Presentation on theme: "Identifying Market Segments and Selecting Target Markets"— Presentation transcript:
1 Identifying Market Segments and Selecting Target Markets
2 “Don’t buy market share. Figure out how to earn it.”
3 Objectives of this Presentation We focus on the following questions:How can a company identify the segments that make up a market?What criteria can a company use to choose the most attractive target markets?
4 Target MarketingTarget marketing requires marketers to take three major steps:Identify and profile distinct groups of buyers who differ in their needs and preferences (market segmentation).Select one or more market segments to enter (market targeting).For each target segment, establish and communicate the key distinctive benefit(s) of the company’s market offering (market positioning).Target marketing involves in three activitiesThe terms of Market segmentation and target marketing are often used interchangeably but there is slight different of emphasis. The concept of target marketing is a refinement of the basic philosophy of marketing. it is an attempt by companies to relate the characteristics or attributes of the goods and services they provide more closely to customer requirements.1--- Market segmentation– the overall market is divided into distinct groups of buyers who are likely to respond favorably to different product services offerings and market mixes.For instance short stay business travellers,families with childern,young overseas tourists and so on.2--- Marketing targeting—The process whereby one or more of the market segments previously identified are evaluated and selected .For instance, short stay business travellers,Monday to Friday young families at weekends.3==Product positioning– competition will exist for identified market segment in niche postions..isthe process whereby the product or services and other marketing mix elements are designed to fit a given place within particular segment….it is defend by communications such advertising rather actual product differences.
5 Levels and Patterns of Market Segmentation Levels of Market SegmentationMass marketingMicromarketingSegment marketingMarket segmentSectorFlexible market offeringNaked solutionDiscretionary optionsLevels of Market SegmentationMarket segmentation represents an effort to increase a company’s targeting precision. It can be carried out at four levels: segments, niches, local areas and individuals.Mass MarketingThe starting point for discussing segmentation is mass marketing. In mass marketing the seller engage in the mass production ,distribution and promotion of one product for all buyers for example when ford company offered the model T ford in one color, black.The marketers turned to micromarketing when many critical point to the increasing splintering of the market which makes mass marketing very difficult .many companies retreating from mass marketing and turning to micromarketing at one of four levels.:1- Segment marketing ; a market segment consist of a large identifiable grouping market with similar wants ,and needs(,purchasing power location and buying attitudes.-- Segmentation is an approach midway between mass marketing and individual marketing .each segment buyers are assumed to be similar in wants and needs, .yet no two buyer .are a like-- Flexible market offering ; ;the flexible marketers present flexible market instead of standard market with a segment flexible which consist of two parts- Naked solution ;consisting of product and service elements that all segment member value- Option ; that some segment member value.Each carries an additional chargeExample delta air lines offers all economy passengers a seat ,food and soft drinks ,but it charge extra for alcoholic if they want
6 Levels and Patterns of Market Segmentation Niche MarketingNicheLocal MarketingIndividual Customer MarketingMass-customizationChoiceboardCustomerizationSegmentsIndividualsNiche marketing ; is a more narrow defined typically a small market whose needs are not well served. marketers usually identify niches by dividing a segment into sub-segments or by defining a group seeking a distinctive mix of benefit.Example the segment of heavy smokers includes those who are trying to stop smoking and those who don’t care.Local marketing; target marketing is leading to market program being tailored to the needs and wants of local customer groups ( neighborhoods and individual storesCity bank provides different mixes of banking services in the branches depending on neighborhood demographicsIndividual marketing; the ultimate level of segmentation leads to segments of one ,or customized marketing or one to one marketingSo new technologies companies returned to customized marketing or what is calledMass –customization where has ability to design individual product to meet each customer requirements .Individual marketing: The ultimate level of segmentation leads to “segments of one,” “customized marketing,” or “one-to-one marketing”. The prevalence of mass marketing has obscured the fact that for centuries consumers were served as individuals. It is the new technologies – specifically computers, databases, robotic production, and instant communication media such as and fax – that are permitting companies to consider a return to customized marketing, or what is called “mass customization”. Mass customization is the ability to prepare on a mass basis individually designed products and communications to meet each customer’s requirements.
