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Unit 5

MARKET SEGMENTATION

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Introduction

One of the important strategic decisions a company has to make is regarding it target markets.

The firm has to determine which markets it wants to serve and the specific strategies that can be applied t market effectively to that target market.

Target market is a group of consumers at whom the seller specifically aims its marketing efforts.

The selection of the target market is essential for the development of an effective marketing mix.

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Designing a customer driven marketing strategy

Market segmentation. divide the total market into smaller segments

Market targeting.- Select the best segment (s) to enter by evaluating the attractiveness

Differentiation- differentiate the market offering in the minds of target customers.

Market positioning. Position the market offering in the minds of target

customers.

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Basis for Consumer Market Segmentation.

Market segmentation is the process of dividing the market into distinct groups of buyers with different needs, characteristics, or behavior who might require separate products or marketing mixes.

Markets consist of buyers and they differ in one or more ways. They may differ in their wants, resources, locations, buying attitudes and buying practices.

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Basis for Consumer Market Segmentation.

Since buyers have unique needs and wants, each buyer is potentially a separate market. Ideally, then a firm might design a separate marketing program for each buyer.

There is no single way to segment a market. A marketer has to try different segmentation variables, either alone or in combination, to find the best way to view the market structure.

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Basis for Consumer Market Segmentation..

a. Geographic segmentation. Market divided into different geographic units,

such as nations, regions, states…etc. Localizing products, promotion, and sales effort . Seeking to cultivate untapped market

b. Demographic segmentation. Age and family life cycle e.g. 40 yrs old just

starting a family and a 40 yrs old sending children to college.

Gender (eg: clothing, cosmetics, magazines, toiletaries)

Income (eg: luxury goods, convenience service) Generation etc

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Market Segmentation.

c. Psychographics segmentation.• Based on social class, lifestyle, or personality

characteristics. Lifestyle, e.g. Porsche being targeted at high

achievers, successful and those that have discerning taste.

d. Behavioral segmentation. Based on consumer knowledge, attitude, uses or

responses to a product. Occasion, benefit sought, user status (i.e potential

user), loyalty status, usage rate,

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Benefits of Market Segmentation.

Market segmentation is a customer oriented philosophy and is thus consistent with the marketing concept. First identify the needs of the customers within a sub market then satisfy those needs.

By tailoring marketing programs to individual market segments, management can do a better marketing job and make more efficient use of marketing resources.

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Benefits of Market Segmentation.

By employing the strategy of market segmentation, a company can design products that really march customer demands.

By developing a strong position in specialize market segments, small and medium sized firms can achieve rapid growth rate in a competitive market.

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Limitations of Market Segmentation.

Market segmentation can be an expensive proposition both in production and marketing of products. It is more cost effective to have ‘one size fits all’ than to produce otherwise.

Segmentation leads to higher inventory costs as stocks of different varieties have to be kept.

Advertising costs go up because different ads may be required for different segments.

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Market Targeting.

In evaluating market segments, firms look at the following factors:

a. Segment size and growth. Firms may target segments with large current

sales, a high growth rate. Smaller firms may find such segments too competitive.

Small segments may also be attractive if it is new and there is a potential for high growth rate.

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Market Targeting.

b. Segment attractiveness. Strong and aggressive competitors : less

attractive The relative power of buyers : attractive factor. powerful suppliers : less attractive. Why? Control

price

c. Company objectives and resources. Firms must ensure that the chosen segment mesh

with its long term strategies. Attractive segments may be dismissed when

assessed from the political and social views.

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Selecting Market Segments.

a. Undifferentiated marketing. Ignore market segment differences and go after

the whole market with one offer. The offer will focus on what is common rather than what is different.

Designs a product and marketing program that appeals to the largest number of buyers.

Firm uses mass production, advertising and distribution.

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Selecting Market Segments.

b. Differentiated market. Target several segments and designs separate

offers for each. Offering product and marketing variations. Hoping for higher sales and stronger position Increase cost.

c. Concentrated marketing (niche) Use by firms with limited resources, going for a

large share of a small market. Excellent way for new small businesses to get a

foothold against larger, more resourceful competitors. Eg: Southwest Airlines.

Selecting Market Segments.

d. Micromarketingrefer to practice of tailoring product s and marketing programs to the needs and wants of specific individuals and local customer groups.

Local marketing- tailoring brands and promotions to the needs and wants of local customer groups. Eg: cities, neighbors.- helps company to market more effectively.

individual marketing- tailoring products and marketing programs to the needs and preferences of individual customers. - eg: custom made suit, cabinet maker for furniture.

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Production Positioning.

Product positioning means:a. Communicating a product’s image relative to

competitors in the market.b. In the mind of the customer.

Through marketing research, the position of competitors’ brands are established on the basis of important attributes used by customers in brand choice.

The firm then decides if it wants to compete directly with another brand or fill a gap in the market where an unfulfilled want exists.