Market segmentation

Market segmentation is a concept in economics and marketing. A market segment is a sub-set of a market made up of people or organizations with one SEGMENT or more characteristics that cause them to demand similar product and/or services based on qualities of those products such as price or function. A true market segment meets all of the following criteria: it is distinct from other segments (different segments have different needs), it is homogeneous within the segment (exhibits common needs); it responds similarly to a market stimulus, and it can be reached by a market intervention. 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.The people in a given segment are supposed to be similar in terms of criteria by which they are segmented and different from other segments in terms of these criteria. These can broadly be viewed as 'positive' and 'negative' applications of the same idea, splitting up the market into smaller groups. Examples:
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Gender Price Interests

While there may be theoretically 'ideal' market segments, in reality every organization engaged in a market will develop different ways of imagining market segments, and create Product differentiation strategies to exploit these segments. The market segmentation and corresponding product differentiation strategy can give a firm a temporary commercial advantage

Market segmenting is dividing the market into groups of individual markets with similar wants or needs that a company divides into distinct groups which have distinct needs, wants, behavior or which might want different products & services. Broadly, markets can be divided according to a number of general criteria, such as by industry or public versus private. Although industrial market segmentation is quite different from consumer market segmentation, both have similar objectives. All of these methods of segmentation are merely proxies for true segments, which don't always fit into convenient demographic boundaries. Consumer-based market segmentation can be performed on a product specific basis, to provide a close match between specific products and individuals. However, a number of generic market segment systems also exist, e.g. the system provides a broad segmentation of the population of the United States based on the statistical analysis of household and geodemographic data. The process of segmentation is distinct from positioning (designing an appropriate marketing mix for each segment). The overall intent is to identify groups of similar customers and potential customers; to prioritize the groups to address; to understand their behavior; and to respond with appropriate marketing strategies that satisfy the different preferences of each chosen segment. Revenues are thus improved.

Improved segmentation can lead to significantly improved marketing effectiveness. Distinct segments can have different industry structures and thus have higher or lower attractiveness

[edit] Positioning
Once a market segment has been identified (via segmentation), and targeted (in which the viability of servicing the market intended), the segment is then subject to positioning. Positioning involves ascertaining how a product or a company is perceived in the minds of consumers. This part of the segmentation process consists of drawing up a perceptual map, which highlights rival goods within one's industry according to perceived quality and price. After the perceptual map has been devised, a firm would consider the marketing communications mix best suited to the product in question.

[edit] Using Segmentation in Customer Retention
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? One of the most common indicators of high-risk customers is a drop off in usage of the company's service. For example, in the credit card industry this could be signaled through a customer's decline in Target markets are groups of people separated by distinguishable and noticeable aspects. Target markets can be separated into: MARKET TARGETING: A target market is a group of customers that the business has decided to aim its marketing efforts and ultimately its merchandise.[1] A well-defined target market is the first element to a marketing strategy. The target market and the marketing mix variables of product, place(distribution), promotion and price are the two elements of a marketing mix strategy that determine the success of a product in the marketplace. Once these distinct customers have been defined, a marketing mix strategy of product, distribution, promotion and price can be built by the business to satisfy the target market.

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1 Market segmentations 2 Strategies for Reaching Target Markets 3 Examples

This is done by buying consumer database based on the segmentation profiles you have defined. Caution is recommended when undertaking direct marketing efforts .age. household size. degree of loyalty) ‡ product-related segmentation (relationship to a product)[2] [edit] Strategies for Reaching Target Markets Marketers have outlined four basic strategies to satisfy target markets: undifferentiated marketing or mass marketing. concentrated marketing. and micromarketing. education.y y 4 The Psychology of Target Marketing 5 References [edit] Market segmentations Target markets are groups of people separated by distinguishable and noticeable aspects. including shorter wait times for prescriptions.[3] . CVS has marketed its stores to aid women who are constantly multitasking. etc). and lifestyles) ‡ behavioral segmentation (occasions. They recently redesigned 1.g. mobile no. Target markets can be separated into: ‡ geographic segmentations (their location) ‡ demographic/socio-economic segmentation (gender. [edit] Examples CVS Caremark¶s target market is women since they make up 80 percent of the pharmacy chain¶s customers. wider and better-lit shopping aisles. home no. one way to reach out to target markets is through direct marketing. and stage in the family life cycle) ‡ psychographic segmentation (similar attitudes. email. sex.. For sales teams..200 of its 6. differentiated marketing. values. and more beauty products. These database usually comes with consumer contacts (e.check the targeted country's direct marketing laws.200 stores to women. income occupation.

