Unit 2MARKETS &

SEGMENTATIONBy

M Manjunath Shettigar

• Markets traditionally meant places where buyers and sellers interacted for exchanging a product

• In marketing magmt, market is defined as ‘groups of customers’ for a product

Market types

A Simple Marketing SystemA.K.A. The Exchange Process

Market types & their features

• Consumer markets• Business Markets• Global markets• Non-profit and Government markets• Rural markets

Evolving Marketing Strategies

• Mass Marketing :The term mass market refers to a large, undifferentiated market of consumers with widely varied backgrounds. Products and services needed by almost every member of society are suited for the mass market. Such items as electric and gas utilities, soap, paper towels and gasoline, for example, can be advertised and sold to almost anyone, making them mass market goods

• Mass Marketing –• An attempt to appeal to an entire market with one basic marketing strategy

utilizing mass distribution and mass media. Also called undifferentiated marketing.

• The appeal of mass marketing is in the potential for higher total profits. Companies that employ the system expect the larger profit to result from (1) expanded volume through lower prices and (2) reduced costs through economies of scale made possible by the increased volume.

• Henry Ford applied the concept in the automobile industry. His Model T was conceived and marketed as a "universal" car—one that would meet the needs of all buyers.

Product Variety

• After the mass marketing strategy another strategy with similar characteristics but overcoming its predecessor’s shortcomings came into existence. That is product variety strategy.

• An attempt to appeal to the entire market with a huge variety of products produced in mass is made.

• However, like Mass marketing, in this case also the customers needs & wants are not taken into account while developing the product.

• Target Marketing-• Is a market segmentation and market coverage strategy

whereby a product is developed and marketed for a very well-defined, specific segment of the consumer population.

• Target marketing is effective because it enables the company to achieve a strong market position in the specific market segment it serves.. It enables firms to capitalize on their core competency in serving certain defined market segments. It is also suitable for small companies with limited resources which can focus on narrow market segments without mass production, mass distribution, or mass advertising

Defining Marketing Segmentation

‘Market Segmentation’ Market Segmentation is the sub-

dividing of customers into homogenous sub-set of customers where any sub-set may conceivably selected as market target to be reached with distinct Marketing Mix – Philip Kotler

Market segmentation involves the subdividing of a market into distinct subgroups of customers, where any subgroup can be selected as a target market to be met with a distinct marketing mix. - CIMA

 

• Segmentation is essentially the identification of subsets of buyers within a market that share similar needs and demonstrate similar buyer behaviour. The world is made up of billions of buyers with their own sets of needs and behaviour.

• Segmentation aims to match groups of purchasers with the same set of needs and buyer behaviour. Such a group is known as a 'segment'.

• Market Segmentation is the marketing process of identifying and breaking up the total market into groups of potential customers with similar motivations, needs or characteristics, who are likely to exhibit homogeneous purchase behaviour. Undertaking this process allows marketing efforts to be targeted at select groups.

• Market Segmentation is the process of splitting customers, or potential customers, in a market into different groups, or segments, within which customers share a similar level of interest in the same or comparable set of needs satisfied by a distinct marketing proposition.

Requirements of Market Segments

In addition to having different needs, for segments to be practical they should be evaluated against the following criteria:

• Identifiable: the differentiating attributes of the segments must be measurable so that they can be identified.

• Accessible: the segments must be reachable through communication and distribution channels.

• Measurable: It has to be possible to determine the values of the variables used for segmentation with justifiable efforts. This is important especially for demographic and geographic variables. For an organization with direct sales (without intermediaries), the own customer database could deliver valuable information on buying behavior (frequency, volume, product groups, mode of payment etc).

• Substantial: the segments should be sufficiently large to justify the resources required to target them.

• Unique needs: to justify separate offerings, the segments must respond differently to the different marketing mixes.

• Durable: the segments should be relatively stable to minimize the cost of frequent changes.

Benefits and LimitationsBenefits:The Organisation gets to know its customers better.Provides guidelines for resource allocation.It helps focus the strategy of the organisation.

Limitations:Targeting multiple segments increases marketing costs.Segmentation can lead to proliferation of products.Narrowly segmenting a market can hamper the development of broad-brand equity.

Why Segmentation?

