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Market Segmentation
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Contents
1 Preparing for market
segmentation 2
4
8
Scope of Segmentation
Portraying how a market
works and identify decision-
makers
Developing a representative
sample of different
decision-makers
6Accounting for the behavior
of decision-makersForming market
segmentation
Determining the
attractiveness of market
segments
Assessing company
competitiveness and the
portfolio matrix
3
5
7
10Realizing the full potential
of market mapping
Predicting market
transformation9
12Setting market objectives
and strategies
Organizational issues on
market segmentation11
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Definition of Market Segmentation
“Market Segment is the
process of splitting
customers, or potential
customers, in a market into
different groups, or
segments”
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Market Segmentation
Customers, therefore segment
themselves and what the
company must focus on and
understand the needs that
customers are seeking to satisfy
and, in doing so, understand the
motivation that drive the choices
made by customers
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Why segmentation?
• To develop market activities
• Increase market effectiveness
• Generate greater customer satisfaction
• Create savings
• To identify strategic opportunities and niches
• Allocation of marketing budget
• To overcome competition effectively
• To develop effective marketing programs
• To contribute towards achieving company goals
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Predetermined approaches used in
market segmentation
Product and
Services
Product and
Services
DemographicsDemographics
GeographyGeography
The problem with segmenting markets according
only to the product or services offered, or the
technology type is that in most markets, many
different types of customers buy or use the same
products or services.
Variables such as sex, age, lifestyle and so on, when
used to define segments, are by implication claiming,
for e.g., that every 30-35 years old will respond to the
same proposition.
Rather like demographics, segment based on geo-
graphic areas, however tightly defined, assumes that
everyone in a predetermined area can be expected
to react to a particular offer in exactly the same way
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Predetermined approaches used in
market segmentation
ChannelChannel
PsychographicsPsychographics
Routes to markets are becoming more sophisticated
and complex, and are also becoming an increasingly
important component of many winning customers
propositions.
Here we have another customer insight that can
contribute to a segmentation project, but, on its own,
can’t define the entirety of a winning customer
proposition.
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International Market Segmentation
Segmentation models in international
marketing tend to consist of geographical
groups, such as Western Europe,
Eastern Europe, North America, ASEAN,
Australasia and so on. Unfortunately,
such grouping are of very limited value as
actionable marketing propositions, since
they bear little relationship to actual
consumption or usage patterns.
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Classifying market segmentation
in organization
Customer-
driven
Low
High
Level of organizational integration
High Low
Sales-based
segmentation
1
Structural
segmentation
2
Bolt-on
segmentation
3
Effective
segmentation
4
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Classifying market segmentation
in organization
SALES-BASED
SEGMENTATION
This segment describes an
organizational archetype where
the market is segmented on the
basis of how the sales function
is organized, which does not
reflect the cluster of particular
customer characteristics or
needs.
STRUCTURAL
SEGMENTATION
This segment represents a
further archetype where there is
little emphasis on segments as
groups of customers segments
are defined by how the
organization is structured.
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Classifying market segmentation
in organization
BOLT-ON
SEGMENTATION
This presents an archetype
where a high level of customer
focus is brought into the
defining of market segments.
EFFECTIVE
SEGMENTATION
It combines both a customer
focus and a high level of
organizational integration. The
organization is able to apply
customer-based data in order to
develop a set of defined
segments
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Effective market segmentation
Proposition flexibility
This is the degree to which a
proposition can be tailored to
the needs of different groups
of customers. It can range
from a fixed product offering
to one in which the offer is
almost completely specific to
an individual customer.
Market granularity
Market granularity is the
degree to which customers
needs and motivations differ
within a defined market. It
can range from near
homogeneous, in which all
customers share very similar
needs and motivations, to
heterogeneous when the
opposite applies
Organizational
consideration
The most important point
about organizational structure
is that there are a number of
issues that all firms have to
address. They are –
Geographic location, function,
products, markets, channels.
Increasing competition has
forced organization to agree
that the 2 main issues are
products and markets which
is why many organizations
have ‘product/technology
managers’ and/or ‘market
managers’
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Criteria for segmentation
• Possible to measure.
• Large enough to earn profit.
• Stable enough that it does not vanish after some time.
• It is possible to reach to potential customer via organization's promotion and distribution
channel.
• Internally homogeneous (potential customers in the same segment prefer the same
product qualities).
• It is externally heterogeneous that is Heterogeneity between segments (potential
customers from different segments have basically different quality preferences).
• It responds similarly to a market stimulus.
• It can be cost-efficiently reached by market intervention.
• Useful in deciding on marketing mix
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Rules for segmentation
Each segment should
consist of customers who
are relevant to the
purchase situation in that
they are responsible for
making the decisions or
can affect buying behavior.
Each segment should
have sufficient potential
size to justify the time and
effort involved in planning
specifically for the
business opportunity.
Each segment should be
distinguishable from other
segments, such that each has
a distinctive set of require-
ments and can be served by
an equally distinctive
marketing strategy.