. This topic elaborates on the dependency and relationship between these processes. Research has generally shown that target marketing strategies are constructed from consumer inferences of similarities between some aspects of the advertisement (e. labeling intensity of ethnic identification. language used.S. Kraft has formulated a different version of the Oreo to target consumers in China.The Oreo cookie is a popular cookie in the U. It is also introducing premium instant coffee in Russia. 18-49 and 25-54. Irene Rosenberg.g. lifestyle represented) and characteristics of the consumer (e. role congruence.[4] World Wrestling Entertainment¶s (WWE) target market is young males.[6] [edit] The Psychology of Target Marketing A principal concept in target marketing is that those who are targeted show a strong affinity or brand loyalty to that particular brand. Consumers are persuaded by the characteristics in the advertisement and those of the consumer. It is shown at 9:00 PM ET to reach its target market. thin biscuits coated in chocolate.[5] Kohl¶s department store has a target market consisting of consumers buying for themselves and their families. consumers. However. trusts his executives who live and work in China to know what consumers would prefer in order to maximize their profits. search A marketing strategy is based on expected customer behavior in a certain market. source pictured.S. In order to know the customer and its expected buying process of segmenting and positioning is needed. The Chinese version consists of four layers of long. shared knowledge and ethnic salience all promote positive effects on the target market. Monday Night RAW® is the number one entertainment program on primetime cable among male viewers (2 million+) including the male demographics of 18-34. The process of market segmentation and of positioning are described elsewhere within the Wikipedia. reality or desire of having the represented style. The Double Stuf Oreo cookie is also marketed to U. Research has shown that racial similarity. the free encyclopedia Jump to: navigation.. In Germany.g. Kraft CEO. Kraft is appealing to the tastes and preferences of German consumers by creating dark chocolate products. known for its two discs of chocolate with a white cream filling.[7] Segmenting and positioning From Wikipedia. These processes are chronological steps which are dependent on each other. which is a beverage that is popular to consumers. . Target Marketing allows the marketer / sales team to customize their message to the targeted group of consumers in a more focused manner.

it is not necessary that these segments are attractive to target. Contents [hide] y y y y y y y 1 The process-data model 2 Segmenting 3 Targeting 4 Positioning 5 B2C and B2B 6 See also 7 External links [edit] Segmenting Segmenting is the process of dividing the market into segments based on customer characteristics and needs.Copyright (c) Lars Perner 1999-2010. identifying segments 3. The main activity segmenting consists of four sub activities. . analyzing the intensity of competitors in the market 4.competitors have a great influence on the attractiveness of entering a certain market. A company is almost never alone in a market -. The third step of analyzing the intensity of the competitors is added to the process of segmenting in this process description. The third step of segmenting is the first part of the topic of competitor analysis. selecting the attractive customer segments. When different segments are identified. it is hard to obtain a profitable market share and a company may decide not to enter a certain market. second and fourth steps are described as market segmentation. These are: 1. determining who the actual and potential customers are 2. The first. When there is a high intensity of competitors.

as these segments allow firms to analyze the competitors in this market.The need for segmenting a market is based on the fact that no market is homogeneous. In the process of positioning the company: 1. Four sub activities form the basis for deciding on which segments will actually be targeted. considering the company¶s abilities compared to the competitors' abilities 4. analyzing competitors on their resources and skills 3. behavioral and demographic variables. To decide on the actual marketing strategy. but there are more factors to take in account before targeting a certain market segment. The first three sub activities are described as the topic competitor analysis. When these segments are known. identifies the differential advantages in each segment . [edit] Targeting After the most attractive segments are selected. Obviously. it is important to decide on which market to target. The variables used for this segmenting in these groups are usually geographical. The results of this analysis leads to a list of segments which are most attractive to target and have a good chance of leading to a profitable market share. This process is called targeting. deciding on the actual target markets. For one product the market can be divided in different customer groups. so different customers with different ideas of what they expect from the product. Not every market is an attractive market to enter. [edit] Positioning When the list of target markets is made. knowledge of the differential advantages of each segment is needed. but the way to use marketing in these markets is not yet defined. Every segment is different from the others. a company might want to start on deciding on a good marketing mix directly. When the process of targeting is ended. But an important step before developing the marketing mix is deciding on how to create an identity or image of the product in the mind of the customer. This results in segments which are homogeneous within and heterogeneous between each other. a company should not directly start targeting all these segments -. psychographical. The last sub activity of deciding on the actual target market is an analysis of the company's abilities to those of its competitors. the markets to target are selected. defining the abilities of the company and resources needed to enter a market 2. The four sub activities within targeting are: 1.other important factors come into play in defining a target market. A little filtering has been done in this activity. targeting can only be done when segments have been defined.

