Chapter 2

Market segmentation
Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

Chapter Objectives
 To define market segmentation  To review the uses of segmentation  To outline the nine main bases of segmentation  To understand the main segmentation approaches  To outline the criteria for effective market segments  To distinguish between concentrated and differentiated marketing
Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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What is market segmentation?
Market Segmentation is defined as: “The process of dividing a market into distinct subsets of consumers with common needs and selecting one or more segments to target with a distinct marketing strategy”

Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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Progression of market segmentation

Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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Who uses segmentation?

Cars Shoes Shampoo Watches

David Jones Big W Kmart Target

Charities Theatre Sports

Equipment Machinery Tools

Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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Uses of segmentation

Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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Nine main bases for segmentation

Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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Geographic segmentation
 Where the market is divided by location  Assumes that people who live in the same area share some similar needs and wants  Geographic markets can be easily reached by local media  Some firms use geographic segmentation to adopt a ‘localised’ strategy, however other firms adopt a ‘global’ strategy
Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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Possible geographic segmentation bases
Region
•Capital cities •Towns •Rural

Housing density
•High •Medium •Low

Location
•Inner-city •Suburban •Outer-urban

State
•NSW •Victoria •Queensland

Climate
•Hot •Cold •Wet
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Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

Demographic segmentation
 Demography refers to the identifiable and measureable characteristics of a population  Includes characteristics such as: age, income, marital status, education  Demographic information is very accessible and cost-effective to obtain  Demographic segmentation is one of the most popular ways to segment customer groups
Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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Possible demographic segmentation bases
Age
•12-17 •18-34 •And so on

Marital Status
•Single •Married •De facto, etc.

Occupation
•Professional •White-collar •Blue-collar

Income
•$20,001-$30,000 •$30,001-$40,000 •And so on

Education
•Secondary •TAFE •Bachelors, etc.

Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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Age
 Age is often a strong determinant of product choice  Health club/gym example...

Aged 18-34
Goal is to ‘look good’

Aged 35-54
To help ‘deal with stress’

Aged 55 and over
For ‘medicalphysical therapy’

Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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Age cohorts
 Age cohorts are born during the same period and travel through life together

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Examples include, ‘baby boomers’, Generation X and Generation Y

 Therefore, they ‘share’ similar events and general changes in lifestyle

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May include war, depression, the “1960’s”, and so on

 Age cohorts will generally hold the same interests through life
An example is they will probably enjoy the same style of music as they get older

Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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Segmenting age cohorts
 This is an example of segmenting the Baby Boomers age cohort...
“Looking

for balance”

“Confident

and living well”

•27% of cohort •Active, busy •Want more time to enjoy great experiences
“At

•23% of cohort •Big incomes, trendy •Like travel and luxuries
“Overwhelmed”

ease”

•31% of cohort •Home/family-based •Enjoy traditional life

•19% of cohort •Low incomes, worried about the future and finances •Looking for security and health
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Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

Sex/Gender
 Many products have been traditionally targeted at males or females only  Examples include:

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Cosmetics, shavers, tools, magazines

 However, traditional male/female roles in the household are not as clearly defined as in the past

Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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An example of changing sex roles
More women enter (or remain in) the workforce Fathers take more childcare related activities

A large increase in dual income families

Families become time-poor

Traditional household sex roles need to change
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Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

Marital status
 Many decisions are made on the behalf of a households  Therefore, marital status is an important indicator of how household purchases are made  In recent years, single one-person households have become an attractive segment

Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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Income, education, occupation
 These three demographics variables tend to be highly interrelated A high level of education provides… The opportunity for a better job, which.. Is likely to generate a higher income

Note: These three variables are often combined in a composite index to measure social class of the consumer
Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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Income, education, occupation
 Income is important because it provides an indication of the consumer’s ability to purchase the product  By combining income with education and occupation (a social class measure), an understanding of the consumer’s lifestyle can be determined  Sometimes the occupation variable is used as a proxy measure of social class
Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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Possible psychological segmentation bases
Needs-

Risk perception
•Low •Moderate •High risk

motivation
•Self-worth •Affection •Safety

Personality
•Extrovert •Feeling •Intuitive

Involvement
•Low •High involvement

Attitudes
•Positive •Negative •Neutral
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Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