Each segment should be
reachable by sales and
distribution channels
currently being used or
which could be used.
Each segment should be
capable of being identified
by a set of characteristics
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Advantages of segmentation
Recognizing customer’s difference is the key to
successful marketing, as it can lead to a closer
matching of customers needs with the company’s
product or services.
Segmentation can lead to niche marketing, where
appropriate, where the company can meet the
needs of customers in that niche segment
resulting in segment domination something which
is often not possible in the total market.
Segmentation can lead to the concentration of
resources in markets where competitive
advantage is greatest and returns are high.
Segmentation can be used to gain competitive
advantage by enabling you to consider the market
in different ways from your competition.
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Contents
2 Scope of Segmentation
6Accounting for the behavior
of decision-makers
1 Preparing for market
segmentation
4
8
Portraying how a market
works and identify decision-
makers
Developing a representative
sample of different
decision-makers
Forming market
segmentation
Determining the
attractiveness of market
segments
Assessing company
competitiveness and the
portfolio matrix
3
5
7
10Realizing the full potential
of market mapping
Predicting market
transformation9
12Setting market objectives
and strategies
Organizational issues on
market segmentation11
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Segmenting consumer markets
Geographic
segmentation
Demographic
segmentation
Psychographic
segmentation
Behavioral
segmentation
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Segmenting consumer markets
Geographic segmentation
divides the market into
different geographical units
such as nations, regions,
states, countries or cities.
Psychographic
segmentation divides
buyers into different
groups based on
social class, lifestyle,
or personality traits.
Demographic
segmentation divides
the market into groups
based on variables
such as age, gender,
family size, income,
occupation, race and
nationality.
Behavioral segmentation
divides buyers into groups
based on their knowledge,
attitudes, uses, or
responses to a product.
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Geographic scope
A segmentation process clearly
requires a geographic boundary as
this will enable the project team to
size the market, identify the
localities in which the market
dynamics have to be understood
and, once the segments have
been identified, develop the
appropriate marketing objective
and strategies for those localities.
For companies trading in
numerous countries around
the world there is clearly an
enormous attraction in finding
a single global segmentation
model that can be applied to
every country.
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Defining markets
Market definition is crucial for
Measuring market share and market growth1
The specification of target customers2
Recognition of relevant competition3
The formulation of marketing strategy, for it is this, above all
else, that delivers differential advantage4
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Developing the market definition
The general rule for “market” definition
is that it should be described in terms
of a customer need in a way which
covers the aggregation of all the
alternative products or services which
customers regard as being capable of
satisfying that same need. It is not,
therefore defined in terms of what a
company sells, but in terms of what
customers are setting our to achieve.
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Ensuring meaningful definition to your
company
COMPANY
In some case the market definition will not be suitable for few
companies, if they are focused on particular part of an overall product.
Now, define the potentially available market by
taking into account what you company’s
products or services and their directly competi-
tive products or services could be used for
within the totally available market.
Finally, therefore define the realistically
available market, as this will become the
market to be segmented.
First, define the totally available market by
expressing it as ‘a need that can be satisfied by
all the alternative products or services’.
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Markets and SBUs
In addition to ensuring that the market definition is meaningful
to your company, another issue you may need to address is
associated with corporate structure. In many countries, the
market being segmented will fall within the responsibilities of
one strategic business unit and progressing with the project is
therefore quite straight forward.
An SBU will therefore
• Have common customers and competitors for most of its products
• Be a competitor in an external market
• Be a discreet, separate identifiable unit
• Have a manager who has control over most of the areas critical to success
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Now that the market segmenting has been clearly
defined, a volume or value figure is required in order to
size it as it is today, with estimates for the future. In
most cases, the annual figures for the market should be
used. Being able to size the defined market is
particularly important for later stages in the process.
The size of a segment is used to determine whether or
not a segment represents a viable business proposition
and therefore worth the time and resources required for
the development of a specific offer for that segments.
Sizing the defined market
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Market segmentation process
STAGE 1 – YOUR MARKET AND HOW IT OPERATESSTAGE 1 – YOUR MARKET AND HOW IT OPERATES
STAGE 2 – CUSTOMERS AND TRANSACTIONSSTAGE 2 – CUSTOMERS AND TRANSACTIONS
STAGE 3 – SEGMENTING THE MARKETSTAGE 3 – SEGMENTING THE MARKET
Step 1 – Market mapping
structure and decision makers
Step 2 – Who buys?
customer profiling
Step 3 – What is bought?
Purchase options
Step 4 – Who buys what?
Customers and their purchases
Step 5 – Why it is bought?
