Market Segmentation

Consider
1. 2.

the role of segmentation in marketing strategy types of market segmentation in

consumer markets B2C industrial B2B

3. 4. 5. 6.

criteria & bases for segmenting consumer markets. the segmentation process & basic strategies positioning & repositioning factors behind segmentation strategy choices.

Overview

discover needs/wants of consumer groups to develop specialised products to satisfy group needs identify the best media for advertising related concepts (STP)

Segmentation (subsets with similar needs) Targeting (which segment to aim for) Positioning (the product in the mind of the customer)
2

Target Market Analysis

What market segments are we choosing to serve Why? How are these segments evolving? What new segments are emerging?

Mass marketing?

econ of scale clear segment a Niche a Locality an Individual

3

Micromarketing

Concentrated (niche) & micro-marketing

Niche commit all marketing resources to serve a single market segment Attractive to small firms with limited resources and to firms offering highly specialized goods and services Micro-marketing target potential customers at a very basic level, such as by ZIP code, specific occupation, lifestyle, or individual household WWW & Internet makes micromarketing more effective
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Trainers that meet the special needs of women and their feet.

Market Aggregation
The market

No segmentation heterogenous customers homogenous product no differentiation

Segments must be

Segmentation
...based on customer-based characteristics or product attributes S-1

Identifiable Measurable Accessible, reachable

Substantial enough
Unique enough Durable/stable

S-3 S-2

Good market segmentation has internally homogenous members and is externally heterogeneous

Targeting
Focus on segment(s) providing most value
Pareto Principle the 20% who provide 80% of sales value Group e.g. by -age -sex -income -lifestyle

Choice criteria?

S-1

S-3 S-2
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Value segmentation Pareto - illustrations

The 80/20 rule

Brand User 20% 20%
Loyal

Revenue/Profits
80% 20%

Semi-Loyal
Switchers

Competitive Brand User

40%

Non User of . Category

Source: Garth Hallberg

20%

Tasks in Strategic Marketing Plans

Before implementing a marketing mix strategy (7Ps), identify, evaluate & select a target market.

Who has the purchasing power, authority & willingness to buy? What specific consumer segment is most likely to buy the product?

Now target the market, design a programme to fit, implement it

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Positioning

Low Price

premium convenient

B
Consistent quality

C
Not accessible

A
Brand conscious

accessible

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Positioning

shaping the product & developing a marketing programme so that product is perceived to be (and is) different from competitors products. Positioning map: to show differences in consumers perceptions of competing products Reposition: marketing strategy to change a products position in consumers minds relative to positions of rival product

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B2C and B2B Goods

identify the purchaser + reasons for buying the goods Consumer goods (B2C)

products & services bought by the end consumer for personal use. Products/services bought to be used, directly or indirectly, to produce or supply other goods/services or for resale e.g. 5 litre tomato sauce containers for food service operators
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Business goods (B2B)

Bases for Market Segmentation

Demographic Gender Age Family life cycle Race/Ethnic group Social class Education Income Occupation Family size Religion Home ownership

Psychographic Segmentation

Activities Interests Opinions, Attitudes & Values (AIO) surveys for measuring lifestyle. Lifestyles Personality Self-image

Potential Markets

Behavioural
Geographicn Country Region Urban/Suburban/Rural Population density City size Climate

Geo-Demographic Ethnic .. "birds of a feather flock together"

actual behavior toward product itself. A good starting point for segmentation Benefits sought Usage rate Brand loyalty User status: potential, 1st-time, regular etc. Readiness to buy Occasions: holidays & events that stimulate purchases

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Decisions Affected by Segmentation Choices

Basis

Decisions

Geographic

sales region Sales force location Retail location

Estimate segment size local distribution channels or catering to different age, income & education groups Product/service positioning Advertising themes Sales training

divides U.S. consumer into 14 groups & 66 segments. Urban Uptown Midtown Mix Urban Cores Elite Suburbs The Affluentials Middleburbs Inner Suburbs 2nd City Society City Centers Micro-City Blues Landed Gentry Country Comfort Middle America Rustic Living

