SEGMENTATION

Segmentation

• It is often the key to developing a sustainable competitive advantage. In a strategic context, segmentation means the identification of customer groups that respond differently from other groups to competitive offerings.

• A segmentation strategy couples the identified segments with a programme to deliver an offering to those segments.

The development of a successful segmentation

strategy requires the conceptualization, development, and evaluation of a targeted

competitive offering.

Who are the biggest customers? The most profitable? The most attractive potential customers?

3 dimensions for Judging a segmentation strategy

• Can a competitive offering be developed and implemented that will be appealing to the target segment ?

• Can the appeal of the offering and the subsequent relationship with the target segment be maintained over time despite competitive responses ?

• Is the resulting business from the target segment worthwhile given the investment required to develop and market an offering tailored to it ?

• The concept of a successful segmentation strategy is that within a reduced market space, it is possible to create a dominant position that competitors will be unwilling or unable to attack successfully.

Chapter 2 - External and Customer Analysis PPT 2-6

Examples of Approaches to Defining Segments

Customer Characteristics• Geographic• Type of organization• Size of firm• Lifestyle• Sex• Age• Occupation

Figure 2.3

Chapter 2 - External and Customer Analysis PPT 2-7

Examples of Approaches to Defining Segments

Product-Related Approaches• User type • Usage• Benefits sought• Price sensitivity• Competitor• Application• Brand loyalty

Figure 2.3

The first set of variables describes segments in terms of general characteristics unrelated to the product involved. Eg a consulting company may specialize in the

hospitality industry. A fast food firm may focus on a particular fast

growing ethnic group. A bakery may confine itself to geographically

defined segments eg . to a particular community or neighbourhood.

• Demographics are particularly powerful for defining segments largely because a person’s life stage affects his or her activities, interests and brand loyalty. Another reason is that demographic trends are predictable.

• Eg the US population over 65 is expected to grow to 50 million in 2020 when more than 5 million people will be 85 or older. Gold Violin recognizing this trend, has established itself as a source of products designed for the active elderly.

• Thus they have a talking watch, a bed- vibrating alarm clock, a doorknob turner, a lighted hands- free magnifier ( all with attractive designs ) are just some of the Gold Violin products that appeal to this long – ignored demographic segment.

• The second category of variables includes those that are related to the product. One of the most frequently used is usage.

• A manufacturer of lawn equipment may design a special line for a large consumer like Walmart, but sell through distributors using another brand name for other outlets. A bakery may follow a very different strategy in serving restaurants that rely very heavily on bakery products than in serving those with fewer such products.

Chapter 2 - External and Customer Analysis PPT 2-11

Segmentation

How should segments be defined?

– Benefit Segmentation

– Price Sensitivity

– Loyalty

– Applications

– Multiple Segments versus Focus Strategy

Benefits

• Benefits sought from products is a very useful segmentation variable, as selection of benefits can determine a total business strategy.

Eg. for gourmet frozen dinners/entrees we can segment the market into those who are calorie- conscious, those who focus on nutrition and health and those interested in taste. Each segment would require a very different marketing strategy.

Price sensitivity

• In many product classes , there is a well - defined breakdown between customers concerned first about price and others who are willing to pay extra for higher quality and features.

• Eg general merchandise stores form a well defined hierarchy from the discounters to the prestige department stores.

• Automobiles span the spectrum from Honda Civic to the Lexus to the Rolls Royce.

• Airlines have first class, business class and economy.• In each case the segment dictates the strategy

Loyalty• Brand loyalty can be structured using a loyalty

matrix. Each cell represents a very different strategic priority and can justify a very different programme.

• Generally. Loyal customers are taken for granted. However, a study by Bain shows that a 5 % increase in customer loyalty can nearly double the lifetime profits generated by customers in several industries including banking, insurance, automobile service, publishing and credit cards.

• The key is often to reward the loyal customers by living up to expectations consistently, providing an ongoing relationship, and offering extras that surprise and delight.

• The loyalty matrix suggests that the brand fence sitters , including those of competitors, should also have high priority. Using the matrix involves estimating the size of each of the six cells, identifying the customers in each group and designing programmes that will influence their brand choice and loyalty level

Chapter 2 - External and Customer Analysis PPT 2-16

The Brand Loyalty Matrix: Priorities

LowLoyaltyLow

LoyaltyModerateLoyalty ModerateLoyalty

LoyalLoyal

CustomerCustomer

Non-customerNon-customer

Medium

Lowto

MediumHigh

Highest

Zero

High

Figure 3.4

Applications

• Some products and services, particularly industrial products can best be segmented by use or application. A portable computer may be needed by some for use while travelling, whereas others may need a computer at the office that can be conveniently stored when not in use. One segment may use a computer for word processing .

