MARKETING

Identifying Market Segments

And
Selecting Target Markets

Wingless_ann@hotmail.com

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 TABLE OF CONTENTS

Introduction

LEVELS OF SEGMENTATION
Levels of market segmentation
• Mass Marketing
• Micromarketing
• Segment Marketing
• Niche Marketing
• Local Marketing
• Individual Customer Marketing

Patterns of Market Segmentation

Market Segmentation Procedure
Effective Segmentation

SEGEMENTING CONSUMER AND BUSINESS MARKET

Bases for Segmenting Consumer Markets

Geographic Segmentation
Demographic Segmentation
Age and Life-Cycle stage
Life Stage
Gender
Income
Generation
Social Class
Psychographic Segmentation
Lifestyle
Personality
Values
Behavioral segmentation
Occasions
Benefits
User Status
Usage rate
Loyalty Status
Buyer-Readiness Stage
Attitude

MARKET TARGETING

Evaluating & Selecting the Market Segments

• Single-Segment Concentration
• Selective Specialization
• Product Specialization
• Market Specialization
• Full Market Coverage

Conclusion

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 INTRODUCTION

A company cannot serve all customers in a broad market such as computers or soft
drinks. The customers are too numerous and diverse in their buying requirements. A
company needs to identify the market segments it can serve effectively. Here we will
examine levels of segmentation, patterns of segmentation, market segment procedures,
bases for segmenting consumer and business markets, and requirements for effective
segmentation. Many companies are embracing target marketing. Here sellers distinguish
the major market segments, target one or more of these segments, and develop products
and marketing programs tailored to each. Instead of scattering.

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 LEVELS AND PATTERNS OF SEGMENTATION

LEVELS OF MARKET SEGMENTATION

Mass Marketing

The seller engages in mass production, mass distribution, and mass

promotion of one product to all buyers. Mass marketing creates the
largest potential market, which leads to the lowest costs, which in
turn can lead to lower prices or higher margins. Now a day the
explosion of advertising media and distribution channels has made it
difficult and increasingly expensive to reach a mass audience.

Micromarketing

Many companies are turning to micromarketing these days by

choosing one of the four levels; segments, niches, local areas, and
individuals.

SEGMENT MARKETING

A market segment consists of a group of customers who share a

similar set of wants. A segment further contains a sector. E.g. A Car
Company might say that it will target young, middle-income car
buyers. But the young, middle-income car buyers will differ about
their wants in a car; low cost or expensive car. So, the young,
middle-income car buyer is a sector.
Segment marketing offers several benefits over mass marketing,
some of them are:
1. The company can create a more fine-tuned product or service
offering and price it appropriately for the target
segment.
2. The company can more easily select the best distribution and
communications channels.
3. The company can also have a clearer picture of its competitors.

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 NICHE MARKETING

A niche is amore narrowly defined group seeking a distinctive mix

of benefits. Marketers usually identify niches by dividing a segment
into sub segments.
An attractive niche has the following characteristics:
1. The customers in the niche have a distinct set of needs.
2. They will even pay a premium to the firm that best satisfies
their needs.
3. The niche is not likely to attract other competitors.
4. The nicher gains certain economies through specialization.
5. The niche has size, profit and growth potential.

LOCAL MARKETING

Target marketing is leading to marketing programs tailored to the

needs and wants of local customer groups (trading areas,
neighborhoods, even individual stores)

INDIVIDUAL CUSTOMER MARKETING

The ultimate level of segmentation leads to “segments of one,”

“customized marketing,” or “one-to-one marketing”. Ultimately
every individual has a unique set of wants and preferences. In past
centuries, producers customized their offerings to each customer: the
tailor fitted a suit and a cobbler made shoes for each individual.

Mass-customization

It is the ability of a company to prepare on a mass basis individually

designed products, services, programs, and communications, to meet
each customer’s requirements.

