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Marketing. Sales. Segmentation Bases and Methods Topics: Positioning and Segmentation Tags: Consumer Diversity. While there has been a strong move towards one-to-one marketing in recent years. particularly in consumer markets. there are few examples of successful implementation. Market Segmentation. Long gone are the homogeneous markets that Henry Ford conquered with his mass production of one model of car (mass customisation is the new objective). Market segmentation provides a proven way of disaggregating markets in a way that can improve profitability without the investment in systems and sales . Market-segmentation. Sales Strategy Source: Foreseechange Top of Form http://jobfunctions Bottom of Form • • E-mail this page Related Content FREE Registration is required Overview: Consumer diversity is increasing rapidly and firms have long sought to differentiate their products relative to competitors.• • • • • • • Find Articles in: All Business Reference Technology Lifestyle Newspaper Collection Home / White Papers Market Segmentation: Objectives. Marketing Research. This is where market segmentation comes in. Foreseechange.
) Format: HTML | Date: Aug 2001 | Pages: 1 People who downloaded this item also downloaded Market Segmentation . (Is this item miscategorized? Does it need more tags? Let us know.Starting With The Basics Business Strategy: Marketing Segmentation Levels Of Market Segmentation Criteria Necessary For A Market Segment Improves Marketing Marketing Strategy: 7 Steps to Market Segmentation Top results from Positioning and Segmentation • Receive Email Updates when new items are added to this category Demo: Analysis with IBM Cognos Express Fibre Channel Essentials Universal studios television USA cable networks Case Study : La Opinion Niche Marketing » View all Positioning and Segmentation listings . This document provides an overview of market segmentation and links to more detailed information sources.resources needed for one-to-one marketing.
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A true market segment meets all of the following criteria: it is distinct from other segments (different segments have different needs). Contents [hide] • • • • 1 "Positive" market segmentation 2 Positioning 3 Top-Down and Bottom-Up 4 Using Segmentation in Customer Retention . it responds similarly to a market stimulus. While there may be theoretically 'ideal' market segments. splitting up the market into smaller groups. These can broadly be viewed as 'positive' and 'negative' applications of the same idea. The market segmentaton and corresponding product differentiaion strategy can give a firm a temprorary commerical advantage. and create Product differentiation strategies to exploit these segments. A market segment is a sub-set of a market made up of people or organizations sharing one or more characteristics that cause them to demand similar product and/or services based on qualities of those products such as price or function. and it can be reached by a market intervention.An concept in Economics and used in Marketing. it is homogeneous within the segment (exhibits common needs). in reality every organistion engaged in a market will develop different ways of imagining market segments. The term is also used when consumers with identical product and/or service needs are divided up into groups so they can be charged different amounts.
a firm would consider the marketing communications mix best suited to the product in question. a number of generic market segment systems also exist. both have similar objectives. Various demographic. which highlights rival goods within one's industry according to perceived quality and price. to prioritize the groups to address. wants.○ • • • 4.1 Process for tagging customers 5 Price Discrimination 6 See also 7 References  "Positive" market segmentation Market segmenting is dividing the market into groups of individual markets with similar wants or needs that a company divides the market into distinct groups who have distinct needs. After the perceptual map has been devised. you start with a single customer and build on that profile. He also identified an alternative model which he called the bottom-up approach. and psychographic patterns are built up using techniques such . Consumer-based market segmentation can be performed on a product specific basis. advertising results can be improved and customer satisfaction can be increased leading to better reputation. Improved segmentation can lead to significantly improved marketing effectiveness. to provide a close match between specific products and individuals. Distinct segments can have different industry structures and thus have higher or lower attractiveness (Michael Porter). such as by industry or public versus private although industrial market segmentation is quite different from consumer market segmentation. behavioral. Positioning involves ascertaining how a product or a company is perceived in the minds of consumers. markets can be divided according to a number of general criteria. This typically requires the use of customer relationship management software or a database of some kind. behavior or who might want different products & services.g. which don't always fit into convenient demographic boundaries. With the right segmentation. e. Day (1980) describes model of segmentation as the top-down approach: You start with the total population and divide it into segments. Broadly. Profiles of existing customers are created and analysed. the segment is then subject to positioning. and to respond with appropriate marketing strategies that satisfy the different preferences of each chosen segment.  Positioning Once a market segment has been identified (via segmentation).  Top-Down and Bottom-Up George S. The overall intent is to identify groups of similar customers and potential customers. Revenues are thus improved. In this approach. All of these methods of segmentation are merely proxies for true segments. to understand their behavior. the Nielsen Claritas PRIZM system provides a broad segmentation of the population of the United States based on the statistical analysis of household and geodemographic data. the right lists can be purchased. The process of segmentation is distinct from targeting (choosing which segments to address) and positioning (designing an appropriate marketing mix for each segment). and targeted (in which the viability of servicing the market intended). However. This part of the segmentation process consists of drawing up a perceptual map.