Customer needs
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Contents
Portraying how a market
works and identify decision-
makers3
2 Scope of Segmentation
6Accounting for the behavior
of decision-makers
1 Preparing for market
segmentation
4
8
Developing a representative
sample of different
decision-makers
Forming market
segmentation
Determining the
attractiveness of market
segments
Assessing company
competitiveness and the
portfolio matrix
5
7
10Realizing the full potential
of market mapping
Predicting market
transformation9
12Setting market objectives
and strategies
Organizational issues on
market segmentation11
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Constructing your “market map”
A “market map” defines
the distribution and value
added chain between final
users and suppliers of the
products or services
included within the scope of
segmentation project.
This should take into
account the various
buying mechanisms
found in your markets,
including the part
played by ‘influencers’.
This is a key step in the
market segmentation
process and you should
spend as much time as
necessary to ensure you
correctly identify the
individuals or groups to be
taken into next stage of the
segmentation projects.
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Constructing your “market map”
Starting a market map and adding the routes between the transaction stages
First – Lay the transaction stages
Final users
Retailers
Distributors
Suppliers
Second – Add the routes between them
Final users
Retailers
Distributors
Suppliers
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Initial quantification of the market map
With quantification playing an important role in the process, mark at each junction and along
each route the volumes or values dealt with each of them.
Final users
100%
Retailers
60%
Distributors
35%
Suppliers
100%
Contractors
25%
75% 25%
60%
30%
30%
5%
20%
15%
Final users source 25% through
contractors and 75% from elsewhere.
The75% sourced from elsewhere is
split 60%:15% between retailers and
suppliers respectively.
The 60% sourced from retailers is, in
turn, split 30%:30% between distribu-
tors and suppliers.
In addition to the 30% sourced from distributors by
retailers, contractors also source product from
distribution. The 25% handled by contractors is split
between distributors and suppliers 5%:20%
respectively, giving a total of 35%
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Preliminary segments
Many companies already hold views about how
their market splits into segments, with these
views based either on previous segmentation
work, natural divisions that have been observed
or on ideas that may have been developed while
constructing the market map, it is clearly useful if
the validity of these views can be tested in some
way and, in doing so, be able to track them
through the segmentation process.
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Preliminary segments
Preliminary segmentation simply form a base from which to
work. Preliminary segments could consists of the following:
• A current segmentation structure
• Junction
• Junction types
• Leverage and non-leverage groups
• Standard approaches to dividing customers in a industry
• Extent of experience in the market
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ToC
4Developing a representative
sample of different
decision-makers
Portraying how a market
works and identify decision-
makers3
2 Scope of Segmentation
6Accounting for the behavior
of decision-makers
1 Preparing for market
segmentation
8
Forming market
segmentation
Determining the
attractiveness of market
segments
Assessing company
competitiveness and the
portfolio matrix
5
7
10Realizing the full potential
of market mapping
Predicting market
transformation9
12Setting market objectives
and strategies
Organizational issues on
market segmentation11
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Micro-segments
A ‘micro-segment’ is a group of decision-makers
who share a similar level of interest in a specific
set of features. The uniqueness of a micro-
segment is that when determining which of the
alternative decision offers is to be bought, the
decision-maker it represents demonstrate a
similar level of interest in a specific set of
features, with these features being the
characteristics or properties of ‘what’ is bought,
‘where’ it is bought, ‘when’ it is bought and ‘how’
it is bought as appropriate for micro-segment. It
is essential, therefore, that it is approached from
customers perspective.
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Key Discriminating Features (KDF)
The features that are of interest to a
segmentation process are those
which the decision-maker focus on
and regard as important when they
are determining which of the
competing products will be bought.
Clearly, it is essential that these
features are looked at from the
customer’s perspective.
As a first step towards identifying
the KDFs, it is essential to draw up
a list of all features available across
the full range of products of
services competing with each other
in a defined market.
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Getting micro-segments up and running
Micro-segments are based
on actual decision-makers,
not fictional individuals.
They represent the defined
market as a whole, not just
our own customers.
Their KDFs are from market as
a whole, not simply limited to
the features you and your
particular intermediaries offer.
Their KDFs are what they
see as important, not what
you would prefer them to see
as important.
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Procedure to be followed when developing
micro-segments
Divide the market into identifiable groups of customers as this equips with useful
points of reference for developing micro-segment.1
Take one of these reference groups, familiarize yourself with the individuals it represents
and develop into a micro-segment by carefully listing the customers in this group regard
as their KDFs, with any differences within the group captured as micro-segment.
2
Now, attempt to indicate the relative importance of KDF to the micro-segment
using a simple grading structure.3
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Procedure to be followed when developing
micro-segments
Consider a cross-section of customers included in a micro-segment to confirm if
they would all agree with the list of KDFs and their grading.4
Verify each micro-segment by checking that it is based on actual decision-makers, its
reality check, further verified by checking that its KDFs either represent a known
transaction, or actually make sense.
