Dr.

Kartik Dave

Dr. Kartik Dave 1

 WHAT IS MARKET?

A market consists of all the

potential customers sharing a
particular need who are willing and
able to engage in exchange to
satisfy that need or want.
All customers sharing a particular
need, however, are not looking for
same value from the competing
products and services nor they are
willing to pay the same price.
Dr. Kartik Dave 2
WHAT IS MARKET SEGMENT?
 Among the competing products and services,
customers choose the one that, according to
their perceptions, provides the best value at
a price that they are willing to pay.
 In a competitive market, every company
must, therefore, group (segment) these
customers, according to the value that they
are looking for and the price that they are
willing to pay for the product or service
providing such value.

Dr. Kartik Dave 3

WHAT IS MARKET SEGMENT?

 A market segment can,

therefore, be defined as a
group of actual or potential
customers, sharing a particular
need, who want the same
value (benefits or solutions to
problems) from the product or
service.
Dr. Kartik Dave 4
 WHAT IS MARKET
SEGMENTATION?

 Market segmentation is the process

of dividing a varied and differing
groups of customers or potential
customers into smaller groups, who
want the same value (benefits or
solutions to problems) from the
product or service.

Dr. Kartik Dave 5

 WHY MARKET
SEGMENTATION?
By segmenting the market, the
marketer is attempting to
break the market into more
strategically manageable parts
which then can be targeted
and satisfied far more
precisely by developing
product and marketing
program tailored
Dr. Kartik Dave
to each 6
FUNDAMENTAL FACTORS FOR
EFFECTIVE MARKET
SEGMENTATION
 First and most necessary is
heterogeneity of customer needs and
wants.
 Second, these customers do cluster
into specific groups whose members’
needs are similar.
 Thirdly, it is possible to identity of
these customers (i.e., ability to
reasonably profile these customers).
 Finally, the costs of serving customers
in a segment must be no more than
they are willing to pay.
Dr. Kartik Dave 7
 SEGMENTATION BASES

The first step for segmentation of

customers is to select a set of
variables or characteristics (called
segmentation bases) to assign
potential customers to
homogeneous groups.
These variables should be related
to some aspect of potential
customer’s needs or wants and
should reflect differences between
customers. Dr. Kartik Dave 8
 CLASSIFICATION OF
SEGMENTATION BASES
General Product-specific
Geographic, User status, usage
demographic frequency, loyalty
Observable and and patronage,
socio-economic situations
variables

Un- Psychographics Benefits,

observable (life-style), perceptions,
values, personality preferences,
intentions
Dr. Kartik Dave 9
OBSERVABLE GENERAL VARIABLES
FOR SEGMENTING CONSUMER
MARKET

☛ Geographic
➜ Region
➜ City Size
➜ Density
➜ Climate

Dr. Kartik Dave 10

 GEOGRAPHIC
SEGMENTATION
The geographic approach assumes
that customers found within a
particular geographic zone would
have common preferences and
therefore, can be targeted with the
same offer.
Like climate has strong impact on
resident’s needs and purchasing
behaviour such as their clothing,
air-conditioning and heating
system, foods,
Dr. Kartik Dave
sports and11
 GEOGRAPHIC
SEGMENTATION
While there could be some common
preferences of people residing in
same geographic area, it does not
mean that everyone down a
particular street buys the same
items.
Everyone in the northern regions of
our country (as individual
consumers or as businesses) does
not have the same buying criteria,
or responds to only
Dr. Kartik Dave one type of12
 GEOGRAPHIC
SEGMENTATION
This approach on its own doesn't
define the consumer needs, it
doesn't define the product or
service required, or the
promotional stance to take.
It can, however, play a role in
segmentation by providing further
help in identifying how to reach
the customers found in particular
segments.
Dr. Kartik Dave 13
OBSEVABLE GENERALVARIABLES
FOR SEGMENTING CONSUMER
MARKET
Demographic
Age
Gender
Family Size
Family Life Cycle
Monthly Household Income
Occupation
Education
Dr. Kartik Dave 14
 DEMOGRAPHIC
SEGMENTATION
 Demographic variables are the
most popular bases for
distinguishing customer groups.
 One reason is that consumer
wants, preferences, and usage
rates are often associated with
demographic variables.
 Another is that demographic
variables are easier to measure.