7 Levels and Patterns of Market Segmentation Patterns for Market SegmentationPreference segmentsHomogeneous preferencesDiffused preferencesClustered preferencesNatural market segmentsConcentrated marketingPatterns of Market SegmentationMarket segments can be built up in many ways. Instead of looking at demographic or lifestyle segments, we can distinguish preference segments. Three different patterns can emerge.For insuranceTo identify preferences segments suppose the ice cream buyers are asked how much they value sweetness and creaminess as two productAttributes.Homogeneous preferences;where all the consumer have roughly the same preferences the existing brand would be similar and cluster around middle of the scale both in the sweetness and creaminessDiffused preferences;consumer vary greatly in their preferences means that the first brand to enter to the market is likely to positioning the center to appeal to the most people for example computer could locate next to the first brand and fight for market share.Clustered preferences; appeal to all groupsThe market might reveal distinct preference clusters, called natural market segments. The first firm in the market has three options. It might position in the center hoping to appeal to all groups. It might position in the largest market segment (concentrated marketing). It might develop several brands, each positioned in a different segment. If the first firm developed only one brand, competitors would enter and introduce brands in the other segments.
8 Levels and Patterns of Market Segmentation Market Segmentation ProcedureNeeds-based market segmentation approachMarket partitioningBrand-dominant hierarchyNation-dominant hierarchy. Market Segmentation ProcedureWe have seen that market segments and niches can be identified by applying successive variables to subdivide a market. Is there a formal procedure to identifying the major segments in a market? Here is one common 3-step approach used by marketing research firms.STEP ONE: SURVEY STAGE.The researcher conducts exploratory interviews and focus groups to gain insight into consumer motivations, attitudes and behavior. Using these findings, the researcher prepares a formal questionnaire to collect data on:Attributes and their importance ratingsBrand awareness and brand ratingsProduct-usage patternsAttitudes toward the product categoryDemographics, geographic, psychographics and media graphics of the respondents.STEP TWO: ANALYSIS STAGE.The researcher applies factor analysis to the data to remove highly correlated variables, then applies cluster analysis to create a specified number of maximally different segments.STEP THREE: PROFILING STAGE.Each cluster is profiled in terms of its distinguishing attitudes, behavior, demographics, psychographics, and media patterns. Each segment can be given a name based on a dominant distinguishing characteristic. Market segmentation must be redone periodically because market segments change. One way to discover new segments is to investigate the hierarchy of attributes that consumers examine in choosing a brand. This process is called market partitioning. The hierarchy of attributes can also be used to reveal customer segments. Those buyers who first decide on price are price dominant, those who first decide on the type of car are type dominant; those who first decide on the car brand are brand dominant; and so on. One can go further and identify those who are type/price/brand dominant as making up a segment; those who are quality/service/type dominant as making up another segment; and so on. Each segment may have distinct demographics, psychographics, and media graphicsNeeds –based market segmentation approach as explained in table10-1Market partitioning;One way to discover the new segments is to investigate the hierarchy of the attributes that consumer examine in choosing the brand, so this process is called market partitioningYears ago ,most car buyers first decided on the manufacturer and then on one of its car division (BRAND-DOMINANT HIERARCHY) ;A BUYER MIGHT FAVOR GENERAL MOTORS CARS AND WITHIN SET ,PONTIAC.TODAY MANY Buyers decide first on the nation from which they want to buy a car (nation-dominate hierarchy)[
9 ChemStation’s Web site offers customers solutions to their problems, not just products. This company based in Dayton ,Ohio, offers its industrial customer-ranging from car washes to the us air force-individually concocted soap formulas.
