Chap 3 MM

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3
Segmentation
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3. 2
Marketing Framework
Discussion Question
• Name a product in which everyone

wants the same thing.
Segmentation
• Psychologists:
• Consumers have different motivations that
drive their purchases
• Economists:
• Imperfect competition exists; consumers
have heterogeneous needs
• Marketers:
• The market is comprised of different
segments
Segmentation
• Segmentation
• Breaking the market into more homogeneous
consumer groups
• A single product, price, promotion is unlikely
to satisfy all consumers’ needs
• e.g., Miley Cyrus appeals to tweens; Wilford
Brimley appeals to seniors
Segments Defined
• Market segment
• A group of customers who share similar
inclinations toward a brand
• e.g., One segment might purchase a car
primarily to get from A to B while another
segment may purchase a car primarily to
impress their friends
• Marketers’ Goal
• Create marketing mixes that meet the
segment’s needs
Marketing Segmentation
Types of Segmentation
• Mass marketing
• All customers are treated the same
• Is usually more efficient but not effective in
meeting customer needs
• e.g., Pepsi seems to be mass marketed but
is not
– Pepsi, Diet Pepsi, Caffeine free Pepsi, 2-
liters, 12 pack cans, 6 pack bottles, etc.
Types of Segmentation
• One-to-one marketing
• Each customer serves as his own segment
• Product is tailored for each person’s desires
• Is usually more effective in meeting
customers’ needs but hard to achieve
efficiently and may involve quality issues
• e.g., Toyota allows customers to “build” their
own Scion; however, options are limited
Discussion Questions
1. List companies/products that are close

to providing
• One-to-one marketing and
• Mass marketing.
2. What are the pros/cons of mass
marketing?
3. What are the pros/cons of one-to-one
marketing?
Segmentation
• Segmentation falls between one-to-one

and mass marketing
• As segment size increases, segments
become more heterogeneous
• As segment size decreases, segments
become less profitable
• Marketers need the “optimal” segment size
• Niche
• Targeting small market that firm serves well
Segmentation: Demographics
• Demographics
• Marketers may change marketing mix
• Gender, age, stage in life cycle, education, income,
ethnicity
• Demographic variables are clear and

easy to recognize
• However, they may not determine interests
• e.g., Do all older people dislike new
technology? Do only men like to hunt?
Family Life Cycle
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3.
Segmentation: Geographic
• Geographic distinctions between

customers can change preferences/needs
• Cultural differences can exist between
countries or within a country
– e.g., Southern USA prefers spicier food
• Urban living is different than small town
– e.g., NYC residents want smaller dishwashers
• Hot climates require different products than
cold climates
– e.g., Minnesotans need snow blowers
Segmentation: Psychological
• Psychological: get inside the heads and

hearts of customers
• Attitudes: e.g., Favorable attitude toward “green” products
• Knowledge & awareness: e.g., Don’t know about the product
• Wants and needs: e.g., Need for safety
• Traits: e.g., Extroverts who want to socialize
• Expertise & involvement: e.g., New, motorcycle enthusiasts
• Brand attributes sought: e.g., Low price and red color
• Risk orientation: e.g., Risk adverse-late technology adopters
Psychographic segmentation
 Psychographics is the science of using psychology and
demographics to better understand consumers.
 In psychographic segmentation, buyers are divided into different groups on
the basis of psychological/personality traits, lifestyle, or values.
 Personality
 Traits, attitudes,habits
 Motives
 Lifestyles
 How time is spent
 Importance of things around people
 Beliefs
 Socioeconomic characteristics
 Geodemographics
 Segmenting potential customers into neighborhood lifestyle
categories
 Geographic + Demographic + Lifestyle Segmentation
Psychographic segmentation
 VALS
 Main dimensions
 Motivation: ideals, achievement, self-expression
 Resources: high,low
 8 groups
 Other versions
 Japan-VALS
 2 more dimensions: life orientation + attitudes to social
change
 10 groups
Source: Strategic Business Insight
Vals: psychographic segmentation tool
Four groups with HIGHER resources
1. Innovators—Successful, sophisticated, active, and “take-charge”
people with high self-esteem. Purchases often reflect cultivated
tastes for relatively upscale, niche-oriented products and services.
2. Thinkers—Mature, satisfied, and reflective people who are
motivated by ideals and value order, knowledge, and responsibility.
Favor durability, functionality, and value in products.
3. Achievers—Successful career- and work-oriented people who
value consensus and stability.They favor established and prestige
products that demonstrate success to their peers.
4. Experiencers—Young, enthusiastic, and impulsive people who seek
variety and excitement. Spend a comparatively high proportion of
income on fashion, entertainment, and socializing.
Four groups with LOWER resources
1. Believers—Conservative, conventional, and traditional people with

