Consumer Market Segmentation

Market Segmentation

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Companies must plan

CONSTANTLY

and the plan must be based

on an understanding of

market trends and marketing

segments

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What is a Market?

PEOPLE!!!!

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What is a Market?

PEOPLEBUT - not just ANY people, they have to have

• Willingness to buy

• Purchasing power (money)

• Authority to buy4

What is Market Segmentation?

The breaking down or building up of potential

buyers into groups called

Market Segments

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Grouping people according to their

similarity related to a particular

product category

Benefits of Market Segmentation

Identifies opportunities for new product development

Helps design marketing programs most effective for

reaching homogenous groups of buyers

Improves allocation of marketing resources 6

Lois Gabriel

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Fundamental-Buyer Related Questions

Who are they?

What do they want to buy?

How do they want to buy?

When do they want to buy?

Where do they want to buy?

Why do they want to buy?7

Each Market Segment should be…

Measurable

Differentiable

Accessible

Substantial

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Lois Gabriel

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There must be economies of scale

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Classes of Consumer Products

Convenience Shopping Specialty

Goods

Services

PO

P

14-1

$$

ATM

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don't give much thought to

Lois Gabriel

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given a lot of thought

Market Segmentation

- it is too difficult to create a product that will satisfy everybody, that is why we focus on a segment of the total market

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Lois Gabriel

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exclusivity - adds to the desirability of something

Market Segmentation

Grouping people

according to their

similarity related to a

particular product category

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Market SegmentationCharacteristics

• age

• gender

• geographic location

• income

• spending patterns

• cultural background

• demographics

• marital status

• education

• language

• mobility12

Market Segmentation4 commonly used bases for Segmentation

Descriptive

geographic location

demographic

Behavioural

psychographic

benefits13

Lois Gabriel

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able to picture the market accdg to geography and demography

Figure 3.1 Bases for Market SegmentationSlide 3-7

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Market Segmentation

geographic location - based upon where people live

(historically a popular way of dividing markets)

demographic - based upon age, gender and income level

(very often used)

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Market Segmentation

Psychographic / lifestyles - based on people’s

opinions, interests, lifestyles

e.g., people who like hard rock music probably

prefer beer to wine

benefits - based on the different expectation that

customers have about what a product/service can

do for them

e.g.. People who want to but “lite” food because it

will help them lose weight

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Geographic Segmentation

The reason why we study geographic segmentation

is because WHERE people live has a big effect on

their consumption patterns.

Additionally, WHERE people live in a city is also a

reflection of their income level and we can make

certain assumptions about their ABILITY TO SPEND

based upon their address.

This helps people plan store locations and the

location of other services.17

Geographic Segmentation

Climate:

clothing purchases, equipment and recreation are

effected by geographic location

You will sell more winter jackets in the mountain areas

of the Philippines, like Baguio, BUT, then the

population in Baguio is very small.

However, almost the everywhere else in the

Philippines, electric fans will be saleable.

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PHILIPPINE DEMOGRAPHICS

Urbanizationurban population: 65% of total population (2008) rate of urbanization: 3% annual rate of change (2005-10 est.)

http://www.indexmundi.com/philippines/demographics_profile.html

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Demographic Segmentation

Demographic Segmentation is the most

common approach to Market Segmentation

Variables are:

• age

• gender (male/female)

• income

• occupation

• education

• household (family - style) size

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Demographic Segmentation is the most common

approach to Market Segmentation

Variables are:

age

• age is another obvious way to divide the market into

segments since so many products are based upon

“time of life”

• diapers for babies

• toys for children

• entertainment for “over 19”Examples ??

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age

• also, people have different consumption

patterns at different ages

•eg. Milk products

• children and teens drink a lot of milk

• adults don’t

• older adults need calcium, but don’t drink

milk

(they take pills) Examples ??

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PHILIPPINE DEMOGRAPHICSAge structure0-14 years: 35.2% (male 17,606,352/female 16,911,376) 15-64 years: 60.6% (male 29,679,327/female 29,737,919) 65 years and over: 4.1% (male 1,744,248/female 2,297,381) (2010 est.)Median agetotal: 22.7 years male: 22.2 years female: 23.2 years (2010 est.)


