Week 6: Market Segments and Targets

 Week 6: Market Segments and Targets

"STP" marketing includes three steps: market segmentation, market targeting, and
market positioning. Market segments are large, identifiable, distinct groups within a
market. The major segmentation variables for consumer markets are geographic,
demographic, psychographic, and behavioral. Marketers use them singly or in
combination. 

To be useful, market segments must be measurable, substantial, accessible,

differentiable, and actionable. We can target markets at four main levels: mass,
multiple segments, single (or niche) segment, and individuals.

A mass market targeting approach is adopted only by the biggest companies. Many
companies target multiple segments defined in various ways such as various
demographic groups who seek the same product benefit. A niche is a more narrowly
defined group. Globalization and the Internet have made niche marketing more
feasible for many. More companies now practice individual and mass customization.
The future is likely to see more individual consumers take the initiative in designing
products and brands. Marketers must choose target markets in a socially responsible
manner at all times.

6.1 Introduction

This lesson looks further into key customer-driven marketing strategy decisions—
how to: divide up markets into meaningful customer groups (segmentation); choose
which customer groups to serve (targeting); create market offerings that best serve
targeted customers (differentiation); and positioning the offerings in the minds of
consumers (positioning).

It is argued that companies are moving away from mass marketing and product-
variety marketing towards target marketing.  As such, identifying who to target is
increasingly important and it is necessary to understand the concept of segmentation
whereby markets are divided into groups based upon the similarity of their need; or
at least the similarity of how this need can be satisfied.  Once segments have been
identified the marketer then must determine which segments are the most attractive
to the company.  Market offerings that meet the needs of target markets then must
be developed, with a view to differentiating the offerings of our brand from those of
competing brands, and positioning our brand for maximum competitive advantage.

6.2 Geographic Segmentation

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 for
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.
Geographic segmentation is dividing a market into different geographical units such
as nations, regions, states, municipalities, cities or neighbourhoods.  Some
companies are changing the nature of geographic segmentation by using the
Internet to widen their markets.

6.3 Demographic Segmentation

Demographic segmentation is the dividing of the market into groups based on

demographic variables such as age, sex, family size, family life-cycle, income,
occupation, education, religion and nationality. Demographic factors are the most
popular bases for segmenting customer groups.  One reason is that consumer
needs, wants and usage rates often vary closely with demographic variables;
another is that they are easier to measure than most other variables.

Age and life-cycle:  Consumer needs and wants change with age, so some
companies use age and life-cycle segmentation ‘which divides a market based on
age and life-cycle groups’.  However, marketers must be careful to guard against
stereotypes.

Gender:  Gender segmentation is ‘dividing a market into groups based on sex and
has long been used in clothing, cosmetics and magazines.  Recently other marketers
have noticed opportunities for gender segmentation.

Income:  Income segmentation divides a market into different income groups and
has long been used by the marketers of such products and services as cars, boats,
clothing, cosmetics and travel.  Income alone, however, does not always predict the
customer for a given product.

6.4 Psychographic and Behavioral Segmentation

Psychographic segmentation is the dividing a market into different groups based

on social class, lifestyle or personality characteristics’.

Socioeconomic status:  Socioeconomic classes have a strong effect on preferences

in cars, clothing, home furnishings, leisure activities, reading habits and store
choices.

Lifestyle:  People’s interest in many goods is affected by their lifestyle and many
goods they buy are expressions of their lifestyle.

Personality:  Marketers have also used personality variables to segment markets,

giving their products personalities that correspond to consumer personalities.  This is
successful for products like cosmetics, cigarettes, insurance, liquor and online share
trades.

Behavioural segmentation divides ‘buyers into groups based on their knowledge of

the product, their attitude towards it, the way they use it and their responses to it. 
Many marketers believe that behaviour variables are the best starting point for
building market segments.
Occasions:  For occasion segmentation buyers are grouped according to the
occasions when they get the idea to buy, actually make the purchase or use the
purchased item.

Benefits sought:  Benefit segmentation is a powerful form of segmentation used to

group buyers according to the different benefits they seek from the products.  This
requires finding out the major benefits that people look for in the product class, the
kinds of people who look for each benefit and the major brands that deliver each
benefit.

User status:  Many marketers can be segmented into non-users, ex-users, potential

users, first-time users and regular users of a product.  High-market-share companies
are particularly interested in attracting potential users, whereas smaller firms will try
to attract regular users.

Usage rate:  Marketers can also be segmented into light-, medium- and heavy-user
groups.  Heavy users are often a small percentage of the market but account for a
high percentage of total buying.

Loyalty status:  Consumers can be loyal to brands (Adidas), stores (Woolworths) and

companies (Holden Ltd).  Buyers can be divided into groups according to their
degree of loyalty.  Some consumers are completely loyal (always buy), others
are somewhat loyal (favour two or three brands of the product), and others
show no loyalty at all.  What appears to be brand loyalty, however, may actually be
habit, indifference, a low price or the unavailability of other brands.

6.5 Effective Segmentation

Clearly there are many ways to segment a market – but not all segmentations are
effective.  To be useful, market segments must have the following characteristics:

 Measurable: The size, purchasing power, and profiles of the segments can be
measured.
 Accessible: The market segments can be effectively reached and served.
 Substantial: The market segments are large or profitable enough to serve.
 Differentiable: The segments are conceptually distinguishable and respond differently
to different marketing mix elements and programs.
 Actionable: Effective programs can be designed for attracting and serving the
segments.

6.6 Market Targeting

Market segmentation is to divide a market into segments of customers. Market

targeting is to target the part of the qualified available market the company decides
to pursue.

Once the firm has identified its market-segment opportunities, it must decide how
many and which ones to target. Marketers are increasingly combining several
variables in an effort to identify smaller, better-defined target groups.
6.7 Ethical issues in segmentation

Moral marketing is vital to company productivity because a developing number of

consumers are purchasing from companies that are socially dependable. Moral
marketing requires the company to settle on ethical choices regarding product
packaging and messaging. Each marketer might as well grasp the company code of
morals and stick to it when assembling a marketing strategy.