Demographic

Psychographic

Benefit

Product/service design--different models + different features Advertising themes Sales training Special products (sizes and quality) or services Frequent-user promotions Special financial terms

Product Usage Rates

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Geographic segmentation - Canada

Main Inhabited Areas in Canada

Dividing overall market into homogeneous groups by location Can identify general patterns but not all consumers in a location will make the same buying decision. Major brands get 40-80% of sales from core regions Climate is a segmentation factor e.g. Northerners eat more soup than Southerners Southerners use more swimming pool chemicals than Northerners

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% Distribution of Canadian Population by Province

Manitoba 3.7% Saskatchewan 3.3% Alberta 9.9% British Columbia 13.0% Northwest Territories 0.1% Nunavut 0.1% Newfoundland 1.7% Prince Edward Island 0.4% Nova Scotia 3.0% New Brunswick 2.4%

2001

Quebec 24.1% Ontario 38.0%

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Provincial and Territorial Populations, 1981, 1991, 2001

POPULATION (THOUSANDS)
Region Newfoundland Prince Edward Island Nova Scotia New Brunswick Quebec Ontario Manitoba Saskatchewan Alberta British Columbia Yukon Northwest Territories Nunavut Canada 1981 568 123 847 696 6 438 8 625 1 026 968 2 238 2 744 23 46 n/a 24 343 1991 568 130 900 724 6 896 10 085 1 092 989 2 546 3 282 28 36 21 27 297 2001 513 135 908 729 7 237 11 410 1 120 979 2 975 3 908 29 37 27 30 007
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Source: Statistics Canada Website http://geodepot.ca/English/Pgdb/People/Population/demo05.htm.

Urban - Rural Population Distribution, 1871-2001

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Canada's 25 Largest Metropolitan Areas

Area Toronto Montreal Vancouver Ottawa-Hull Calgary Edmonton Quebec Winnipeg Hamilton London Kitchener St. Catharines-Niagara Halifax Victoria Windsor Oshawa Saskatoon Regina St. Johns Chicoutimi-Jonquire Sudbury Sherbrooke Trois-Rivires Saint John Thunder Bay 1996 Population (Thousands) 2001 Population (Thousands) 4445 3359 1891 1031 852 392 698 677 650 416 403 390 347 313 292 281 222 199 178 167 166 150 144 129 131 4881 3512 2079 1107 972 935 693 685 681 426 432 393 359 319 314 305 231 198 176 159 157 155 142 128 125

Source: http:www.statcan.ca/english/Pgdb/People/Population/demo05.htm

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Population Projections by Age Group

Demographic segmentation: dividing consumer groups by e.g. sex, age, income, occupation, education, household size & stage in family life cycle

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Family Life Cycle

young singles young married couples who remain childless, single parenthood parenthood (full nest) post-parenthood (empty nest) dissolution (separated, widowed, or divorced) retirees with children still at home able elderly

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Buying Patterns for Different Age Groups

Age
0-5

Name of Age Group

Young children

Merchandise bought
Baby food, toys, nursery, furniture, childrens wear

6 - 19 20 - 34

School children (including teenagers) Young adults

35 - 49

50 - 64
65+

Younger middle-aged adults Older middle-aged adults Senior adults

Clothing, sports equipment, records, school supplies, food, cosmetics, used cars Cars, furniture, houses, clothing, recreational equipment, purchases for younger age groups. Larger homes, better cars, second cars, new furniture, recreational equipment Recreational items, presents for young marrieds & infants Medical services, travel, medicines, purchases for younger age groups
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Segmenting by age

many firms identify market segments by age design products to meet specific needs of certain age groups e.g.

baby food, toothpaste, fashion garments, walking aids

sociologists attribute different consumer needs & wants across age groups to a cohort effect
tendency among members of a generation to be influenced & drawn together by significant events occurring in formative years e.g. age 17-22

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Demographic: The Grey Market

40%

of UK income, 70-80% of wealth UK population split

16% 50-64 years old 16% 64 +

Grey

market wealth

20% well off (twice average income) 40% property-rich; income poor 40% poor 1% in UK (15% in US) on incomes 40% lower than national average income

Grey

market lifestyle groups

WOOPIES (Well off older persons)

married in two person households, <75yrs, well off, 86% Investment income high home & car ownership

OPALS (Old people with affluent lifestyles) JOLLIES - Jet-setting oldies with lots of loot
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Ethnic Group Segmentation

USA Census Bureau

by 2050, nearly 50% of US population will belong to nonwhite minority groups three largest & fastest-growing racial/ethnic groups African Americans, Hispanics, Asian Americans.

