BM2207

BUILDING CUSTOMER SATISFACTION AND VALUE

Bases for Segmenting Customer Markets (Kotler, Keller, M., M., & T., 2019)
Segmentation, targeting, and positioning are also known as the “STP” of marketing. Firms cannot connect with
all customers in large, broad, or diverse markets. They need to identify the market segments they can serve
effectively. This decision requires a keen understanding of consumer behavior and careful thinking about what
makes each segment unique and different. Identifying and uniquely satisfying the right market segments are
often the key to marketing success.
Market segmentation divides a market into well-defined slices. A market segment consists of a group of
customers who share a similar set of needs and wants. The marketer's task is to identify market segments'
appropriate number and nature and decide which one(s) to target.
We use two (2) broad groups of variables to segment consumer markets:
 Some researchers define segments by looking at descriptive characteristics (geographic,
demographic, psychographic) and asking whether these segments exhibit different needs or product
responses.

For example, they might examine the differing attitudes of "professionals," “blue collars,” and other
groups toward, say, “safety” as a product benefit.

 Other researchers define segments by looking at behavioral segmentation (consumer responses to

benefits, usage occasions, or brands) and then seeing whether different characteristics are
associated with each consumer response segment.

For example, do people who want “quality” rather than “low price” in automobiles differ in geographic,
demographic, and/or psychographic makeup?
Descriptive Characteristics
A. Geographic Segmentation
Geographic segmentation divides the market into geographical units such as nations, states, regions,
counties, cities, or neighborhoods. The company can operate in one or a few areas or all but pay attention to
local variations. In that way, it can tailor marketing programs to the needs and wants of local customer groups
in trading areas, neighborhoods, and even individual stores.
In a growing trend called “grassroots marketing,” marketers concentrate on making such activities as
personally relevant to individual customers as possible.
Examples:
 Much of Nike’s initial success came from engaging target consumers through grassroots marketing
efforts such as sponsorship of local school teams, expert-conducted clinics, and providing shoes,
clothing, and equipment to young athletes.
 Citibank provides different banking services in its branches, depending on neighborhood demographics.
 Retail firms such as Starbucks, Costco, and Trader Joe’s have all found great success emphasizing
local marketing initiatives.
Some approaches combine geographic data with demographic data to yield even more detailed descriptions
of consumers and neighborhoods. Nielsen Claritas has developed a geoclustering approach called PRIZM
(Potential Rating Index by Zip Markets) that classifies more than half a million residential neighborhoods
into 14 distinct groups and 66 distinct lifestyle segments called PRIZM Clusters.

02 Handout 1 *Property of
 STI
 BM2207

The groupings take into consideration 39 factors in five (5) broad categories:
 education and affluence
 family life cycle
 urbanization
 race and ethnicity
 mobility
PRIZM has been used to answer questions such as:
 Which neighborhoods or zip codes contain our most valuable customers?
 How deeply have we already penetrated these segments?
 Which distribution channels and promotional media work best in reaching our target clusters in each
area?.
Marketing to microsegments has become possible even for small organizations as database costs decline,
software becomes easier, and data integration increases. Going online to reach customers directly can open
many local opportunities.
Those who favor localized marketing see national advertising as wasteful because it is too “arm’s length” and
fails to address local needs. Those against local marketing argue that it drives manufacturing and marketing
costs by reducing economies of scale and magnifying logistical problems. A brand’s overall image might be
diluted if the product and message are too different in different localities.
B. Demographic Segmentation
Demographic variables such as age, family size, family life cycle, gender, income, occupation, education,
religion, race, generation, nationality, and social class are popular with marketers because they are often
associated with consumer needs and wants. Another is that they are easy to measure. Even when we
describe the target market in non-demographic terms (say, by personality type), we may need the link back to
demographic characteristics to estimate the size of the market and the media we should use to reach it
efficiently.
1. Age and Life-Cycle Stage
The consumer wants, and abilities change with age and can be even more refined. Indirect age effects also
operate for some products.
Examples:
 Toothpaste brands such as Crest and Colgate offer three (3) main lines of products to target kids,
adults, and older consumers.
 Pampers divides its market into prenatal, new baby (0–5 months), baby (6–12 months), toddler
(13– 23 months), and preschooler (24 months+).
 McDonald’s segments by age and targets advertisements to different segments: the Ronald
McDonald advertisements are directed at children; advertisements for a quick breakfast before
work are aimed at adults.
Nevertheless, age and life cycle can be tricky variables. The target market for some products may be
psychologically young – for example, the Mini Cooper appeals to enthusiasts in several age groups.

2. Life Stage
People’s life stage defines a person’s major concern, which presents opportunities to marketers who helps
people cope with the accompanying decisions.

02 Handout 1 *Property of
 STI
 Only two pages were converted.
Please Sign Up to convert the full document.

www.freepdfconvert.com/membership