• Some might use a 4 wheel drive for light industrial hauling and others may be buying it primarily for recreation.

• The athletic shoe industry segments into :

• A) Serious athletes ( small in number, but influential)

• B) The Weekend warriors ( weekend users)• C) The casual wearers ( using them for street

wear)

• 80% of the market being composed of the casual wearer segment and not really needing performance, several shoe firms have adopted

a style focus strategy as an alternative to the performance strategy adopted by firms such as NIKe.

Multiple Segments vs Focus Strategy

Walmart, the largest US retailer started by concentrating on

cities with populations under 25,000 in eleven south central states, a hitherto totally neglected segment by its competitors the large discount chains.

This rural geographic focus gave it several significant SCAs viz.

• an efficient and responsive warehouse supply system, • a low-cost motivated workforce • relatively inexpensive retail space• a lean and mean hands on management style.

Union Bank, California’s 8 eighth largest bank

makes no effort to serve individual customers. Instead it provides a service operation tailored

to business accounts that is more committed and comprehensive than those of its competitors.

On the other hand…. Aggressive industries in many firms are moving towards multiple segment

strategies. Campbell Soup makes its nacho cheese soup spicier for

customers in Texas and California.

It offers a Creole Soup for Southern markets and a red- bean soup for

Hispanic markets.

In New York it links promotions with the New York Giants football

team and in S. Nevada mountains skiers are given hot soup samples.

Developing multiple strategies is costly and needs to be justified by an

enhanced aggregate impact.

Market segmentation• Companies recognize they cannot appeal to all

buyers in the marketplace, at least not to all buyers in the same way. Buyers are too numerous, too widely scattered and too varied in their needs and buying practices.

• Also, companies themselves vary greatly in their ability to serve different segments. Thus a company must identify the parts of the market it can serve best and most profitably. It must design customer- driven marketing strategies that build the right relationships with the right customers.

Shotgun vs Rifle• Hence , most companies have moved away

from mass marketing and towards target marketing.- identifying market segments, selecting one or more of them and developing products and marketing programmes tailored to each.

• Instead of scattering their marketing efforts ( the shotgun approach) , firms are focusing on the buyers who have greater interest in the values they create best (the rifle approach)

Customer-Driven Marketing Strategy:Creating Value for Target Customers

• Market Segmentation• Market Targeting• Differentiation and Positioning

The Process and Concepts defined

• Market segmentation involves dividing the market into smaller groups of buyers with distinct needs, characteristics, or behaviours that might require separate marketing strategies or mixes.

• The company identifies different ways to segment the market and develops profiles of the resulting market segments.

Market Targeting

Consists of evaluating each ,market segment’s attractiveness and selecting one or more market segments to enter.

• Next, the company decides on a Value Proposition – on how it will create value for target customers

• Differentiation involves actually differentiating the firm’s market offering to create superior value

• Positioning consists of arranging for a market offering to occupy a clear distinctive, desirable place relative to competing products in the minds of target consumers.

Market Segmentation

Market Segmentation

Geographic segmentation

Demographic segmentation

Psychographic segmentation

Behavioral segmentation

Segmenting Consumer Markets

Market Segmentation

• Geographic segmentation divides the market into different geographical units such as nations, regions, states, counties, or cities.

• Many companies today are localising their products.eg Citibank offers different mixes of branch banking services depending on neighbourhood demographics. Baskin Robbins does “3 mile marketing” emphasizing local events and promotions close to its local store locations.

Segmenting Consumer Markets

• Many large companies are seeking to cultivate as yet untapped geographic territory. Many large companies are fleeing the competition

of major cities and suburbs to set up shop in rural and semi - urban India eg smaller size retail formats which offer a more intimate neighbourhood store setting.

Walmart has complemented its supercenters by opening small super market style Market-side

grocery stores in markets where full size stores are impractical.

Market Segmentation

Demographic segmentation divides the market into groups based on variables such as age, gender, family size, family life cycle, income, occupation, education, religion, race, generation, and nationality

Demographic segmentation

• Demographic factors are the most popular bases for segmenting customer groups.

• The reasons for this :

• Consumer needs, wants and usage rates often vary closely with demographic variables.