• To develop marketing activities• Increase marketing effectiveness • Generate greater customer satisfaction • Create savings • To identify strategic opportunities and niches• Allocation of marketing budget• Adjustment of product to the market need• To estimate the level of sales in the market• To overcome competition effectively• To develop effective marketing programmes• To contribute towards achieving company goals

Steps in Segmentation, Targeting, and Positioning

1. Identify Basesfor Segmenting the Market

2. Develop Profilesof Resulting Segments

3. Develop Selection Criteria

4. Select TargetSegment(s)

5. Develop Positioningfor Each Target Segment

6. Develop MarketingMix for Each Target Segment Market

Positioning

MarketTargeting

Market Segmentation

Market Segmentation4 commonly used bases for Segmentation

Geographic segmentation

Demographic segmentation

Psychographic segmentation

Behavioural segmentation

Market SegmentationBases for Segmenting Consumer Markets

Geographic

DemographicAge, gender, family size and life cycle, or income

PsychographicSocial class, lifestyle,

or personality

BehaviouralOccasions, benefits sought, user status, usage rate, loyalty

Nations, states, regions or cities

Market Segmentation

geographic location - based upon where people live (historically a popular way of dividing markets)

demographic - based upon age, gender and income level (very often used)

Market Segmentation

Psychographic / lifestyles - based on people’s opinions, interests, lifestyles

Behaviouristic - based on the different expectation that customers have about what a product/service can do for them

Geographic Segmentation

The reason why we study geographic segmentation is because WHERE people live has a big effect on their consumption patterns.

Additionally, WHERE people live in a city is also a reflection of their income level and we can make certain assumptions about their ABILITY TO SPEND.

This helps people plan store locations and the location of other services.

Geographic basis

• Region• city• rural – urban

Demographic Segmentation

Demographic Segmentation is the most common approach to Market Segmentation

Variables are:

• age

• gender (male/female)

• income

• occupation

• education

• household (family - style) size

age

• age is another obvious way to divide the market into segments since so many products are based upon “time of life”

• diapers for babies

• toys for children

• entertainment for “over 18”

gender (male/female)

•gender is an obvious way to divide the market into segments since so many products are gender-specific

• clothing

• medical products

• sports products/services

• entertainment

•household (family - style) size

• Segmenting by the “stages in the family life cycle”

• There are different buying characteristics of people in each stage of the family

•household (family - style) size

BUYING PATTERNS

• 0-5 young children

• 6-19school children

• 20-34 young adults

• 35-49 younger middle-aged

• 50-64 older middle-aged

• 65+ seniors

• 80+ SUPER seniors

Life-cycle stage: Dividing a market into different groups based on which stage in the life-cycle, presented in the table below, reflects the fact that people change the goods and services they want and need over their lifetime.

Life-cycle stages

Bachelor Stage young, single people not living at home

Newly Married Couples young, no childrenFull Nest I youngest child under six Full Nest II youngest child six or over

Full Nest III older married couples with dependent children

Empty Nest I older married couples, no children living with them

Empty Nest II older married couples, retired, no children living at home

Solitary Survivor I in labour forceSolitary Survivor II retired

income Segmenting markets on the basis of income and expenditure patterns. Income is possibly the most common basis for segmentation

Upper High ClassHigh ClassUper Middle ClassMiddle ClassLower Middle Class

Toyota • Lexus for high end • Camry for the middle of the roaders • Corolla for low end HUL soaps - Dove for high end, Hamam

Psychographic Segmentation

“The use of psychological attributes, lifestyles and attitudes in determining the behavioral profiles of different customers”

Psychographic Segmentation

Psychographic profiles on a target market segment are obtained by doing a lot of questionnaires and surveys to ask people if they agree/disagree with certain statements made about particular activities, interests or opinions

AIO - activities, interests, and opinions

Psychographic Segmentation

Psychographic profiles classify customer groups into categories like the following:

Innovators,

Thinkers,

Achievers,

Experiencers,

Believers,

Strivers

Makers

survivors

Behavioural Segmentation

On the basis of occasions, product usage, benefits sought, brand loyalty,

Occasions • a greeting card for every occasion - Valentine’s Day Card, Deepavali card

Usage

Customers can be segmented on the basis of usage status- heavy users, light users & non-users of a product category. The profiling of heavy users allows this group to receive most marketing attention (particularly promotion efforts) on the assumption that brand loyalty among these people will pay heavy dividends.

User status

Every product has its nonusers, ex-users, potential users, first-time users and regular users. A company cannot always rely on the regular users, it has to attract the other types as well. The key too attracting potential users, or possibly, even non-users, is understanding the reasons due to which they are not using your product.

AttitudeAttitude is defined as a learned tendency to respond towards something. People’s response towards a product may range from – Enthusiastic, Positive, Indifferent, Negative, Hostile .