E.g. English Boot House has been in business since 1947. They launched their internet
business in 2001. Initially orders were mostly based from and Middle East. However in
2002, since acceptance of credit cards for deliveries within through Gerry’s Pakistani
shop.com, internal business has been very promising. People who have used EBH shoes
and are now living abroad still love to buy EBH

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 www.ebhshop.com offers one of the best collections of shoes you’ll ever see.
www.ebhshop.com boasts over 57 years of shared shoe industry experience with its
founders, leading consumer-driven footwear company in the country, and the leader in
technically advanced comfort footwear.

They say “Imagine, more than 57 years of researching, studying, buying and selling
shoes--shoes are our life. Our sole mission is simple--to provide you, our customers with
the best selection of shoes you can ask for from the brands you know and want”.

www.ebhshop.com offers exceptional value and the utmost convenience with an

extensive selection of styles, and expert advice on footwear. There, buyers scour the
market and work closely with manufacturers in order to offer their consumers the best
selection of styles from only the top quality brands. Shopping with ebhshop.com is like
having a friend in the business.

“Our service is built on a simple concept: the customer is always right. We stand behind
this philosophy with a 100% ebhshop.com Satisfaction Guarantee. Our knowledgeable
and friendly shoe experts help you, the ebhshop.com customer, with your selection,
sizing, and the purchase of your new shoes. As for fit, don’t even think twice about it, our
sizing guide and Fit Assistant will ensure just the right fit and, with our 30-day Return
Policy customers may return unworn shoes for any reason, no questions asked. It’s that
simple.
ebhshop.com—the brands you know and the styles you love”.

Choiceboard

Online companies today are offering customers a Choiceboard,

which is an interactive online system that allows individual
customers to design their own services and products by choosing
from a menu of attributes, components, prices, and delivery options.
Some of the advantages of Choiceboard are:
1. The Choiceboard facilitates up selling, cross-selling, and, and
repeat business by opening customer’s eyes to further possibilities
and by satisfying their preferences.
2. The Choiceboard provides real-time market research and
insight into customer’s current preferences.
3. The Choiceboard reduces costs for manufacturers and
suppliers by avoiding the production of unwanted goods and
discounting to get rid of them.

E.g. ICI Dulux Pakistan provides the choiceboard to its online

customers on dulux.com. They provide you with the color schemes
of paints; you can choose the kind of surface you want to paint and

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 they show you the available list of paint types and colors. Dulux.com
provides you a facility, so that you don’t need to visit their outlets
for information, you can simply log on to www.dulux.com

Similarly www.marriott.com facilitates you to make reservations,

search for any other hotel etc.

Customerization

It combines operationally driven mass customization with

customized marketing in a way that empowers consumers to design
the product or service offering of their choice. The firm no longer
requires prior information about the customer, nor does the firm need
to own manufacturing. The firm provides a platform and tools and
rents out to customers the means to design their own products. Each
business unit will have to decide whether it would gain more by
designing its business system to create offerings for segments or for
individuals. Companies that favor segmentation see it as more
efficient, requiring less customer information, and permitting more
standardization of market offerings. Those who favor individual
marketing claim that segments are a fiction, that individuals within
so-called segments differ greatly and that marketer can achieve much
more precision and effectiveness by addressing individual needs.

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 PATTERNS OF MARKET SEGMENTATION

Market segments can be build up in many ways, one way is to

identify preference segments. For example cookies buyers are
asked how much they value sweetness and saltiness in biscuits as
two product attributes. Three different patterns can emerge.

1. Homogeneous Preferences: shows a market where all the

consumers have roughly the same preferences. The market shows no
natural segments. We would predict that existing brands would be similar
and cluster around the middle of the scale in both sweetness & saltiness.

2. Diffused Preferences: At the other extreme, consumer

preferences maybe scattered throughout the space, indicating that
customers vary greatly in their preferences. The first brand to enter the
market is likely to position in the center to appeal to the most people

3. Clustered Preferences: The market might reveal distinct

preference clusters, called natural market segments. The
first firm in this market has three options. It might position in
the center, hoping to appeal to all groups. It might position in
the largest market segment (concentrated marketing). It
might develop several brands, each positioned in a different
segment. If the first firm developed only one brand,
competitors would enter and introduce brands in the other
segments.