Dr. Kartik Dave 15

 DEMOGRAPHIC
SEGMENTATION
 Consumer wants and abilities change
with age.
 Persons in the same part of the life
cycle may differ in their life stage.
 Men and women tend to have
different attitudinal and behavioral
orientations, based partly on their
genetic makeup and partly on
socialization practices.
Dr. Kartik Dave 16
 DEMOGRAPHIC
SEGMENTATION

 Income is a popular
demographic variable for
segmenting customers
because income level
influences consumers’ wants
and determines their buying
power.
 Occupation and education have
also very important bearing on
Dr. Kartik Dave 17
 SOCIO-ECONOMIC
CLASSIFICATIONS IN INDIA
Education
Illite School School SSC/CollegeGrad/ Grad/
Occupation Rate 4 yrs 5-9 yrs HSC Edu Post Post
(Gen) (Prof)
1 2 3 4 5 6 7
Unskilled 01 E2 E2 E1 D D D D
Skilled Workers 02 E2 E1 D C C B2 B2

Petty Traders 03 E2 D D C C B2 B2
Shop Owners 04 D D C B2 B1 A2 A2
Businessman
with employees
•None 05 D C B2 B1 A2 A2 A1
•1-9 C B2 B2 B1 A2 A1 A1
06
•10+ B1 A1
07 B1 A2 A2 A1 A1
Dr. Kartik Dave 18
 SOCIO-ECONOMIC
CLASSIFICATIONS IN INDIA
Education
Illite School School SSC/College Grad/ Grad/
Occupation Rate 4 yrs 5-9 yrs HSC Edu Post Post
(Gen) (Prof)

1 2 3 4 5 6 7
Self-employed
Professionals 08 D D D B2 B1 A2 A1

Clerical/
Salesman 09 D D D C B2 B1 B1

Supervisory 10 D D C C B2 B1 A2

Executives
•Junior 11 C C C B2 B1 A2 A2
•Middle/Senior
12 B1 B1 B1 B1 A2 A1 A1
Dr. Kartik Dave 19
 DEMOGRAPHIC
SEGMENTATION
 The demographic approach
assumes that customers differ
according to some criteria about
themselves.
 Demographic information on its
own doesn't define the consumer
needs, it doesn't define the
product or service required, or the
promotional stance to take.

Dr. Kartik Dave 20

 DEMOGRAPHIC
SEGMENTATION
The role demographic plays is to
help you identify for each
segment a profile of the typical
customer to be found in each
segment.
In other words, who is found in
each segment.
This in turn will help you
understand how to reach each
segment. Dr. Kartik Dave 21
 PSYCHOGRAPHIC
SEGMENTATION
 In psychographic segmentation,
buyers are divided into different
groups on the basis of lifestyle or
personality or values.
 People within the same
demographic group can exhibit
very different psychographic
profiles.

Dr. Kartik Dave 22

 PSYCHOGRAPHIC
SEGMENTATION
 Although this approach on its own
does not define the product or service
required, by identifying the internal
drivers of decision makers it can help
define the most appropriate
promotional stance to take for
different segments.
 So, like the other alternative
approaches to segmentation, it too
can contribute to a segmentation
project.
Dr. Kartik Dave 23
 PRODUCT/SERVICE SPECIFIC
SEGMENTATION
 By looking at the product/service
usages, loyalty, preferences etc. as a
whole there is a danger that a
company may be overlooking what in
particular is attracting the customer
to one offer as opposed to another.
 Understanding the particular features
customers use to discriminate
between competing offers will help
you do this.

Dr. Kartik Dave 24

PRODUCT/SERVICE SPECIFIC
SEGMENTATION
This additional step is thus to
understand what it is that the
customer is really trying to
achieve from the particular
features they choose.
The expression, 'we don't sell
the features, we sell the
benefits' captures this
essential extra step.
Dr. Kartik Dave 25
 BENEFIT/VALUE BASED
SEGMENTATION
 When choosing between competing
offers, customers select the offer that
meets their needs better than any
other.
 Value or benefits people seek in
products are the basic reasons for the
heterogeneity in their choice
behaviour, and benefits are thus the
most relevant bases for segmentation.