10 Table 10-1: Steps in Segmentation Process Description1. Needs-Based SegmentationGroup customers into segments based on similar needs and benefits sought by customer in solving a particular consumption problem.2. Segment IdentificationFor each needs-based segment, determine which demographics, lifestyles, and usage behaviors make the segment distinct and identifiable (actionable).3. Segment AttractivenessUsing predetermined segment attractiveness criteria (such as market growth, competitive intensity, and market access), determine the overall attractiveness of each segment.4. Segment ProfitabilityDetermine segment profitability.5. Segment PositioningFor each segment, create a “value proposition” and product-price positioning strategy based on that segment’s unique customer needs and characteristics.Needs based market segmentation process
11 Levels and Patterns of Market Segmentation Criteria for Effective SegmentationMeasurableSubstantialAccessibleDifferentiableActionableNot all segmentation are usefulFor example table salt buyers could be divided into blond and brunet, but hair color in not relevant to the purchase of salt,furher more if all salt buyers buy the same amount of salt each month,belive all salt is the same and would pa only one price for salt ,this market would be minimally segment able from marketing point viewTo be useful---the market segment must be Measurable; in terms of both purchasing power and the size ,---Substantial; the segment are large and profitable enough to serve---accessible ;the segment can be effectively reached and served---Differentiable; the segment s are conceptually distinguishable and respond differently to different marketing-mix elements and program---Actionable effective program can be formulated for attracting and serving segment.
12 Segmenting Consumer and Business Markets Geographic SegmentationDemographic SegmentationAge and Life-Cycle StageThere are two biases for segmenting consumers markets-Consumer characteristics and consumer segments.The market segmentation variable for consumers markets are ;Geographic, demographic, psychographic, and behavioralTheirs behavior can be used singly or in combination
13 Table 10-2: Major Segmentation Variables for Consumer Markets GeographicRegionPacific, Mountain, West North Central, West South Central, East North Central, East South Central, South Atlantic, Middle Atlantic, New EnglandCity or metro sizeUnder 5,000; 5,000-20,000; 20,000-50,000; 50, ,000; 100, ,000; 250, ,000; 500,000-1,000,000; 1,000,000-4,000,000; 4,000,000 or overDensityUrban, suburban, ruralClimateNorthern southernDemographicAgeUnder 6, 6-11, 12-19, 20-34, 35-49, 50-64, 65+Family size1-2, 3-4, 5+
14 Segmenting Consumer and Business Markets Bases for Segmenting Consumer MarketsGeographic SegmentationDemographic SegmentationAge and Life-Cycle StageBases for Segmenting Consumer MarketsTwo broad groups of variables are used to segment consumer markets.Some researchers try to form segments by looking at consumer characteristics. They commonly use geographic, demographic and psychographic characteristics. Then they examine whether these customer segments exhibit different needs or product responses.Other researchers try to form segments by looking at consumer responses to benefits sought, use occasions, or brands. Once the segments are formed, the researcher sees whether different consumer characteristics are associated with each consumer-response segment.GEOGRAPHIC SEGMENTATION:Geographic segmentation calls for dividing the market into different geographical units such as nations, states, regions, counties, cities, or neighborhoods. The company can decide to operate in one or a few geographic areas or operate in all but pay attention to local variations in geographic needs and preferences.DEMOGRAPHIC SEGMENTATION:In Demographic segmentation, the market is divided into groups on the basis of demographic variables such as age, family size, family life cycle, gender, income, occupation, education, religion, race, generation, nationality or social class. Demographic variables are the most popular bases for distinguishing customer groups. One reason is that consumer wants preferences and usage rates are often highly associated with demographic variables. Another is that demographic variables are easier to measure than most other types of variables. Even when the target market is described in non-demographic terms, the link back to demographic characteristics is needed in order to know the size of the target market and the media that should be used to reach it efficiently. Here is how certain demographic variables have been used to segment markets.
16 Segmenting Consumer and Business Markets Life StageGenderIncomeGenerationThe Depression CohortThe World War II CohortThe Post-War CohortLeading-Edge Baby Boomer CohortTrailing-Edge Baby Boomer CohortGeneration X CohortThe Generation Y CohortHere is how certain demographic variable have been used to segment markets.Life stage; consumer wants and abilities change with ageGender segmentation has long been applied in clothing, hairstyling .occasionally other markets notice an opportunity for gender segmentationsIncome; is a long –standing practice in such product and service categories as automobiles clothing and travel,. however income does not always predict the best customer for a given product.Generation ;each generation is profoundly influenced by the time in which it growth-up and the events of that period.