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PHILIPPINE DEMOGRAPHICSInfant mortality rate

total: 19.94 deaths/1,000 live births

male: 22.49 deaths/1,000 live births

female: 17.26 deaths/1,000 live births

(2010 est.)

Life expectancy at birth

total population: 71.38 years

male: 68.45 years

female: 74.45 years (2010 est.)http://www.indexmundi.com/philippines/demographics_profile.html

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Age effects: occurrences due tochronological age; heightenedinterests (travel, sports andleisure activities)

cohort effects: occurrences dueto growing up during a specifictime period; rock and roll, rap music,

Game Boy, Playstations, “puruntong” shorts,DVDs vs. Betamax, Nintendo vs. Sega, Niknikshirts, RJ and the Riots, the Beatles, ABBA,Madonna, Spice Girls, EasyCall, etc; “mgakinalakihan” 26

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A longer life expectancy is already a fact, a given, because of techno advances, but a healthy, more productive longer life expectancy is a choice.

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Demographic Segmentation is the most common approach to Market Segmentation

Variables are:

Gender (male/female)

•gender is an obvious way to divide the market into

segments since so many products are gender-specific

• clothing

• medical products

• sports products/services

• entertainment

Examples ??

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PHILIPPINE DEMOGRAPHICSSex and Age ratioat birth: 1.05 male(s)/female under 15 years: 1.04 male(s)/female 15-64 years: 1 male(s)/female 65 years and over: 0.76 male(s)/female total population: 1 male(s)/female (2010 est.)


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Demographic Segmentation is the most common approach to Market Segmentation

Variables are:

Household (family - style) size

•Sociocultural segmentation: sociological (group) and anthropological (cultural) variables combined

• Segmenting by the “stages in the family life cycle”

There are different buying characteristics of people in

each stage of the family32


•household (family - style) size

BUYING PATTERNS

• 0-5 young children

• 6-19 school children

• 20-34 young adults

• 35-49 younger middle-aged

• 50-64 older middle-aged

• 65+ seniors

• 80+ SUPER seniors33



THE CHANGING HOUSEHOLD, say, in in Canada

• half of the households in Canada are only one, or

two people

• number of married couples forming a household is

decreasing

• many unmarried people, and old widowed people,

live by themselves

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FAMILY LIFE CYCLE STAGES

1. Young Single

2. Young Married with no Children

3. Young - married with children

- divorced without children

- divorced with children

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4. Middle Aged

a. married without children

b. divorced without children

c. married with children

d. divorced with children

e. married without dependent children

f. divorced without dependent children36




5. Older

a. older married

b. older unmarried (divorced, widowed)

6. other

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SSWDs

single separated widowed divorced

in Canada, 1.6 million people live alone

- they buy different sizes of products

e.g., Single serving soup, etc.

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Demographic Segmentation is the most common

approach to Market Segmentation

Variables are:

• age

• gender (male/female)

• income

• occupation

• education

• household (family - style) size40


income

Segmenting markets on the basis of income and

expenditure patterns

- The number of single mom families has increased

by 12.8% between 1985 and 1994

- Male single parent families have more income, on

average, than Female single parent families

(chart 3.6)

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PHILIPPINE DEMOGRAPHICSEthnic groupsTagalog 28.1%, Cebuano 13.1%, Ilocano 9%, Bisaya/Binisaya 7.6%, Hiligaynon Ilonggo 7.5%, Bikol 6%, Waray 3.4%, other 25.3% (2000 census)ReligionsRoman Catholic 80.9%, Muslim 5%, Evangelical 2.8%, Iglesia ni Kristo 2.3%, Aglipayan 2%, other Christian 4.5%, other 1.8%, unspecified 0.6%, none 0.1% (2000 census)LanguagesFilipino (official; based on Tagalog) and English (official); eight major dialects - Tagalog, Cebuano, Ilocano, Hiligaynon or Ilonggo, Bicol, Waray, Pampango, and Pangasinanhttp://www.indexmundi.com/philippines/demographics_profile.html 42

Engel’s Laws

As family income increases ……

• a smaller % goes for food - TRUE

• the % spent on housing and household operations and clothing will remain constant (that is: grow as total income grows) - FALSE in reality this amount declines