Dr. Kartik Dave 26

 BENEFIT/VALUE BASED
SEGMENTATION
On its own this approach to
segmentation, while able to
provide you with an invaluable
insight into how to win a
customer's business, still requires
you to know how to reach them.
The input to this part of the
equation, provided by a detailed
understanding of who the
customers are and where they are
to be found, isDave clearly very27
Dr. Kartik
 ALTERNATIVE
CLASSIFICATION OF
SEGMENTATION BASES
 It is, therefore, worthwhile to
look at an alternative way to
classify the segmentation
variables so that we can find
out
 What benefits/value the
customers want?
 Who are they and where are
they? Dr. Kartik Dave 28
 ALTERNATIVE
CLASSIFICATION OF
SEGMENTATION BASES
Identifier Variables
(Who they are)
Consumer Markets
• Geographic Location
• Demographics
• Socio-economic
Factors
• Psychographics
Business Markets
• Company Size
• Industry
• Geographic Location
Dr. Kartik•Dave
Response Variables
(What they want)
Benefits Desired
• Price, reliability, service
Applications/Usage
Situation
• User Status, usage
frequency,
application of the product
Sensitivity to Marketing
Mix
• Product features, price,
promotion
Purchasing Behaviour
• Buying volume
Switching among brands 29
 APRIORI AND POST HOC
SEGMENTATION
 A priori segmentation starts by
using identifier variables (e.g., age,
gender, income, occupation,
lifestyle, geographic location etc.)
to divide the market based on who
the customers are, in the hope that
resulting segments behave
differently in response to
marketing mix variables.

Dr. Kartik Dave 30

 A PRIORI AND POST HOC
SEGMENTATION
 In contrast, post hoc
segmentation starts by using
response variables to divide
the market on the basis of how
customers behave, and then
hopes that the resulting
segments differ enough in
terms of customer profiles to
enable identification.
Dr. Kartik Dave 31
 APRIORI AND POST HOC
SEGMENTATION

 In practice, marketers need

both a priori and post hoc
process to fine tune their
understanding of market
segments.
 Unfortunately, many firms
frequently rely too heavily on a
priori segmentation variables.
Dr. Kartik Dave 32
 KEY ELEMENTS OF
SEGMENTATION PROCESS
Step 1: Divide the market into
identifiable groups of customers
based on demographic,
psychographic, and geographic
criteria such as age, gender, life
stage, family size, income,
occupation, lifestyle, and
geographic location.
Record personal details about the
decision makers in terms of
criteria mentioned above.
Dr. Kartik Dave 33
 KEY ELEMENTS OF
SEGMENTATION PROCESS
Step 2: Identify the key features
decision makers use to
differentiate between competing
offers.
This provides the link to
understand the needs that
customers are trying to satisfy
through the features that the
products/services deliver.
Features consist of both the
tangible Dr.and
Kartik Dave intangible34
 KEY ELEMENTS OF
SEGMENTATION PROCESS
Step 3: Establish a sample of
customers which will represent the
different decision makers found in
your market (referred to as ‘a priori
segments').
This may be done by drawing up
a combination of factors which
may underpin differences
between customers (such as age
bands, genders, different
locations, income
Dr. Kartik Dave
levels,35
 KEY ELEMENTS OF
SEGMENTATION PROCESS
As best as possible, attribute a
size to each ‘a priori segment’
(volume or value) which reflects
how much of the market each a
priori segment represents.
For each customer in the sample,
ensure you list the personal
details that will enable you to
identify them.
Dr. Kartik Dave 36
 KEY ELEMENTS OF
SEGMENTATION PROCESS

Step 4: Understand the real needs

of customers of each of these ‘a
priori segment’ and list the
benefits they are seeking.
This can be done by referring to
the key differentiating features
(KDFs) identified in Step 2 and
noting the benefits that
customers associate with them.
Dr. Kartik Dave 37
 KEY ELEMENTS OF
SEGMENTATION PROCESS

Because a specific feature on its

own or in combination with other
features will satisfy a particular
need, benefits will be associated
with individual features and with
the various ways that customers
pull them together.