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Generalisation
based on studying the impact of household income changes on consumer spending behaviour

As family income increases

1. a smaller % goes on food 2. the % spend on housing & household operations & clothing stays constant 3. % spend on other items (such as recreation & education) increases
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Percentage Annual Expenditures by Income Groups, 1999

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Psychographic Segmentation - Lifestyles

decisions about how to live family, job, social & consumer activities Lifestyles values & demographics AIO surveys: Activities, Interests, Opinions Why?

richer descriptions of potential target markets behavioural profiles to target promotions, price etc detail to match companys image & offerings with types of consumers likely to buy

develop population psychographic profiles using survey instruments see VALS Values and Lifestyles

UK Households 23 million Young NK 29.7% Most affluent 4.8% Mid-high affluent 11.2% Farm & 4x4 Future families Rising stars MOR Urbans Trendy upstarts Mid-low affluent 6.3% Least affluent 7.4% High rise hopefuls Hard choices Beer & crisps Hand-to-mouth Families 29.7% Empty nesters 21.1% Retired seniors 19.5%

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Geo-demographics: Lifestyle and postcodes

Thriving e.g. 20% of population

wealthy achievers (suburbs), affluent greys (rural); prosperous pensioners (retirement areas) affluent execs - families affluent urbanites, better off execs in inner cities comfortable middle-agers in suburbia new home owners older people in less prosperous areas; council estates
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Expanding - 12%

Rising - 8%

Settling - 24%

Aspiring 14%

Striving (struggling?) 23%

Lifestyle-VALS

Values and Lifestyles (1978) based on the idea that

social class, although significant, does not determine all of our values. there are important value differences within a class Fulfilleds, Achievers, Experiencers all have the same level of resources. Why are they different? see http://www.sric-bi.com/VALS/

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VALSTM Network

Source: SRI Consulting Business Intelligence http://www.sric-bi.com/VALS/presurvey.shtml

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High-end watches for which life-style segments?

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Other lifestyle descriptors: McCann-Erickson Men

Avant Guardians concerned with well-being of others rather than possessions. Well educated, self-righteous. Pontificators strongly held, traditional opinions. Very British and concerned with keeping others on the right path. Chameleons want to be contemporary to win approval. Copiers not leaders. Self-Admirers High self-image, young, intolerant of others, motivated by success. Self-Exploiters the doers and self-starters, competitive, pressured, pessimistic Token Triers always willing to improve their luck, but tend to try and fail. Sleepwalkers actively opt out, contented under achievers.
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Behaviour/product-related segmentation

segmentation according to the different benefits that consumers seek from the product focus on why a customer purchases rather than what Benefits that we seek when we buy

attributes we seek in a good or service benefits we expect to receive from that good or service heavy-, moderate-, light-user segments

Usage rates for a product e.g.

80/20 principle (Paretos Law) 80% of a products revenues comes from a relative small, loyal % of total customers Consumer brand loyalty toward product e.g. AirMiles, ClubCard points

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Band-Aid offers flex as a benefit to consumers.

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Benefit Segmentation Applied to Yogurt

Attributes of Yogurt
BENEFITS SOUGHT FROM YOGURT
Individually packaged
Provides choice for family members Convenient to use Tastes good Good quality Healthy Helps digestion Helps diet Spend less money

With fruit

High- Mild priced

Organic

Contains bio-bifidus

Low fat

Lowpriced

X X

X X X X

X X X X X X X X X

Source: Adapted from Marco Vriens and Ter Hofseted, Linking Attributes, Benefits, and Consumer Values, Marketing Research, Chicago, Fall 2000, V. 12(3) pp. 4-10. Reprinted with permission by the American Marketing Association.

