CAPE UNIT 2

MODULE 2

MARKET
Segmentation
MARKET SEGMENTATION
LEARNING OBJECTIVES:
At the end of this chapter students should be able to:
1. Define the term ‘segmentation’

2. Discuss the importance of segmentation

3. Outline the reasons for segmentation

4. Outline the benefits and drawbacks of segmentation

5. Explain the following concepts: niche, target and mass

marketing
6. Explain the criteria for effective segmentation

7. Discuss the bases of segmentation

8. Evaluate consumer buying behaviour

9. Describe business buyer behaviour

MARKET SEGMENTATION
Refers to the process of dividing the whole market into different
sub-groups according to their respective similar or homogeneous
characteristics. It is the process of identifying particular groups
that have similar needs and wants in the market. Market
segmentation is also known as differentiated marketing. A sub-
group of the whole market is referred to as a market segment. A
market segment consists of consumers who have similar
characteristics. Segmenting a market means that marketing
activities are focused on people who are more likely to buy,
meaning they are more cost effective and less likely to be a
waste of time.
Identification of Consumer Groups
The business should be able to determine the different consumer
groups in the market. To have a clear picture of the type of
consumers in a given market, the business must come up with a
consumer profile. Consumer profile refers to a quantified picture
of consumers for a firm’s products. Thus the consumers can be
grouped according to age, income levels, gender, social class,
religion and region.
Firms may divide their markets into different segments for
various reasons. Some of the common ones are:
1. To maintain a competitive edge by catering to the specific
needs of each segment
2. To capture the market of minority buyers who have
different attitudes and habits than those of the mainstream
3. To get a better understanding of the firm’s target market
4. To facilitate product differentiation as the firm aims to
reach all its potential customers
5. To improve profitability as firms try to sell to the different
income groups. The firm can make up for shortfalls in the
low-income market with an excess in the high-income
market
6. To broaden their customer base by including people from all
age groups, genders, etc.
 METHODS OF MARKET SEGMENTATION
a)Geographical Differences: refers to area wise market
segmentation. Consumers in different locations demand
different types of goods and services. Thus it will be ideal to
offer different goods in these areas. Markets can be divided
into districts, towns, provinces, rural etc. For example Woollen
and thick garments are not demanded in hot cities while the
demand is very high in Polar regions.
Geographic Market Segmentation Examples
ZIP code City
Country Radius around a certain location
Climate Urban or rural
Geographic segmentation can refer to a defined geographic
boundary (such as a city or ZIP code) or type of area (such as the
size of city or type of climate).
An example of geographic segmentation may be the luxury car
company choosing to target customers who live in warm climates
where vehicles don’t need to be equipped for snowy weather. The
marketing platform might focus their marketing efforts around
urban, city centers where their target customer is likely to work.
 METHODS OF MARKET SEGMENTATION
b)Demographic Differences: segmentation can be based on
the vital characteristic of population. E.g gender, age, income
distribution, religion, education etc.
Social class is usually determined by the levels of income earned
by an individual. Basically there are three categories of social
classes and these are:
1. Upper Class: skilled and experienced professional e.g C.E.Os
Directors, Managers, Lawyers, Doctors etc. They buy
expensive goods for prestigious reasons
2. Middle Class: Lower managerial workers e.g Teachers,
Nurses etc. They want quality goods at affordable prices
3. Lower Class: unemployed, pensioners, part-time workers etc.
The want inferior goods at low prices Age: Some products are
purchased by particular age groups eg. Walking frames, coke
zero
 METHODS OF MARKET SEGMENTATION
c) Behavioral Segmentation: market segmentation
according to the utilisation of the product. Thus consumers are
grouped according to the volume of usage, purchase occasions,
brand loyalty, price sensitivity etc. While demographic and
psychographic segmentation focus on who a customer is,
behavioral segmentation focuses on how the customer acts.
Behavioral Market Segmentation Examples
 Purchasing habits
 Spending habits
 User status
 Brand interactions
Behavioral segmentation requires you to know about your
customer’s actions. These activities may relate to how a
customer interacts with your brand or to other activities that
happen away from your brand.
A B2C example in this segment may be the luxury car brand
choosing to target customers who have purchased a high-end
vehicle in the past three years. The B2B marketing platform
may focus on leads who have signed up for one of their free
webinars.
d).Psychographic Factors: refers to market segmentation
according to mental status of the people. It includes culture,
personality attributes, motives, life style of the consumer. Life
style refer to the way in which one lives. Attitude refers to a
settled way of thinking or feeling or a position of the body
indicating a particular mental state. Personality refers to the
combination of characteristic or qualities that form an
individual’s distinctive character. Brands are generally
segmented according to the psychograph. Segmentation is