• Demographic variables are easier to measure than other variables.

• Even when other segmentation bases are used marketers need to know characteristics in order to assess the size of the target market and to reach it efficiently

Demographic segmentation : Age and Life Cycle segmentation

Age and life-cycle stage segmentation is the process of offering different products or using different marketing approaches for different age and life-cycle groups.

eg Leo Toys offers different toys for kids in different age groups. HP targets adult buyers with The Computer Is Personal Again

campaign with ads featuring Price and Value.

But for teens it uses mostly online and viral media in its Society for Parental Mind Control campaign “ fun ways to get a sweet computer out of your parents.” HP believes kids are the arbiters of “cool”.

HDFC Standard Life Insurance has launched pension plans for retired people so that they do not have to depend on anyone for their financial needs.

Companies marketing to mature customers usually employ positive images and appeals. Carnival Cruise Lines targets people of all age groups through it sad for its Fun Ships featuring an older person and child riding waterslides stating, “ Fun has no age limit”.

Demographic segmentation : Gender segmentation

• Gender segmentation divides the market based on sex (male or female).

• This has been used in clothing, cosmetics, toiletries and magazines. Eg retail stores in India offers clothing only for girls.

• More recently most women’s cosmetic makers have started marketing men’s lines. Nivea markets Nivea for men “an advanced line of enriching skincare and soothing aftershave products designed for the active men’s lifestyle” and offers a 4 step guide to perfect men’s care.

• L’Oreal markets Hydra Energetic – moisturizer for men to soften the signs of fatigue and stress.

• Neglected gender segments can offer new opportunities in markets ranging from motorcycles to guitars. 10 years ago 2 wheelers were mainly targeted at men and looked as a means of transportation.

• Today marketers like Bajaj and Hero Honda are targeting brands like Kristal DTS-I and Pleasure at young women. These two

wheelers are not bulky and powerful but light and fun to ride for young and fashionable women.

Pleasure

Why Should Boys Have All The Fun ? Brand : Pleasure

Company: Hero HondaAgency: FCB Ulka

November 2005 saw the launch of the scooter from Hero Honda branded " Pleasure". The launch was a bold one because of two reasons :

1. The scooter was going to compete with its technology partner Honda.

2. Hero Honda was perceived as a bike manufacturer

Pleasure

• Pleasure is a 102 cc scooter targeting the young ladies. The launch makes sense because the scooter segment is now growing and is expected to touch 1 million units. In the scooter segment , the ungeared scooter segment is growing very fast. Hero Honda wants to have a pie of this segment. It is a paradox in that in the 1990's Hero Honda disrupted Scooters with its 4 stroke bikes and now it is introducing a scooter.

• Pleasure is positioned as a Pleasure scooter. The company is targeting Ladies and Ladies only ( that is clearly and obviously cried out in the baseline and in the ads). A sound strategy. If you are targeting ladies, why should you expect men to ride that scooter. So Hero Honda has decided that the brand will be for ladies.

• Pleasure is going to be sold through " Just4her" showrooms where the salesperson will be ladies . ( Men are going to be pissed off by that)

• The product comes with 8 flashy colours and lot of features for the fairer sex like broader seats, electric start etc. So as far as the product concept goes, Hero Honda have a winner at hand.

• The communication executed by FCB Ulka which is splashed all over the channels have an international look and aimed at the ladies of age group 18 - 35. The segmentation is based on the current techno boom and the emerging empowered ladies segment.

• Will it work in the real world?

Market situation

• There are some danger points in Pleasure's paths. The product is pitted against Honda Activa and Dio. Activa is a formidable player and its reputation itself is an entry barrier for Pleasure. Since the pricing of Pleasure is comparable with that of Dio, Pleasure should have to make sure that it creates a meaningful differentiation.

Demographic segmentation : Income segmentation

Income segmentation divides the market into affluent or

low-income consumers.

Used for long by marketers of products and services such as automobiles, clothing, cosmetics, financial services, and travel

Many companies target affluent consumers with luxury goods and convenience services.

Not all companies use income segmentation targeting the affluent. Retailers such as Big Bazar successfully target low and middle income groups. “ Isse sasta kaun?”

Psychographic Segmentation

• Psychographic segmentation divides buyers into different groups based on social class, lifestyle, or personality traits.

There are two frameworks used for the purpose of lifestyle analysis, viz, the AIO and the VALS frameworks.

