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MGT301 - Principles of Marketing - Lecture Handout 17

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Lesson overview and learning objectives:

The Lesson emphasizes the key steps in: market segmentation; market targeting, and market positioning. Market segmentation provides a method to divide or segment the market into narrow segments (using a variety of different meaningful variables. Today we will be discussing the major variables that can be used to segment the consumer markets.

MARKET SEGMENTATION

A. Market Segmentation:

Markets consist of buyers, and buyers differ in one or more ways. They may differ in their wants, resources, locations, buying attitudes, and buying practices. Through market segmentation, companies divide large, heterogeneous markets into smaller segments that can be reached more efficiently and effectively with products and services that match their unique needs. Companies today recognize that they cannot appeal to all buyers in the marketplace, or 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. Moreover, the companies themselves vary widely in their abilities to serve different segments of the market. Rather than trying to compete in an entire market, sometimes against superior competitors, each company must identify the parts of the market that it can serve best and most profitably.
Thus, most companies are more selective about the customers with whom they wish to connect. Most have moved away from mass marketing and toward market segmentation and targeting— identifying market segments, selecting one or more of them, and developing products and marketing programs tailored to each. Instead of scattering their marketing efforts firms are focusing on the buyers who have greater interest in the values they create best.

B. Steps in Target Marketing:

Figure shows the three major steps in target marketing. The first is market segmentation— dividing a market into smaller groups of buyers with distinct needs, characteristics, or behaviors who might require separate products or marketing mixes. The company identifies different ways to segment the market and develops profiles of the resulting market segments. The second step is market targeting—evaluating each market segment's attractiveness and selecting one or more of the market segments to enter. The third step is market positioning—setting the competitive positioning for the product and creating a detailed marketing mix. We discuss each of these steps in turn.

C. Levels of Market Segmentation

Because buyers have unique needs and wants, each buyer is potentially a separate market. Ideally, then, a seller might design a separate marketing program for each buyer. However, although some companies attempt to serve buyers individually, many others face larger numbers of smaller buyers and do not find complete segmentation worthwhile. Instead, they look for broader classes of buyers who differ in their product needs or buying responses. Thus, market
segmentation can be carried out at several different levels. Figure shows that companies can practice no segmentation
(mass marketing), complete segmentation

Levels of Market Segmentation

(micromarketing), or something in between (segment marketing or niche marketing).

Levels of Market Segmentation1

Levels of marketing segmentation

a) Mass Marketing

Companies have not always practiced target marketing. In fact, for most of the 1900s, major consumer products companies held fast to mass marketing—mass producing, mass distributing, and mass promoting about the same product in about the same way to all consumers. Henry Ford epitomized this marketing strategy when he offered the Model T Ford to all buyers; they could have the car” in any color as long as it is black." Similarly, Coca-Cola at one time produced only one drink for the whole market, hoping it would appeal to everyone.
The traditional argument for mass marketing is that it creates the largest potential market, which leads to the lowest costs, which in turn can translate into either lower prices or higher margins. However, many factors now make mass marketing more difficult. The proliferation of distribution channels and advertising media has also made it difficult to practice "one-size-fits-all" marketing.

Mass Marketing

b) Segment Marketing

A company that practices segment marketing isolates broad segments that make up a market and adapts its offers to more closely match the needs of one or more segments. Thus, Marriott markets to a variety of segments—business travelers, families, and others—with packages adapted to their varying needs. Segment marketing offers several benefits over mass marketing. The company can market more efficiently, targeting its products or services, channels, and communications programs toward only consumers that it can serve best and most profitably. The company can also market more effectively by fine-tuning its products, prices, and programs to the needs of carefully defined segments. The company may face fewer competitors if fewer competitors are focusing on this market segment.

c) Niche Marketing

Market segments are normally large, identifiable groups within a market—for example, luxury car buyers, performance car buyers, utility car buyers, and economy car buyers. Niche marketing focuses on subgroups within these segments. A niche is a more narrowly defined group, usually identified by dividing a segment into sub segments or by defining a group with a distinctive set of traits who may seek a special combination of benefits. Whereas segments are fairly large and normally attract several competitors, niches are smaller and normally attract only one or a few competitors. Niche marketers presumably understand their niches' needs so well that their customers willingly pay a price premium.

d) Micro marketing

Segment and niche marketers tailor their offers and marketing programs to meet the needs of various market segments. At the same time, however, they do not customize their offers to each individual customer. Thus, segment marketing and niche marketing fall between the extremes of mass marketing and micro marketing. Micro marketing is the practice of tailoring products and marketing programs to suit the tastes of specific individuals and locations. Micro marketing includes local marketing (Local marketing involves tailoring brands and promotions to the needs and wants of local customer groups—cities, neighborhoods, and even specific stores. Citibank provides different mixes of banking services in its branches depending on neighborhood demographics) and individual marketing (tailoring products and marketing programs to the needs and preferences of individual customers).