5
Size each micro-segment, by referring back to the reference group it originated
from and utilizing any market figures that may be available.6
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Contents
Accounting for the behavior
of decision-makers5
4Developing a representative
sample of different
decision-makers
Portraying how a market
works and identify decision-
makers3
2 Scope of Segmentation
6
1 Preparing for market
segmentation
8
Forming market
segmentation
Determining the
attractiveness of market
segments
Assessing company
competitiveness and the
portfolio matrix7
10Realizing the full potential
of market mapping
Predicting market
transformation9
12Setting market objectives
and strategies
Organizational issues on
market segmentation11
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Explaining customer behavior
Basically, there are
two principal theories
of customer behavior.
One theory refers to the rational
customer, who seeks to maximize
satisfaction or utility. This custo-
mer behavior is determined by
the utility derived from a purchase
at the margin compared with the
financial outlay and other
opportunities forgone.
Another view of customer behavior
which helps to explain this
phenomenon is that which described
this psycho-socio customer, whose
attitudes and behaviors are affected
by family, work, prevailing cultural
patterns, groups they relate,
perception and lifestyle.
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Benefit What the customer gets
that they explicitly need?
Advantage What it does?
From ‘features’ to ‘benefits’
When looking at the benefits for your market, it is useful if you first consider
what issues are of particular concern to the customer. Then to get from a
features to a benefit, describe what the feature does, its advantage and finally
identify the particular appeal this has to the customer, the ‘benefits’, this being
the reason why the feature is of interest to them.
The distribution between, a ‘feature’, an ‘advantage’ and a ‘benefit’ can be
summarized as
FeatureWhat it is, consists of, or
is made from?
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Standard, company and differential benefits
These are basic benefit provided by product features but are not in any
way unique to any particular manufacturer/supplier.
E.g., the aerosol propellant is one that does not damage the ozone layer.
Standard
benefits
Whenever a purchase is made, the transaction links the customer to the
company supplying the item. Links will be forged between the two as
many levels. For e.g., in business-to-business transactions, their
accounts department will be in contact to deal with payment or financial
matters. Customers prefer companies which provide better service.
Company
benefits
In a competitive market place, most suppliers vying for the available
customers will not be able to claim that their standard, or company, benefits
are, in truth regarded as being a great deal different from those of the
competition. The benefits that only your products/services provide, which
also benefits in the eye of the customer, give your company its competitive
advantage and are known as ‘differential benefits’. For e.g., the only
breakdown services genuinely open 24 hours a day and therefore available
at any time to get the customer back on the move again.
Differen-
tial
benefits
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Using Segmentation in Customer Retention
A company tags each of its active customers with 3 values
What retention tactics should be
used to retain this customer? For
customers who are deemed
“save-worthy”,
it’s essential for the company to
know which save tactics are
most likely to be successful.
Is this customer at high risk of
canceling the company's service?
One of the most common indicators of
high-risk customers is a drop off in
usage of the company's service. For
example, in the credit card industry
this could be signaled through a
customer's decline in spending on his
or her card.
Is this customer worth retaining? This
determination boils down to whether the
post-retention profit generated from the
customer is predicted to be greater than
the cost incurred to retain the customer.
12
3
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Looking beyond the status quo
It is important when considering the reasons why a customer shows
interest in certain features. To help uncover their real needs and their
true motivations, we should be able to answer the question, ‘what are
they really trying to achieve?’
Thus, it is crucial at this stage to be alert to any possible unsatisfied
needs manifesting themselves in the guise of something else rather than
accepting the status quo.
For e.g., “price” may be given as the sole or major criterion for choice, but
it could be hiding the fact that customers are currently dissatisfied with
present alternative offers available, as their needs are not being met.
Also understanding why customers show little interest in a product and
asking ‘what would they really like to achieve?’ can help take the analysis
of benefits beyond the status quo.
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Price
Clearly , ‘price’ has an
important part to play in
explaining customer behavior
and is obviously a component
of customers ‘buying criteria’.
Everything has its price!.
Not everyone buys the
cheapest, and for those
who do, it could be because
there is nothing available in
the market that really meets
their requirements.
“Price” is simply a measure of
value placed by a customer on
both the tangible and intangible
components of a purchase.
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Decision Buying Criteria (DBC)
The 2 pertinent points to
remember while working
through this step are
The benefit are for the market
as a whole, not simply limited to
those that you deliver to your
customer.
These benefits are what the decision
makers regard as their decisive buying
criteria, not what you would prefer
them to see as their DBC.
DBC are the perceived or stated attributes of a purchase that
customers evaluate when choosing between alternative offers.
This is a critical stage in the process as, once this analysis has
been completed the resulting list of DBCs, are used to determine
the segmentation structure of your market, as they provide the
framework for comparing the micro-segments with each other.
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Techniques for uncovering unsatisfied needs
There are usually several main motivations in any market, just a few of
which are of real importance to the decision-makers. These
dimensions can be viewed as bipolar scales along with current offers
in the market can be positioned. For e.g.,
Expensive/
inexpensiveStrong/mild Fast/slow
Large/smallComplex/
simple
Garnish/
subtle
Masculine/
feminine
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Techniques for uncovering unsatisfied needs
The possibility of there being unsatisfied needs in a market can be determined by
putting together a 2-dimensional matrix with the axes selected from the list of main
motivation and the current offers positioned accordingly.