Dr. Kartik Dave 38

 KEY ELEMENTS OF
SEGMENTATION PROCESS
Step 5: Determine the importance
of the listed benefits to each a
priori segment.
This can be done in two ways:
Score each benefit out of 10 to
indicate its importance to the
‘a priori segment’ (whenever a
benefit has no importance,
put the score at zero).

Dr. Kartik Dave 39

 KEY ELEMENTS OF
SEGMENTATION PROCESS

Distribute a hundred points

between the benefits for each ‘a
priori segment’ to indicate the
relative importance of each
benefit to that a priori segment
(whenever a benefit has no
importance, put the score at
zero).

Dr. Kartik Dave 40

 KEY ELEMENTS OF
SEGMENTATION PROCESS
Step 6: Bring together those ‘a
priori segments’ that illustrate
similar patterns of importance for
the benefits in order to form
clusters.
Depending on the number of ‘a
priori segments’ you are
working with this may be
possible to execute manually.
An alternative is to put the data
into an appropriate
Dr. Kartik Dave statistical41
 KEY ELEMENTS OF
SEGMENTATION PROCESS
Step 7: Verify that the concluding
clusters can be regarded as
segments.
The three most important
questions are:
Is the offer required by each
cluster sufficiently different
from that required by the other
clusters?
Is each cluster large enough to
justify the Dr.development
Kartik Dave
of a42
 KEY ELEMENTS OF
SEGMENTATION PROCESS

Can you identify which

customers are to be found in
each cluster so that you can
target them with an
appropriate offer?
If the answer to all three questions
is 'yes', then the clusters can be
regarded as segments.

Dr. Kartik Dave 43

 SEGMENTATION TOOLS

Three important statistical tools

commonly used for
segmentation of customers are:
Conjoint Analysis
Cluster Analysis
Factor Analysis

Dr. Kartik Dave 44

 CONJOINT ANALYSIS

 Conjoint analysis is a method of

portraying consumer’s decisions
realistically as a trade-off among
multi-attribute products or
services.
 It is based on the simple notion
that consumer’s evaluate the value
of something by combining
separate amounts of utility
provided by each attribute.
Dr. Kartik Dave 45
 CONJOINT ANALYSIS

Conjoint analysis is particularly

useful because it allows for the
grouping of consumers
according to how they respond
to product features in making
choice decisions.
A two-stage procedure is often
used for benefit segmentation
with conjoint analysis.
Dr. Kartik Dave 46
 CONJOINT ANALYSIS

At the first stage, benefit

importance values are obtained at
the individual level by direct rating
of product attributes.
The respondents are presented
with stimuli that consist of
combinations of different product
attribute levels.
They are asked to evaluate these
stimuli in terms of their
desirability. Dr. Kartik Dave 47
 CONJOINT ANALYSIS
Conjoint procedures attempt to
assign values to the levels of each
attribute, so that the resulting
values or utilities attached to the
stimuli match, as closely as
possible, the input evaluations
provided by the respondents.
At the second stage, subjects are
clustered on the basis of similarity
of those importance values.
Dr. Kartik Dave 48
 CLUSTER ANALYSIS

The basic purpose of cluster

analysis is to segment objects such
as customers into groups so that
members within each group are
similar to one another on a variety
of characteristics.
Cluster analysis is potentially
valuable in market segmentation
studies in which the objective is to
identify distinct customer groups.
Dr. Kartik Dave 49
 CLUSTER ANALYSIS

For example, consumers may be

clustered on the basis of benefits
sought from the purchase of a
product.
Each cluster would consist of
consumers who are relatively
homogeneous in terms of benefits
they seek.
These clusters are not defined a
priori by the researcher but are
formed by the cluster
Dr. Kartik Dave analysis 50
 FACTOR ANALYSIS

In factor analysis, the

interrelationships among large
number of variables (questionnaire
responses) are analysed and then
they are represented in terms of
common, underlying dimensions
(factors).
It can bring out the hidden or
latent dimensions relevant in the
relationships among product
preferences. Dr. Kartik Dave 51
 FACTOR ANALYSIS
Factor analysis can be used in
market segmentation for identifying
the underlying variables on which to
group the customers.
New car buyers may be grouped
based on the relative emphasis they
place on economy, convenience,
performance, comfort, and luxury.
This might result in five segments:
economy seekers, convenience
seekers, performance seekers,
comfort seekers, and
Dr. Kartik luxury seekers. 52
Dave
 GRAVITY OF DECISION
SPECTRUM
 In any segmentation project marketers
must begin by evaluating the expectations
consumers bring to the particular kind of
transaction.
 This can be located on the gravity of
decision making spectrum, which will tell
the marketers how deeply one need to
probe consumers’ motives, concerns, and
even psyches.