The AIO model frames long sets of questions using the measures in the next slide to find

out major dimensions of lifestyles of consumers

AIO framework

AIO framework

VALS

Described in a separate Ppt

Behavioral segmentation

Behavioral segmentation divides buyers into groups based on their knowledge, attitudes, uses, or responses to a product

• Occasions• Benefits sought• User status• Usage rate• Loyalty status

Segmenting Consumer Markets

Occasions

• Buyers can be grouped according to when they get the idea to buy, actually make their purchase, or use the purchased item.

• Eg Most consumers usually drink Orange Juice in the morning, but orange growers have promoted orange juice as a cool, healthful refresher , any time in the day drink.

• Internationally, Coca Cola presents Diet Coke as n early morning pick me up in its “ Good morning” campaigns. In the Indian sub – continent ,,Coca Cola promotes its brands as a family drink on occasions such as Diwali, Christmas of family outings.

• Greeting card manufacturers create greeting cards with appropriate messages for all occasions such as Valentine’s Day, Christmas day, Diwali, New Years and birthdays.

• In India you have a greeting card for every occasion. Mother’s day, Father’s day,, Wonderful son, great daughter, best niece, blah,blah….

• Benefit segmentation requires finding the major benefits people look for in the product class, the kinds of people, who look for each benefit , and the major brands that deliver each benefit.

Benefits sought

Eg a company manufacturing athletic wear segments its market according to benefits that different consumers seek from their activewear

“Fit and Polish” customers seek a balance between function and style.

“Serious Sports Competitors” seek performance and function.

“ Value seeking moms” have low sports interest and low activewear involvement , they buy for the family and seek durability.

User status

Markets can be segmented into non –users, ex- users, potential users, first – time users, and regular users of a product.

Marketers want to reinforce and retain regular users, attract targeted non – users, and reinvigorate relationships with ex- users.

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 a high percentage of total consumption.

• eg Burger King has Super Fans (Ages 18 -34) who make up 18 percent of the chain’s customers but account for almost 50 % of all consumer’s visits. Burger King’s ads are, therefore, slanted towards these consumers

Loyalty status

• A market can be segmented by consumer loyalty eg by :

• Brands ( Colgate)• Stores ( Big Bazar/ Shoppers’s Stop)• Companies (Toyota)

Buyers can be divided into groups according to their degree of loyalty.

• eg Apple , Harley Davidson have an almost fanatic following of loyal users. They buy only these brands all the time.

• Other consumers are only somewhat loyal – they are loyal to two or three brands.

• Still others show no loyalty while buying.

Implications

• By studying its loyalists a company can pinpoint its target market and develop sharply focused marketing appeals

• By studying its less loyal buyers the company can detect which brands are competitive with its own

• By studying consumers who are shifting away from its brands a company can learn about its marketing weaknesses.

Market Segmentation

Multiple segmentation is used to identify smaller, better-defined target groups

Geodemographic segmentation is an example of multivariable segmentation that divides groups into consumer lifestyle patterns

Using Multiple Segmentation Bases

Market Segmentation

PRIZM NE classifies every American household into 66 unique segments organized into 14 different social groups, based on demographic, behavioural and lifestyle factors

• These groups segment people and locations into marketable groups of like-minded consumers that exhibit unique characteristics and buying behavior based on a host of demographic factors

Using Multiple Segmentation Bases

• Consumer and Business Markets use many of the same variables to segment their markets.

• In addition, some other variables are also used to segment Business Markets such as :

• Operating characteristics• Purchasing approaches• Situational factors• Personal characteristics

Market Segmentation : Segmenting Business Markets

9.65

Business Markets Segmentation

• Demographic:– Industry– Company size– Location

• Operating variables:– Technology– User/non-user status– Customer capabilities

• Situational factors:– Urgency– Specific application– Size of order

• Purchasing approaches:– Purchasing organization– Power structure– Existing relationships– General policies– Purchasing criteria

• Personal characteristics:– Buyer-seller similarity– Attitude towards risk– Loyalty

• By going after segments instead of the whole

market, companies can capture just the right value proposition to each segment served and capture more value in return.

• Almost all companies serve at least some business markets. Eg ICICI Bank targets merchants, corporations, and SMEs with specific tailor -made services for all.

• Many marketers believe that Buying behaviour and benefits provide the best basis for segmenting business markets.

Market Segmentation

Geographic location

Economic factors

Political-legal factors

Cultural factors

Segmenting International markets

• Geographic locations eg .Regions such as North America, Western Europe, The Pacific Rim, the Middle East, Asia or Africa.

