4-1

Chapter Four

Strategic Market
Segmentation
 4-2

STRATEGIC
MARKET
SEGMENTATION
 Segmentation and
market-driven strategy
 Identifying market
segments
 Forming segments
 Finer segmentation
strategies
 Selecting the
segmentation strategy
 4-3

Segmentation and Market-

Driven Strategy
SEGMENTS

VALUE
OPPORTUNITIES

CAPABILITIES/
SEGMENT
MATCH

TARGET(S)

POSITIONING
STRATEGY
 4-4

From Mass Markets to Micro

Markets
OLD NEW

CONSUMERS Passively receive Empowered media users

whatever TV control and shape content
networks thanks to TiVo, iPod and
broadcast Internet

ASPIRATIONS To keep up with To standout from the

the crowd crowd

TV CHOICE Three networks Hundreds of channels

plus maybe a plus video on demand
PBS station

MAGAZINES Age of the big Age of the special interest

glossies: Time, magazine for every age
Life, Newsweek and affinity group

ADS Everyone hums Talking to a group of

the Alka-Seltzer one, ads go ever
jingle narrower

BRANDS Rise of the big, Niche brands, product

ubiquitous brands extensions and mass
from Coca-Cola customization mean many
to Tide product variations
 4-5

Identifying the Health and Beauty

Supplies Market Segments

Level of Product Illustrative

Need/Want
Competition Definition Competitors
Satisfied
Consumer
Generic Health & Enhancement
Product
Beauty Companies of Health &
Aids Beauty
Gillette,
Product Shaving Remington, Shaving
Type Bic
Equipment
Braun,
Norelco,
Product Electric Remington, Electric
Variant Razors Panasonic Shaving
 4-6

Exhibit 4-3

Market Segmentation
Activities and Decisions
Market to be
Segmented

Strategic
Decide How
Analysis
to Segment
of Segments

Finer Form
Segmentation Segments
Strategies
 4-7

Product Variant Segmentation

Product Type Segmentation

Generic Segmentation
 4-8

Segmentation
Variables

Purchase
Behavior

Buyers’
Characteristics
Needs/ of People/
Preferences Organizations

Use
Situation
 4-9

Illustrative
Segmentation Variables Industrial/
Consumer Organizational
Markets Markets
Age, gender, Type of industry,
income, size, geographic
family size, location, corporate
Characteristics lifecycle stage, culture, stage of
of people/ geographic
development,
organizations location,
lifestyle producer/
intermediary
Application,
Occasion, purchasing
importance of
procedure
purchase, prior
experience with
(new task, modified
product, user rebuy, straight
Use situation rebuy
status
Brand loyalty Performance
status, brand requirements, brand
preference,
preferences, desired
benefits sought,
Buyers’ needs/ quality, proneness features, service
preferences to make a deal requirements
Size of
purchase, Volume,
Purchase
frequency of frequency
behavior
purchase of purchase
 4-10

Requirements for
Segmentation

Identifiable
segments
Response Actionable
differences segments
Segmentation
Requirements

Stability Favorable
over time cost/benefit
 4-11

Approaches to Segment
Identification
IDENTIFIERS CUSTOMER
OF CUSTOMER RESPONSE
GROUPS PROFILE

Characteristics
of People and
 Use Situation
Organizations

 Buyers Needs
and Preferences
 4-12

Segment Dimensions
for Hotel Lodging
Services
 4-13

llustrative Example:
Gasoline Buyers
Higher-income, middle-aged
Road men, drive 25-50000 miles a year
… buy premium with a credit card 16% of
Warriors
… purchase sandwiches and drinks buyers
from the convenience store
… will sometimes use carwash
True Men and women with moderate to
high incomes, loyal to a brand and
16% of
Blues
sometimes a particular station … buyers
frequently buy premium, pay in cash
Generation Upwardly mobile men and women -
F3 (Fuel, half under 25 years of age - 27% of
Food & Fast) constantly on the go … drive a lot buyers
snack heavily from the convenience
store
Homebodies Usually housewives who shuttle
children around during the day and 21% of
use whatever gas station is based on buyers
town or on route of travel
Price Not loyal to brand or station and
rarely buy premium … frequently on 20% of
Shoppers
tight budgets. buyers
 4-14

Illustrative Consumer
Perception Map
Expensive

GROUP

• Brand E
II
• Brand A
• Brand B
GROUP
Low V High
Quality GROUP Quality
I
GROUP
III • Brand C
• Brand D
GROUP
IV

Inexpensive
 4-15

Finer
Segmentation
Strategies
 Logic of finer segments
– customized offerings
– diverse customer base
– close customer
relationships
 Finer segmentation
strategies
– microsegmentation
– mass customization
– variety-seeking strategy
 4-16

SELECTING THE
SEGMENTATION
STRATEGY
• Deciding how to segment
• Strategic analysis of market segments
• Customer analysis
• Competitor analysis
• Positioning analysis
• Estimating segment attractiveness
• Segmentation “fit” and implementation
Strategic 4-17

Analysis of
Market
Segments

Customer
Analysis

Financial and
Market Competitor
Attractiveness Analysis

Positioning
Analysis
 4-18

Exhibit 4-11

Segment Financial and

Market Attractiveness
Estimated Segment
($ million)
X Y Z

Sales* 10 16 5

Variable costs* 4 9 3

Contribution margin* 6 7 2

Market share ~ 60% 30% 10%

Total segment sales 17 53 50

Segment position:

Business strength High Medium Low

Attractiveness # Medium Low High

*For a two-year period.

~Percent of total sales in the segment.
#Based upon a five-year projection.
 4-19

Segmentation
“Fit” for Segment Attractiveness
and Internal Compatibility
Implementation
Internal Compatibility
High
Low

Attractive segments Attractive segments

High
that match with but with poor match
company with company
capabilities capabilities
Market Segment
Attractiveness

Unattractive segments
Unattractive segments
Low but with match to
that do not match with
company
company capabilities
capabilities