MARKET SEGMENTATION PRECEDURE

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 How can we identify market segments? One approach would be to
classify consumers demographically. A bank, for example, may
decide to group its customers by wealth, annual income, and age.
Suppose it distinguishes five wealth classes, seven income classes,
and six age classes. This alone would create 210 market segments (5
× 6 ×7). But consumers in any one group do not really have same
needs, attitudes and preferences.
Roger Best proposed the seven-step approach to advocate the needs-
based segmentation approach

Description

1. Needs-Based Segmentation Group customers into segments based

on similar needs and benefits sought
by customer in solving a particular
consumption problem.

2. Segment Identification For each needs-based segment,

determine which demographics,
lifestyles, and usage behaviors make
the segment distinct and identifiable
(actionable).

3. Segment Attractiveness Using predetermined segment

attractiveness criteria (such market
growth, competitive intensity, and
market access), determine the overall
attractiveness of each segment.

4. Segment Profitability Determine segment profitability.

5. Segment positioning For each segment; create a “value

proposition” and product-price
positioning strategy based on that
segment’s unique customer needs and
characteristics.
6. Segment “Acid Test” Create “segment storyboards” to test
the attractiveness of each segment’s
positioning strategy.

7. Marketing-mix strategy Expand segment positioning strategy

to include all aspects of the marketing
mix: product, price, promotion and
place.

EFFECTIVE SEGMENTATION

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 Not all segmentation is useful. For example, table salt buyers
could be divided into blond and brunette customers, but hair
color is not relevant to the purchase of salt. Furthermore, if all
salt buyers buy the same amount of salt each month, believe all
salt is the same, and would pay only one price for salt, this
market would be minimally segmentable from a marketing point
of view.
To be useful, market segment must be:

• Measurable: The size, purchasing power, and

characteristics of the segment can be measured.
• Substantial: The segments are large and profitable
enough to serve. A segment should be the largest possible
homogeneous group worth going after with a tailored
marketing program. It would not pay, for example, for an
automobile manufacturer to develop cars for people who
are under four feet tall.
• Accessible: The segments can be effectively reached and
served.
• Differentiable: The segments are conceptually
distinguishable and respond differently to different
marketing-mix elements and programs. If married and
unmarried women respond similarly to a sale on perfume,
they do not constitute separate segments.
• Actionable: Effective programs can be formulated for
attracting and serving the segments.

SEGMENTING CONSUMER AND BUSINESS MARKETS

The major segmentation variables – geographic, demographic, psychographic, and

behavioral
segmentation.

GEOGRAPHIC SEGMENTATION

Geographic segmentation calls for dividing the market into different geographical units
such as nation,
states, regions, countries, cities, or neighborhoods . The company can operate in one or a
few
geographic areas, or operate in all but pay attention to local variations . For example
Hilton Hotels customizes rooms and lobbies according to the location of its hotels.

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DEMOGRAPHIC SEGMENTATION

In demographic segmentation , the market is divided into groups on the basis of variables
such as age , family life cycle , gender , income , occupation , education , religion , race ,
generation , nationality , and social class. Demographic variables are the most popular
bases for distinguishing customer groups. One reason is that consumer wants,
preferences, and usage rates are often associated with demographic variables. Another is
that demographic variables are easier to measure.

Age and Life-Cycle Stage

Consumer wants and abilities change with age. Age and life cycle can be tricky variables.
For example, the Ford Motor Company designed its Mustang automobile to appeal to
young people who wanted an inexpensive sports car . But Ford found that many
mustangs were purchased by older buyers. It then realized that its target market was not
the chronologically young but the psychologically young.

Life Stage

Person in the same part of the life cycle may differ in their life stage. Life stage defines a
person’s major concern, such as going through a divorce, going into a second marriage,
taking care of older parents, deciding to cohabit with another person, deciding to buy a
new home, and so on.

Gender

Men and women tend to have different attitudinal and behavioral orientations, based
partly on genetic makeup and partly on socialization practices.
Gender differentiation has long been applied in clothing, hairstyling, cosmetics and
magazines. The automobiles industry is beginning to recognize gender segmentation,
since there are now more women car owners, some manufacturers are designing features
to appeal to women, although they stop short of advertising the cars as women’s cars.

