Chapter 9 : Identifying Market Segments and Targets

Companies 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 strategic thinking about what
makes each segment unique and different that drive product consideration and preferences. Identifying and uniquely satisfying the
right market segments are often the key to marketing success.

Market segmentation
• Market segmentation divides a market into well-defined slices.
• Market segment consists of a group of customers who share a similar set of needs and wants.
• Market segmentation is the process of dividing the total market into relatively distinct homogeneous sub-groups of
consumers with similar needs or characteristics that lead them to respond in similar ways to a particular marketing
programme.
The assumptions underlying segmentation are:
• Not all buyers are alike, different customers seek different solutions for the same problem.
• Sub-groups of people with similar behavior, backgrounds, values and needs can be identified.
• The sub-groups will be smaller and more homogeneous than the market as a whole.
• It is easier to satisfy a small group of similar customers than to try to satisfy large groups of dissimilar customers.

Requirements for Effective Segmentation : Five conditions must exist for segmentation to be meaningful:
1. A marketer must determine whether the market is heterogeneous. If the consumers’ product needs are
homogeneous, then it is senseless to segment the market.
2. There must be some logical basis to identify and divide the population in relatively distinct homogeneous groups,
having common needs or characteristics and who will respond to a marketing programme.
3. The total market should be divided in such a manner that comparison of estimated sales potential, costs and profits
of each segment can be estimated.
4. One or more segments must have enough profit potential that would justify developing and maintaining a
marketing programme.
5. It must be possible to reach the target segment effectively.
Segmenting Consumer Markets : Forces/factors that Shape Consumer Market Needs
Consumer Market

Geographic Demographic Psychographic Behavioral 

• Age
• Country • Gender
• Personality trait • Purchase (Quantity)
• Region • Age & Family • occasion
lifecycle • Lifestyle/Values
• Division • Benefits sought
• City • Generation • User status
• population density • Income • Usage rate
• Climate • Occupation • Loyalty status
• Education • Attitude toward
•Qualification/ Product
Speciality • Brand Loyalty
• Marital Status • Awarness/Buyer
• Race raddiness stage
• Nationality