decided according to the advertisements and content shown. A
celebrity can be used for a BMW X5 car to make the advert
more appealing to the middle and upper classes.
For example, the luxury car brand may choose to focus on
customers who value quality and status. While the B2B
enterprise marketing platform may target marketing managers
who are motivated to increase productivity and show value to
their executive team.
HOW TO CREATE A MARKET SEGMENTATION STRATEGY
Now, you know what market segmentation is, why it’s
important, and the four types of market segmentation. It’s time
to put this information into practice. Use the following market
segmentation process to learn about your audience and find
new marketing and product opportunities.
1. Analyze your existing customers: If you have existing
customers, start your market segmentation process by
performing an audience analysis. An audience analysis allows
you to learn about your customers and begin to identify trends
that exist within your current customer base. Use these
market research questions to guide your research.
Interview your customers: Go right to the source and
conduct interviews with existing customers, past customers,
ideal customers, and prospects and leads. Ask questions that
help you fill in the details of all four types of market
segmentation.
Interview your sales team: If you have a sales team that
spends a lot of time working with customers, use them as a
resource. Interview them to find commonalities or trends they
often see while working with your customers.
HOW TO CREATE A MARKET SEGMENTATION STRATEGY
Refer to your business data: Your business likely has loads
of data that can help you get to know your customers. Use your
customer relationship management tools and point-of-sale
systems to find trends related to behavioral segmentation. Pull
data that shows how much customers spend, how often they
visit your store, and the type of products and services they buy.
Use your website analytics: Your website also has data that
can help you learn about your audience. Use Google Analytics
to find details related to all four types of market segmentation.
For example, you can learn about customer behavior by seeing
what pages users visit, how long they stay on the site, and what
referral sites led them to your site.
Research audience geography: Get details for graphic
segmentation and find out where your audience lives using
Research audience interests: Knowing your audience’s
interests can help you identify psychographic segments within
your customer base.
NICHE MARKETING:
This involves identifying and exploiting one segment of a larger
market. This segment can be one that has not been identified and
filled by competitors. It is a very small section of the market and that
section has got specific requirements e.g the market for professional
divers’ watches or high status products. It is suitable for small firms
and the goods are produced in small quantities. This segment is also
known as the target market. Target market refers to a specific group
of customers to which a business has decided to sell its products or
services. A target market can be defined according to age, gender,
income, taste, location etc. Allows businesses to develop
products/services to meet the needs of this specific group.
Benefits of Niche Marketing
1. Enables small firms to avoid competition from larger firms
2. By targeting niche markets, firms can focus on the needs of
customers in these markets
3. Direct marketing is possible
4. There is little competition on those markets
Limitations of Niche Marketing
1. Niche markets are small and can therefore only support a small
business
2. It is not suitable for a business selling many products It is more
risk than mass marketing
MASS MARKETING:
This involves selling the same products to the whole market with no
attempt to target separate groups. Mass marketing produces a
product that appeals to the whole market, so that everyone becomes
a customer, no matter what their age, job, income, wealth or gender.
Mass markets consists of a large number of customers for a
standardised product such as markets for food and grocery. Goods
are produced in large quantities.
Benefits of Mass Marketing
1. Enables a firm to operate in a large scale and enjoy economies of
scale (economies of scale refers to a decrease in the average costs
experienced when a firm operate on a large scale.)
2. It is less risk than niche marketing since the business will be
selling to a lot of consumers
3. A strong brand image and customer loyalty is reinforced and these
act as barriers to entry making if difficult for competitors.
Limitations of Mass marketing
1. The business can lose customers who will be looking for
specialised products
2. Direct marketing is not possible. Thus mass marketing is likely to
require very high advertising, promotion and distribution costs
and failure to succeed will be very expensive.
3. There is a lot of competition as the needs and wants of the large
market can be seen by many businesses.
TARGET MARKET
This involves breaking a market into segments and then
concentrating your marketing efforts on one or a few key
segments consisting of the customers whose needs and desires
most closely match your product or service offerings. It can be
the key to attracting new business, increasing sales, and
making your business a success.
There are different marketing strategies that can help the
marketing team to create effective campaigns and reach target
customers. The good examples of these approaches are
differentiate, Undifferentiated and concentrated marketing
strategies.
UNDIFFERENTIATED STRATEGY

