Chapter 9

Identifying
Market Segments
and Targets

PP Presentation by
Dr. Shaikh Rafiqul Islam
Ph.D (Malaysia), MBA (Australia), M.Com(DU)
Professor & Chairman
Department of Marketing
Jagannath University &
Visiting Faculty NSU

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 INTRODUCTION
• To compete more effectively,
many companies are now embracing target
marketing. Instead of scattering their
marketing efforts, they’re focusing on those
consumers they have the greatest chance of
satisfying. Effective target marketing
requires that marketers:

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 INTRODUCTION
• 1. Identify and profile distinct groups of buyers
who differ in their needs and wants (market
segmentation).
• 2. Select one or more market segments to enter
(market targeting).
• 3. For each target segment, establish,
communicate, and deliver the right benefit(s) for
the company’s market offering (market
positioning)
Market segmentation, targeting, and positioning
are known as the ―STP‖ of marketing.
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CUSTOMER-DRIVEN MARKETING
STRATEGY

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 Bases for Segmenting Consumer
Markets
• Market segment
– A group of customers who share a similar set
of needs and wants

Geographic Demographic
segmentation segmentation

Psychographic Behavioral
segmentation segmentation

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 Geographic Segmentation
• Geographical units
– Nations, states, regions, counties, cities, or
neighborhoods
– Citibank provides different mixes of banking services in
its branches depending on neighborhood
demographics.
• Nielsen Claritas’ PRIZM(Potential Rating Index by Zip Markets)
– Education and affluence
– Family life cycle
– Urbanization
– Race and ethnicity
– Mobility
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Demographic Segmentation

Age & life-

Life stage
cycle stage

Race & Gender

culture

Generation Income

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 Demographic Segmentation
• Age and life-cycle stage
– Our wants and abilities change with age
• Life stage
– A person’s major concern (e.g., divorce)

The Honda Fit

targets young
Gen Y buyers
as well as
psychologically
young empty
nest parents.

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 Demographic Segmentation
• Gender
– Men and women have
different attitudes and
behave differently
• Income
– Income segmentation is
a long-standing practice

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 Demographic Segmentation

• Generation

Millennials (Gen Y) Gen X

born between 1977 and 1994 born between 1964 and 1978

Baby Boomers Silent Generation

born between 1946 and 1964 born between 1925 and 1945

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 Demographic Segmentation

• Race and culture

Hispanic Americans Asian Americans

African Americans LGBT

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 Psychographic Segmentation
• Buyers are divided into groups on the
basis of psychological/personality traits,
lifestyle, or values

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 MARKET SEGMENTATION
PSYCHOGRAPHIC
SEGMENTATION
Divides Buyers Into Different Groups Based on:

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 Market Segmentation
Psychographic Segmentation
Age and Life-Cycle Stage
• Pepsodent has different
toothpastes for different age
groups.

• Avoid stereotypes in
promotions.
• Promote positive messages.
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 Market Segmentation
Psychographic Segmentation

When Honda
markets its DIO
and Elite scooters,
it appeals to the
rebellious,
independent
ladies.

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 BEHAVIORAL
SEGMENTATION
• Needs and benefits
• Decision roles
– Initiator
– Influencer
– Decider
– Buyer
– User

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 MARKET SEGMENTATION
Segmenting Consumer Markets
Behavioral Segmentation
– Occasions
– Benefits sought
– User status
– Usage rate
– Loyalty status

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USER AND USAGE-RELATED
VARIABLES

Occasions User status

Attitude Usage rate

Buyer-
Loyalty
readiness
status
stage

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 BUYER-READINESS STAGES
• Some people are unaware of the product, some are aware, some
are informed, some are interested, some desire the product, and
some intend to buy.
• Displays a funnel for two hypothetical brands. Compared with Brand
B, Brand A performs poorly at converting one-time users to more
recent users (only 46 percent convert for Brand A compared with 61
percent for Brand B). Depending on the reasons consumers didn’t
use again, a marketing campaign could introduce more relevant
products, find more accessible retail outlets, or dispel rumors or
incorrect beliefs consumers hold.

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BUYER-READINESS STAGES

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Loyalty Status

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 MULTIPLE BASES
Combining different
behavioral bases
can provide a more
comprehensive and
cohesive view of a
market and its
segments.

Figure depicts one possible way to break down a target

market by various behavioral segmentation bases.