concrete beliefs. Favor familiar and established products and are
loyal to established brands.
2. Strivers—Trendy and fun-loving people who seek the approval of
others but are resource-constrained. Favor stylish products that
emulate the purchases of those with greater material wealth.
3. Makers—Practical, self-sufficient, traditional, and family-oriented
people who focus on their work and home context. Favor basic
products with a practical or functional purpose.
4. Strugglers—Elderly, resigned, and passive people who are
concerned about change. Loyal to their favorite brands.
12
Segmentation: Behavioral
• Behavioral: behaviors people engage in

• Attitudes can’t be observed; behaviors can
• Intentions do not always equal behaviors
• Behaviors help predict future behavior
• Current users; Non users
• Non users may use competitors or don’t buy
• 80:20: 80% of sales come from 20% of
customers
– It costs 6 times more to acquire new
customer compared to retaining loyal
Segmentation: Behavioral
• Patterns of co-purchasing
• Purchase a new house, usually purchase
new appliances, curtains, etc.
• Create opportunities for cross selling
• What bases should you use when

segmenting the market when you are
marketing
1. A music lesson business?
2. A mayoral candidate?
3. A grocery store?
B2B compared to B2C Segmentation
Concept in Action
• Automobile insurance industry example

• Industry is large and competitive
• Segment market using cluster analysis
• Survey customers; identify questions where
there is variability in responses
• If no variability in responses, do not segment
on that variable
– Useful segmentation has variation across
groups
Concept in Action: Discussion Question
• Which variables would you segment on?
How to Segment the Market
• Begin with understanding the

marketplace and then gather information
on the customer’s perspective
• A segment may look desirable in terms of
size and growth but be saturated with
competitors and not consistent with firm
goals
How to Evaluate Segmentation Schemes
• Does the segmentation scheme have

1. Data to identify segments?
• Census data: available but may not be useful
• Vals & Prizm: expensive
• Specific survey may not be available
2. Databases to access segments?

• Databases that give access to the specific
people within your chosen segments
• Does the segmentation scheme have

3. Profitability?
• Size matters but so does frequency & depth
($) of purchase, price sensitivity, segment
stability, growth potential, competitive
intensity, etc.
– Use information to estimate segment value
• Does the segmentation scheme

4. Fit with corporate goals?
• Consider your firm’s goals and image
• e.g., Subzero (high-end refrigeration) does
not “fit” with the low-end refrigerator market
5. Actionable?
• Marketer can design something for segment
• It is common to link usage, attitudinal, etc.
variables to demographic variables to make
the segment more actionable
1. Develop a segmentation scheme for a

new pizza shop located 2 blocks from
campus.
2. Does your scheme meet all of the
criteria for a good segmentation
scheme?
Segmentation Strategies
• Multiple segments in a marketplace
• Breadth strategy
• Serve more than one segment
• Depth strategy
• Serve one segment well
• Tailored strategy
• Different products for different segments
Managerial Recap
• Customers vary in preferences

• It is usually impossible to please all
customers with one product
• Segments can be formed on nearly any

kind of differentiating information
• e.g., demographics, geographics,
psychological, behaviorial, etc.
Managerial Recap
• Segmentation schemes should be

• Based on data,
• Sustained by a database to help access the
customers,
• Profitable enough to serve,
• Sensible with respect to the larger corporate
goals and planning, and
• Actionable

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© 2013

• Name a product in which everyone

1. List companies/products that are close

• Segmentation falls between one-to-one

• Demographic variables are clear and

• Geographic distinctions between

• Psychological: get inside the heads and

Source: Strategic Business Insight

1. Believers—Conservative, conventional, and traditional people with

• Behavioral: behaviors people engage in

• What bases should you use when

• Automobile insurance industry example

• Which variables would you segment on?

• Begin with understanding the

• Does the segmentation scheme have

2. Databases to access segments?

• Does the segmentation scheme have

• Does the segmentation scheme

1. Develop a segmentation scheme for a

• Multiple segments in a marketplace

• Customers vary in preferences

• Segments can be formed on nearly any

• Segmentation schemes should be

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