• Economic factors eg. Population income levels or overall level of economic development.

• Political and legal factors eg. Type and stability of government, receptivity to foreign firms, monetary regulations, amount of bureaucracy etc.

• Cultural factors eg. Common languages, religions, values and attitudes, customs and behavioural patterns.

Market Segmentation

Segmenting on the basis of geographical, economic, political, cultural and other factors assumes segments should consist of clusters of countries.

But with new communication technologies connecting consumers around the world, marketers can define and reach segments irrespective of location.

Divides consumers into groups with similar needs and buying behaviors even

though they are located in different countries.

eg. Lexus targets the world’s well – to – do. the global elite segment irrespective of

country,

Swedish furniture giant IKEA targets the aspiring global middle class. It sells

good quality furniture that ordinary people worldwide can afford.

Coca Cola creates special programmes to target teens who are its core consumers

of soft drinks the world over.

Intermarket segmentation or Cross- market segmentation

Market Segmentation

• To be useful, market segments must be:Requirements for Effective Segmentation

Measurable

Accessible

Substantial

Differentiable

Actionable

Market Targeting

• Target market consists of a set of buyers who share common needs or characteristics that the company decides to serve

Selecting Target Market Segments

Principles of Marketing, Sixth Canadian Edition

9.74

Target Marketing Strategies

• Three factors used to evaluate segments:

– Segment size and growth– Structural attractiveness• Competition, substitute products, power of

buyers/suppliers

– Company objectives and resourcesFigure 9.2

Market Targeting

Undifferentiated marketing targets the whole market with one offer– Mass marketing– Focuses on common needs rather than what’s

different

Target Marketing Strategies

Market Targeting

Differentiated marketing targets several different market segments and designs separate offers for each

• Goal is to achieve higher sales and stronger position

• More expensive than undifferentiated marketing

Target Marketing Strategies

Market Targeting

• Concentrated marketing targets a small share of a large market

• Limited company resources• Knowledge of the market• More effective and efficient

• Eg Nirma started as a nicher, selling only low priced detergents to rural and semi rural customers.

Concentrated ( Niche Marketing )

Market Targeting

Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of specific individuals and locations

• Local marketing• Individual marketing

Target Market Strategies

Market Targeting

Local marketing involves tailoring brands and promotion to the needs and wants of local customer groups

• Cities• Neighborhoods• Stores

Target Market Strategies

Market Targeting

Individual marketing involves tailoring products and marketing programs to the needs and preferences of individual customers

• Also known as:– One-to-one marketing– Mass customization– Markets-of-one marketing

Target Market Strategies

Market Targeting

Depends on:• Company resources• Product variability• Product life-cycle stage• Market variability• Competitor’s marketing strategies

Choosing a Target Market

Market Targeting

• Benefits customers with specific needs

• Concern for vulnerable segments• Children– Alcohol– Cigarettes– Internet abuses

Socially Responsible Target Marketing

Differentiation and Positioning

Product position is the way the product is defined by consumers on important attributes—the place the product occupies in consumers’ minds relative to competing products– Perceptions– Impressions– Feelings

Differentiation and Positioning

Positioning maps show consumer perceptions of their brands versus competing products on important buying dimensions.

Location of circle= Where Consumers

position a brand Size of circle = Brand’s

relative market share .

Thus Land Cruiser is a niche brand perceived as relatively affordable and more performance oriented.

Differentiation and Positioning

• Identifying a set of possible competitive advantages to build a position

• Choosing the right competitive advantages• Selecting an overall positioning strategy• Developing a positioning statement

Choosing a Differentiation and Positioning Strategy

Differentiation and Positioning

Competitive advantage is an advantage over competitors gained by offering consumers greater value, either through lower prices or by providing more benefits that justify higher prices

Identifying Possible Value Differences and Competitive Advantages

Differentiation and Positioning

Value proposition is the full mix of benefits upon which a brand is positioned

Selecting an Overall Positioning Strategy

Differentiation and Positioning

Identifying a set of possible competitive advantages to build a position by providing superior value from:

Choosing a Differentiation and Positioning Strategy

Product differentiation

Service differentiation

Channel differentiation

People differentiation

Image differentiation

Differentiation and Positioning

Difference to promote should be:

Choosing the Right Competitive Advantage

Important Distinctive Superior

Communicable

Preemptive

Affordable

Profitable

Communication and Delivering the Chosen Position

Choosing the positioning is often easier than implementing the position.