Chapter 08 Identifying Market Segments and Targets

Kotler on Marketing “Don’t buy market share. Figure out how to earn it.”

Chapter Objectives The following topics will be covered in this chapter: Levels of Market Segmentation - Segment Marketing - Niche Marketing - Local Marketing - Individual Marketing Bases for Segmenting Consumer Markets - Geographic Segmentation - Demographic Segmentation - Psychographic Segmentation - Behavioral Segmentation Bases for Segmenting Business Markets Market Targeting

Market Segmentation Target 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). The starting point for discussing segmentation is mass marketing. Mass Marketing: the seller engages in the mass production, mass distribution and mass promotion of one product for all buyers.

Levels of Market Segmentation Segment Marketing: Market Segment Flexible Market Offering (2 Parts) Naked Solution: the product and service elements that all segment members value Discretionary Options: some segment members value One way to identify Preference Segments Homogeneous Preferences Diffused Preferences Clustered Preferences

Figure : Basic Market-Preference Patterns 10-6

Levels and Patterns of Market Segmentation Niche Marketing Ex: Crack, Itchguard, Meswak, Star Cricket Local Marketing Ex: Matrimonial Service Providers Individual Customer Marketing Customerization: combines operationally driven mass customization with customized marketing in a way that empowers consumers to design the product and service offering of their choice. Ex: Berger Color Bank

Levels of Market Segmentation Market Segmentation Procedure Needs-Based Market Segmentation Approach

Table : Steps in Segmentation Process 1. Needs-Based Segmentation Group customers into segments based on similar needs and benefits sought by customer in solving a particular consumption problem. 2. Segment Identification For each needs-based segment, determine which demographics, lifestyles, and usage behaviors make the segment distinct and identifiable (actionable). 3. Segment Attractiveness Using predetermined segment attractiveness criteria (such as market growth, competitive intensity, and market access), determine the overall attractiveness of each segment. 4. Segment Profitability Determine segment profitability. 5. Segment Positioning 6. Segment Acid Test 7. Marketing Mix Strategy For each segment, create a “value proposition” and product-price positioning strategy based on that segment’s unique customer needs and characteristics. Create ‘segment storyboard’ to test the attractiveness of each segment’s positioning strategies Expand segment positioning strategy to include all aspects of the marketing mix. 10-9

Bases for Segmenting Consumer Markets Geographic Segmentation Demographic Segmentation Psychographic Segmentation Behavioral Segmentation

Table: Major Segmentation Variables for Consumer Markets Geographic Region South India, western Region, North, East City Class-I Cities, Class-II Cities, Metro Cities, Cities with a Population of 0.5 Million o 1 Million, Cities with a Population of Over 1 Million Rural and Semi-Urban Areas Urban, suburban, rural Climate Northern southern Demographic Age Under 6, 6-11, 12-19, 20-34, 35-49, 50-64, 65+ Family size Young, single; young, married, no children; young, married, youngest child under 6; young, married, youngest child under 6 or over ; older, married, with children; older, married, no children under 18; older, single; other 10-11

Table: Major Segmentation Variables for Consumer Markets Gender Male, female Income Low, lower middle, middle, upper middle, and high Occupation Unskilled worker, skilled worker, petty traders, shop owners, businessman/industrialist, self-employed Education Illiterate, school upto 4 years, school between 5 to 9 years, SSC/ HSC, non-graduate, graduate/postgraduate (general), graduate/postgraduate (professional) Psychographic Socioeconomic Classification (SEC) A1, A2, B1, B2, C, D, E1, E2 Lifestyle Culture-oriented, sports-oriented, outdoor-oriented Personality Compulsive, gregarious, authoritarian, ambitious

Behavioral Occasions Regular, special Benefits Quality, service, economy, speed User Status Non-user, ex-user, potential user, first-time user, regular user User Rate Light, medium, heavy Loyalty Status None, medium, strong, absolute Readiness Stage Unaware, aware, informed, interested, desirous, intending to buy Attitude Toward Product Enthusiastic, positive, indifferent, negative, hostile

Segmenting Consumer Markets Geographic Segmentation: Nations States Regions Countries Cities or Neighborhoods 2. Demographic Segmentation Age and Life –Cycle Stages: Johnson & Johnson, Disney, MTV, Aastha Channel Life Stage Gender Income Generation

Segmenting Consumer and Business Markets Social Class 3. Psychographic Segmentation: - Personality - Values One of the most popular commercially available classification systems based on psychographic measurements is-the SRI Consulting Business Intelligence’s (SRIC-BI) VALS Framework. The main dimensions are- Consumer Motivation (Horizontal Dimension) and Consumer Resources (Vertical Dimension)

VALS Network Primary Motivation High Resources High Innovation Ideals Achievement Self-Expression Thinkers Achievers Strivers Believers High Resources High Innovation Low Resources Low Innovation Experiencer Makers Survivors Innovators

VALS Network Consumers are inspired by one of the three primary motivations- Ideals: those primarily motivated by ideals are guided by knowledge and principles. Achievement: those primarily motivated by achievements are guided by products and services that demonstrate success to their peers.. Self-expression: those primarily motivated by self-expression are guided social or physical activity, variety and risk. The four groups with higher resources are: Innovators-Successful, sophisticated, active, ‘take-charge’ people with high self-esteem. Purchases often reflect cultivated tastes for relatively upscale, niche-oriented products and services. Thinkers- Mature, satisfied, and reflective people who are motivated by ideals and who value order, knowledge and responsibility. They seek durability, functionality and value in products.