This figure suggests that there are lot of “opportunity gaps” in the market for detergents. But before
investing resources in a new products targeted as these gaps it is essential to ensure that the gap
do not exist simply because they represent products for which there is no demand
High cleaning
power
Low cleaning
power
Low fresh-
ness
High fresh-
ness
Bleach
Harpic (other
powder)
Pine
disinfectant
Deodorizes
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Contents
6 Forming market
segmentation
Accounting for the behavior
of decision-makers5
4Developing a representative
sample of different
decision-makers
Portraying how a market
works and identify decision-
makers3
2 Scope of Segmentation1 Preparing for market
segmentation
8Determining the
attractiveness of market
segments
Assessing company
competitiveness and the
portfolio matrix7
10Realizing the full potential
of market mapping
Predicting market
transformation9
12Setting market objectives
and strategies
Organizational issues on
market segmentation11
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Why segment the market?
Better matching of customer needs
Customer needs differ. Creating separate products for each segment
makes sense and provides customers with a better solution
Better opportunity for growth
Market segmentation can build sales. For example, customers can be
encouraged to ‘trade-up’ after being introduced to a particular product
with an introductory, low-priced product
More effective promotion
By segmenting markets, target customers can be reached more often
and at lower cost
Gain a higher share of the market
Through careful segmentation and targeting, businesses can often
become the market leader, even of the market is small
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Ways of segmenting market
Age
Businesses often target certain age groups. Good examples are tooth
paste which has variety of tooth paste products for children, adults
Gender
We all know that males and females demand different types of same
product. Examples include, clothing, hair dressing, magazines and
cosmetic products
Income
Many companies target rich consumers with luxury goods. Other
businesses focus on products that appeal directly to consumers on low
income
Social class
Many businesses believe that a consumer ‘perceived’ social class
influences their preferences for cars, clothes, home furnishings, leisure
activities and other products and services
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Stages in segmentation process
Stage 1
Step 1: Defining the ‘Market’
The scope of the market
Step 2: Market mapping
Structure and decision-makers
Your market and how it works
Stage 2 Decision-makers and transactions
Step 3: Who specifies what?
Decision-makers and their purchases
Stage3 Segmenting the market
Step 4: Why
The needs of decision-makers
Step 5: Forming segments
Combining like-minded decision-makers
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Size of market segments
The question about the economic size of a segment is
one that has to be considered by those businesses
where tailoring their propositions around the different
needs of individual customer is unlikely to produce the
returns required by the company
This is very likely to be the case for companies with
limited resource flexibility, such as those producing
products or services that require investment in large
fixed/capital assets, and where tailoring is severely
limited by technical considerations
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Size of market segments
At the other end of the spectrum are those companies
with a high degree of resource flexibility, such as those
dependent on human resources, and with almost no
technical limitations on their proposition flexibility as
would be the case for consulting services
However, even for these latter companies, unless they
are offering full individual tailoring of every proposition,
they will still need to establish some minimum
threshold, but it would be substantially lower than that
setting the capital intensive organization
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The relationship
High
Low
Low High
Re
qu
ire
d m
inim
um
siz
e o
f
se
gm
en
t
Resource inflexibility; technical
limitations
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Segment checklist
Volume/Value
The size of each segment must be sufficient to
justify the expense of developing specific offers
for them and the expense of taking these offers
into the market. The ‘size test’ for each
segment should already have been cleared.
Segments have to be measured
1
2
3
4
5
6
7
8
9
10
Differentiated
Is the offer required by each segment
sufficiently different from that required by the
other segments? This is where marketing
strategies appropriate for one segment are
checked to ensure they are distinguishable
from the marketing strategies developed for
the other segments
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Segment checklist
Reachable
This is where the different segments are checked to ensure
that the marketing strategies appropriate for each of them
can be directed towards them in some way. Each segment
must, therefore, have some distinctive characteristics that
can be used to identify the customers it represents, thereby
enabling us to communicate with them and distribute our
products and services to them. E.g., Television, Radio,
Newspaper, Magazines
Compatability
This is where you rigorously check your own company’s
ability to focus on the new segments by structuring itself
around them organizationally, culturally, in its management
information systems and in its decision-making process.
Such changes may not be possible immediately, therefore,
the organization’s ability and willingness to evolve to the
required structure should be tested
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Contents
Determining the
attractiveness of market
segments7
6 Forming market
segmentation
Accounting for the behavior
of decision-makers5
4Developing a representative
sample of different
decision-makers
Portraying how a market
works and identify decision-
makers3
2 Scope of Segmentation1 Preparing for market
segmentation
8Assessing company
competitiveness and the
portfolio matrix
10Realizing the full potential
of market mapping
Predicting market
transformation9
12Setting market objectives
and strategies
Organizational issues on
market segmentation11
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reserved.Visit https://grandemareopenseatoknowledge.wordpress.com/
Plotting segments on the portfolio matrix according
to their attractiveness
Relative company competitiveness
Se
gm
en
t a
ttra
cti
ve
ne
ss
High
Low
Year 3
Year 3
Segment 1
Segment 2
To ensure a spread of segments
along the attractiveness axis, the
point of origin has been set to ‘3.0’
and the highest point set to ‘8.0’.