the segmentation process is commonly performed using a combination of predictive analytics and cluster analysis. McKenna (1988) claims that this approach treats every customer as a "micromajority". Tag #3: What retention tactics should be used to retain this customer? For customers who are deemed “save-worthy”. Illustration of retention-based segmentation process: . Using the theory that “birds of a feather flock together”.  Using Segmentation in Customer Retention Segmentation is commonly used by organizations to improve their customer retention programs and help ensure that they are: • • Focused on retaining their most profitable customers Employing those tactics most likely to retain these customers The basic approach to retention-based segmentation is that a company tags each of its active customers with 3 values: Tag #1: Is this customer at high risk of canceling the company's service? (Or becoming a non-user) One of the most common indicators of high-risk customers is a drop off in usage of the company's service. Tactics commonly used range from providing “special” customer discounts to sending customers communications that reinforce the value proposition of the given service. the approach is based on the assumption that active customers will have similar retention outcomes as those of their comparable predecessors.as cluster analysis. Pine (1993) used the bottom-up approach in what he called "segment of one marketing". it’s essential for the company to know which save tactics are most likely to be successful. This process is sometimes called database marketing or micro-marketing. For example.  Process for tagging customers The basic approach to tagging customers is to utilize historical retention data to make predictions about active customers regarding: • • • Whether they are at high risk of canceling their service Whether they are profitable to retain What retention tactics are likely to be most effective The idea is to match up active customers with customers from historic retention data who share similar attributes. Its use is most appropriate in highly fragmented markets. Creating a market segment may allow a firm or other organistion to set itself apart from other competitors. From a technical perspective. Through this process mass customization is possible. Tag #2: Is this customer worth retaining? This determination boils down to whether the post-retention profit generated from the customer is predicted to be greater than the cost incurred to retain the customer. in the credit card industry this could be signaled through a customer's decline in spending on his card.
Examples of this exist in the transport industry (a plane or train journey to a particular destination at a particular time is a practical monopoly) where Business Class customers who can afford to pay may be charged prices many times higher than Economy Class customers for essentially the . This behaviour is rational on the part of the monopolist. charging higher prices to those segments willing and able to pay more and charging less to those whose demand is price elastic. whether or not the monopoly itself is sanctioned. generating monopoly profits for the seller. but is often seen by competition authorities as an abuse of a monopoly position. the price of a product is likely to be higher than in a competitive market and the quantity sold less. Price Discrimination Where a monopoly exists. The price discriminator might need to create rate fences that will prevent members of a higher price segment from purchasing at the prices available to members of a lower price segment. These profits can be increased further if the market can be segmented with different prices charged to different segments (referred to as price discrimination).
Long gone are the homogeneous markets that Henry Ford conquered with his mass production of one model of car (mass customisation is the new objective). The objectives of market segmentation are to more accurately meet the needs of selected customers in a more profitable way. a company with several brands in a category will benefit by positioning each brand within the portfolio against a distinct set of consumer needs – ideally each brand should be sufficiently distinct so that there is little cannibalisation. This is where market segmentation comes in. This document provides an overview of market segmentation and links to more detailed information sources. targeting determines which segments to serve. a single product company may be able to boost sales and cut advertising costs if they can target consumers with a high likelihood of product purchase. there are few examples of successful implementation. Segmentation groups customers with similar needs and responses. Microsoft and the Video industry generally also price very similar products at widely varying prices depending on the market they are selling to. Precisely how this can be achieved will vary by company capability. Market segmentation provides a proven way of disaggregating markets in a way that can improve profitability without the investment in systems and sales resources needed for one-to-one marketing. Segmentation Bases There is a large array of possible segmentation bases.same service. While there has been a strong move towards one-to-one marketing in recent years. . Objectives of Market Segmentation Market segmentation is the first of three important steps in developing marketing strategy. positioning is about how the product (or product portfolio) should compete with others in the market. Some of these are briefly described below. On the other hand. For example. particularly in consumer markets. Market Segmentation Charlie Nelson director foreseechange August 2001 Consumer diversity is increasing rapidly and firms have long sought to differentiate their products relative to competitors.
attitudes. Such segments are indicators (although not perfect) of behaviour such as lifestyle. cultural. and life styles are often used a segmentation bases. Reaching the chosen segments is then the issue. while others frequently switch brands. Socioeconomic Characteristics Similarly. Psychographics Personality. opinions. Such cohorts share much in common. These characteristics have some relationship to behaviour and provide insight into how to communicate with chosen segments. Generation Generation. Thus generation is probably a better segmentation basis than age and just as easy to reach. Note that price/quality sensitivity can vary by category. It is possible to group consumers on the basis of these factors. refers to people born in the same period of time. Benefits Sought Some people are price sensitive. This is a very powerful basis for segmentation . or cohort. But age and other demographics are only loosely related to behaviour.Demographics Consumers can be grouped on the basis of characteristics such as age or household composition. occupation and education can be used to derive segments that are easy to reach. Not only are they of a similar age. The problem is then how to reach the most attractive segments. the Baby Boomer generation can be defined as those people born between 1946 and 1955. Potential could be determined by administering questions about disposition to use (such as awareness. above. used in the past. others seek quality or service. Both approaches are usually imperfect as behaviour is rarely strongly correlated with demographics or media usage. Product Usage Potential to use the firm’s product is a behaviourally based segmentation basis. as discussed under product usage. This is done either by using a large-scale single source survey (such as ACNielsen Panorama) that asks consumers about product disposition and media usage or by relating product disposition to demographics. and political influences in formative years. price sensitivity. but they experienced similar economic. would consider using) in a survey and respondents grouped accordingly. This is easy to do and it is easy to reach such segments with media. Others will feed themselves any rubbish but are fastidious about cleanliness. and brand preference. For example. Some people are very concerned about the quality of the food they eat but will buy cheap laundry detergent. characteristics such as income. Some people are brand loyal.