• the % spent on recreation, education will increase - TRUE, but there are exceptions

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Engel’s LawsWhy is this important……

• because marketing managers can use this

law to figure out what will happen (i.e., What

kinds of spending patterns will develop) if

people’s incomes increase

• also, if you are planning on going into a

new market, where people have more

money - this “law” helps you to plan how people’s spending patterns will be different

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Interrelation of Income, Education, Occupation

• income determines ability to pay for a product/model;

• education may determine buying decision processing;

• occupation may determine time and effort of buying decision processing 45

Psychographic Segmentation

“The use of psychological attributes,

lifestyles and attitudes in determining

the behavioral profiles of different

customers”

The use of detailed information to understand

differences in what people buy

psychological

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Psychographic profiles on a target market segment

are obtained by doing a lot of questionnaires and

surveys to ask people if they agree/disagree with

certain statements made about particular activities,

interests or opinions

AIO - activities, interests, and opinions

http://ourworld.compuserve.com/homepages/finkleman/psychogr.ht

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AIOs:Activities (how the consumerspends time),Interests (the consumer’spreferences and priorities),Opinions (how a consumerfeels about a variety ofevents, the future, andpolitical/social issues) 48


InterestsActivitiesOpinionsBehavioral patternsHabitsLifestylePerception of selling companyHobbies

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Psychographic Segmentation ExampleConsider a company that manufactures high end luxury cars. This is a product that cannot be afforded by people from every income group. Only individuals falling in high income groups are realistic customers of this specific product.

He will analyze the habits and lifestyles of his existing customers, and even those of the customers of his direct rivals. Soon he will see that some customers use these luxury cars as status symbols, some use them as utility vehicles, and some use them for long distance drives. Users who prefer long drives will be shown the highlighted fuel efficiency of the vehicle, people who use the car sparingly just for prestige purposes will be told about the excellent looks and prestige of the car model and the brand, and people who use them for other purposes will be informed about the interior space, the handling, the braking system etc.Understanding the usage of a particular vehicle will provide the basis for the marketing of a product.

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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 purchasesBehavioral 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. 51

Benefit Segmentation

“It is based on the Attributes (characteristics)

of products, as seen by the customers”

example, people buy something because

it causes a benefitDiet coke: less sugar, lose weight

Extra white toothpaste: whiter teeth, better

smile

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“Many marketers now consider benefit

segmentation one of the most useful methods

of classifying markets”

ie. Watches

- the benefits customers looked for where durability and

product quality- older research was based on dividing the

watch market according to a different segment - once they

used the new segment, they changed the marketing plan-

modern example would be price of PCs for home use -

biggest use is entertainment NOT schoolwork or home based

businesses53

Benefit Segmentation of the Toothpaste Market

Segment Name

The

The Sensory The Independent

Segment Sociables The Workers Segment

Principal benefit sought Flavour, product Brightness Decay Price

appearance of teeth prevention

Demographic strengths Children Teens, young Large families Men

people

Special behavioural Users of Smokers Heavy users Heavy users

characteristics spearmint-

flavoured

toothpaste

Brands disproportionately Colgate, MacLean’s, Crest Brands

favoured Stripe Plus White, on sale

Ultra Brite

Personality characteristics High self- High High High

involvement sociability hypochondriasis autonomy

Lifestyle characteristics Hedonistic Active Conservative Value-

oriented


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Use-related segmentation: level of usage, level of awareness, degree of brand loyalty

1.Rate of usage: heavy, medium, light, and non-users

2.Brand loyalty: finding out what makes consumers loyal to a brand so that they can direct promo efforts to like-minded or like-situated people; vs. brand switchers; stronger brand loyalty (rewards/relationship programs) 55

Usage situation segmentation: weekday vs. week-end; Valentine’s Day, Mother’s Day, Christmas; funerals; time of day (merienda or snacks vs. ulam); sister or mother or female cousin or girlfriend or fiancée; Surf pine scent, Sunsilk summer shampoo

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Social class: implies a hierarchy in which individuals in the same class generally have the degree of status, while members of other classes have either higher or lower status 57

Differentiatedmarketing

Each targeted segment receives a specially designed marketing mix

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Segmentation is the Antithesis of mass (undifferentiated) marketing: • same product and

marketing mix for all consumers;

• consider Ford’s first Model T (“in any color for so long as it is black”) 59

NOTE:Hardly any product is undifferentiated; even Coke has added variants to appeal to different segments of the market (Coke Lite, Coke Vanilla, Cherry Coke, Caffeine free, Sakto, Litro,etc.)

