Segmentation

Geographic Segmentation
• Nations, States, regions, countries, cities,
neighborhoods
• One of the segmentation variables relevant for
marketers in South Asia is the division of rural and
urban areas
• They differ in literacy levels, income, spending
power, and availability of infrastructure such as
electricity, telephone network, and roads; as well as
social and cultural orientations of people, their
buying patterns and habits
 Demographic segmentation
• Age, family size, family life cycle, gender,
income, occupation, education, religion, race,
generation, nationality, and social class
• Age and life-cycle stage: Johnson & Johnson’s
baby soap and baby talcum powder – products
for infants and children
• The magazine “magic pot” published by the
Malayala Manorama group in India is targeted
toward children
• Life stage: It defines a person’s major concern
such as getting married, deciding to buy a home,
sending the child to the school, planning for
retirement
• Gender: Van Heusen and Allen Solly which were
primarily concerned with men’s clothing, have
launched their range of apparel for women
• Income : Nirma washing powder launched
lowest-price detergent for middle-income people
• Generation: Different generation has different
roles in buying different products
• Social class: Social class has a strong influence
on preferences in cars, clothing, home
furnishings, leisure activities, reading habits
etc.
 Psychographic segmentation
• Science of using psychology and demography to understand
customers better
• People within the same demographic group can exhibit
varied psychographic traits
• Religion has a significant effect on values and lifestyles with
respect to food habits and dress codes
• Eg. Adapting McDonald’s menu to suit Indian customers’
needs, serving Halal meat which is a must for Muslims
• Another example; Titan watches – Raga, Nebula – ornate
ones, Fastrack – mainly for the youth, Sonata – affordable
watches with good looking designs
 VALS segmentation system
(Source: http://www.strategicbusinessinsights.com/vals/ustypes.shtml)
 About VALS framework
• Horizontal dimension – customer motivation
• Vertical dimension – consumer resources
• Primary motivations for customers are
– Ideals: those guided by knowledge and principles
– Achievement: those who wish to demonstrate
success to their peers
– Self-expression: those who desire physical activity,
variety and risk
 Groups with High Resources
• Resources that form the higher group are
– Innovators: successful, sophisticated, active and have
interests for niche products
– Thinkers: mature, satisfied & reflective people. They seek
functionality& durability in products
– Achievers: successful goal oriented people who focus on
career and family and wish to demonstrate success to
peers
– Experiencers: young, enthusiastic people who seek
variety and entertainment, also spend more on fashion,
entertainment and socializing
 Groups with Lower Resources
• Resources that form the lower group are
– Believers: conservative, conventional and traditional people and
prefer familiar products and are loyal to established brands
– Strivers: Trendy, fun loving people who are resource
constrained. Try to emulate purchases of those with greater
wealth
– Makers: practical, down to earth, self-sufficient people who seek
products only with a practical purpose
– Survivors: Elderly, passive people who are least concerned
about change. They are loyal to their favorite brands.
• Marketers can apply these VALS segments for efficient
marketing planning
 Behavioral segmentation

• Behavioral variables:
– Occasions – greeting cards which are occasion specific
– Benefits – Shampoos which address diverse benefit segments
– User status – nonusers, ex-users, potential users, first-time
users and regular users and contact each one with a different
marketing strategy. Market share leaders tend to attract
potential users and smaller firms try to attract current users
from the market leader
– Usage rate – light, medium, heavy; heavy users account for
the significant proportion of revenue earned and they have to
be retained by offering good schemes
 Buyer-readiness stage
• A marketing funnel is employed by marketers
to characterize how many people are at
different stages – unaware, aware, informed,
interested, desire and intend to buy and how
many have been converted from one stage to
the other
• Brand B in the next diagram does not perform
well when compared to Brand A at converting
one time triers to more recent triers
 Buyer readiness stage – brand funnel
Brand A

9 65 46 62 67 50
6
6 % % % % %
3 2 1 1
9 8 2 6
Aware Ever- Recent Occasional Regular Most
tried trial user user often Brand B
used

9 76 61 71 75
7 62
7 % %
4 4 % 3
% %
2 1
5 2 4 5

Aware Ever- Recent Regular Most

Occasional
tried trial user user often
used
 Loyalty status
• Hard core loyals – who buy only one brand all the
time, may be because of habit, indifference, low price,
high switching cost or unavailability of other brands
• Split loyals – who are loyal to 2 or 3 brands
• Shifting loyals – who shift loyalty from one brand to
the other
• Switchers – who show no loyalty to any brand
• Loyalty programs tend to reduce customers’
propensity to switch brands
Behavioral segmentation breakdown