Although most variables used in segmenting the market are based on customer characteristics. We first (1) determine which kinds of customers exist. targeting. some consumers demand speed and . competitors and abilities of the company are necessary to create a good positioning statement. business characteristics can be described using the variables which are not depending on the type of buyer. In the auto market. then (2) select which ones we are best off trying to serve and. and positioning together comprise a three stage process.2. (3) implement our segmentation by optimizing our products/services for that segment and communicating that we have made the choice to distinguish ourselves that way. here different concepts of positioning are given. The process-data model shows the concepts resulting from the different activities before and within positioning. for example. The analyses done of the market. Segmentation. and Positioning Segmentation. one can start on creating the marketing mix. finally. Dreher an Gabriel-Ritter (1994). When the positioning statement is created. There are however methods for creating a positioning statement for both B2C and B2B segments. Targeting. [edit] B2C and B2B The process described above can be used for both business-to-customer as well as business-tobusiness marketing. This process is described at the topic positioning. The model shows how the predefined concepts are the basis for the positioning statement. decides on a different positioning concept for each of these segments. Segmentation involves finding out what kinds of consumers with different needs exist. One of these methods is MIPS: a method for managing industrial positioning strategies by Muhlbacher.

it becomes impossibly cumbersome to work with more than a few at a time. in practice. East vs.performance. there are three approaches to marketing. These travelers³usually business travelers³pay high fares but can only fill the planes up partially. West). handier gun more .µ and experience has demonstrated that firms that specialize in meeting the needs of one group of consumers over another tend to be more profitable. we need to determine which variables will be most useful in distinguishing different groups of consumers. has found that Western U. you get a different product in the same cans at the East and West coasts. all consumers are treated as the same. location (rural vs. a manufacturer came out with the Lady Remmington. a more compact. for example. There may be a large number of variables that can be used to differentiate consumers of a given product category. In the concentrated strategy. Note that segmentation calls for some tough choices. In general. y Demographic variables essentially refer to personal statistics such as income. that the variables that are most relevant in separating different kinds of soft drink consumers are (1) preference for taste vs. yet. non-cola taste. This may work when the product is a standard one where one competitor really can·t offer much that another one can·t. Several different kinds of variables can be used for segmentation. Southwest Airlines focuses on price sensitive consumers who will forego meals and assigned seating for low prices. gender. (2) preference for Cola vs. Campbell·s soup. We might thus decide. In contrast. one firm chooses to focus on one of several segments that exist while leaving other segments to competitors. For example. consumers on the average prefer spicier soups³thus. The same airlines then sell some of the remaining seats to more price sensitive customers who can buy two weeks in advance and stay over. Generically. We now put these variables together to arrive at various combinations. ethnicity. (3) price sensitivity³willingness to pay for brand names. most airlines follow the differentiated strategy: They offer high priced tickets to those who are inflexible in that they cannot tell in advance when they need to fly and find it impractical to stay over a Saturday. Facing flat sales of guns in the traditional male dominated market. while others are much more concerned about roominess and safety.S. with firms not making any specific efforts to satisfy particular groups. and family size. urban. this is the case only for commodities. light consumers. education. Usually. Thus. it holds true that ´You can·t be all things to all people. for instance. and (4) heavy vs. In the undifferentiated strategy. low calories.

essentially bypassing demographic explanatory variables. Some consumers are ´heavyµ users while others are ´lightµ users. it is also possible to segment on lifestyle and values. how large is the segment. McD·s would probably be better off targeting families in search of consistent quality food in nice. Some consumers use toothpaste primarily to promote oral health. Thus. how well are existing segments served by other manufacturers? It will be more difficult to appeal to a segment that is already well served than to one whose needs are not currently being served well. Secondly. while another segment is more interested in breath freshening. clean restaurants. in contrast. First. Thus. it would be difficult to convince consumers that McDonald·s now offers gourmet food. as a computer for ´non-geeks. through its unintimidating icons.µ . In the next step. Thirdly. while a different segment wants to stand apart from the crowd. is aimed a ´techies. we decide to target one or more segments. Positioning involves implementing our targeting. Taking this a step farther. while others prefer the ´cleanµ feeling of unscented soap (the ´Ivoryµ segment). like scented soap (a segment likely to be attracted to brands such as Irish Spring).µ Some consumers want to be seen as similar to others. rapidly growing segment is that it tends to attract competition). For example. they tend to stick with their preferred brands even when a competing one is on sale. do we have strengths as a company that will help us appeal particularly to one group of consumers? Firms may already have an established reputation. and how can we expect it to grow? (Note that a downside to a large. For example. Some consumers. Apple Computer has chosen to position itself as a maker of user-friendly computers..µ The Visual C software programming language. research conducted by the wine industry shows that some 80% of the product is consumed by 20% of the consumers³presumably a rather intoxicated group. family friendly food.y y y attractive to women.e. One can also segment on benefits sought. consistent quality. Apple has done a lot through its advertising to promote itself. While McDonald·s has a great reputation for fast. Our choice should generally depend on several factors. Some consumers are ´brand loyalµ³i. Another basis for segmentation is behavior. for example.