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 MARKET
SEGMENTATION
Requirements for Effective Segmentation

Accessible
Measurable Substantial

Differentiable Actionable

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 Requirements for Effective Segmentation
To be useful, market segments must rate favorably on five key criteria
• Measurable. The size, purchasing
power, and profiles of the segments can
be measured. e.g. 32.5 million left-
handed people in USA. Yet few
products are targeted toward them.
• Accessible. The market segments can
be effectively reached and served. e.g.
Distribution channels, advertising
media and sales force must be
accessible or reachable to the
segment.
• Substantial. The market segments are
large or profitable enough to serve. for
example, for an automobile
manufacturer to develop cars
especially for people whose height is
greater than seven feet.
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 Requirements for Effective Segmentation
To be useful, market segments must rate favorably on five key criteria

• Differentiable. The segments are

conceptually distinguishable and
respond differently to different
marketing mix elements and
programs. If men and women
respond similarly to marketing
efforts for soft drinks, they do not
constitute separate segments.
• Actionable. Effective programs can
be designed for attracting and
serving the segments. For example,
although one small airline
identified seven market segments,
its staff was too small to develop
separate marketing programs
for each segment.
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 PORTER’S FIVE FORCES MODEL
Michael Porter has
identified five forces that
determine the intrinsic long-
run attractiveness of a
market or market segment:
industry competitors,
potential entrants,
substitutes, buyers, and
suppliers. The threats these
forces pose are as follows

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 PORTER’S FIVE FORCES MODEL
• Threat of intense segment
rivalry—A segment is
unattractive if it already
contains numerous, strong,
or aggressive competitors.
e.g. The mobile phone
market has seen fierce
competition due to segment
rivalry.
• Threat of new entrants —
The most attractive segment
is one in which entry barriers
are high and exit barriers
are low. e.g. Telco business.
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 PORTER’S FIVE FORCES MODEL
• Threat of substitute
products —A segment is
unattractive when there are
actual or potential substitutes
for the product. e.g. Air travel
has severely challenged
profitability for Greyhound and
Amtrak.

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 Porter’s Five Forces Model
• Threat of buyers’ growing
bargaining power —A segment is
unattractive if buyers possess
strong or growing bargaining
power. Buyers’ bargaining power
grows when:
• They become more concentrated
or organized,
• The product represents a
significant fraction of their costs,
• The product is undifferentiated,
• Buyers’ switching costs are low, or
when they can integrate upstream.
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 Porter’s Five Forces Model
• Threat of suppliers’ growing
bargaining power—A segment
is unattractive if the company’s
suppliers are able to raise prices
or reduce quantity supplied.
Suppliers tend to be powerful
when they are concentrated or
organized, when they can
integrate downstream, when
there are few substitutes, when
the supplied product is an In the airline industry, only two significant suppliers
exist Airbus and Boeing
important input, and when the
costs of switching suppliers are
high.
• .
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Evaluating & Selecting the Market
Segments
• Figure 9.4: Possible Levels of
Segmentation

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Evaluating & Selecting the Market
Segments
Full Market Coverage - a firm
attempts to serve all customer
groups with all the products they
might need. Only very large firms
such as Microsoft (software
market), General Motors (vehicle
market), and Coca-Cola
(nonalcoholic beverage market)
can undertake a full market
coverage strategy. Large firms
can cover a whole market in two
broad ways: through
differentiated or undifferentiated
marketing.
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 Evaluating & Selecting the Market
Segments
• Multiple Segment Specialization
With selective specialization, a
firm selects a subset of all the
possible segments, each
objectively attractive and
appropriate. There may be little
or no synergy among the
segments, but each promises to
be a moneymaker. When
Procter & Gamble launched
Crest Whitestrips, initial target
segments included newly
engaged women and brides.
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Evaluating & Selecting the Market
Segments
• Single-Segment Concentration With single-segment
concentration, the firm markets to only one particular
segment. Porsche concentrates on the sports car
enthusiast.

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 Evaluating & Selecting the Market
Segments
• Individual Marketing The ultimate level
of segmentation leads to ―segments of
one,‖ ―customized marketing,‖ or ―one-to-
one marketing.‖As companies have
grown proficient at gathering information
about individual customers and business
partners (suppliers, distributors,
retailers), and as their factories are being
designed more flexibly, they have
increased their ability to individualize
market offerings, messages, and media.

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 Evaluating & Selecting the Market Segments
• Consumers increasingly value self-
expression and the ability to
capitalize on user-generated
products (UGP) as much as user-
generated content (UGC). MINI
Cooper’s online ―configurator‖
allows prospective buyers to
virtually select and try out many
options for a new MINI. Coke’s
Freestyle vending machine allows
users to choose from more than
100 Coke brands or custom flavors
or to create their own. All 127 Flavors from the Coke Freestyle Machine

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 Legal and Ethical Issues With
Market Targets
• Market targeting also can generate public controversy
when marketers take unfair advantage of vulnerable
groups (such as children) or disadvantaged groups (such
as inner-city residents) or promote potentially harmful
products. The cereal industry has been criticized through
the years for marketing efforts directed toward children.

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