Single
Marketing Mix

Organisation

Target Market
UNDIFFERENTIATED MARKETING
Undifferentiated targeting occurs when the marketer ignores
the apparent segment differences that exist within the market
and uses a marketing strategy that is intended to appeal to as
many people as possible.
For certain types of widely consumed items (e.g., gasoline, soft
drinks, white bread), the undifferentiated market approach
makes the most sense.
The benefits to undifferentiated targeting include
a wide audience,
lower (relatively) research and marketing costs, and
a higher potential for sales volume.
ADVANTAGES OF UNDIFFERENTIATID MARKETING
1. Wide audience: Since the target audience is broad, the
number of successful hits is high despite of the low
probability of a single person turning up.
2. Less risky: If all the efforts in one particular area goes in
vain, still the eventual loss is less compared to a loss in the
narrowly focused area.
3. Production cost per unit are low on account of having one
production run for homogeneous product.
4. Marketing research cost and advertising cost are relatively
low.
5. Higher potentials of sales volume and efficiency of scale in a
much larger market.
DIFFERENTIATED STRATEGY
Marketing Mix 1

Marketing Mix 2
Organisation

Target
Marketing
DIFFERENTIATED MARKETING
A differentiated marketing strategy is one in which the
company decides to provide separate offerings to each different
market segment that it targets. It is also called multisegment
marketing. Each segment is targeted in a particular way, as
the company provides unique benefits to different segments.
In other words differentiated marketing strategies are aimed at
two or more customer segments or markets. In differentiated
marketing, businesses and brands typically use separate
marketing approaches for their various audiences rather than a
single marketing strategy aimed at one target market. The goal
is to help the company increase sales and market share across
each segment it targets. For instance, a health supplement
brand might implement separate marketing strategies to reach
seniors, pregnant women or children to provide different
vitamin products to each age group. With differentiated
marketing, businesses typically implement various strategies
for each of their markets such as product offerings, price points
or means of product distribution.
ADVANTAGES OF DIFFERENTIATED MARKETING
It can fulfill a range of customer needs, rather than appealing to one
specific need. For instance, a dietary supplement brand can appeal to
customers who need specific nutritional supplements like Vitamin B-
12, in addition to children who may need only a general multi-
vitamin. This ability to fulfill diverse needs makes differentiated
marketing effective for businesses.
Expands customer reach: Businesses can reach more
customers by differentiating their approaches to selling their
products and services. For instance, a coffee shop can expand its
customer base from commuting professionals to college students on a
break between classes. When businesses differentiate their
marketing approaches and diversify offerings, they are able to reach
a greater number of ideal customers.
Increases total sales revenue: Businesses can increase their
revenue streams due to the advantage of offering their products and
services to multiple markets. As a business's revenue increases, so
does its profitability.
Enables businesses to adapt: Businesses can adapt to changes
within their industries, to product demands and to the overall
markets they appeal to. With more than one segment, product type
and level of service, businesses can ensure future revenue even if one
market becomes no longer viable.
Increases competitive advantage: This can result in
businesses beating out their competition because they are able to
provide a diverse range of products or services that fulfill a range of
needs.
DISADVANTAGES OF DIFFERENTIATED MARKETING
Some of the disadvantages of differentiated marketing include:
1. increased costs on advertising to reach each market
segment;
2. customers may respond differently;
3. limits in your business growth that may occur when
targeting small groups of customers;
4. a high level of competition among companies that provide
consumers with products at a lower cost.
CONCENTRATED STRATEGY
..

