1. Market segmentation and targeting
Lecture 4 Chapter 10 to p. 364
Market segmentation and targeting

2. Chapter Objectives
Explain market segmentation, and identify several possible bases for segmenting consumer markets and international markets
Distinguish between the requirements for effective segmentation: measurability, accessibility, substantiality, actionability
Outline the process of evaluating market segments and suggest some methods for selecting market segments

3. Markets – key points Maybe you cannot appeal to all buyers
Buyers are numerous, widely scattered and varied in their needs and buying practices
Different companies vary widely in their abilities to serve different segments of the market
So …rather than trying to compete in an entire market, sometimes against superior competitors, each company must identify the parts of the market that it can serve best
Example of 4 - the wetsuit company “Orca”

4. Clarifying some terms Mass marketing: one product for all buyers
Product-variety marketing: two or more products with different features.
Target marketing: identify segments, select one or more, different marketing mix for each
does this mean that product variety marketing is still offered to mass appeal ? Yes, it seems logical to think so.
example - Cadbury dairy milk chocolate and fruit and nut etc is product variety marketing. But perhaps having bars versus blocks caters to different usage or situation segments.

5. Segmentation is the first step
Market segmentation
Dividing a market into distinct groups of buyers with different needs, characteristics or behaviour who might require separate products or marketing mixes
Market targeting
Evaluating each market segment’s attractiveness and selecting one or more of the market segments to enter
Market positioning
Setting the competitive positioning for the product and creating a detailed marketing mix (not this lecture)
pp Three Major Steps in Target Marketing
Today’s companies are moving away from mass marketing and product-variety marketing and towards target marketing. Target marketing can help sellers to find their marketing opportunities more efficiently. As a result of the increasing fragmentation of Australian mass markets into hundreds of micromarkets, each with different needs and lifestyles, target marketing is increasingly taking the form of Micromarketing—a form of target marketing in which companies tailor their marketing programs to the needs and wants of narrowly defined geographic, psychographic or behaviour benefit segments.
Three major steps in target marketing:
Market segmentation Dividing a market into direct groups of buyers who might require separate products or marketing mixes; the process of classifying customers into groups with different needs, characteristics or behaviour.
Market targeting Evaluating each market segment’s attractiveness and selecting one of more segments to enter.
Market positioning Arranging for a product to occupy a clear, distinctive and desirable place relative to competing products in the minds of target consumers; formulating competitive positioning for a product and creating a detailed marketing mix.

6. Figure 10.1: Steps in Segmentation, Targeting and Positioning
Figure 10.1 Steps in Segmentation, Targeting, and Positioning, p. 345
Figure 10.1 shows the three major steps in target marketing. The first is market segmentation, the second is market targeting, and the third is market positioning.

7. Market Segmentation
Markets consist of buyers, and buyers that differ in one or more ways
They may differ in their wants, resources, locations, buying attitudes and buying practices and preferences for buying channels such as ordering by mail, phone, the Internet or from a physical location.
Because buyers have unique needs and wants, each buyer is potentially a separate market. Ideally, then, a seller might design a separate marketing program for each buyer.
But this is very costly so we look for broad classes who differ in needs or response
Market Segmentation, p. 345
Markets consist of buyers, and buyers differ in one or more ways: wants, resources, locations, buying attitudes and buying practices. They will vary in preference of buying channels: ordering by mail or phone, via the Internet or from a physical location. Each buyer is potentially a separate market. However, most sellers do not find complete segmentation worthwhile. Instead they look for broad classes of buyers who differ in their product needs or buying responses.
Example: Toyota designs the Avalon for one group of buyers, Lexus for high end, Corolla for younger lower income. (?? Why is this segmentation and targeting not just product variety marketing - because the type of people buying A and B are arguably different whereas for simple variety the same people or type of people buy A and b )
The following slide depicts the process.

8. Segmenting Consumer Markets
Geographic
Demographic
Psychographic
Behavioral

9. Geographic segmentation
Dividing the market into nations, regions, states ..cities, neighbourhoods
When would you do this …. ?
answer: when needs / preferences / behaviour is different according to geography. EXAMPLE – beer is sweeter in queensland, apparently the more topical the climate, the more sweetness is liked in drinks. So beer companies and indeed soft drink companies recognise there is some taste difference and segment (& target) geographically because geography relates to a difference in buyer preferences. It has been taken to more micro levels, some retailers recognise that local areas differ so stores in poorer socio-economic locations may offer lower cost options in say clothing.