Psychographic segmentation
 Psychographic research is also referred to as ‘lifestyle analysis’  Often considers consumers’ AIO’s

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AIO = activities, interests, opinions

 Used to help structure appropriate marketing messages
Activities
•Work •Internet •Sport

Interests
•Home •Fashion •Food

Opinions
•Politics •Social events •The future
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Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

The profile of the ‘techno-road-warrior’
 On the internet 6+ times per week  Sends/receives more than 15 emails per week  Regularly visits websites to gather information  Often buys personal items over the internet  May buy shares or book travel over the internet  Earns $100,000+ per year  Belongs to several reward programs
Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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Figure 2.6

Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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Possible sociocultural segmentation bases
Culture
•Australian •Italian •Vietnamese, etc.

Religion
•Jewish •Catholic •Muslim, etc.

Subculture
•Asian •Indigenous Australian, etc.

Social Class
•Lower •Middle •Upper

Family life cycle
•Empty nest •Young married •Single, etc.

Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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Family life cycle
 Based on the premise that families go through similar phases and will have similar needs during those phases  As a simple example...

Singles
Need first car, basic furniture, travel

Young Married
First home, household goods, finance needs

Full Nest
Baby needs, child-care, 2nd car

Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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Culture and sub-culture
 Cultures share common values, beliefs and customs  Very important for success in international marketing  Important sub-cultures in Australia include...

-

Greek-Australians Italian-Australians Asian-Australians The elderly

Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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Possible use-related segmentation bases
Usage Rate
•Heavy •Medium •Light users

Awareness Status
•Enthusiastic •Interested •Unaware

Brand Loyalty
•Strong •Some •None
Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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Rate of usage
 Non-users  Light  Medium  Heavy users  In the beer market, the group of heavy users account for around 30% of consumers, but over 70% of consumption  Therefore, heavy users are an attractive (but competitive) target market  Also need to consider whether non-users are a viable segment

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Should we attract new consumers (non-users) , or try to win heavy users from competition?
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Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

Possible use-situation segmentation bases
Time
•Morning/night •Leisure •Work

Location
•In-store •At work •At home, etc.

Objective
•Personal •Gift •Fun, etc.

Person
•By self •With friends •With family, etc.

Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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User-situation segmentation
 Consumers will often make different decisions in different situations (or occasions)  Consider...

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Wine for self, or as a gift Food when in a hurry, or when have 1-2 hours free

 Occasions are a key marketing opportunity
Mother’s Day St Valentine’s Day Easter
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Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

Benefit segmentation
 Benefit (or needs-based) segmentation is based on providing/communicating the major benefits that consumers are seeking  A good example is the toothpaste market...
Close-up
Social appeal of bright teeth

Aim
Nice taste, so kids will brush their teeth

Colgate Tartar Control
•Healthy, plaguefree teeth

Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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Hybrid segmentation

Demographics
Possible

Possible
hybrid

Psychographics

hybrid

Geographic

Hybrid segmentation uses multiple bases to generate far more insightful and powerful information about target markets
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Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

Figure 2.12: VALS segments
•Most Resources
•Principle Oriented •ACTUALISERS •Status Oriented

TM

SRIC-BI

•Action Oriented

•FULFILLEDS

•ACHIEVERS

•EXPERIENCERS

•BELIEVERS

•STRIVERS

•MAKERS

•Low Resources

•STRUGGLERS
Reprinted with permission of SRI Consulting-Business Intelligence

Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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Criteria for market segments
Stability Identification
Able to identify and measure the characteristic Segment is stable in terms of needs, demographics and psychological factors

Sufficiency
Sufficient size and profitability of segment

Accessibility
Able to access and reach the segment in an economical way
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Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

Implementing segmentation strategies
 Target one or more segments? Differentiated marketing
•Two or more segments, with a different marketing mix •For stronger, more established, firms •Used to defend the traditional markets of the firm

Concentrated marketing
•One segment only •Good for small firms •Good for firms new to the industry

Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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Countersegmentation
 When target markets become less viable, or the firm’s resources are too stretched  Countersegmentation is when a firm combines two or more segments together  These combined segments still need a common underlying need or similarity

Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

36

Summary
 The definition of market segmentation  The uses of segmentation  The nine main bases of segmentation  An outline of the main segmentation approaches  The criteria for market segments  The difference between concentrated and differentiated marketing
Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia

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