Single
Marketing
Mix

Organisation

Target Market
CONCENTRATED TARGETING
Concentrated marketing is a strategy which targets very
defined and specific segments of the consumer population.
An organization that adopts a concentration strategy gains an
advantage by being able to analyze the needs and wants of only
one segment and then focusing all its efforts on that segment.
Concentrated targeting is particularly effective for small
companies with limited resources as it does not require the use
of mass production, mass distribution, and mass advertising.
Since the company has focused all their efforts on one market
(essentially putting all their eggs in one basket), the firm is at
risk for failing if demand decreases.
ADVANTAGES AND DISADVANTAGES OF CONCENTRATED
MARKETING
Advantages
1. This type of marketing can be a great success for those
companies who have limited resources. These companies
cannot expand after a certain level and need a concentrated
efforts for a selected niche.
2. This marketing approach is effective for those companies
which are skilled and specialized in manufacturing products.
3 Those companies adopt concentration strategy can better
identify customer needs and wants due to its one are fewer
segments and one can better satisfy customers’ needs and
wants.

Disadvantages
1. Totally dependent on a single niche market segment
2. High developed and specialized market plan is required to
implement
3. Concentrated marketing companies should be more flexible
and respond to the changing consumer behavior in the target
market.
 WHAT IS CONSUMER BEHAVIOUR?
Consumer Behaviour is a branch which deals with the various stages
a consumer goes through before purchasing products or services for
his end use.
Why do you think an individual buys a product ?
 Need
 Social Status
 Gifting Purpose
Why do you think an individual does not buy a product ?
 No requirement
 Income/Budget/Financial constraints
 Taste
When do you think consumers purchase products ?
 Festive season
 Birthday
 Anniversary
 Marriage or other special occasions
There are in fact several factors which influence buying decision of a
consumer ranging from psychological, social, economic and so on.
The study of consumer behaviour explains as to:
Why and why not a consumer buys a product ?
When a consumer buys a product ?
How a consumer buys a product ?
CONSUMER BUYING PROCESS
The main objective of all firms is to produce a product that
consumers will demand. Consumers go through a series of stages
before making a decision to demand a product . These stages are as
follows:
a. Recognition: the consumer recognises that they need the product,
e.g., food, or they will be able to purchase an item such as a
washing machine, at a sale price.
b. Researching: the consumer then begins their own market research
to determine where the item is cheaper; for example, websites or
local stores.
c. Refining and reflecting: the consumer looks at alternatives and
begins to form an opinion that would be cost-effective.
d. Other viewpoints: if the purchase is an expensive one, the
consumer may get the opinion of other consumers, and any
additional information available.
e. Decision: the consumer is now in a position to make a decision on
whether to purchase the item and where.
f. Purchase: the item is then bought.
g. Evaluation: Does the item satisfy the consumer? Is it working
well? Does it fulfill the terms and conditions of purchase? For
example, after-sales services.
THE PURCHASING PROCESS
In order to ensure that consumers will demand their product,
producers have to ensure that the production department and
marketing department meet consumers’ demand. These are the
steps that can be followed:
a. Easy recognition: convey to consumers the benefits and
strengths of the product.
b. Researching: use market research to establish the strengths
of the product over its competitors.
c. Refining and reflecting: point out to consumers why they
should purchase your product (e.g. better guarantee and
after-sales service).
d. Branding: this helps to sell the product.
e. Purchasing: make the actual purchase of the item easy (e.g.
discount for cash purchase).
f. After purchase: create in the mind of the consumer that you
value them.
g. Review: where possible, maintain contact with the customer,
in order to ensure that the consumer is satisfied with the
purchase.
Factors influencing consumer behavior:
Cultural factors: Culture, subculture, social class
Social factors: Reference groups, family, roles, and status
Personal factors: Age/life-cycle stage, occupation, economic
situation, lifestyle, personality, and self-concept
Psychological factors: Motivation, perception, learning,
beliefs, and attitudes
Economic factors: