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Identifying Market Segments and Targets

 Chapter Outline
1. Target Marketing 8. Brand Funnel
Requirements 9. The Conversion Model
2. Mass Marketing 10. Bases for Segmenting
3. Segment Marketing Business Markets
4. Niche Marketing 11. Market Targeting
5. Micro-marketing 12. Evaluating and Selecting
6. Bases for Segmenting Segments
Consumer Markets 13. Patterns of
7. VALS Segmentation Target Market Selection
System 14. Segment-by-Segment
Invasion Plan
2
 Target Marketing Requirements
Effective target marketing requires
that marketers:
1. Identify and profile distinct groups
of buyers who differ in their needs
and preferences (market
segmentation).
segmentation
2. Select one or more market
segments to enter (market
targeting).
targeting
3. For each target segment, establish
and communicate the distinctive
benefits of the company’s market
offering (market positioning).
positioning 3
 Undifferentiated or
Mass Marketing
• Mass marketing (also called market aggregation) is
a market coverage strategy in which a firm decides
to ignore market segment differences and appeal
the whole market with one offer or one strategy.
• In mass marketing, the seller engages in the mass
production, mass distribution, and mass promotion
of one product for all buyers.
• Arguments for mass marketing is that it creates the
largest potential market,
market which leads to the lowest
costs,
costs which in turn can lead to lower prices or
higher margins.
margins 4
 Differentiated or
Segment Marketing
• Marketers choosing this strategy try to appeal to
multiple smaller markets with a unique marketing
strategy for each market.
• The underlying concept is that bigger markets can
be divided into many sub-markets and an
organization chooses different marketing strategies
to reach each sub-market it targets.
• Most large consumer products firms follow this
strategy as they offer multiple products (e.g.,
running shoes, basketball shoes) within a larger
product category (e.g., footwear).
5
 …Differentiated or Segment Marketing
Market segments can be characterize in different
ways. One way is to identify preference
segments.
• Homogeneous preferences: when all consumers
have roughly the same preferences; the market
shows no natural segments.
• Diffused preferences: when consumers vary greatly
in their preferences. If several brands are in the
market, they are likely to position themselves
throughout the space and show real differences to
match differences in consumer preference.
• Clustered preferences: when natural market
segments emerge from groups of consumers with
shared preferences. 6
 Concentrated or
Niche Marketing
• This strategy combines mass and segmentation
marketing by using a single marketing strategy to
appeal to one or more very small markets.
• It is primarily used by smaller marketers who
have identified small sub-segments of a larger
segment that are not served well by larger firms
that follow a segmentation marketing approach.
• In these situations a smaller company can do
quite well marketing a single product to a
narrowly defined target market.
7
 Customized or
Micro-marketing
• This newest target marketing strategy attempts to
appeal to targeted customers with individualized
marketing programs.
• For micro-marketing segmentation to be effective
the marketer must, to some degree, allow
customers to “build-their-own” products.
• This approach requires extensive technical capability
for marketers to reach individual customers and
allow customers to interact with the marketer.
• The Internet has been the catalyst for this target
marketing strategy. As more companies learn to
utilize the Internet micro-marketing is expected to
flourish. 8
 …Customized or Micro-marketing
Local marketing:
• Marketing programs tailored to meet the needs and wants of
local customer groups in trading areas, neighborhoods, even
individual stores.
• Local marketing reflects a growing trend called grassroots
marketing- marketing activities concentrate on getting as close
and personally relevant to individual customers as possible.
• Example: Recently, the movie Spiderman 3 was released in
India in five different languages, including Bhojpuri, a regional
dialect.
Individual marketing:
• The ultimate level of segmentation leads to “segments of one”,
“customized marketing”, or “one-to-one marketing”
• A company is customerized when it is able to respond to
individual customers by customizing its products, services, and
messages on a one-to-one basis.
9
Bases for Segmenting Consumer Markets

Geographic
Demographic

Psychographic Behavioral
10
 …Bases for Segmenting Consumers
• There are two bases for segmenting consumer
markets: consumer characteristics and
consumer responses.
responses The Major segmentation
variables for consumer markets are:
– Geographic:
Geographic Region, City, Rural and Semi-urban
areas.
– Demographic:
Demographic Age, Family size, Gender, Income,
Occupation, Education.
– Psychographic:
Psychographic Socioeconomic classification,
Lifestyle, Personality.
– Behavioral:
Behavioral Occasions, Benefits, User status, Usage
rate, Loyalty status, Readiness stage, Attitude toward
product. 11
Geographic Segmentation

