Segment markets

Customer Characteristics
Geographic: Region
Demographic: Household Psychographic: Lifestyle

Buyer Characteristics
Benefits Sought: Product Features Patronage: Usage Rate Frequency Marketing 80/20 Rule

Steps in segmentation
Step 1: Grouping Potential Buyers into Segments Potential for Increased Profit Similarity of Needs of Buyers within a Segment Difference of Needs of Buyers Among Segments Potential of a Marketing Action to Reach a Segment Simplicity and Cost of Assigning Buyers to Segments

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Step 2: Group Products to be Sold into Categories Step 3: Develop a Market-Product Grid and Estimate Size of Markets

Step 4: Select Target Markets

Criteria to Use in Picking the Target Segments
Market Size Expected Growth Cost of Reaching Segment

Compatibility with the Organizations Objectives Competitive Position and Resources

Step 5: Marketing Action

Take Marketing Action to reach Target Markets effectively
o Price Strategy o Advertising Strategy o Promotional Strategy.

Benefits of Market Segmentation

1. Identifies opportunities for new product development 2. Helps design marketing programs most effective for reaching homogenous groups of buyers 3. Improves allocation of marketing resources

Market Segmentation Variables

Socioeconomic Behavioral

Market Segmentation Variables

Psychographic Benefits Sought

Fundamental-Buyer Related Questions

Who are they? What do they want to buy? How do they want to buy? When do they want to buy? Where do they want to buy?

Why do they want to buy?

Each Market Segment should be

Measurable

Differentiable

Substantial

Accessible

Market Sales Potential

Maximum level of sales available to all firms serving a defined market in a specific time period given: 1. The marketing mix activities and efforts of all organizations 2. A set of environmental conditions

When to Segment Markets

When the expected gain in sales is larger than the expense of the process
Mass produced goods homogenized need but were cheap

Mass customization is now cheap & encourages choice, so companies segment by that choice

Group Buyers into Segments

Criteria to Use in Forming the Segments
Potential for Increased Profit Similarity of Needs of Buyers within a Segment Difference of Needs of Buyers Among Segments Potential of a Marketing Action to Reach a Segment Simplicity and Cost of Assigning Buyers to Segments

Criteria for Segmentation

Substantiality Identifiability Measurability
Segment must be large enough to warrant a special marketing mix. Segments must be identifiable and their size measurable.

Members of targeted segments must be reachable with Accessibility marketing mix. Unless segment responds to a Responsiveness marketing mix differently, no separate treatment is needed.

Criteria used to Select the Target Market

Market Size Expected Growth Compatibility with the Organizations Objectives and Resources Cost of Reaching Segment Competitive Position

Segmentation Variables:
Demographic-Household 1) 2) 3) 4) Age & Gender Income Ethnic Background Family Life Cycle 1) 2) 3) 4) Geographic-Location Region of he world Market size Market density Climate

Psychographic- Lifestyles 1) 2) 3) 4) How time is spent Values and Beliefs Spending habits Education