Dr. Kartik Dave 53

 GRAVITY OF DECISION
SPECTRUM
 At the shallow end of the spectrum,
consumers are seeking products and
services that they think will save them
time, effort, and money.
 So segmentation for items such as
toiletries and snacks try to measure
things like the price sensitivity, habits,
and impulsiveness of the target
consumer.

Dr. Kartik Dave 54

 GRAVITY OF DECISION
SPECTRUM
 Segmentation for big-ticket purchases
like cars and electronic devices, in the
middle of the spectrum, test how
concerned customers are about
quality, design, complexity, and the
status a product might confer.
 At the deepest end, consumers’
emotional investment is great, and
their core values are engaged.

Dr. Kartik Dave 55

 GRAVITY OF DECISION
SPECTRUM
 Market segmentation project should,
therefore, try to find out the core
values and beliefs of the target
consumers related to the buying
decision.
 Choosing a course of medical
treatment or deciding where to live
are some of the products/services at
the deep end of the decision spectrum.

Dr. Kartik Dave 56

 SEGMENTATION OF
BUSINESS CUSTOMERS
 The difference between consumer
and business market segmentation
involve the specific bases of
segmentation.
 Consumer markets are typically
segmented on the basis
demographic, psychographic, and
product specific variables.
 As the business customer is not an
individual but a number of
interacting individuals in a decision
making unit (DMU) of a formal
Dr. Kartik Dave 57
 SEGMENTATION OF
BUSINESS CUSTOMERS
Organizational demographics:
Industry/ Company size/ Location
Operating variables:
General, Technology/User status/Customer
observable capabilities (financial)
(Macro)
Purchasing approaches
Organization of DMU/Purchasing
policies/Purchasing criteria

(Intermediate) Situational factors

Urgency/Applications/Order size

Personal characteristics:
Specific, subtle Motivation/Buyer-seller dyad/
(Micro) Risk perceptions

Dr. Kartik Dave 58

 SEGMENTATION OF
BUSINESS CUSTOMERS
 The three outer nests cover
company variables, the fourth
inner-middle nest - situational
factors, and the inmost nest -
personal characteristics.
 The data in the outer nests are
generally highly visible, even to
outsiders, are more or less
permanent, and require little
intimate knowledge of customers.
Dr. Kartik Dave 59
 SEGMENTATION OF
BUSINESS CUSTOMERS
 But situational factors and personal
characteristics are less visible, are
more transient, and requires
extensive vendor research.
 A marketer can begin at the
outside nest and work inward
because data are more available
and definitions clearer in outer
nests.
 On the other hand, situational and
personal variables of the inner
nests are oftenDr.the most useful.
Kartik Dave 60
 SEGMENTATION OF
BUSINESS CUSTOMERS
 The outer-nest criteria are
generally inadequate when used by
themselves in all but simple or
homogeneous markets because
they ignore buying differences
among customers.
 Over emphasis on the inner-nest
factors, however, can be too
expensive and time-consuming for
small markets.
 A balance is to be achieved
between the two nests.
Dr. Kartik Dave 61
 SEGMENTATION DILEMMA

 Segmentation based on customer

needs, i.e., benefits-oriented
approach, is attractive in the
theoretical sense, but also more
difficult for managers to
implement.
 Furthermore, the needs/benefit
approach is clearly more applicable
to marketing decisions.
Dr. Kartik Dave 62
SEGMENTATION DILEMMA
The basic problem of value-based
segmentation is that these
segments generally don’t fit neatly
into demographic/firmographic one.
On the other hand, identifying
differences based on
demographic/firmographic is also
not adequate as all customers of a
demographic/firmographic group
do not have the same preferences
and purchasing behaviour.
Dr. Kartik Dave 63
 SEGMENTATION DILEMMA

 Segmentation based on
demographics or company
characteristics thus is not very
actionable.
 These approaches do not help
the company to get to the
customer with the right offer.