Occasions

Brand Loyalty

Benefit Sought

cars

• Safety

• Performance

• Comfort

• Economy

• Better brakes, safe doors, Better body

• Smooth pick up, Better engine

• Riding comfort, better seats

• Savings in fuel cost, lesser repair

Steps in Segmentation, Targeting, and Positioning

1. Identify Basesfor Segmenting the Market

2. Develop Profilesof Resulting Segments

3. Develop Selection Criteria

4. Select TargetSegment(s)

5. Develop Positioningfor Each Target Segment

6. Develop MarketingMix for Each Target Segment Market

Positioning

MarketTargeting

Market Segmentation

Levels of Market SegmentationMass Marketing

Same product to all consumers (no segmentation)

Mass MarketingSame product to all consumers

(no segmentation)

Segment MarketingDifferent products to one or more segments

(some segmentation)

Segment MarketingDifferent products to one or more segments

(some segmentation)

MicromarketingProducts to suit the tastes of individuals and locations

(complete segmentation)

MicromarketingProducts to suit the tastes of individuals and locations

(complete segmentation)

Niche MarketingDifferent products to subgroups within segments

(more segmentation)

Niche MarketingDifferent products to subgroups within segments

(more segmentation)

Local Marketing

Tailoring brands/ promotions to local customer groups

Individual Marketing

Tailoring products/ programs to individual customers

Market TargetingEvaluating Market Segments (developing selection criteria)

• Segment Size and Growth– Analyze sales, growth rates and expected profitability for various

segments.

• Segment Structural Attractiveness– Consider effects of: Degree of Competition, Availability of Substitute

Products, ease of entry of new firms and the Power of Buyers & Suppliers.

• Company Objectives and Resources– Company skills & resources relative to the segment(s).– Look for Competitive Advantages.

Market TargetingEvaluating Market Segments (developing selection criteria)

• Segment Size and Growth– Analyze sales, growth rates and expected profitability for various

segments.

• Segment Structural Attractiveness– Consider effects of: Competitors, Availability of Substitute Products

and, the Power of Buyers & Suppliers.

• Company Objectives and Resources– Company skills & resources relative to the segment(s).– Look for Competitive Advantages.

Market TargetingMarket Coverage Strategies

Market TargetingMarket Coverage Strategies

Segment 1Segment 1

Segment 2Segment 2

Segment 3Segment 3

Segment 1Segment 1

Segment 2Segment 2

Segment 3Segment 3

CompanyMarketing

Mix

CompanyMarketing

Mix

CompanyMarketing

Mix

CompanyMarketing

Mix

CompanyMarketing Mix 1

CompanyMarketing Mix 1

CompanyMarketing Mix 2

CompanyMarketing Mix 2

CompanyMarketing Mix 3

CompanyMarketing Mix 3

MarketMarket

A. Undifferentiated Marketing

B. Differentiated Marketing

C. Concentrated Marketing

Market Targetingcriteria for Choosing a Market-Coverage Strategy

Company Resources

ProductVariability

Product’s Life-Cycle Stage

Market Variability

Competitors’Marketing Strategies

Positioning for Competitive Advantage

• Product’s Position - the way the product is defined by consumers on important attributes - the place the product occupies in consumers’ minds relative to competing products.

• Marketers must:– Plan positions to give their products the greatest

advantage in selected target markets,– Design marketing mixes to create these planned

positions.

Positioning for Competitive Advantage: Strategies

Against aCompetitor

Against aCompetitor

UsageOccasions

UsageOccasions

Quality/ priceQuality/ price

ProductAttributes

ProductAttributes

ProductClass

ProductClass

BenefitsOffered

BenefitsOffered

User ClassUser Class

BB

AA

EEDD

CCHHGG

FF

Steps to Choosing and Implementing

a Positioning Strategy

• Step 1. Identifying Possible Competitive Advantages: Competitive Differentiation.

• Step 2. Selecting the Right Competitive Advantage: Unique Selling Proposition (USP).

• Step 3. Communicating and Delivering the Chosen Position.

• Step 4. Support the positioning strategy with a unique marketing mix

Supporting the positioning strategy

• At this stage the company has decided on its

positioning strategy and must now design a

marketing mix to support this strategy. The next part

of the course looks at ‘Developing the Marketing Mix’

Product differentiation

• Product differentiation is a strategy under which a firm offers a marketing mix that projects the product to be different from that of its competitors.

• Product differentiation can create value addition to the product and add customer value/ satisfaction.

Product Differentiation

ProductProduct ServiceService

ImageImage PeoplePeople

Areas for CompetitiveDifferentiation

Areas for CompetitiveDifferentiation

Selecting the Right CompetitiveAdvantages

Criteriafor

DeterminingWhich

Differencesto

Promote

Criteriafor

DeterminingWhich

Differencesto

PromoteAffordableAffordable SuperiorSuperior

ProfitableProfitable

PreemptivePreemptive

DistinctiveDistinctive

ImportantImportant

CommunicableCommunicable

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