Still-undifferentiated products: commodities (gasoline, steel, water)BUT for NOT long….

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Countersegmentation: a genericneed or consumer characteristicthat would apply to the members of2 or more segments and recombinethose segments into a larger singlesegment that could be targetedwith an individually tailored productor promo campaign; Dove’s “real beauty” or

the Benetton campaigns

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Examples of a FIRM’s Segmentation:

Acc. To benefits (performance, durability, reputation, convenience)

•Sugar free conscious buyers: Pepsi Max, Unsweetened Del Monte juice mixes; Sugar Not•Health Food Conscious buyers: Herbalife, Squalene

•Weight watchers buyers: Xenical, Slim Fast, Diet Coke (0 calorie!)

Acc. To Product Line:1.Athletic Market: Nike, Adidas2.Leather Shoes: GiBi3.Dental hygiene: Oral B

4.Male market: Gillette after-shave lotion, antiperspirant, shaving foam, Sensor

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NOTE:

When a company segments, it does not necessarily mean that it will concentrate on just one segment. It may (often) mean that they will create products and services (offerings) for the different segments within their universe•Skin care: for the 20s. 30s, 40s

•Different magazines within the Summit publishing group

•Cell phones: from entry level (talk and text) to the most sophisticated GPS-equipped satellite phones•Variants of furniture polish, laundry soaps, IPods, etc.

This is because they recognize diff segments will have different limitations, preferences, or wants, but the company will still want that share of that segment’s pockets (why let the competitor get that share??)

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How Market Segmentation Works:

1.Designed to discover the needs and wants of specific groups of consumers so that specialized goods and services can be developed and promoted to satisfy each group’s needs (vitamins for infants, babies, adults, women, men)

Micromarketing: even smaller, but still viable segments

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2. Also for repositioning of a product (Avon’s Skin So Soft lotion now a mosquito

repellent lotion; PlayStation and Nintendo not just for kids), Silly

String can be used as a mine detector by the military, or the addition of a new market segment (for cellphones; J&J baby products, Nivea men’s

skin products, adult diapers)

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Repositioning: imagine how coffee, eggs, wine, dark chocolates, even pork or coconut oil are now in the minds of consumers. Marketing or scientific re-evaluations or what? •Silly String: toy or weapon?

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67An attempt to change PORK in the consumer minds


3. To be able identify which is most appropriate media in which to promote the products (specific magazines, Lifestyle TV channel)

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What products will be (or NOT be) in these magazines?

Iconic Products:

Coke, Xerox, Frigidaire, Aspirin, Ponds, Johnsons’floor wax, Tide, Band Aid, IPods, Colgate

•Heritage: They've been around for a long timeand stuck to their vision mission and core values.

•Consistency: Although their identities may havebeen through many iterations they have evolvedrather than changed dramatically.

•Relevance: They've managed to keep in tunewith the markets they operate in, to stay freshand relevant - whilst maintaining the pointsmentioned above. 70

Iconic Products:

Coke, Xerox, Frigidaire, Aspirin, Ponds, Johnsons’floor wax, Tide, Band Aid, IPods, Colgate•Leadership: Without doubt the most significant inmy mind. Whilst not necessarily the biggest in thefield they are the most respected. Recognised bycustomers and non-customers as best in class,respected by captains of industry, business mediaand politicians as leaders. These are the companies that set the standards and

Governments go to for specialist advice, journalists for comment, and the investment community watches closely. They arethe innovative in every sense of the word, but pragmatic and well managed.

•Integrity: Many many icon brands have survivedcrisis, Citigroup, IBM, even Coca Cola, but theyhave recovered and been forgiven. They have adeep rooted cultures that helps them get back ontrack.

THEY DOMINATE and are timeless and age-less!!!

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Documents

Consumer Market Segmentation