Geoclustering

12
 …Geographic Segmentation
• Geographic segmentation divides the
market by nations, states, regions,
counties, cities, or neighborhoods.
• Geocluster approach combines
demographic data with geographic data to
create a more accurate profile of specific
geographic areas. Geoclustering or Multi-
attribute segmentation assumes that
inhabitants in a cluster tend to lead similar
lives, drive similar cars, have similar jobs,
and read similar magazines. 13
 …Geographic Segmentation
• One of the major geographical
segmentation variables relevant for
marketers is the division of markets into
rural and urban areas.
• Rural and Urban markets differ on a
number of important parameters:
– Literacy levels
– Income
– Spending power
– Availability of infrastructure 14
 Demographic Segmentation

•Age and Life-cycle Stage

•Life Stage
•Gender
•Income
•Generation
•Social Class

15
 …Demographic Segmentation
• Demographic segmentation divides the
market into groups on the basis of
variables such as age, family size, family
life cycle, gender, income, occupation,
education, religion, race, generation,
nationality, and social class.
• Demographic variables are often
associated with consumer needs and
wants and are easy to measure.
16
 Age and Life-Cycle Stage
Consumer wants and abilities change with age. Therefore, age
and life-cycle stages are important variables to define segments.

17
 Life Stage
•Persons in the same part of the life cycle may differ in
their life stage.
•Life stage defines a person’s major concern, such as
getting married, deciding to buy a home, sending the child
to the school, taking care of older family members,
marrying off their children, planning for retirement and so
on.

18
 Gender
•Men and women have different attitudes and
behave differently, based partly on genetic makeup
and partly on socialization.

19
 Income
•Income determines the ability of consumers to participate in
the market exchange and hence this is a basic segmentation
variable.
•However, income does not always predict the best consumers
for a given product. Even if two consumers have similar
income levels, each may own different types and brands of
products based on a host of factors such as lifestyle, attitudes,
and values.
•Income segmentation is used in categories such as clothing,
travel, financial services, and automobiles.

20
 Generation
•Each generation is profoundly influenced by the times in
which it grows up—the music, movies, politics, and
defining events of that period.
•Members share the same major cultural, political, and
economic experiences and have similar outlooks and
values.
•The younger generations play significant roles, not only as
consumers, but also as initiators and influencers of buying
decisions.

21
 U.S. Generation Cohorts
Cohort Size Defining Features

Millennials Raised in affluence, tech savvy, perceived

78 m
(1979-1994) immunity from marketing

Gen X Parents relied on day care, accepts

50 m
(1964-1978) diversity, pragmatic and individualistic

Control 3/4th of the wealth in the U.S,

Baby Boomers
76 m seek fountain of youth (hair color, hair
(1946-1964)
replacement), home exercise equipment

Silent Generation Lead vibrant lives, spend money and time

42 m
(1925-1945) on grandchildren. 22
 Social Class
• Social class is a status hierarchy in which individuals and
groups are classified on the basis of esteem and prestige
acquired mainly through economic success and
accumulation of wealth. Social class may also refer to
any particular level in such a hierarchy.
• Four common social classes informally recognized in
many societies are: (1) Upper class, (2) Middle class, (3)
Working class, and the (4) Lower class.

23
Psychographic Segmentation

• Personality traits

• Lifestyle

• Values

24
 …Psychographic Segmentation
• Psychographics is the science of using
psychology and demographics to better
understand consumers.
• In psychographic segmentation, buyers are
divided into different groups on the basis of
psychological/personality traits, lifestyle, or
values.
• People within the same demographic group can
exhibit very different psychographic profiles.
25
VALS Segmentation System

26
 …VALS Segmentation System
• VALS (Values, Attitudes And Lifestyles) is a research
methodology used for psychographic market segmentation.
• It was developed in 1978 by social scientist and consumer
futurist Arnold Mitchell and his colleagues at SRI
International.
• It segments US adults into eight distinct types—or mindsets
—using a specific set of psychological traits and key
demographics that drive consumer behavior.
• The main dimensions of the VALS framework are primary
motivation (the horizontal dimension) and resources (the
vertical dimension).
• The combination of motivations and resources determines
how a person will express himself or herself in the
marketplace as a consumer.
27
 …VALS Segmentation System
• The horizontal dimension represents primary
motivations and includes three distinct types:
– Consumers primarily motivated by ideals are guided
by knowledge and principles.
– Consumers motivated by achievement look for
products and services that demonstrate success to
their peers.
– Consumers whose motivation is self-expression desire
social or physical activity, variety, and risk.
• The vertical dimension segments people based on the
degree to which they are innovative and have resources
such as income, education, self-confidence, intelligence,
leadership skills, and energy. 28
 …VALS Segmentation System
The four groups with higher resources are:
1. Innovators: Successful, sophisticated, active, “take-charge”
people with high self-esteem. Purchases often reflect
cultivated tastes for relatively upscale, niche-oriented
products and services.
2. Thinkers: Mature, satisfied, and reflective people motivated
by ideals and who value order, knowledge, and
responsibility. They seek durability, functionality, and value
in products.
3. Achievers: Successful, goal-oriented people who focus on
career and family. They favor premium products that
demonstrate success to their peers.
4. Experiencers: Young, enthusiastic, impulsive people who
seek variety and excitement. They spend a comparatively
high proportion of income on fashion, entertainment, and
socializing. 29
 …VALS Segmentation System
The four groups with lower resources are:
1. Believers: Conservative, conventional, and traditional
people with concrete beliefs. They prefer familiar
products and are loyal to established brands.
2. Strivers: Trendy and fun-loving people who are
resource-constrained. They favor stylish products that
emulate the purchases of those with greater material
wealth.
3. Makers: Practical, down-to-earth, self-sufficient
people who like to work with their hands. They seek
products with a practical or functional purpose.
4. Survivors: Elderly, passive people who are concerned
about change and loyal to their favorite brands.
30
 Behavioral Segmentation
Occasions
Benefits
User status
Usage rate
Buyer-readiness
Loyalty status
Decision Roles Attitude

