Marketing Management

Dawn Iacobucci

© 2010 South-Western, a part of Cengage Learning

Marketing Segmentation

Chapter 2
Marketing Framework
Why Segment?

• Consumers needs and preferences vary

• It is impossible for firms to satisfy
everyone’s needs with a single offering
Discussion Question

• Can you think of a single product that

satisfies everyone’s needs/preferences?
– Consider the following:
• A 12 ounce can of Pepsi
• Magic Kingdom at Disney World
• A Ritz Carlton Hotel
What is Segmentation?

• Segmentation
– Breaking the heterogeneous market into
smaller, homogeneous markets

• Segment
– A group of customers who share similar
inclinations toward a brand
Groups of Customers
Groups of Customers

• Mass Marketing
– All customers are treated the same
• Customer needs are not met
• But…less expensive to implement

• One-to-one Marketing
– Each customer serves as own segment
• More expensive to implement
• But…customer needs are better met
Groups of Customers

• Marketing Segmentation
– Customers are broken into more
homogeneous groups
• Groups are small enough that customer
needs are met
• But…large enough to be profitable

• Niche marketing
– A segment is broken into smaller customer
groups with particular needs that the
company can serve well
• Falls between segmenting and one-to one
Segmentation Bases

• Marketers segment markets by

identifying variables(s) that help them
determine whether or not customers will
like their product

• Segmentation bases
– Factors that are utilized to group customers
Bases for Consumer Segmentation

• Demographic
– Easy to identify and commonly used
• But be certain that variable helps determine
customer needs/preferences
– Examples:
• gender
• age
• household composition
• lifestyle cycle
• education
• income, etc.
Bases for Consumer Segmentation

• Geographic
– Easy to identify and commonly used
• But be certain that variable helps determine
customer needs/preferences
– Examples
• country
• area of country
• climate
• urban vs. rural, etc.
Bases for Consumer Segmentation

• Psychological
– Harder to identify but maybe more insightful
in determining customer needs/preferences
– Examples
• attitudes
• knowledge and awareness
• wants and needs
• affiliations, e.g., political party
• traits, e.g., extraversion
• expertise and involvement, e.g., hobbies
• brand attributes sought, etc.
Bases for Consumer Segmentation

• Psychological, cont.
– VALS
• System based on the idea that self-
expression, ideals & achievement determine
customers’ product/brand orientation
– strivers, achievers, etc.
Bases for Consumer Segmentation

• Behavioral
– Cannot directly observe customers’
psychology but can observe their behaviors
• grocery scanner data, etc.
– Examples
• products purchased
• user status
• media habits
• loyalty
• frequency of usage, etc.
– 80/20: 80% of sales come from 20% of customers
Bases for B2B Segmentation

• Demographic
– Company size, NAICS industry, account
size, market share, number of employees,
etc.

• Geographic
– Country, sales force coverage, etc.
Bases for B2B Segmentation

• Type of Firm
– Non-profits, retailers, hospitals, degree of
formality and centralization, etc.

• Attitudes
– Care about price sensitivity, risk tolerance,
corporate culture, profitability, high vs. low
maintenance accounts, etc.
Discussion Questions
• Which survey question below would
show greater promise as a
segmentation variable? Why?
Segmenting the Market

• When segmenting the market,

marketers integrate two things
1. their knowledge of the marketplace with
2. appropriate customer data which gives
insight into similarities in customer
needs/preferences

• Cluster analysis is the research

technique typically utilized in market
segmentation
Effective Segmentation…

• Utilizes Appropriate Data

– Can you identify meaningful data?
– Can you obtain/afford access to the data?

• Allows Access to Customers

– Can you access the customers that meet
your data specifications directly?
• Is there a database?
– Can you access the customers indirectly?
• Are there activities they participate in, media they
frequently use, etc.?
Effective Segmentation…

• Has Profitability Potential

– Is the profitability potential sufficient?
• How frequently do customers purchase?
• How price sensitive are they?
• How deep ($) is their purchase?
• How much growth potential exists?
– Segments do not have to be large to be
profitable
– Be careful to not too narrowly define segments
• Always ask…Is the segmentation criteria
meaningful?
Effective Segmentation…

• Fits with Corporate Goals

– Does the segment align with the firm’s
strengths, market image, etc.?
– Is there limited competition for segment?

• Is Actionable
– Can you develop an actionable plan to
effectively target the segment?
– Can you visualize who the segment is,
where they are, what they do, etc.?
Strategies

• Breadth Strategy
– Reaching multiple segments with a single
product
Strategies

• Depth Strategy
– Serving one segment with multiple products
Strategies

• Tailored Strategy
– Customizing products for each segment
Discussion Question

• If you are selling cologne to a segment of

women and sales are flat, how would
you determine which way to expand?