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MGT603 - Strategic Management - Lecture Handout 36

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MARKET SEGMENTATION

Learning objectives

The main objective of this chapter to enable to students about concern marketing issue such marketing segmentation, marketing mix and product positioning relating to strategy implementation.

Market segmentation

Market segmentation is the process in marketing of grouping a market (i.e. customers) into smaller subgroups. This is not something that is arbitrarily imposed on society: it is derived from the recognition that the total market is often made up of submarkets (called 'segments'). These segments are homogeneous within (i.e. people in the segment are similar to each other in their attitudes about certain variables). Because of this intra-group similarity, they are likely to respond somewhat similarly to a given marketing strategy. That is, they are likely to have similar feeling and ideas about a marketing mix comprised of a given product or service, sold at a given price, distributed in a certain way, and promoted in a certain way.

The Need for Market Segmentation

The marketing concept calls for understanding customers and satisfying their needs better than the competition. But different customers have different needs, and it rarely is possible to satisfy all customers by treating them alike.

Mass marketing refers to treatment of the market as a homogenous group and offering the same marketing mix to all customers. Mass marketing allows economies of scale to be realized through mass production, mass distribution, and mass communication. The drawback of mass marketing is that customer needs and preferences differ and the same offering is unlikely to be viewed as optimal by all customers. If firms ignored the differing customer needs, another firm likely would enter the market with a product that serves a specific group, and the incumbent firms would lose those customers.

Target marketing on the other hand recognizes the diversity of customers and does not try to please all of them with the same offering. The first step in target marketing is to identify different market segments and their needs.

The requirements for successful segmentation are:

  • Homogeneity within the segment
  • Heterogeneity between segments
  • Segments are measurable and identifiable
  • Segments are accessible and actionable
  • Segment is large enough to be profitable.....

Currently a college student the marketing mix is now being introduced as the Four Ps of the Marketing Mix; Product, Place, Promotion, Price. Product (service) is whatever it may be that is being sold/marketed. Price refers to not only the actually price but also price elasticity. Place has evidently replaced distribution simply by where or what area the marketing campaign is going to cover. Today the idea of place is not limited to geographic profiling but also demographics and other categorizing variables. This has only occurred over the last ten years with the expansion of internet use and its ability to target specific types of people and not just people in a geographic area. Promotion simply refers to what media/medium vehicle will deliver the message and what the overall marketing strategy(s) is offering as a benefit.

Bases for Segmentation in Consumer Markets

Consumer markets can be segmented on the following customer characteristics.

  • Geographic
  • Demographic
  • Psychographic
  • Behavioralistic

Geographic Segmentation

The following are some examples of geographic variables often used in segmentation.

  • Region: by continent, country, state, or even neighborhood
  • Size of metropolitan area: segmented according to size of population
  • Population density: often classified as urban, suburban, or rural
  • Climate: according to weather patterns common to certain geographic regions

Demographic Segmentation

Some demographic segmentation variables include:

  • Age
  • Gender
  • Family size
  • Family lifecycle
  • Generation: baby-boomers, Generation X, etc.
  • Income
  • Occupation
  • Education
  • Ethnicity
  • Nationality
  • Religion
  • Social class

Many of these variables have standard categories for their values. For example, family lifecycle often is expressed as bachelor, married with no children (DINKS: Double Income, No Kids), full-nest, emptynest, or solitary survivor. Some of these categories have several stages, for example, full-nest I, II, or III depending on the age of the children.

Psychographic Segmentation

Psychographic segmentation groups customers according to their lifestyle. Activities, interests, and opinions (AIO) surveys are one tool for measuring lifestyle. Some psychographic variables include:

  • Activities
  • Interests
  • Opinions
  • Attitudes
  • Values

Behavioralistic Segmentation

Behavioral segmentation is based on actual customer behavior toward products. Some behavioralistic variables include:

  • Benefits sought
  • Usage rate
  • Brand loyalty
  • User status: potential, first-time, regular, etc.
  • Readiness to buy
  • Occasions: holidays and events that stimulate purchases

Behavioral segmentation has the advantage of using variables that are closely related to the product itself. It is a fairly direct starting point for market segmentation.
When numerous variables are combined to give an in-depth understanding of a segment, this is referred to as depth segmentation. When enough information is combined to create a clear picture of a typical member of a segment, this is referred to as a buyer profile. When the profile is limited to demographic variables it is called a demographic profile (typically shortened to "a demographic"). A statistical technique commonly used in determining a profile is cluster analysis.

Market segmentation Link with strategy implementation

Market segmentation is widely used in implementing strategies, especially for small and specialized firms. Market segmentation can be defined as the subdividing of a market into distinct subsets of customers according to needs and buying habits.

Market segmentation is an important variable in strategy implementation for at least three major reasons. First, strategies such as market development, product development, market penetration, and diversification require increased sales through new markets and products. To implement these strategies successfully, new or improved market-segmentation approaches are required. Second, market segmentation allows a firm to operate with limited resources because mass production, mass distribution, and mass advertising are not required. Market segmentation can enable a small firm to compete successfully with a large firm by maximizing per-unit profits and per-segment sales. Finally, market segmentation decisions directly affect marketing mix variables: product, place, promotion, and price

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