and less value is put on customizing the offering for the specific customer. subject to reliable performance. Reliability is also stressed. Wal-Mart is an example of this discipline. which maintain a strong competitive advantage by maintaining exceptional efficiency. which excel in serving the specific needs of the individual customer well. Customer intimate firms. The emphasis here is mostly on low cost. Nordstrom·s and IBM are examples of this discipline. There is less emphasis on efficiency. with extensive systems predicting when specific quantities of supplies will be needed. Elaborate logistical designs allow goods to be moved at the lowest cost.Michael Treacy and Fred Wiersema suggested in their 1993 book The Discipline of Market Leaders that most successful firms fall into one of three categories: y y y Operationally excellent firms. thus enabling the firm to provide reliable service to the customer at a significantly lower cost than those of less well organized and well run competitors. which is sacrificed for providing more precisely what is wanted by the customer. which produce the most advanced products currently available with the latest . Technologically excellent firms.

market researchers identify dimensions of interest and then ask consumers about their perceptions on each dimension for each brand. is on the dimension of strength. because they work with costly technology that need constant refinement. This second method is more useful when no specific product dimensions have been identified as being of particular interest or when it is not clear what the variables of difference are for the product category. attempted to reposition itself from a place that offered great sales but unattractive prices the rest of the time to a store that consistently offered ´everyday low prices. and how similar is Toblerone to Three Musketeers?) Using a computer algorithms. beyond meeting the minimum required level in the two other dimensions. It may then be possible to attempt to ´moveµ one·s brand in a more desirable direction by selectively promoting certain points. These firms. and in many cases. Sears. constantly maintaining leadership in innovation. Intel is an example of this discipline.µ allowing us to plot brands against each other. respondents are not asked about their perceptions of brands on any specific dimensions. One approach to identifying consumer product perceptions is multidimensional scaling. is Snicker·s to Kitkat. firms must meet acceptable levels on the other two. for example. on a scale of 1-7. In the a priori approach. the repositioning fails. subjects are asked to rate the extent of similarity of different pairs of products (e. it is important to understand how one·s brand and those of competitors are perceived. we identify how products are perceived on two or more ´dimensions. cannot be as efficient as the operationally excellent firms and often cannot adapt their products as well to the needs of the individual customer. for example. This is useful when (1) the market researcher knows which dimensions are of interest and (2) the customer·s perception on each dimension is relatively clear (as opposed to being ´made upµ on the spot to be able to give the researcher a desired answer). Here. Repositioning involves an attempt to change consumer perceptions of a brand. Instead.µ Repositioning in practice is very difficult to accomplish. How similar. .technology. usually because the existing position that the brand holds has become less attractive. Nordstrom·s and Intel both must meet some standards of cost effectiveness. does maintain some level of customer service.. the computer then identifies positions of each brand on a map of a given number of dimensions. The computer does not reveal what each dimension means³that must be left to human interpretation based on what the variations in each dimension appears to reveal. Wal-Mart. In the similarity rating approach.g. A great deal of money is often needed for advertising and other promotional efforts. Treacy and Wiersema suggest that in addition to excelling on one of the three value dimensions. The emphasis. To effectively attempt repositioning. There are two main approaches to multi-dimensional scaling.