Income

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Income segmentation is long- standing practice in such products and services categories
as automobiles, boats, clothing, cosmetics, and travel. However, income does not always
predict the best customers for a given product.

Generation

Many researchers are now turning to generation segmentation. Each generation is

profoundly influenced by the times in which it grows up- the music, movies, politics, and
defining events of that period. Demographers call these groups “cohorts”.

Social Class

Social class has a strong influence on preference in cars, clothing, home, furnishings,
leisure activities, reading habits, and retailers. Many companies design products and
services for specific social classes.

PSYCHOGRAPHIC SEGMENTATION

In psychographic segmentation, buyers are divided into different groups on the basis of
lifestyle or personality or values. People within the same demographic group can exhibit
very different psychographic profiles.

Lifestyle

People exhibit many more lifestyles than are suggested by the seven social classes.
People differ in attitudes, interest, activities, and these affect the goods and services they
consume. Companies making cosmetics and furniture are always seeking opportunities in
lifestyles segmentation, but lifestyle segmentation does not always work.

Personality

Markers have used personality variables to segment markets. They endow their products
with a “brand personality” that corresponds to a target consumer personality. The
company utilizes product features, services, and image making to transmit the product’s
personality.

Values

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Some markers segment by core values. Core values go much deeper than behavior or
attitude, and determine, at a basic level, people’s choices and desires over the long term.

BEHAVIORAL SEGMENTATION

In behavioral segmentation, buyers are divided into groups on the basis of their
knowledge of, attitude toward, use of, or response to a product. Many marketers believe
that behavioral variables-occasions, benefits, user status, usage rate, loyalty status, buyer-
readiness stage, and attitude—are the best starting points for constructing market
segments.

Occasions

Buyers can be distinguished according to the occasions when they develop a need,
purchase a product, or use a product. Occasions segmentation can help firms expand
product usage. For example in Pakistan tea is usually consumed at breakfast. A company
can consider occasions of critical life events or transitions-marriage, childbirth, illness,
relocation, career change—as giving rise to new needs.

Benefits

Buyers can be classified according to the benefits they seek, people vary considerably in
the benefits they seek from the same product.
1. Road Warriors: premium products and quality service. (16%)
2. Generation F: fast fuel, fast service, and fast food. (27%)
3. True Blues: branded products and reliable service. (16%)
4. Home bodies: convenience. (21%)
5. Price Shoppers: Low price. (20%)

User Status

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Markets can be segmented into nonuser, ex-users, potential users, first time users, and
regular users of a product. Market-share leaders tend to focus on attracting potential users
because they have the most to gain. Smaller firms focus on trying to attract current users
away from the market leader.

Usage Rate

Markets can be segmented into light, medium, and heavy product users. Heavy users are
often a small percentage of the market but account for high percentage of total
consumption.

Loyalty Status

Consumers have varying degrees of loyalty to specific brands, stores, and companies.
Buyers can be divided into four groups according to brand loyalty status:
1. Hard-core loyals: Consumers who are buy one brand all the time.
2. Split loyals: Consumers who are loyal to two or three brands.
3. Shifting loyals: Consumers who shift from one brand to another.
4. Switchers: Consumers who show no loyalty to any brand.

Buyer-readiness stage

A market consists of people in different stages of readiness to buy a product. Some

are unaware of the product, some are aware, some are informed, some are interested,
some desire the product, and some intend to buy. The relative numbers make a big
difference in designing the marketing program.

Attitude

Five attitude groups can be found in a market: enthusiastic, positive, indifferent,

negative, and hostile. Door-to-door workers in political campaign use the voter’s
attitude to determine how much time to spend with that voter. They thank to
enthusiastic voters and remind them to vote; they reinforce those who are positively
disposed; they try to win the votes of indifferent voters; they spend no time trying to
change the attitudes of negative and hostile voters.

