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 prospective buyers into groups that (1) have common needs and (2) will respond similarly to a marketing action.

Although not all these consumers are completely alike, they share relatively similar needs and wants Marketing action: involves efforts, resources, and decisions--product, distribution, promotion, and price

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

No market Segmentation

a a a

b b

Complete Segmentation

1 1 1 3 2 2
Market Segmentation by Income Classes 1, 2, and 3

Market Segmentation by age classes A & B

1a 2b 1b 3a 3b
Multi-dimensional Market Segmentation By income-age class

Basic Market-Preference Patterns Ice Cream Preference Example

Sweetness

Creaminess

Sweetness

Sweetness

Homogeneous Preferences

Diffused Preferences

Cluster Preferences

Bases for Segmenting Consumer Markets

Geography
Region of the world Country Region of the country State City

Demography
age gender family size occupation

education
ethnicity nationality

family life cycle

income

Psychographics
social class lifestyle personality

Behavior
purchase occasions benefits sought user status usage rate loyalty status readiness stage

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

Network Category (A way to explain purchase behavior)

Hierarchical Hypothetical Beverage Network Category Superordinate Level
Beverage

Basic Level
Soft Drink

Subordinate Level
All natural soft drink Diet Cola Orange juice High preservative fruit juice

SUPERORDINATE LEVEL

Network Category

BEVERAGE
Liquid Thirst quenching Good with Food

B A S I C

carbonated
cold SOFT DRINK

cola

fruit

nutritious
SOFT DRINK cold

slightly sweet
All Natural Soft Drink unusual healthy

Preservatives

slightly sweet

all natural

Artificial Sweetener diet cola diet

Orange Juice Fruit Juice w/ Preservatives breakfast artificial taste unhealthy stores well

SUBORDINATE LEVEL

Benefit Segments
Economy (low price) Medicinal (prevent decay) Cosmetic (bright teeth) Taste (good Tasting)

Benefit Segmentation of the Toothpaste Market Demographics Behaviorists Psychographics

Brand

Network
Men Heavy users High autonomy value oriented Hypochondriac, conservatives High sociability, active High selfinvolvement, hedonistic Sale Brands Crest

Large families Teens, young adults, Children

Heavy users

Smokers

Macleans, Ultra Bright Colgate, Aim

Spearmint lovers

SEGMENTING BUSINESS MARKETS Basis..

 Demography
industry company size location

 Operating variables
customer technologies usage rate user status customer service requirements

 Purchasing approaches
centralized vs. decentralized purchasing current vs. potential customers purchasing criteria

 Situational factors
urgency of need application of product size of order

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.