17 Segmenting Consumer and Business Markets Lifestage Analytic MatrixLifestagesPhysiographicsEmotional effectsSocioeconomicsSocial ClassPsychographic SegmentationLifestyleTime-constrainedmultitaskingMoney-constrainedAge and Life-Cycle Stage:Consumer wants and abilities change with age. Gerber realized this and began expanding beyond its traditional baby food line. Photo companies are now applying age and life cycle segmentation to the film market. Nevertheless, age and life cycle can be quite tricky variables.Social ClassMany companies design products and/or services for specific social classes. Like most other segmentation variables, the tastes of social classes can change within the years.PSYCHOGRAPHIC SEGMENTATION:In psychographic segmentation, buyers are divided into different groups on the basis of lifestyle and/or personality. People within the same demographic group can exhibit very different psychographic profiles.LifestylePeople exhibit many more lifestyles than are suggested by the seven social classes. People’s product interests are influenced by their lifestyles. In fact, the goods they consume express their lifestyles. Marketers are increasingly segmenting their markets by consumer lifestyles. Companies making cosmetics, alcoholic beverages, and furniture are always seeking opportunities in lifestyle segmentation. But lifestyle segmentation does not always work.PersonalityMarketers have used personality variables to segment markets. They endow their products with brand personalities that correspond to consumer personalities.
18 Segmenting Consumer and Business Markets Personality“Brand personality” examples:SincereExcitingCompetentSophisticatedRuggedValuesCore valuesPersonalityMarketers have used personality variables to segment markets. They endow their products with brand personalities that correspond to consumer personalities..Value
19 Segmenting Consumer and Business Markets Behavioral SegmentationOccasionsCritical life events or transitionsBenefitsMobil has identified five segments and their sizesRoad Warriors 16%Generation F 27%True Blues 16%Home Bodies 21%Price Shoppers 20%BEHAVIORAL SEGMENTATION:In behavioral segmentation, buyers are divided into groups on the basis of their knowledge of, attitude toward, use of, or response to a product.OccasionsBuyers can be distinguished according to the occasions they develop a need, purchase a product, or use a product. Occasion segmentation can help firms expand product usage. In addition to product-specific occasions, a company can consider critical events that mark life’s passages to see whether they are accompanied by certain needs that can be met by product and/or service bundles. Among the providers that have emerged to offer services on these critical occasions are marriage, employment and bereavement counselors.BenefitsA powerful form of segmentation involves classifying buyers according to the benefits they seek from the product. By studying which segments favor, which brands, firms can develop unique selling propositions (USP) which are far stronger than just a unique proposition (UP).
20 Segmenting Consumer and Business Markets User StatusUsage RateLoyalty StatusHard-core loyalsSplit loyalsShifting loyalsSwitchersBuyer-Readiness StageAttitudeUser StatusMarkets can be segmented into groups of nonusers, ex-users, potential users, first-time users, and regular users of a product. Market-share leaders will focus on attracting potential users, while smaller firms will often focus on attracting current users away from the market leader. To a certain extent, the state of the economy determines which user groups a company will focus on. In a slow growth economy, companies will concentrate their efforts on first-time users in emerging markets. To maintain market share, they will also work on maintaining brand awareness and discouraging loyal users from switching to another brand.Usage RateMarkets can be segmented into light, medium and heavy product users. Marketers usually prefer to attract one heavy user to their product or service rather than several light users.
21 Segmenting Consumer and Business Markets Multi-Attribute Segmentation (Geoclustering)Four PRIZM clustersAmerican DreamsRural IndustriaGray PowerCountry SquiresTargeting Multiple SegmentsMulti attribute segmentation;-One of the most promising developments in multi-attribute segmentation is called (Geoclustering) which is yields richer description of consumers and neighborhoods than traditional demographics.Clarita's inc. has developed a geoclustering approach called prizm( potential rating index by zip markets ).Marketers can use prizm to answer some questions like ;which clusters contain our most valuable customers? which markets performance sites and promotional media provide us with the best opportunities for growth?Targeting; multiple segments;;-Companies start marketing to one segment, then expand to others, consider the experiences of one small technology small company.