Target Market

Unaware Aware
 Conversion Model
• Measures the strength of consumers’
psychological commitment to brands and their
openness to change
• Segments users of a brand into 4 groups based on
strength of commitment, from low to high, as
follows;
1. Convertible – most likely to defect
2. Shallow – uncommitted to the brand, may switch
3. Average – committed but not strong, unlikely to
switch brand in the short term
4. Entrenched – strongly committed, highly unlikely to
switch
 Conversion model
• This model classifies nonusers of brands into 4 groups
1. Strongly unavailable – unlikely to switch brand, strongly
committed to their current brands
2. Weakly unavailable – preference lies with the current brand but
not very strong
3. Ambivalent – attracted to new brands as they are to their current
brands
4. Available – most likely to be acquired in the short term
• The model suggests focusing on customer relationship and
involvement with products and product categories can often
be revealing as to where and how the firm should market to
consumers
 Bases for segmenting business markets
• Demographic • Situational factors
1. Industry 1. Urgency
2. Company size 2. Specific application
3. Location
3. Size or order
• Operating variables
• Personal characteristics
1. Technology
1. Buyer seller similarity
2. User or nonuser status
3. Customer capabilities
2. Attitude towards risk
• Purchasing approaches 3. Loyalty
1. Purchasing function of the
organization
2. Power structure
3. Nature of existing relationship
4. General purchasing policies
5. Purchasing criteria
 Market targeting
Needs based market segmentation approach
1 Needs based Group customers into segments based on similar needs and
segmentation benefits
2 Segment For each need based segment, determine which demographics,
identification lifestyles and usage segments which make the segments
identifiable

3 Segment Use predetermined segment attractiveness such as market

attractiveness growth, market access and determine the attractiveness of each
segment

4 Segment profitability Determine segment profitability

5 Segment positioning Create a value proposition for each segment and product price
positioning strategy on that customers unique needs and
characteristics

6 Segment ‘acid test’ Create segment storyboard to test the attractiveness of each
segment’s positioning strategy
7 Marketing mix Expand segment positioning strategy to include all aspects of
strategy marketing mix – product, price, promotion and place
 Effective segmentation criteria
• Market segments must rate favorably on 5 key criteria
1. Measurable – size, purchasing power and characteristics
of segments can be measured
2. Substantial – segments are large and profitable enough
to serve
3. Accessible – segments can be reached effectively
4. Differentiable – segments are conceptually
distinguishable and respond differently to different
marketing mix programs. Else they should not be
considered as different segments
5. Actionable – effective programs can be formulated for
attracting and serving the segments
 Evaluating and selecting the market
segments
• Single segment concentration
– Firm gains strong knowledge of segment’s needs and
creates a strong market presence
– Firm enjoys operating economies through specializing its
production, distribution and promotion e.g. a specialty
hospital
– But the risks are, market segment can turn sour and
competitor may invade
– Hence companies concentrate on more than one segment
– Companies can try to operate in supersegments rather than
isolated segments which have some exploitable similarity
• Selective specialization
– A firm selects a number of segments each objectively
attractive and appropriate’
– May be little or no synergy among the segments but
are moneymakers
– This is a multi segment strategy to diversify risk
• Product specialization
– Firm makes a product and sells it to different market
segments
– Firm builds a strong reputation in that particular
product area e.g. microscope manufacturer selling to
university, government and commercial laboratories
• Market specialization
– A firm concentrates on serving a particular customer group
– Has a strong reputation in serving the group and also becomes a
channel for additional products
– The risk is customer group may suffer budget cuts or may shrink
in size
• Full market coverage
– Firm attempts to serve all customer groups with all the products
they might need e.g. Microsoft, Coca-cola
– Undifferentiated marketing – firm ignores market differences and
goes after the whole market
– Differentiated marketing – firm operates in different market
segments and designs different products for each segment e.g.
Titan. This increases the total sales rather than undifferentiated
marketing but also increases the cost of doing the business
 Additional conditions in evaluating and
selecting segments
• Segment by segment invasion plans
• Ethical choice of market targets
– Marketers must target segments carefully to avoid
backlash
– E.g. elderly customers do not want them to be
labeled as old and hence would avoid products
which explicitly tell their age
 Porter’s Five forces determining structural
attractiveness of a market or market segment

Potential entrants
(Threat of mobility)

Industry
Suppliers competitors Buyers
(Supplier (Segment rivalry) (Buyer
power) power)

Substitutes
(Threat of
substitutes)