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Market Segmentation, Targeting for

Competitive Advantage

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What is Market
Segmentation?
 Market segmentation: The act of dividing a market
into smaller groups of buyers with distinct needs,
characteristics, or behaviors who might require
separate products and/or marketing mixes.
 How does market segmentation differ form product
differentiation?

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The Steps in Segmenting a
Market
 Goal: Identify marketing opportunities
 6 steps

 Choose a basis or bases for segmenting the


market
 Develop Segment Profiles

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Steps in Segmentation cont’d
 Step 3: Develop measure of segment attractiveness
 Size, growth, purchase frequency, current brand usage,
loyalty and long-term sales/profit potential
 Step 4: Select a target segment
 Review definition (most likely to buy…)
 Major decision that determines the marketing mix
 Step 5: Develop positioning for target segment

 Step 6: Design, implement, and maintain


appropriate marketing mix

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Levels of Market
Segmentation
Through Market Segmentation, Companies Divide
Large, Heterogeneous Markets into Smaller
Segments that Can be Reached More Efficiently And
Effectively With Products and Services That Match
Their Unique Needs.
Mass Marketing
Same product to all consumers
(no segmentation, i.e Coca-Cola)

Segment Marketing
Different products to one or more segments
(some segmentation, i.e. Marriott) 5
Levels of Market
Segmentation

Niche Marketing
Different products to subgroups within segments
(more segmentation, i.e. Standard or Luxury SUV’s)
Micromarketing
Products to suit the tastes of individuals and locations
(complete segmentation)

Local Marketing Individual Marketing


Tailoring brands/ promotions Tailoring products and
to local customer groups, i.e programs to the needs of
Sears individual customers, i.e. Dell
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Basic Market-Preference
Patterns
(a) Homogeneous (b) Diffused (c) Clustered
preferences preferences preferences
Creaminess

Creaminess

Creaminess
Sweetness Sweetness Sweetness
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The Segmentation Variables
 Geographic Segmentation
 Define– Market is divided into geographical units
like nations, counties, states, cities, regions etc.
 Four good reasons to use region:
 Adapt better to sluggish or competitive markets
 Data (via scanners, etc.) tells us what sells in a
region
 Regional brand preference data
 Faster to react to competition in a given region

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Demographic Segmentation
 Define– Market is divided into groups on the basis of
variables such as age, gender, income, ethnic
background, education, occupation, religion,race
etc.
 Age segmentation (know key characteristics)
 Importance of 38 million children < 9
 Teens- have allowances, specific preferences

 Young adults

 Baby Boomers

 Seniors

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Demographic Segmentation
cont’d
 Gender segmentation
 Clothing, cosmetics, personal care items,
magazines and footwear make heavy use of
gender segmentation
 Income segmentation
 Housing, clothing, cars, and food

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Psychographic Segmentation
 Buyers are divided into groups based on the following
variables
 Personality – habits, traits and attitudes
 Motives- economy, reliability, dependability–
status-related vs. rational motives
 Lifestyles- how do you spend your time and what
things do you have (i.e. H-D segments)

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Behavioral Segmentation

 Dividing the market into


groups based on variables
such as:
 Occasions

 Benefits

 User status

 Usage rate

 Loyalty status

 Readiness stage

 Attitude toward product

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Usage Rate
 Dividing the market by the amount of product bought
or consumed
 Heavy users, former, potential, first-time, light or irregular,
or medium
 Heavy users account for large % of product sales, so the
marketing mix…
 80/20 principle– 20 % of all customers generate 80% of
the demand
 Goal: create a heavy user (frequency/loyalty programs)
 Reward and retain heavy users

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Effective Segmentation

• Size, purchasing power,


Measurable
Measurable profiles of segments can
be measured.

• Segments must be large or


Substantial
Substantial profitable enough to serve.

• Segments can be
Accessible
Accessible effectively reached and
served.

• Segments must respond


differently to
Differential
Differential different marketing mix
elements & actions.

• Must be able to attract and


Actionable
Actionable serve
the segments.14
Segmenting Business Markets

Demographics
Demographics Business
Marketers Use
Operating Many of the
Operating Variables
Variables
Same Consumer
Variables, Plus:
Purchasing
Purchasing Approaches
Approaches

Situational
Situational Factors
Factors

Personal
Personal Characteristics
Characteristics
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Table 10-3: Major Segmentation Variables for
Business Markets

Demographic
1. Industry: Which industries should we serve?
2. Company size: What size companies should we serve?
3. Location: What geographical areas should we serve?
Operating Variables
4. Technology: What customer technologies should we focus on?
5. User or nonuser status: Should we serve heavy users, medium
users, light users, or nonusers?
6. Customer capabilities: Should we serve customers needing
many or few services?
Purchasing Approaches
7. Purchasing-function organization: Should we serve companies
with highly centralized or decentralized purchasing
organizations?
8. Power structure: Should we serve companies that are
engineering dominated, financially dominated, and so on?

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Segmenting Consumer and
Business Markets
 Business buyers seek different benefit
bundles based on their stage in
the purchase decision process.
1. First-time prospects
2. Novices
3. Sophisticates

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Segmenting Consumer and
Business Markets
 Rackman and Vincentis proposed a
segmentation scheme that classifies business
buyers into three groups
 Price-oriented customers
(transactional selling)
 Solution-oriented customers
(consultative selling)
 Strategic-value customers
(enterprise selling)

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Segmenting International
Markets
Geographic
Location

Factors Used
Cultural to Segment Economic
Factors International Factors
Markets

Political and
Legal Factors 19
Target Market:

 Target market: the group of people for whom


your company is designing, implementing
and maintaining a marketing mix in order to
meet the needs of that group (who is most
likely to buy your product)

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Five Patterns of Target Market
Selection
Single-segment Selective Product
concentration specialization specialization
M1 M2 M3 M1 M2 M3 M1 M2 M3
P1 P1 P1
P2 P2 P2
P3 P3 P3
Market Full market
specialization coverage
M1 M2 M3 M1 M2 M3
P1 P1
P = Product
M = Market P2 P2
P3 P3
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Segment-by-Segment
Invasion Plan
Customer Groups
Airlines Railroads Truckers
Product Varieties

Large
computers

Mid-size
computers

Personal
computers

Company A Company B Company


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Evaluating Market Segments
 Segment Size and Growth
 Analyze current sales, growth rates and expected
profitability for various segments.
 Segment Structural Attractiveness
 Consider effects of: competitors, availability of
substitute products and, the power of buyers &
suppliers.
 Company Objectives and Resources
 Company skills & resources needed to succeed in that
segment(s).
 Look for Competitive Advantages.

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Socially Responsible Target
Marketing
Smart targeting helps companies and consumers
alike.
 Target marketing sometimes generates
controversy and concern.
 Disadvantaged and vulnerable can be targeted.
 Cigarette, beer, and fast-food marketers have received
criticism in the past.
 Internet has come under attack because of the loose
boundaries and lack of control in marketing practices.

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