Behavioral
Variables
31
 Behavioral Segmentation
Behavioral segmentation divide buyers into groups on
the basis of their knowledge of, attitude toward, use of,
or response to a product.
• Decision Roles: People play five roles in a buying decision:
Initiator, Influencer, Decider, Buyer, and User.
• Behavioral Variables: Many marketers believe behavioral
variables are the best starting points for constructing
market segments. These are as follows:
– Occasions: We can distinguish buyers according to the
occasions when they develop a need, purchase or use a
product. For example, air travel is triggered by occasions related
to business, vacation, or family.
32
 …Behavioral Segmentation
– Benefits: Buyers are classified according to the benefits
they seek. Shampoos, for example, offer benefits such as
basic cleaning of hair, conditioning effects, medicinal
properties, and suitability to hair types.
– User Status: Every product has its nonusers, ex-users,
potential users, first-time users, and regular users. The key
to attracting potential users, or even possibly nonusers, is
understanding the reasons they are not using.
– Usage Rate: Market can be segmented into light, medium,
and heavy product users. Heavy users are often a small
slice but account for a high percentage of total
consumption.
– Buyer-readiness stage: The six psychological stages—
awareness, knowledge, liking, preference, conviction, and
purchase—
purchase through which a person passes when deciding
to purchase a product. 33
Brand Funnel

34
 …Brand Funnel
• To help characterize how many people are at
different stages and how well they have converted
people from one stage to another, marketers can
employ a marketing funnel to break down the
market into different buyer-readiness stages.
• The above figure displays a funnel for two
hypothetical brands. Compared to Brand B, Brand A
performs poorly at converting one-time users to
more recent users (only 46 percent convert for Brand
A compared to 61 percent for Brand B).
• Depending on the reasons consumers didn’t use
again, a marketing campaign could introduce more
relevant products, find more accessible retail outlets,
or dispel rumors or incorrect beliefs consumers hold.
35
 …Behavioral Segmentation
– Loyalty status: Marketers usually visualize four groups
based on brand loyalty status:
• Hard-core loyals: Consumers who buy only one brand all the
time.
• Split loyals: Consumers who are loyal to two or three brands.
• Shifting loyals: Consumers who shift loyalty from one brand
to another.
• Switchers: Consumers who show no loyalty to any brand.
– Attitude: Five attitudes about products are:
• Enthusiastic
• Positive
• Indifferent
• Negative
• Hostile
36
Behavioral Segmentation Breakdown
Combining different behavioral
bases can provide a more
comprehensive and cohesive view
of a market and its segments.

37
 The Conversion Model

Convertible Shallow Average Entrenched

Users Nonusers

Strongly Weakly
Ambivalent Available
unavailable unavailable

38
 …The Conversion Model
• The conversion model measures the strength of
consumers’ psychological commitment to
brands and their openness to change.
• To determine how easily a consumer can be
converted to another choice, the model assesses
commitment based on factors such as consumer
attitudes toward, and satisfaction with, current
brand choices in a category and the importance
of the decision to select a brand in the category.
Source: Chip Walker (1995), “How Strong Is Your
Brand”, Marketing Tools, January-February:46-53
39
 …The Conversion Model
• The model segments users of a brand into four
groups based on strength of commitment,
commitment from
low to high, as follows:
– Convertible: Most likely to defect.
– Shallow: Uncommitted to the brand and could
switch- some are actively considering alternatives.
– Average: Also committed to the brand they are
using, but not as strongly- they are unlikely to switch
brands in the short term.
– Entrenched: Strongly committed to the brand they
are currently using- they are highly unlikely to switch
brands in the foreseeable future. 40
 …The Conversion Model
• The model also classifies nonusers of a brand
into four other groups based on their “ balance of
disposition”
disposition and openness to trying the brand,
brand
from low to high, as follows:
– Strongly unavailable: Unlikely to switch to the brand-
their preference lies strongly with their current
brands.
– Weakly unavailable: Not available to the brand
because their preference lies with their current
brand, although not strongly.
– Ambivalent: As attracted to the brand as they are to
their current brands.
– Available: Most likely to be acquired in the short run.
41
 Bases for Segmenting Business Markets