10. Demographic Segmentation
Age and Life Cycle
Gender
Income
Age / life stage Remember this is splitting the market up not doing the targeting … example might be say you offer car insurance – you see that older drivers are a less risky group … so you identify a segment namely over 55 /retired consumers.
Gender – are there different preferences according to gender in your market ?
Razors - same product but different mix for each.
Deodorant - same product but different targets.
Income – we talked about income being something that distinguishes buyers through affordability effects. Traditionally Coles covered what it considered to be the “low income” part of the market with Bi-Lo.

11. Psychographics
What are ‘psychographics’ ?
Group people based on social class, lifestyle, or personality
Rationale is that people who are the same in geographic / demographic terms may differ in psychographics
If psychographics relate to some behaviour of interest .. maybe it could be useful to marketers …
So this results in creation of ‘classes’ of people according to a combination of the way they think & how they live (activities, interests etc). Example – what sort of people like to take adventure holidays ? Is there a particular type of person like this ? Can I reach them ???

12. Behavioral Segmentation
Behavioral Variables:
Purchase occasion
Benefits
User Status
Usage Rate
Loyalty Status
Buyer readiness stage
Attitude (maybe only for politics) ?
Occasion segmentation: take the clothing market …. Does buyer behaviour differ according to occasion ? Many companies exist based on catering to particular occasions eg formal wear hire, bridal hire etc.
Benefits sought: the example given is toothpaste – decay prevent versus white teeth
User status: non users, ex users etc.
Usage rate: light to heavy users – that is, heavy category users
Loyalty status:
Buyer readiness stage: are there some people ‘just thinking’ versus those who are nearly ready to buy ?

13. Ehrenberg and the Dirichlet Model of Buyer behaviour (not in your book)
Buyers are not loyal to one brand, but normally buy from a group of brands (the repertoire, or ‘evoked set’)
Usually main brand and 4 or so minor brands.
Sets up a series of empirical patterns:
Heavy buyers/light buyers- shared by brands
loyal buyers ~10% of total customers
Market share relationships: big brands-small brands
Advertising awareness: follows same trends as market share
Salience and lack of differentiation between brands

14. Segmenting Business Markets (p. 355)
Personal
Characteristics
Demographics
Bases
for Segmenting
Business
Markets
Segmenting Business Markets, pp. 354–355
Business markets can be segmented using many of the same variables used in consumer market segmentation: geographic, benefits sought, user status, user rate, loyalty status, readiness state and attitude.
Figure 10.2, p gives a breakdown of these considerations.
Demographics for businesses – industry, size, location. Example for australia post – which industries use a lot of bulk mail or parcels ?
Personal characteristics -
Situational characteristics -
Purchasing approaches for businesses -
Operating variables for businesses – what sort of technology are they using ? Say if we know that all companies who use a particular technology are going to e having trouble with it … or all companies that say import goods might have a particular need for our gizmo.
Situational
Factors
Operating
Variables
Purchasing
Approaches

15. Segmenting International Markets
Companies segment international markets using a combination of several variables:
Geographic location.
Economic factors.
Political and legal factors.
Intermarket segmentation. pp
Geographic location: Some countries are group by geographic trade agreements such as ‘free trade zones’. Although some countries located close to each other will share similarities this is not always the case.
Economic factors: Countries might be grouped according to economic development and income levels.
Political and legal factors: i.e. types and stability of governments.
Intermarket segmentation: Forming segments of consumers who have similar needs and buying behaviour even though they are located in different countries. For example orthodontists – anywhere in the world. Or canoe builders – anywhere in the world. Or wine buffs.

16. Requirements for Effective Segmentation
There are many ways to segment a market — but not all segmentation schemes are effective. To be useful, market segments must have the following characteristics:
Measurability The degree to which the size and purchasing power of the segments can be measured. Certain segmentation variables are difficult to measure.
Accessibility The degree to which the segments can be reached and served.
Substantiality The degree to which the segments are large or profitable enough. A segment should be the largest possible homogeneous group worth going after with a tailored marketing program.
Actionability The degree to which effective programs can be designed for attracting and serving the segments.
p. 357
Measureability
the book uses ‘left handedness’ but no one has ever suggested this has much marketing significance.
Accessibility – once you identify the segment can you reach it ? In the xample of Orca it could probably reach triathletes. Harder to reach people who want cute little cars – what else od they share in common ?
Substantial – is it big enough to warrant the investment ?
Actionable – perhaps we can identify several segments of the market but we can only really go after one because of resources.