VALS Network Achievers- Successful, goal-oriented people who focus on career and family. They favor premium products that demonstrate success to their peers. Experiencers- Young, enthusiastic, impulsive people who seek variety and excitement. They spend a comparatively high proportion of income on fashion, entertainment and socializing. The other four groups with lower resources are: Believers- Conservative, conventional and traditional people with concrete beliefs. They prefer familiar products and are loyal to established brands. Strivers- Trendy and fun-loving people who are resource-constrained. They favor stylish products that emulate the purchases of those with greater material wealth. Makers- Practical, down-to-earth, self-sufficient people who like to work with their hands. They seek products with a practical or functional purpose. Survivors- Elderly, passive people whoa re concerned about change. They are loyal to their favorite brands.

Segmenting Consumer Markets 4. Behavioral Segmentation: Decision Roles- - Initiator, ex- doctors - Influencer, ex- pharmaceutical companies - Decider, ex-patients’ relatives - Buyer, ex-patients’ relatives - User, ex-patient Behavioral Variables- Occasions, ex- Archies & Hallmarks Benefits, ex- Clinic, Pantene, Sunsilk, Head & Shoulder

Segmenting Consumer and Business Markets User Status, ex- non-users, ex-users, potential users , first time users etc Usage Rate, ex- light, medium, heavy Loyalty Status- Hard-core loyals- loyal to only one brand all the time Split loyals- loyal to two or three brands Shifting loyals- shift loyalty from one brand to another Switchers- show no loyalty to any brand Attitude, ex-enthusiastic, positive, indifferent, negative and hostile

Behavioral Segmentation Breakdown Loyal to Other Brand Switcher Brand Light User Regular Heavy Negative Opinion Neutral Favorable Target Market Unaware Aware Not Tried Tried Rejector Not Yet Repeated

The Conversion Model It measures the strength of consumers’ psychological commitment to brands and their openness to change. The model segments users of a brand into four groups, based on- Strength of Commitment, from Low to High. Convertible- most likely to defect Shallow- uncommitted to the brand and could switch, some are actively considering alternatives Average- also committed to the brand they are using, but, not as strongly- they are unlikely to switch brands in the short term Entrenched- highly unlikely to switch brands in the foreseeable future

The Conversion Model The model also classifies non-users of a brand into four groups, based on their – Balance of Disposition ad Openness to Trying the Brand, from Low to High. Strongly Unavailable- unlikely to switch the brand- their preference lies strongly with their current brands Weakly Unavailable- not available to the brand because their preference lies with their current brand, although not very strongly Ambivalent- as attracted to the brand as they are to their current brands Available- most unlikely to be acquired in the short run

Bases for Segmenting Business Markets Demographics: Industry: Which industries should we serve? Company size: What size companies should we serve? Location: What geographical areas should we serve? Operating Variables Technology: 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 Approaches Purchasing-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? Nature of existing relationship: Should we serve companies with which we have strong relationships or simply go after the most desirable companies?

Bases for Segmenting Business Markets 10. General purchasing policies: Should we serve companies that prefer leasing? Service contract? Systems purchases? Sealed bidding? Purchasing criteria: Should we serve companies that are seeking quality? Service? Price? Situational Factors Urgency: Should we serve companies that need quick and sudden delivery of services? Specific application: Should we focus on certain application of our product rather than all applications? Size or order: Should we focus on large or small orders? Personal Characteristics Buyer-seller similarity: Should we serve companies whose people and values are similar to ours? Attitude toward risk: Should we serve risk-taking or risk-avoiding customers? Loyalty: Should we serve companies that show high loyalty to their suppliers?

Market Targeting Effective Segmentation Criteria: Measurable: size, purchasing power and characteristics of the segments can be measured. Substantial: segments are large and profitable enough to serve. Accessible: segments can be effectively reached and served. Differentiable: segments are conceptually distinguishable and respond differently Actionable: effective programs can be formulated for attracting and serving the segments.

Market Targeting Evaluating and Selecting the Market Segments Single-Segment Concentration A firm selects and serves only one segment. Ex- Maternity Hospitals & Clinics Selective Specialization A firm selects a number of segments, each objectively attractive and appropriate. Ex- Lux Market Specialization A firm makes a certain product that it sells to several different market segments. Ex- Microscope producers for university, government and commercial laboratories.

Market Targeting Full Market Coverage: The firm attempts to serve all customer groups with all the products they might need. Only large companies can undertake a full market coverage strategy. Ex: Microsoft, Coca-Cola ,General Motors, etc Undifferentiated Marketing: the firm ignores segment differences and goes after the whole market with one offer. Differentiated Marketing: the firm operates in several market segments and designs different products for each.

Market Targeting Higher costs using differentiated marketing include: Product Modification Cost Manufacturing Cost Administrative Cost Inventory Cost Promotion Cost

Market Targeting Additional Considerations Segment-By-Segment Invasion Plans Figure: Segment-by-Segment Invasion Plan

Market Targeting Ethical Choice of Market Targets Marketers must target segments carefully to avoid consumer backlash - Singles and elderly people may not want to be identified as singles or olds.

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