as in most things. It·s not a perfect definition. Adopted from Kotler on Marketing (click to enlarge) Marketing 101: Going back to basics In this really busy world. price. Preparing a very basic marketing plan can help us focus on targetting the right customers. In business. evaluation. the famous four P·s (product. it pays to occasionally take a step back and look at the bigger picture. set the best prices and so on. influencing demand. however. and profitably dominating markets in the process of creating customers. creating value.Definition By Craig Danuloff Yesterday. Philip Kotler and Peter Drucker told us that marketing is finding opportunity. targeting. It reflects what I continue to learn ² marketing is not a step or an activity. Plus it lacks any suggestion of what Kotler calls control (feedback. The Marketing Management Process. prioritize our marketing efforts. While that may be the world·s first mash-up definition. and promotion) and the almighty branding. place. because while it captures the broad concepts well it basically ignores a whole set of fundamental marketing tasks ² segmentation. positioning. without following basic marketing principles. STP: the starting point . it·s a process. this isn·t a process it·s an entire little universe.Marketing Defined . Jeez. attracting response. I like it. it's so easy to just dive right into the thick of things in our businesses. revision and improvement).

socio-economic status. go into each segment and divide each further. Segmentation Segmentation is just one way of saying that you need to identify your customer.g. The extreme here would be to go after a "niche" segment.). At this point. split individuals from businesses. The segment we choose will have a profound effect on everything else we do in our marketing efforts. Positioning . one should start this process before a product or service is ever brought to market. It can still be a worthwhile exercise for an existing product or service. less defined segment or a smaller more defined segment. Try to quantify how large those segments are.. Now. we are going for a larger. start slicing that customer grouping into smaller. age. Targeting The next step in the process is to look at the segments we've just created and make some decisions as to which segments of the market we are going to go after. Remember. more defined segments--hence. Ideally. interests and hobbies and so on. how reachable they are and how unique they are from one another (i. One could split individuals further by gender. is there considerable overlap from one to the next?). Targeting and Positioning. we're trying to find meaningful groups of potential buyers that will exhibit similar buying behavior.STP stands for Segmentation. how large is it. the term segmentation. As a review of this process is helpful in itself. When deciding between different market segments. then we can proceed to evaluate each of those segments. One of the first decisions to be made here will be whether to target a "mass" market or instead whether our marketing efforts will be more focused.e. fairly small segment.e. we want to try and identify the competition for that segment. how expensive will it be to reach it with advertising.) A nich market is just a term for a highly defined. we should try not to pigeon-hole ourselves by prematurely selecting segments. Now. Think of every possible customer that will buy your products or services. Our goal here is to identify opportunities. This is the starting point of your marketing plan. geographic location. Once we feel that we have subdivided the market finely enough. That is to say. It's a good idea to start big here. The main reason to go this way is that there will be less competition for those segment. the potential value of the segment (i. etc. (I'll deal with niche marketing in another post.e. We need to carefully evaluate the most appropriate route for our business. The general trend over the last decade has been to go after more defined segments.

will we sell directly to the customer or will we sell to distributors (or retailers) who will then sell to our customers? Where geographically will we sell our product? Do we sell entirely on. such as the stigma different price points carry. Price. That is to say. a combination of both? Bringing it all together You probably already have some or most of your marketing plan in your head. can it be altered so that it does? It's critical to match the right product with the customer. It's always good to take a step back and consider going back to basics. What do the people/firms in a segment want or need? If you are working with an existing product. This is sometimes referred to as marketing channels.line or in a traditional brick-and-mortar location? Or. This is where we will invoke another handy acronym the 4P's of marketing--Product. The important thing to keep in mind is that we can't lock ourselves into a cost plus profit margin way of thinking. Instead. Promotion. Product We need to focus our product towards our selected target(s). Here. The last part of our marketing plan will help define how we are going to "position" our product or service to our selected target market(s). Many books have been written on the subject of pricing alone. For instance. Price Pricing is one aspect of marketing that is an art. we need to think about how you will bring your product to market. mass mailings? Or. It makes little sense to target the same market with a similar product at the same price as our competitors. the internet. radio. We must consider many factors. Will you use commercials. it takes a fair amount of work before you get to this point. Promotion This is what most people think of when they hear the word marketing. we've segmented the market and chosen the segment(s) that we are going to go after.So. being too inexpensive sends a message that our product may be cheap and nasty. following this tried-and-true process can help you formalize your marketing strategy and can help you to identify holes in your business and it sometimes can help you identify opportunities that you might not have thought to exploit. and Place. MARKET SEGMENTATION . we should consider the price independently at first in terms of our competition and the value our offering brings to the customer. we also need to consider our competition here. a combination of these efforts? Place Lastly. However. If it doesn't. Promotion is simply how you intend to get the message to your customers about your offering. magazine advertisements. you need to make sure it fits your intended target market. As you can see though.

Implement of segmentation by optimizing the products/services for that segment . . Select which ones we are best off trying to serve.Segmentation. and positioning together comprise a three stage process Determine which kinds of customers exist. targeting.

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