MARKETING Lesson 5

MARKET SEGMENTATION
DEFINITIONS
Market = people or organization with needs or wants and with the ability, and the
willingness, to buy.
Market segment = subgroup of people (consumer markets) or organizations (business
markets) sharing one or more characteristics that cause them to have similar product
needs.
Market segmentation = process of dividing a market into meaningful, relatively
similar, and identifiable segments or groups.
THE IMPORTANCE OF MARKET SEGMENTATION
Segmentation is a crucial marketing strategy for nearly all successful organizations.
Market segmentation enables marketers to tailor marketing mixes to meet the needs of
particular population segments. Segmentation helps marketers identify consumer
needs and preferences, areas of declining demand, and new marketing opportunities.
BASES FOR SEGMENTING CONSUMER MARKETS
Consumer goods marketers commonly use one ore more of the following
characteristics/bases to segment markets: geography, demographics, psychographics,
benefits sought, and usage rate. Each characteristic has its own descriptors for
segmentation.
Geographic segmentation
Geographic segmentation is the method of dividing markets based on descriptors such
as: region of the country or world, market size, market density, or climate.
Demographic segmentation
Demographic segmentation is the method of dividing markets based on demographic
variables, such as age, gender, income, ethnic background, and family life cycle.
Psychographic segmentation
Psychographic segmentation is the method of dividing markets based on personality,
motives, lifestyle, and geodemographics.
Personality reflects a persons traits, attitudes, and habits.
Regarding motives, marketers could appeal to consumers emotional, rational, and
status-related motives.
Lifestyle segmentation divides people into groups according to the way they spend
their time, the importance of the things around them, their beliefs, and education.
Geodemographic segmentation divides people into small geographic regions, such as
neighborhoods, based on the idea that people living in the same neighbor may have a
similar lifestyle and tend to buy the similar things. This approach can successful relies
on word of mouth promotion and on the idea that people may think this way: if my
neighbor bought that thing I should have one, as well.

Benefit segmentation
Benefit segmentation is the method of dividing markets based on the benefits
customers seek from the product.
Usage rate segmentation
Usage rate segmentation is the method of dividing, markets based on the amount of
product bought or consumed. For example, the 80/20 method or principle is
very often used. The 80/20 principle holds that about 20 percent of all
customers generate about 80 percent of the demand or revenues.
BASES FOR SEGMENTING BUSINESS MARKETS
The business markets consists of four broad segments: producers, resellers,
institutions, and government.
Business market segmentation variables can be classified into two major categories:
macrosegmenation variables and microsegmentation variables.
Macrosegmenation is the method of dividing business market into such general
characteristics as geographic location, type of organization, customer size, and
product use.
Microsegmnetation is the process of dividing business markets based on the
characteristics of decision-making units within a macrosegment.
STEPS IN SEGMENTING A MARKET

Select a market or product category

for study

Choose a basis or bases for

segmenting the market
Steps in segmenting a
market
Select segmentation descriptors

Profile and analyze segments

Select target markets

Subsequent marketing
activities
Design, implement, and maintain
appropriate marketing mixes

STRATEGIES FOR SELECTING TARGET MARKETS

We must keep in mind that:
1. the most effective way to satisfy needs and wants of customers is to have
specific marketing mixes for each of them, and
2. the most efficient way is to have only one marketing mix for all of them
3. segmentation is the trade-off between effectiveness and efficiency
4. a market segment is not the same with the target market
5. the target market is a particular market segment in which the marketers are
focused.
The three general strategies for selecting target markets are; undifferentiated,
concentrated, and multisegment targeting.
Undifferentiated strategy
Undifferentiated strategy is the marketing approach based on the assumption that the
market has no individual segments and thus requires a single marketing mix.
This strategy is appropriate when there is no competition.
Advantage: savings in production and marketing costs, because only one item is
produced and marketed.
Disadvantage: it makes the firm very susceptible to competitive forces when they
enter the market.
Concentrated strategy
Concentrated strategy is the marketing approach based on appealing to a single
segment of a market, called market niche.
This strategy is most appropriate for small firms for better competing with bigger
firms, and for firms that want to establish a strong position in a desirable market
segment.
Advantage: the best understanding of needs and wants of that particular segment.
Disadvantage: it violates the old adage dont put all your eggs in one basket,
therefore being risky.
Mutisegment strategy
Mutisegment strategy is the marketing approach based on serving two or more welldefined market segments, with a distinct marketing mix for each.
Advantage: grater sales volume, larger market share, and economies of scale in
manufacturing and marketing.
Disadvantage: higher costs.