17. Evaluating Market Segments
Marketing segmentation reveals the market segment opportunities facing a firm.
The firm now has to evaluate the various segments and decide the number of segments to cover and the ones to serve.
so we get to the point where we have identified one or more segments. Now we figure out which ones might be good to compete in.

18. Evaluating Market Segments
Segment size and growth
The company must first collect and analyse data on current dollar sales, projected sales growth rates and expected profit margins for the various segments. It wants to select segments that have the right size and growth characteristics, but ‘right size and growth’ is a relative matter.
Segment structural attractiveness
A segment might have desirable size and growth and still not be attractive from a profitability point of view. The company must examine several major structural factors that affect long-run segment attractiveness. (eg competitor strengths, margins)
Market Targeting: Evaluating Market Segments, pp
In evaluating different market segments, a company must look at three factors: segment size and growth, segment structural attractiveness, and company objectives and resources.
Segment Size and Growth
The company must first collect and analyse data on current dollar sales, projected sales growth rates and expected profit margins for the various segments. It wants to select segments that have the right size and growth characteristics, but ‘right’ is relative. Some companies will want to target segments with large current sales, a high growth rate and a high profit margin. Smaller companies may find they lack the skills and resources needed to serve larger segments, or find that these segments are too competitive. They might select smaller or less attractive segments that are actually more profitable for them.
Segment Structural Attractiveness
A segment might have desirable size and growth and still not be attractive from a profitability point of view. The company must examine several major structural factors that affect long-run segment attractiveness. Current and potential competitors, substitute products, relative power of buyers and power of suppliers all play a role in the evaluation of a segment’s structural attractiveness.

19. Evaluating Market Segments
Company objectives and resources
Even if a segment has positive size & growth and is structurally attractive, the company must consider its own objectives and resources in relation to that segment.
Some attractive segments could be quickly dismissed because they do not mesh with the company’s long-run objectives.
(example again – Ikea)
Company Objectives and Resources
p. 360 Even if a segment has a positive size and growth and is structurally attractive, the company must consider its own objectives and resources in relation to that segment. Some attractive segments could be quickly dismissed because they do not mesh with the company’s long-run objectives and, while tempting, would divert the company’s attention from its main goals. The company should only enter segments where it can offer superior value and gain advantages over competitors.
Example ???? IKEA could examine the market for corporate furniture – or higher-end expensive furniture but this simply doesn’t mesh with the companys long run objectives.

20. Selecting Market Segments
After evaluating different segments, a company hopes to find one or more market segments worth entering. It must then decide which and how many segments to serve.
A target market consists of a set of buyers sharing common needs or characteristics that the company decides to serve. The company can adopt one of three market-coverage strategies:
Undifferentiated marketing (go after all)
Differentiated marketing (separate offer for each)
Concentrated marketing (focus on one or couple segments)
Which is most typical in practice? pp
Undifferentiated marketing is where the company ignores the market’s differences and goes after the whole market. Focus on what is common rather than what is different. JD note - why isnt this mass marketing within the ‘segment’ ?? Implies the product is undifferentiated which is stupid.
Differentiated marketing is where the company chooses its target markets and design separate offers for each.
Concentrated marketing is where a company goes after a large share of one or a few submarkets.
The example of Coles is ridiculous. Coles is a corporation that covers all sorts of different retail markets.
This isn’t ‘market segmentation and targeting’ its business level decisions about which industries to be in.

21. Example: three segments for mobile telecommunications
Younger person
Middle Australia
Small business
Undifferentiated (go after all)
Differentiated (separate offer for each)
Concentrated (go after one)

22. Choosing a Market-Coverage Strategy
Trade-off – focusing on a segment you think you can really go after … but that means you are going after a smaller part of the market.
Also you have to consider that by targeting you are deliberately going after part of the market … so in other words ignoring or not pursuing the rest of the market.

23. Costs of Targeting
Possibly higher sales … but higher costs using targeted marketing include:
Product modification cost
Manufacturing cost
Administrative cost
Inventory cost
Promotion cost (3 segments - coverage ?)