Segments positioned in the lower
half of the matrix should not be
treated as unattractive, they are
simply less attractive than
segments positioned in the top
half of the matrix. The cash they
generate will be an important
contribution to the investment
required in those segments
appearing in the top half
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The Boston Matrix
High
Low
High Low
Relative segment (market) share (ratio of
company share to share of largest competitor)
Segment
(market)
growth
(annual
rate in
constant
money
relative
to, for
example
GNP
growth
‘Stars’ ‘Question
marks’
‘Cash
cows’
‘Dogs’
Cash generated
Cash used
Cash generated
Cash used
Cash generated
Cash used
Cash generated
Cash used
+ + +
– – –
0
+
– – –
– –
+ + +
– – –
+ +
+
–
0
Although ‘High’ is positioned
in the left of the horizontal
axis, it can, if you prefer be
placed on the right. The
definition of high relative
segment share is taken to be
a ratio of one or greater than
one. The cut-off point for high,
as opposed to low segment
growth should be defined
according to the prevailing
circumstances in the defined
market. As well as being a
postive figure, there is no
reason why the dividing line
on the vertical axis cannot be
zero or even a minus figure
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The GE/McKinsey matrix
High
Medium
Low
Se
gm
en
t a
ttra
cti
ve
ne
ss
High Medium Low
Relative company competitiveness
• Size
• Segment
growth
• Pricing
• Segment
diversities
• Compe-
titive
structure
• Segment
profitability
• Technical
role
• Social
• Environ-
mental
• Legal
• Human
• Size
• Growth
• Share
• Position
• Profitability
• Margins
• Technical
• Strengths/
weak-
nesses
• Image
• People
Invest/Grow
Selectivity/
learning
Harvest/
divest
The figure shows:
• Segments categorized on a scale of attractiveness to the company
• The company’s relative strengths in each of these segments
• The relative importance of each segment to the company
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The McDonald four box Directional Policy Matrix (DPM)
High Low
Relative company competitiveness
Se
gm
en
t a
ttra
cti
ve
ne
ss
High
Medium
Low
Segment 2
Segment 7Segment 5
Segment 8
Segment 6
Segment 4
Segment 3
Segment 1
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Directional Policy Matrix for a portfolio of segments
High Low
Relative company competitiveness
Se
gm
en
t a
ttra
cti
ve
ne
ss
High
Medium
Low
No change
Maintain
Manage for
cash
Invest/build
Present position
Forecast position
in 3 years
Segment attractiveness has
only been calculated for the
final year. Relative company
competitiveness has been
calculated for both the current
year and the final year
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Contents
8Assessing company
competitiveness and the
portfolio matrix
Determining the
attractiveness of market
segments7
6 Forming market
segmentation
Accounting for the behavior
of decision-makers5
4Developing a representative
sample of different
decision-makers
Portraying how a market
works and identify decision-
makers3
2 Scope of Segmentation1 Preparing for market
segmentation
10Realizing the full potential
of market mapping
Predicting market
transformation9
12Setting market objectives
and strategies
Organizational issues on
market segmentation11
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Competitive factors
The factors will be principally a combination of an organization’s relative
strengths versus competitors in connection with customer-facing needs
in each segment, namely those that are required by the customer
This ‘success’ is in relation to the constituents of the offered required to
deliver each ‘Decisive Buying Criteria’ (DBCs) and these are frequently
referred to as ‘Critical Success factors’ (CSFs); this is the term most
often found in marketing text books and papers when describing the
business strengths/competitiveness axis of a portfolio matrix
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Critical Success Factors (CSFs)
The CSFs can be summarized under the following categories
Critical
Success
Factors
P
P
P
P
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For example: In the case of pharmaceuticals,
product strengths could be represented by
Relative Product Safety
Relative Product Convenience
Relative Cost Effectiveness
‘Profit’ on the segment attractiveness axis can
be broken down into a number of sub-headings,
so can each can be broken down further and
analyzed, with the sub-headings based on those
that are relevant to the segment
The profit
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Questions to consider
How well your company can meet the requirements of each segment,
you may well need to consider questions such as
Do we have the right products ?
How large is our segment share ?
How well are we known in this segment ?
Do we have the right technical skills ?