outdoor. These tend to suffer from the fallacy of averages. These segments can be reached by the message (self-selection) but this is not necessarily cost effective. First. some areas have more expensive properties than others and so people with similar socioeconomic characteristics may cluster together. that combine demographics and geography as a segmentation basis.but it is not easy to buy media on this basis. Criteria for Selecting Segmentation Basis The market segments identified should satisfy three criteria. Geography There are two reasons why people who live in the same area may share similar characteristics. Second. and selective direct mail but mass media is less effective. It is easy to reach particular areas by using local newspapers. 1.351k). media use. Some areas may be genuinely relatively homogenous but many are not and this can be very misleading. Internal Homogeneity/External Heterogeneity This means that potential customers within a segment should have similar responses to the marketing mix variable of interest but a different response to members of other segments. Discussion The segmentation basis used depends on the decision to be made. This approach aims to identify groups of small geographic areas that have similar demographic profiles. detergents. They need to satisfy themselves that in doing so: • • The generic scheme satisfies the criteria set out below. the bases could include benefits sought. for example. many companies do use “generic” segmentation schemes. For advertising decisions. Nor will one segmentation basis be ideal for all industries – food. one segmentation basis will not be ideal for all marketing decisions. cinema. they have similar transport and shopping options. or psychographics (or some hybrid of these). Geodemographic There are several commercial geodemographic segmentation schemes available. and That they do not risk being at a disadvantage to competitors who use a customized segmentation scheme. More on geodemographic segmentation (pdf format. Clearly. Nonetheless. . clothing. For pricing decisions. and motor vehicles all satisfy different needs and have different levels of purchase involvement. the segmentation basis should be price sensitivity and deal proneness.
This technique views products as bundles of attributes and uses an experimental design to vary attribute levels to create product descriptions. Answer Tree. Attitudes (agree/disagree with various statements). quality. It can quickly analyse a large set of candidate explanatory variables to determine the most influential variables on a dependent variable. The basic idea is to hierarchically segment the population on the database based on a dependent (categorical) variable such as bought/did not buy a product. including Regression Tree. .Parsimony This is the degree to which the segmentation makes every potential customer a unique target. That is. Methods of Market Segmentation There is a large array of analytical techniques applicable to market segmentation. The measures could be. There is no dependent variable – all variables are treated equally. The explanatory variables are categorical too. Survey respondents then rank the products and the analysis works out how much each attribute contributes to preference. It is a good technique for benefit segmentation. Accessibility This is the degree to which marketers can reach segments separately using observable characteristics of the segments. within a set of data comprising measures on each individual. Classification Tree and CART. and price. such as brand. an attitudinal battery. gender. occupation). The most frequently used are briefly described below. the segmentation should identify a small set of groupings of substantial size. such as: • • • Demographic variables (age group. Cluster Analysis Cluster analysis is a set of techniques for discovering structure. or groups of individuals. Conjoint Analysis This technique aims to decompose preference into component parts. Previous behaviour (bought/did not buy another product). It is a technique frequently employed in Data Mining and it is a useful exploratory analysis technique prior to regression analysis. CHAID/Regression Trees This was called Automatic Interaction Detection for a long time and now also goes under various names used by software vendors. for example.
Macmillan. Cluster Analysis For details of algorithms. did not buy) and explanatory variables such as income and attitudes. Market Segmentation and Forecasting www. Multivariate Analysis A good text on the technical details of the whole range of techniques for segmentation and more is “Multivariate Data Analysis” by Joseph F. Addison-Wesley. Further Information Market Segmentation as part of Marketing Strategy “Marketing Engineering” by Gary L. see “Finding Groups in Data. It is often used after CHAID identifies candidate explanatory variables.htm . is an excellent book on the application of marketing models to marketing strategy. Hair et al.Discriminant Analysis This technique is used to quantify the relationship between segment membership (eg bought. Wiley.futuretoolkit. to formally quantify and test the significance of relationships. Lilien and Arvind Rangaswamy. An Introduction to Cluster Analysis” by Leonard Kaufman and Peter J. Rousseeuw.com/segfor. It includes Excel-based software to demonstrate the application of these techniques.
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