Dr. Kartik Dave 64

 SOLVING THE
SEGMENTATION DILEMMA
 There are different ways to solve
this dilemma.
 Before worrying about how to
identify and reach individual
customers in any given segment, it
is worth attempting to determine
whether the collective traits of a
market segment might themselves
suggest profitable strategies.
(Example of Mobile Oil)
Dr. Kartik Dave 65
 SOLVING THE
SEGMENTATION DILEMMA
 Another way to solve the segmentation
dilemma is ‘self-selection’.
 The basic idea of self-selection is to
reverse the roles of a company and its
customers.
 Instead of trying to find, say, price-
sensitive customers, the company
figures out what segments it wants to
reach and gives the customers in them
ways of finding them.

Dr. Kartik Dave 66

 SOLVING THE
SEGMENTATION DILEMMA
 Companies most commonly develop a
product line and have customers sort
themselves among the various
offerings based on their preferences.
 The key to to making this approach
work is the design decision to
differentiate products in such a way
that customers’ preferences sort
themselves among the options in
desired fashion.

Dr. Kartik Dave 67

 SOLVING THE
SEGMENTATION DILEMMA
 Apart from different versions of
products, companies can promote
self-selection through a variety of
other mechanisms, such as coupons,
pricing structures based on times of
the day or days of the week.
 These approaches are most suitable
when the base of customers is large
but the money value for each of them
is too small.

Dr. Kartik Dave 68

 SOLVING THE
SEGMENTATION DILEMMA
 It is possible to convert un-actionable
segmentation schemes into
actionable ones by trading a small
amount of precision in delineating
segments for a significantly
increased ability to identify the
customers who belong in each of
them by optimizing a function that is
weighted sum of value-based
segmentation and demographic
segmentation.

Dr. Kartik Dave 69

 DUAL-OBJECTIVE
SEGMENTATION

High Value-based Segmentation

Identification of

Actionable Segmentation
Value

Joint Optimization

Demographics-based
Segmentation
Low

Low High
Identification of Customers
Dr. Kartik Dave 70
 SOLVING THE
SEGMENTATION DILEMMA
 Another possible solution to this
problem is to provide opportunities
to individual customers to design
their own products and services by
choosing from a menu of attributes,
components, prices, and delivery
options.
 This facility can be provided
through a choiceboard - an
interactive on-line system.
Dr. Kartik Dave 71
 SOLVING THE
SEGMENTATION DILEMMA
 Dell’s choiceboard expands
consumers’ options in the personal
computer realm.
 Cisco Marketplace is an on-line
configurator that allows corporate
customers to create the precise
combination of data networking gear
they need.
 Charles Schwab’s Mutual Fund
Screener allows customers to design
their own investment portfolios.
Dr. Kartik Dave 72
 SOLVING THE
SEGMENTATION DILEMMA
 A choiceboard model of doing
business with individual customers
becomes possible in any industry
when a system of accessible,
integrateable components is
available from which customers can
select and combine options based on
their own priorities.
 The choiceboard enables customer
self-segmentation, which is fast,
cost-efficient, and precise.
Dr. Kartik Dave 73
 ONGOING SEGMENTATION
PROCESS
 Segmentation, whether of
consumer or business customers,
should be considered an ongoing
process and, to the extent
possible, be built into a company’s
marketing intelligence system.
 Effective segmentations are
dynamic in two senses:

Dr. Kartik Dave 74

 ONGOING SEGMENTATION
PROCESS
 First, they concentrate on customers’
needs, attitudes, behaviour, which can
change quickly.
 Secondly, they are reshaped by market
conditions, such as fluctuating economics,
emerging consumer niches, and new
technologies, which in today’s world are
evolving more rapidly than ever.

Dr. Kartik Dave 75

 ONGOING SEGMENTATION
PROCESS
 The organizations, which are able to
overcome excessive interest in
consumer identities; too little
emphasis on actual consumer
behaviour; and undue absorption in
the technical details of devising
segmentations, will be able to
respond quickly and effectively to
rapidly changing market conditions,
develop insights into where and how
to compete.

Dr. Kartik Dave 76

Dr. Kartik Dave 77