Do can we adapt to change and do we have
enough capacity ?Can we grow? and how close are we to this
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Portfolio management – examples
Well balanced portfolio
High Low
Relative company competitiveness
Se
gm
en
t a
ttra
cti
ve
ne
ss
High
Low
‘Stars’ ‘Question
marks’
‘Cash
cows’
‘Dogs’
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Portfolio management – examples
Poorly balanced portfolio
High Low
Relative company competitiveness
Se
gm
en
t a
ttra
cti
ve
ne
ss
High
Low
‘Stars’ ‘Question
marks’
‘Cash
cows’
‘Dogs’
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Contents
Realizing the full potential
of market mapping9
8Assessing company
competitiveness and the
portfolio matrix
Determining the
attractiveness of market
segments7
6 Forming market
segmentation
Accounting for the behavior
of decision-makers5
4Developing a representative
sample of different
decision-makers
Portraying how a market
works and identify decision-
makers3
2 Scope of Segmentation1 Preparing for market
segmentation
10 Predicting market
transformation
12Setting market objectives
and strategies
Organizational issues on
market segmentation11
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The Market Challenge
Identify groups of customers who
have similar needs and wants
Find a way of offering
(positioning) a product which is
attractive to those customers
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Market Mapping
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Possible dimensions
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Possible dimensions
Low price High price
High quality
Low quality
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Taking care of Market Map
Advantages
• Helps spot gaps in the market
• Useful for analysing competitors
• Encourages use of market research
Disadvantages
• Just because there is a ‘gap’ it does not
mean there is demand
• Not a guarantee of success
• How reliable is the market research?
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Contents
10 Predicting market
transformationRealizing the full potential
of market mapping9
8Assessing company
competitiveness and the
portfolio matrix
Determining the
attractiveness of market
segments7
6 Forming market
segmentation
Accounting for the behavior
of decision-makers5
4Developing a representative
sample of different
decision-makers
Portraying how a market
works and identify decision-
makers3
2 Scope of Segmentation1 Preparing for market
segmentation
12Setting market objectives
and strategies
Organizational issues on
market segmentation11
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Market Transformation
The term market transformation is
the strategic process of intervening in
a market to create lasting change in
market behavior by removing
identified barriers or exploiting
opportunities to accelerate the
adoption of all cost-effective energy
efficiency as a matter of standard
practice
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A process for multi-channel strategy formulation
Analyze industry
structure
Define channel
chaining
Compare value
proposition
Set channel
strategies
Determine
channel tactics
• Future market mapping
• Intermediation analysis
• Current potential channel combination
• Fit with customer life cycle
• Channel value chain
• Strategy optiions
• Prioritization matrix
• Structure
• Human resources
• Project management
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Recruit the partners
and allies needed to
truly deliver a complete
product. Doing it by
yourself is rarely if ever
possible
Determine what makes
the product
"complete" in the eyes
of your initial target
customer. Sometimes
this means reducing a
product's intended use
so that it fits a single
purpose or application
Six strategies that accelerate market transformation
23
4
5 6
1
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Why Hi-tech companies fail?
Lack of Market Focus (Segmentation)
Excessive Pace of Product
Improvement
Incomplete Products
Undifferentiated Products
Channel Mismanagement
Failure to Establish the Right
Competitive Barriers
Using Price Alone To Drive
Market Transformation
Improper Use of Advertising
Misinterpretation of the
Technology Adoption Lifecycle
Model
Irrelevant Market Research
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Why Hi-tech companies fail?
Lack of market focus
(segmentation)
• Emerging high-tech companies often do anything possible to
generate revenue and in the process try to be all things to all people.
Worried about losing business they avoid segmenting the market and
refuse to focus on one or two key segments
• As a result the company is unable to adequately serve any one
market segment and management is suddenly swamped with
support problems and competitors
Excessive pace of
product improvement
• High-tech equipment is generally used over an extended period of
time, is integrated with complimentary products, and imposes
learning costs on the end user
• The rapid introduction of new and improved versions can make a
customer regret a previous purchase, delay all new purchases, and
agonize over similar purchases in the future, none of which are in the
long-term interest of the producer
Incomplete products
• Customers view products very differently than the people who create
or supply them
• The problem is that most customers consider factors such as
product support and company reputation to be more important
• The feature rich products created by techies are seen as incomplete
in the mind of the customer
• Company should focus on the "intangible" factors that are especially
attractive to most customers
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Why Hi-tech companies fail?
Undifferentiated
products
• Most high-tech products that fail do so because of a lack of
differentiation
• Differentiation is possible on the basis of five fundamental factors:
function, time utility, place utility, price, and perception
• These five elements can be mixed into an almost infinite variety of
patterns
Channel
mismanagement
• Specific skills are required to effectively manage each type of
distribution channel and those skills must be developed internally
before significant selling can begin
• Unique management challenges exist for each primary type of
distribution channel: direct selling, dealers, manufacturers "reps" or
agents, OEMs, alliance partners, and inside sales
Failure to establish the
right competitive barriers
• Traditional barriers to competition, as defined by economists, are of
little value in high-tech
• The most effective competitive barrier in high-tech is the perceptions
held by customers, prospects, and the supporting infrastructure
Using price alone
to drive market
transformation
• It is easy to misinterpret the role price plays in market transformation
• It is a mistake to believe that a high-tech product would be widely
used and adopted if its cost was low enough
• Price reduction alone does not guarantee mainstream market
acceptance
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Why Hi-tech companies fail?