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Other segmentation categories

Buyer-readiness segmentation:

ignorance, awareness, knowledge, preference and conviction different channels, payment methods, promotions & communications time of day, festivals, births, marriages, deaths etc. examples:
Whenever our daughter Jamie gets a raise, we always take her out to dinner. When Im away on business, I try to stay at a suites hotel. I always buy my wife flowers on Valentines Day.

Interaction segmentation:

Occasion segmentation:

Internet usage
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Market Matching Strategies (1 of 2)

PRODUCT OFFERINGS Ford Motor Company
Market Segment 1908 Single-Offer Strategy Early 2000s Multi-Offer Strategy

Audio/Volkswagen/Porsche
1955 Single-Offer Strategy Early 2000 Multi-Offer Strategy

General-Purpose Cars Small Model T Medium Model T Large Sporty Cars Low-Priced

Focus Taurus Crown Victoria ZX2 Escort

Beetle

Polo Golf Passat new Beetle GTI Cabrio Audi TT Boxster Porsche 911

Medium-Priced

Cougar Mustang
Jaguar XK8 Aston Martin DB7

High-priced

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Market Matching Strategies (2 of 2)

Ford Motor Company
Market Segment
Luxury Cars Medium-priced High-priced Vans Trucks Small Medium Sport Utility Vehicles (SUVs)

Audio/Volkswagen/Porsche
1955 Single-Offer Strategy Early 2000s Multi-Offer Strategy
Audi A4 Audi A6 Audi A8 EuroVan

1908 Single-Offer Strategy

Early 2000s Multi-Offer Strategy

Lincoln Continental Lincoln Town Car Jaguar S-Type Windstar Econoline

Model T (Truck)

Ford Ranger Ford F series Explorer Expedition Excursion Lincoln Navigator

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Segmentation for Industrial Markets

Product Segmentation Geographic Segmentation

Organizational Demographics

industry size, location, company age Technology, process Organization & DMU structure Order size, routine vs. customized, urgency of order

Operating Variables

Potential Industrial Markets

End-Use Application Segmentation Account Size and Potential Segmentation

Purchasing Approach

Situational Variables

Personal Characteristics of Buyers

attitude to risk, champions

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Radio Broadcast segmentation

The Total Market for Radio

The Market Segment for Radio by Age & Benefit

Age
Benefit
Information

Teens

Young Adult

Middle Adults

Senior

Entertainment

Companionship

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Hypothetical Middle Adult Segment for Radio

Middle Adults

Early Retiree
Information

Professional

Hourly Employee

Business Owner

X
X X

X
X

Entertainment

Companionship

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Hypothetical Middle Adult Segment for Information Radio

Middle Adults

Early Retiree
Breaking news
Political commentary Financial market commentary

Professional X

Hourly Employee

Business Owner X

X
X X X X X X X X

X
X

Advice Weather Call-in Gossip

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Hypothetical Positioning Map: CBC versus Commercial Radio

Entertaining
Commercial Talk Radio *As it Happens CBC local* Commercial Talk Radio *This Morning After Hours*

Informational
*CBC News *Ideas Disc Drive*

Music

Take 5*

Challenging
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Positioning of Soap
Tone

High moisturizing
7 Zest Lever 2000 2 Safeguard

4 5

Dove

Lux
Nondeodorant
3

Deodorant

Product Space

Lava

Representing Consumers Perception for 6 Different Brands of Bar Soap Low moisturizing

Dial Lifebuoy

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Plot these cars on this Positioning Map

Expensive

Inexpensive Conservative Sporty

Honda Accord Jaguar Toyota Yaris VW Golf BMW 300 series Skoda Fabia Porche Place other cars on the map What other criteria would we add to improve the map's usefulness?

Expensive

Inexpensive

Conservative

Sporty

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Construct a Competitive Positioning Map

for the clothing areas of the following retailers

Next Marks and Spencer Primark Miss Selfridge Asda (George) H&M La Senza Coast

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Non-profit market segmentation

Is segmentation for nonprofit marketers of more, less, or the same importance than for profit-oriented marketers? Examples ?

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