Industry, Company size, Location

Demographic

Technology, User or nonuser

Operating Variables status, Customer capabilities

Power structure, Nature of

Purchasing Approach existing relationship

Urgency, Specific application, Size

Situational Factors of order

Buyer-seller similarity, Attitude

Personal Characteristics toward risk, Loyalty
42
 …Bases for Segmenting Business Markets
Demographic:
1.Industry:
Industry Which industries should we serve?
2.Company size:
size What size companies should we serve?
3.Location:
Location What geographical areas should we serve?
Operating Variables:
4. Technology:
Technology What customer technologies should be
focused on?
5. User or nonuser status:
status Should we serve heavy users,
medium users, light users, or nonusers?
6. Customer capabilities:
capabilities Should we serve customers
needing many or few services?

43
 …Bases for Segmenting Business Markets
Purchasing Approaches:
7. Purchasing-function organization:
organization Should we serve
companies with highly centralized or decentralized
purchasing organizations?
8. Power structure:
structure Should we serve companies that are
engineering dominated, financially dominated, and so on?
9. Nature of existing relationships:
relationships Should we serve
companies with which we have strong relationships or
simply go after the most desirable companies?
10. General purchasing policies:
policies Should we serve companies
that prefer leasing? Service contracts? Systems purchases?
Sealed bidding?
11. Purchasing criteria:
criteria Should we serve companies that are
seeking quality? Service? Price? 44
 …Bases for Segmenting Business Markets
Situational factors:
12. Urgency:
Urgency Should we serve companies that need quick
and sudden delivery or service?
13. Specific application:
application Should we focus on certain
application of our product rather than all applications?
14. Size of order:
order Should we focus on large or small orders?
Personal characteristics:
15. Buyer seller similarity:
similarity Should we serve companies
whose people and values are similar to ours?
16. Attitudes toward risk:
risk Should we serve risk-taking or risk
avoiding customers?
17. Loyalty:
Loyalty Should we serve companies that show high
loyalty to their suppliers?
45
 Market Targeting
Effective Segmentation Criteria:
Measurable
Measurable

Substantial
Substantial

Accessible
Accessible

Differentiable
Differentiable

Actionable
Actionable

46
 …Market Targeting
Once the firm has identified its market-segment
opportunities, it must decide how many and which ones to
target. To be useful, market segments must rate favorably
on five key criteria:
• Measurable: The size, purchasing power, and
characteristics of the segments can be measured.
• Substantial: The segments are large and profitable enough
to serve.
• 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.
• Actionable: Effective programs can be formulated for
attracting and serving the segments.
47
 Evaluating and Selecting Segments
• In evaluating different market segments,
the firm must look at two factors:
– the segment’s overall attractiveness.
– the company’s objectives and resources.
• The following figure shows that marketers
have a range or continuum of possible
levels of segmentation that can guide their
target market decisions.
48
 Patterns of
Target Market Selection

49
 Patterns of
Target Market Selection

50
 Patterns of
Target Market Selection

51
 Patterns of
Target Market Selection

52
 Patterns of
Target Market Selection

53
Segment-by-Segment Invasion Plan

54
 …Segment-by-Segment Invasion Plan
• A company would be wise to enter one segment
at a time. Competitors must not know to what
segment(s) the firm will move next. Segment by
segment invasion plans are illustrated in the
previous slide. Three firms A, B, and C, have
specialized in adapting computer systems to the
needs of airlines, railroads, and trucking
companies. Company A meets all the computer
needs of airlines. Company B sells large
computer systems to all three transportation
sectors. Company C sells personal computers to
trucking companies.
55
 …Segment-by-Segment Invasion Plan
• Where should company C move next? Company
C will next offer midsize computers to trucking
companies. Then, to allay company B’s concern
about losing some large computer business with
trucking companies, C’s next move will be to sell
personal computers to railroads. Later, C will
offer midsize computers to railroads. Finally, it
may launch a full scale attack on company B’s
large computer position in trucking companies.
C’s hidden planned moves are provisional in
that much depends on competitors’ segment
moves and responses.
56