D. Segmenting Consumer Markets

There is no single way to segment a market. A marketer has to try different segmentation variables, alone and in combination, to find the best way to view the market structure. The major variables that might be used in segmenting are major geographic, demographic, psychographics, and behavioral variables.

a) Geographic Segmentation

Geographic segmentation calls for dividing the market into different geographical units such as nations, regions, states, counties, cities, or neighborhoods. A company may decide to operate in one or a few geographical areas, or to operate in all areas but pay attention to geographical differences in needs and wants. It is common to localize products, advertising, promotions, and sales efforts to fit the needs of geographical areas (regions, cities, and even neighborhoods).

b) Demographic 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, and nationality. Demographic factors are the most popular bases for segmenting customer groups. One reason is that consumer needs, wants, and usage rates often vary closely with demographic variables. Another is that demographic variables are easier to measure than most other types of variables. Even when market segments are first defined using other bases, such as benefits sought or behavior, their demographic characteristics must be known in order to assess the size of the target market and to reach it efficiently. Demographic variables are easier to measure than most other types of variables.

I. Age and Life-Cycle Stage

Age and life cycle segmentation consists of offering different products or using different marketing approaches for different age and life-cycle groups. Marketers must guard against stereotypes when using this form of segmentation. While certain age and life cycle groups do behave similarly, age is often a poor predictor of a person’s life cycle, health, work or family status, needs, and buying power. Consumer needs and wants change with age. Some companies use age and life cycle segmentation, offering different products or using different marketing approaches for different age and life-cycle groups.

II. Gender segmentation

calls for dividing a market into different groups based on sex. This segmentation form has long been used for clothing, cosmetics, toiletries, and magazines. New opportunities in this area are emerging such as automobiles, deodorants, and financial services. There is an increased emphasis on marketing and advertising to women. Specialized Web sites are becoming very popular with this group.

III. Income segmentation

It consists of dividing a market into different income groups. Marketers for automobiles, boats, clothing, cosmetics, financial services, and travel have long used this form of segmentation. Using this form, marketers must remember that they do not always have to target the affluent. Other income groups are also viable and profitable market segments.

c) Psychographics segmentation

It calls for dividing a market into different groups based on social class, lifestyle, or personality characteristics. People in the same demographic class can exhibit very different psychographics characteristics. As previously seen in, lifestyle also affects people’s interest in various goods, and the goods they buy express those lifestyles. This method of segmentation is gaining in popularity. Personality variables can also be used to segment markets. Marketers will give their products personalities that correspond to consumer personalities.

d) Behavioral segmentation

It involves dividing a market into groups based on consumer knowledge, attitudes, uses, or responses to a product. Many marketers believe that behavior variables are the best starting point for building market segments. Occasion segmentation consists of dividing the market into groups according to occasions when buyers get the idea to buy, actually make their purchase, or use the purchased item. Benefit segmentation involves dividing the market into groups according to the different benefits the consumers seek from the product. Companies can use benefit segmentation to clarify the benefit segment to which they are appealing, its characteristics, and the major competing brands. They can also search for new benefits and establish brands that deliver them. User status can also be used to divide the market. Segments of nonusers, ex-users, potential users, first-time users, and regular users of a product are potential ways to segment. Usage rates are another way that marketers segment markets. These categories might be light, medium, and
heavy user groups. Loyalty status can also be used to segment markets. Consumers can be loyal to brands, stores, and companies. Consumers can be completely loyal, somewhat loyal, or not loyal at all. An amazing amount of information can be uncovered by studying loyalty patterns.

Today there is a trend toward targeting multiple segments. Very often, companies begin their marketing with one targeted segment, and then expand into other segments. This often boosts a company’s competitive advantage and knowledge of the customer base. One of the most promising developments in multivariable segmentation is “geodemographic” segmentation based upon both geographic and demographic variables.

KEY TERMS

Market segmentation dividing a market into smaller groups
Market targeting evaluating each market segment's attractiveness and selecting one or more of the market segments to enter
Market positioning setting the competitive positioning for the product
Geographic segmentation dividing the market into different geographical units
Demographic segmentation divides the market into groups based on variables such as age, gender, family size, family life cycle, income, occupation, education, religion, race, and nationality.
Behavioral segmentation involves dividing a market into groups based on consumer knowledge, attitudes, uses, or responses to a product.

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