1. Geographic Segmentation: Geographic segmentation divides the market into geographical units such as nations, states,
regions, counties, cities, or neighborhoods.
Example: Exporters often segment the market as Western countries, African countries and  Commonwealth of Independent States(CIS)
etc.
Population Density : Urban, Suburban, Rural
2. Demographic segmentation: Dividing the market into segments based on variables such as age & life-cycle stage, gender,
income, occupation, education, religion, ethnicity, and generation.
 Gender segmentation Dividing a market into different segments based on gender. e.g. Gillette – Venus razor.
 Income segmentation Dividing a market into different income segments. e.g. Credit Cards
 Age and life-cycle segmentation Dividing a market into different age and life-cycle groups. E.g. Toothpaste brands such as
Colgate offer three main lines of products to target kids, adults, and older consumers.
 Generation : Millennials (or Gen Y): people born between 1977 and 1994
Gen X : born between 1964 and 1978, Baby Boomers : born between 1946 and 1964
Silent Generation : born between 1925 and 1945.
 Educational qualification & specialization : Degree’s & General physician, Cardiologist, Neurologist, Psychiatrist, Hepato.
3. Psychographic Segmentation: Psychographics is the science of using psychology and demographics to better understand
consumers.
 Social class: Relatively permanent and ordered divisions in a society whose members share similar values, interests, and
behaviors. The six commonly identified social classes are. Patterns of Buying Behavior varying in each class..
Upper-upper, Lower-upper, Upper-middle, Lower-middle, Upper-lower, Lower-lower.
 In psychographic segmentation, buyers are divided into different groups on the basis of psychological/personality traits,
lifestyle, or values.
 Lifestyle segmentation is particularly useful in case of product categories where the users’ self-image is considered as an
important factor, such as perfumes, beer, jewelry and other ego-intensive products.
Lifestyle Dimensions: Activities, Interests, Opinions, Demographics.
One of the most popular commercially available classification systems based on psychographic measurements is Strategic
Business Insight’s (SBI) VALS™ framework.
People within the same demographic group can exhibit very different psychographic profiles. There are people who are ambitious,
confident, aggressive, impulsive, modern, conservative, gregarious, loners, extrovert, or introvert etc.
4. Behavioral Segmentation: In behavioral segmentation, marketers divide buyers into groups on the basis of their
knowledge of, attitude toward, use of, or response to a product.
 Occasion segmentation : Festival sales , Vacation sales. Amazon great deal.
 Benefit segmentation: Schwinn makes affordable, quality bikes in seven major benefit groups: cruisers,
hybrid, bike path, mountain, road, electric, and kids.
 Decision Roles : People play five roles in a buying decision: Initiator, Influencer, Decider, Buyer, and User.
AkzoNobe, discovered that women made 60 percent of decisions on the brand of household paint, decided to
advertise its Dulux brand to women.
 User and Usage-related variables : Heavy user, Medium,Light . Regular user,Occational user, Non-user
 Buyer readiness stage : awareness-building advertising - Pap test to detect cervical cancer
 Attitude : Five consumer attitudes about products are enthusiastic, positive, indifferent, negative, and
hostile.
 Loyalty status: 1. Hard-core loyals—Consumers who buy only one brand all the time .
2. Split loyals—Consumers who are loyal to two or three brands .
3. Shifting loyals—Consumers who shift loyalty from one brand to another .
4. Switchers—Consumers who show no loyalty to any brand.
How Should Business Markets Be Segmented?
Business marketers generally identify segments through a sequential process. These are Business Market Segmentation bases;
1. Customer demographics (industry, company size) 2. Operating characteristics, 3. Purchasing approaches, 4.
Situational factors, and 5. Personal characteristics.
Market Targeting
The market segmentation process should begin with the benefits that customers are seeking in order to solve a
particular customer problem. Because different customers seek different solutions for the same problem, our first
challenge is to identify and understand the various customer needs that drive product consideration and
preferences. After we have grouped customers into needs-based segments, we can then ask, “What are the
demographics, usage behaviors, and psychographics that distinguish one group of customers from another ?”
Knowing the factors that differentiate one segment from another helps us identify the segments. Needs-based
segmentation provides the basic guidelines for product positioning strategies and marketing communications.
Roger the seven-step approach shown as below:
Steps in the Segmentation Process
1. Needs-Based Segmentation: Group customers into segments based on similar needs and benefits sought by customers in
solving a particular consumption problem.
2. Segment Identification: For each needs-based segment, determine which demographics, lifestyles, and usage behaviors make
the segment distinct and identifiable (actionable). The key descriptive factors that distinguish segment A from the other segments.
3. Segment Attractiveness: Using predetermined segment attractiveness criteria (such as market growth, competitive intensity,
and market access), Determine the overall attractiveness of each segment.
4. Segment Profitability: Determine segment profitability. to assess segment profitability, a business estimates the net marketing
contribution that is expected at a certain level of segment market penetration.
5. Segment Positioning: For each segment, create a “value proposition” and product-price positioning strategy based on that
segment’s unique customer needs and characteristics.
6. Segment “Acid Test”: Create “segment storyboard” to test the attractiveness of each segment’s positioning strategy.
Storyboards are a tool that marketing managers use to assess the merits of a proposed marketing communication and the strategy
behind the communication.Storyboards outlines a value proposition and positioning strategy that is designed to meet its segment’s
unique needs.
7. Marketing-Mix Strategy: Expand segment positioning strategy to include all aspects of the marketing mix: product, price,
promotion, and place. If target-segment customers are not adequately aware of the segment value proposition or cannot acquire
the product at preferred points of purchase, the segment strategy will fail. Segment value propositions and the product positioning
differences that are unique to each target segment.
Criteria for Effective Segmentation: Not all segmentation schemes are useful To be useful, market segments must rate favorably
on five key criteria:
 Measurable: The size, purchasing power, and characteristics of the segments can be measured.
 Substantial: The segments are large and profitable enough to serve. E.g.: Develop cars for people who are under four feet tall.
 Accessible: The segments can be effectively reached and served.
 Differentiable: Segments are distinguishable and respond differently to different marketing-mix elements and programs.
 Actionable: Effective programs can be formulated for attracting and serving the segments.
Evaluating and Selecting the Market Segments
In evaluating market segments, the firm must look at two factors: the segment’s overall attractiveness and the company’s
objectives and resources.
• How well does a potential segment score on the five criteria?
• Does it have characteristics that make it generally attractive, such as size, growth, profitability, scale economies, low risk?
• Does investing in it make sense given the firm’s objectives, competencies, and resources?
Possible Levels of Segmentation
1. FULL MARKET COVERAGE: Full market coverage, a firm attempts to serve all customer groups with all the products they might need.
Large Firm can Coverage in two broad ways: through differentiated or undifferentiated marketing. Focus on Basic need.
 Undifferentiated or mass marketing, the firm ignores segment differences and goes after the whole market
with one offer. Mass distribution backed by advertising, keeps down costs, win the price-sensitive segment.
e.g. Microsoft (software market), Example: For more than 90 years, Coca-Cola offered only one product version to the whole
market and hoped that it would appeal to everyone. Hamdard offers Rooh Afza.


 Differentiated marketing, the firm Design & sells different products to all the different segments of the market.
Higher Sales & cost e.g.: Intel does this with chips and programs for consumer, business, small business, networking,
digital imaging, and video markets.
2. MULTIPLE SEGMENT SPECIALIZATION : The marketer decides to enter several market segments and develops separate offers for
each . A firm can also attempt to achieve some synergy with product or market specialization.
Example: Maruti is producing different models of cars for various segments, Nike offers athletic shoes for different sports and
Coca-Cola and Pepsi are offering different versions of their soft drinks.
3. SINGLE-SEGMENT CONCENTRATION: Many companies succeed by producing a Notes specialized product aimed at a very focused
market or a niche. This strategy also appeals to firms with limited resources. The company targets a segment and goes for a larger market share
instead of a small share in a larger market segment.
Example: Recycled paper producers often focus on the market for greeting cards or wedding cards. Porsche concentrates on the sports
car enthusiast and Volkswagen on the small-car market.
4. INDIVIDUAL MARKETING: The ultimate level of segmentation leads to “segments of one,” “customized marketing,” or “one-to-one
marketing.” Customization combines operationally driven mass customization with customized marketing in a way that empowers consumers to
design the product and service offering of their choice.
e.g. MINI Cooper’s online “configurator” allows buyers to virtually select and try out many options for a new MINI.