Improper use of
advertising
• More money is wasted on advertising than any other marketing
activity
• A company cannot establish credibility or create a position in the
marketplace with advertising
• Advertising is also a poor choice if your target audience is skeptical
or if the message you are trying to communicate is complex
Misinterpretation of the
technology adoption
lifecycle model
• There are two versions of the technology adoption lifecycle model
• The original describes the market acceptance of new products in
terms of innovators, early adopters, early majority, late majority, and
laggards
• The second version is an adaptation of the original that includes a
gap in the bell curve, between early adopters and the early majority
• This is an area of great confusion because not all high-tech products
are discontinuous, in which case the original technology adoption
lifecycle applies more than its successor
• Another misinterpretation occurs when marketing folks refer to a
market as characterized by all late adopters
Irrelevant Market
Research
• Companies routinely perform the wrong type of market research
• Statistical surveys of customer demand do not provide the qualitative
information that is needed most
• The judgments of your target audience often rely as much on
perceptions as on facts, qualitative research intended to identify
existing perceptions has much greater value in assessing, planning
and executing a company's marketing strategy
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Contents
10 Predicting market
transformationRealizing the full potential
of market mapping9
8Assessing company
competitiveness and the
portfolio matrix
Determining the
attractiveness of market
segments7
6 Forming market
segmentation
Accounting for the behavior
of decision-makers5
4Developing a representative
sample of different
decision-makers
Portraying how a market
works and identify decision-
makers3
2 Scope of Segmentation1 Preparing for market
segmentation
12Organizational issues on
market segmentation
Setting market objectives
and strategies11
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Identifying market strategy
Market growth
• Higher market penetration
• Sell more to same market (i.e., get
current customers to buy more or buy
more frequently)
• If overall market is growing this may not
necessarily mean a growth in overall
market share
• If overall market is not growing this
means a growth in overall market share
• Sell to markets or market segments not
previously targeted
• Develop new products for existing
customers
• Develop new products for new
customers
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Identifying market strategy
Market stability
• Techniques to keep the status quo
Primarily used in times of economic
decline or market decline
• Generally requires the taking of market
share from others in the industry
Cost control
• Techniques to contain costs or operate
more effectively
• Can work in combination with market
growth or market stability
Market exit
• Techniques needed to depart a market
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The Ansoff’s matrix
MARKET
PENETRATION
MARKET
PENETRATION
MARKET
DEVELOPMENT
MARKET
DEVELOPMENT DIVERSIFICATIONDIVERSIFICATION
MA
RK
ET
SM
AR
KE
TS Pre
se
nt
Ne
w
PRODUCTS & SEVICESPRODUCTS & SEVICES
Present New
PRODUCT
DEVELOPMENT
PRODUCT
DEVELOPMENT
Market penetration is the
name given to a growth
strategy where the business
focuses on selling existing
products into existing
markets
Market development is the
name given to a growth
strategy where the business
seeks to sell its existing
products into new markets
Product development is the
name given to a growth
strategy where a business
aims to introduce new
products into existing
markets
Diversification is the name
given to the growth strategy
where a business markets
new products in new
markets
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Determining market objectives
Target market objectives
Market share
• Total
• By segments
• By channel
Customers
• Total
• Number/percentage new
• Number/percentage retained
Purchases
• Rate of purchases
• Size/volume of purchases
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Determining market objectives
Promotional objectives
• Level of brand/company awareness
• Traffic building – e.g., store traffic,
website traffic
• Product trials – e.g. sales promotions,
product demonstrations
• Sales force – e.g., cycle time, cost per
call, closing rate, customer visits, etc
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Determining market objectives
Channel objectives
Dealers
• Total
• Number/percentage new
• Number/percentage retained
Order processing and delivery
• On-time rate
• Shrinkage rate
• Correct order rate
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Determining market objectives
Market research objectives
• Studies initiated
• Studies completed
R & D Objectives
• Product development
Other objectives
• Partnerships developed
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Contents
12Organizational issues on
market segmentation
10 Predicting market
transformationRealizing the full potential
of market mapping9
8Assessing company
competitiveness and the
portfolio matrix
Determining the
attractiveness of market
segments7
6 Forming market
segmentation
Accounting for the behavior
of decision-makers5
4Developing a representative
sample of different
decision-makers
Portraying how a market
works and identify decision-
makers3
2 Scope of Segmentation1 Preparing for market
segmentation
Setting market objectives
and strategies11
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Market Segmentation - Issues
Lack of information and data
Some markets are poorly researched with little
information about what customers want
Difficult in measuring and predicting
consumer behavior
Humans do not behave in the same way all of
the time
Hard to reach customer segments once
identified
It is one thing spotting a segment; it is another
reaching target customers with an effective
marketing message
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