Market Segmentation

A fundamental principle of marketing

• In the past, segmentation has been largely used as

a guiding conceptual principle for developing
marketing plans and strategies rather than a call
for empirical data analysis.

• Today, some form of quantitative measurement is

typically required if you want to segment.

• Segmentation is facilitated by the computer and

other information technology.

• However, raw data are not segments, only the

building blocks of segmentation.
Definition
Segmentation:

“Aggregating
Although not all these consumers prospective buyers
are completely alike, they share into groups that (1)
relatively similar needs and wants have common
Marketing action: involves efforts, needs and (2) will
resources, and decisions--product, respond similarly to
distribution, promotion, a marketing
and price
action.”
The Principle of Segmentation

“It is more important to reach the people who

count than to count the people you reach.”
•Based on the believe that individuals and
businesses have differences.
•Defining and targeting segments is a way
to leverage knowledge about individuals’
or companies’ differential responses.
MARKET SEGMENTATION LOGIC
 Markets consist of buyers, and
buyers differ in one or more
respects, including...

• Wants
• Resources
• Buying attitudes
• Buying practices
• Geographical locations
Segmentation Variables
There is no single way to segment a market. A
marketer has to try different segmentation
variables, singly and in combination.

 Geographics
 Demographics
 Psychographics
 Purchase Behavior
 Category Networking
 Different Segmentations of a Market

• • •
• • • •
• • • •
• •
Complete
No market a• Segmentation
Segmentation b
a• •b •
a• •b
1• 1• • Market Segmentation • 1a•
• 1• 2b
by age classes A & B 1b • •
2• •3 • •
2• 3a 3b
Market Segmentation Multi-dimensional
by Income Classes Market Segmentation
1, 2, and 3 By income-age class
 Basic Market-Preference Patterns
Ice Cream Preference Example
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••••••••••••••••
• • • • • • • • • • •

Creaminess
• • • • • • • • •
Creaminess

Creaminess
•••••••••••••••
••••••••••
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• • • •
• • •

• • • • • • •
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Sweetness Sweetness Sweetness

Homogeneous Diffused Cluster

Preferences Preferences Preferences
 Purchase Behavior
Buyers are divided into groups on the basis of their
knowledge, attitude, use or response to a product.
 Use occasion
 Regular occasion, special occasion
 Benefits sought
 Quality, service, economy
 User status
 Nonuser, ex-user, potential user, first-time, regular user
 Loyalty status
 None, medium, strong, absolute
 Readiness stage
 Unaware, aware, informed, interested, desirous, buyer
 Attitude toward product
 Enthusiastic, positive, indifferent, negative, hostile
 SEGMENTING BUSINESS MARKET

DEMOGRAPHIC: Industry, Company size, Location.

OPERATING VARIABLES: Technology, User or Non-user status,
Customer capabilities.
PURCHASING APPROACHES: Purchasing function organization,
Power structure, Nature of existing relationships, General
purchase policies, Purchasing criteria.
SITUATIONAL FACTOR: Urgency, Specific application, Size of
order.
PERSONAL CHARACTERSTICS: Buyer-seller similarity, Attitudes
towards risk & Loyalty.
BUSINESS BUYERS can be FIRST TIME PROSPECTS, NOVICES,
SOPHISTICATES.
INDUSTRIAL BUYERS can be PROGRAMMED, RELATIONSHIP,
 SEGMENTING CONSUMER MARKET
GEOGRAPHIC SEGMENTATION :Nations, states, regions,
countries, cities or neighborhood.
DEMOGRAPHIC SEGMENTATION : Based on age, family size,
family life cycle, gender, income, occupation, education,
religion, race, generation, nationality & social class.
PSYCHOGRAPHIC SEGMENTATION: Based on Lifestyle, value &
personality.

BEHAVIORAL SEGMENTATION: On basis of decision roles,

occasions, benefits, user status, usage rate loyalty status,
readiness stage, attitude towards product.

MULTI-ATTRIBUTE SEGMENTATION (GEOCLUSTERING):

Combining several variables for identifying smaller better
defined target group.
Requirements for Effective
Segmentation
Measurability
The degree to which the size and purchasing power
of the segments can be measured. Some segments
are hard to measure. (Teen smokers who are
rebelling)
Accessibility
The degree to which the segments can be
effectively reached and served. (Perfume and single
women who frequent bars late at night.)
Substantiality
The degree to which the segments are large,
homogenous, and/or profitable enough. (Cars for
people who are 4 feet tall)
Actionability
The degree to which effective programs can be
formulated for attracting and serving the segments.
(Airlines with small staff serving seven segments.)
Segments--Examples (1)
Air Travel
Business/Executive: Inflexible; relatively
price insensitive (Small number of people, but
travel often)
Leisure Traveler/Student: Relatively
flexible; very price sensitive (other methods of
travel--e.g., bus, car, train--are feasible; travel
may not be essential) (Very large segment)
Comfort Travelers: Comfort (e.g., space,
food) important; willing to pay (Small segment)
Examples (2)
SEGMENTATION FOR
COSMETICS
Over the last decade, women have become
more confident and the negatives attached to
a well-dressed woman are on the wane.
People have accepted color cosmetics as an
essential part of daily grooming.
The color cosmetics market can be
broadly divided into two segments:
* Organized sector dominating 36%of the
market.
* Unorganized sector catering to 64% of the
market
The segments that are targeted are as follows:
* Age
Youth segment (15 - 24yrs): Elle 18
Core target (24+): Lakme Radiance
* Purchasing power
Affluent segment: Aviance, Orchids
Middle segment: Lakme Radiance
Lower segment: Lakme does not exactly
cater to the lower segment but the Elle-18
range it offers is low-priced and hence can
satisfy this end of the market also.
 International
Market Segmentation

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Introduction

Variation in customer needs is the primary

motive for market segmentation.
Most companies will identify and target the
most attractive market segments that they can
effectively serve.
In global marketing, market segmentation
becomes especially critical because of wide
divergence in cross-border consumer needs and
lifestyles.

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Introduction (contd.)

Once the management has chosen its

target segments, management needs to
determine a competitive positioning
strategy for its products.

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 Reasons for International Market
Segmentation

Segments ideally should possess the

following set of properties:
Identifiable
Sizeable
Accessible
Stable
Responsive
Actionable

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 Reasons for International Market
Segmentation
Country Screening
Global Market Research
Entry Decisions
Positioning Strategy
Resource Allocation
Marketing Mix Policy
Balance between standardization and customization

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 Bases for Country Segmentation

 Demographics
 Demographics variables are among the most
popular criteria.
 Socioeconomic Variables
 Caveats in using per capita income as an
economic development indicator:
 Monetization of transactions within a
country

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 Bases for Country Segmentation
Gray and Black Market sections of the
economy
Income disparities
Purchasing Power Parity (PPP) criteria
Socioeconomic Strata (SES) Analysis
Human development index (HDI) classification
Behavior-Based Segmentation

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Bases for Country Segmentation
Lifestyles
Global Values Segments; the survey investigated
1000 consumers in 35 countries (source: Robert
Starch Worldwide):
Strivers (23 percent)
Devouts (22 percent)
Altruists (18 percent)
Intimates (15 percent)
Fun Seekers (12 percent)
Creatives (10 percent)

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