22 Segmenting Consumer and Business Markets Bases For Segmenting Business Markets.Bases for Segmenting Business MarketsBusiness markets can be segmented with many of the same variables employed in consumer market segmentation, such as geography, benefits sought, and usage rate. Yet business marketers can also use several other variables. Bonoma and Shapiro proposed segmenting the business market with the variables shown in the following table:
23 Table 9-3: Major Segmentation Variables for Business Markets DemographicIndustry: Which industries should we serve?Company size: What size companies should we serve?Location: What geographical areas should we serve?Operating VariablesTechnology: What customer technologies should we focus on?User or nonuser status: Should we serve heavy users, medium users, light users, or nonusers?Customer capabilities: Should we serve customers needing many or few services?Purchasing ApproachesPurchasing-function organization: Should we serve companies with highly centralized or decentralized purchasing organizations?Power structure: Should we serve companies that are engineering dominated, financially dominated, and so on?The table lists major questions that business markers should ask in determining which segment or customer to serve.
24 Segmenting Consumer and Business Markets Business buyers seek different benefit bundles based on their stage in the purchase decision process.First-time prospectsNovicesSophisticates
25 Segmenting Consumer and Business Markets Rangan, Moriarty, and Swartz studied a mature commodity market, steel stamping, and found four business segmentsProgram buyersRelationship buyersTransaction buyersBargain huntersRangan, Moriarty and Swatz studied a mature commodity market to test the normal occurrence of two business segments: buyers who prefer a low price and little service and buyers who are willing to pay a higher price for more service. To their surprise, they found four business segments:1- Programmed buyers: Buyers who view the product as not very important to their operation. They buy it as a routine purchase item, usually paying full price and receiving below-average service. Clearly this is a highly profitable segment for the vendor.Relationship buyers:2-- Buyers who regard the product as moderately important and are knowledgeable about competitive offerings. They get a small discount and a modest amount of service and prefer the vendor as long as the price is not far out of line. They are the second mostprofitable group.3--Transaction buyers: Buyers who see the product as very important to their operations. They are price- and service-sensitive. They receive a 10% discount and above-average service. They are knowledgeable about competitive offerings and are ready to switch for a better price, even at the sacrifice of some service.Bargain hunters:4-- Buyers who see the product as very important and demand the deepest discount and the highest service. They know the alternative suppliers, bargain hard and are ready to switch at the slightest dissatisfaction. The company needs these buyers for volume purposes, but they are not very profitable.This segmentation scheme can help a company in a mature commodity industry do a better job of figuring out where to apply price and service increases and decreases, since each segment would react differently.
26 Segmenting Consumer and Business Markets Rackman and Vincentis proposed a segmentation scheme that classifies business buyers into three groupsPrice-oriented customers (transactional selling)Solution-oriented customers (consultative selling)Strategic-value customers (enterprise selling)
27 Market Targeting Evaluating and Selecting the Market Segments Single-Segment ConcentrationSelective SpecializationProduct SpecializationMarket SpecializationFull Market CoverageUndifferentiated marketingDifferentiated marketingHaving evaluated different segments, the company which and how many segments to serve.
30 Figure 9-3: Segment-by-Segment Invasion Plan SEGMENT-BY-SEGMENT INVASION PLANS:Even if the firm plans to target a super segment, it is wise to enter one segment at a time and conceal its grand plan. The competitors must not know to what segment's) the firm will move next. Unfortunately too many companies fail to develop a long-term invasion plan in which they have plotted the sequence and timing of market-segment entries. A Company’s invasion plans can be thwarted when it confronts blocked markets. The invader must then figure out a way to break into a blocked market. The problem of entering blocked markets calls for a mega marketing approach. Mega marketing is the strategic coordination of economic, psychological, political and public-relations skills to gain the cooperation of a number of parties in order to enter and/or operate in a given market..
31 Market Targeting Intersegment Cooperation INTERSEGMENT CORPORATION: The best way to manage segments is to appoint segment managers with sufficient authority and responsibility for building their segment’s business. At the same time, segment managers should not be so segment-focused as to resist cooperation with other company personnel to improve overall company performance.