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Segmentation Variables Data

Geographic
World region Asia
Country Pakistan
Cities All major cities of Pakistan
Density Urban
Climate Hot and Dry
Demographic
Age All ages
Gender Male, Female
Family size 1-2, 3-4, 5+
Family life cycle Young, Single; Young, Married, no children; Young,
Married with children; Older, Married with children; Older,
Married with no children under 18; Older, Single; Other

Income Rs.30,000+
Occupation From middle class to upper class
Education Schools, Colleges, Universities
Religion Major religion of Islam, Christianity and Hinduism and
small percentage of others

Race Asian
Nationality Pakistani
Psychographic
Social class Working class, Middle class, Upper class.
Lifestyle Actualizes, Fulfilled, Believers, Achievers, Strivers,
Experience’s makers and Strugglers
Behavioral
Occasions Parties, Birthdays, Sports and Regular Occasions
Benefits Quality, Taste, Economy, Health
User status First time user
Attitude towards product Positive

MARKET TARGETING

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 Once the firm has identified its market-segment opportunities, it has to decide how
many and which one to target.

Evaluating and selecting the market segments

In evaluating different market segments, the firm must look at two factors: the
segment’s overall attractiveness and the company’s objective and resources. Having
evaluated different segments, company can consider five patterns of target market
selection.

Single-segment concentration

Suzuki concentrates on the small-call market and Honda on the family car market.
Through concentrated marketing, the firm gains a strong knowledge of the segment’s
needs and achieves a strong market presence. Furthermore, the firm enjoys operating
economies through specializing its production, distribution, and promotion. If it
captures segment leadership, the firm can earn a high return on its investment.

Selective specialization

The firm selects a number of segments, each objectively attractive and appropriate.
There may be little or no synergy among the segments, but each promises to be a
moneymaker. This multisegment strategy has the advantage of diversifying the firm’s
risk.

Product specialization

The firm makes a certain product that it sells to several segments. An example would
be a microscope manufacturer who sells to university, government, and commercial
laboratories. The firm makes different microscopes for the different customer groups
and builds a strong reputation in the specific product area. The downside risk is that
the product may be supplanted by an entirely new technology.

Market specialization

The firm concentrates on serving many needs of a particular customer group. An

example would be a firm that sells an assortment of products only to university
laboratories. The firm gains a strong reputation in serving this customer group and
becomes a channel for additional products the customer group can use. The downside
risk is that the customer group may suffer budget

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 Full market coverage

The firm attempts to serve all customer groups with all the products they might need.
Only very large firms such as IBM (computer market), General Motors (vehicle
market), and coca-cola (drink market) can undertake a full market coverage strategy.
Large firms can cover a whole market in two broad ways: through undifferentiated
marketing or differentiated marketing.
In undifferentiated marketing, the firm ignores segment differences and goes after
the whole market with one offer.
Differentiated marketing typically creates more total sales than undifferentiated
marketing. However, is also increases the cost of doing business. The following costs
are likely to be higher:
1. Product modification costs: Modification a product to meet different market-
segment requirements usually involves R&D, engineering , and special tooling
costs.
2. Manufacturing costs: it is usually more expensive to produce 10 units of 10
different products than 100 units of one product. The longer the production setup
time and the smaller the sales volume each product, the more expensive the
product becomes. However, if each model is sold in sufficiently large volume, the
higher setup costs may be quite small per unit.
3. Administrative costs: The company has develop separate marketing plans for
each market segment. This requires extra marketing research, forecasting, sales
analysis, promotion, planning, and channel management.
4. Inventory costs: it is more costly to manage inventories containing many
products.
5. Promotion costs: The company has to reach different market segments with
different promotion programs. The result is increased promotion-planning cost
and media costs.
Because differentiated marketing leads to both higher sales and higher costs.

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 CONCLUSION

The tools for identifying market segments and selecting target markets all over the world
is same and these tools are also implemented in Pakistan. Companies make different
segments for their own convenience and target only those markets that in return gives the
company most profit and that company can easily serve. Identifying market segments and
selecting target markets enable the company to serve their customer in a better way. With
marketers increasingly adopting more and more refined market segmentation schemes—
fueled by internet and other customization efforts—some critics claim that
massmarketing is dead .

REFERENCE LIST

• www.ebhshop.com

• www.marriot.com

• www.dulux.com

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