Dr. S. BornaDr. S. BornaMBA671MBA671

MARKET SEGMENTATIONMARKET SEGMENTATION

Objectives:Objectives:1. To understand what it means 1. To understand what it means to “segment” a market.to “segment” a market.2. To know the basic steps in 2. To know the basic steps in segmenting a market.segmenting a market.3. To understand the bases used to 3. To understand the bases used to segment consumer and industrial segment consumer and industrial markets.markets.

Market SegmentationMarket Segmentation

4. To know how to evaluate and 4. To know how to evaluate and select segments for targeting of select segments for targeting of marketing programs.marketing programs.5. To know how to determine and 5. To know how to determine and structure a product position to structure a product position to gain a competitive advantage.gain a competitive advantage.6. To understand the concepts of 6. To understand the concepts of positioning and differentiation.positioning and differentiation.

Objectives ContinuedObjectives Continued

7. To be able to identify competitive 7. To be able to identify competitive advantages of specific firms in advantages of specific firms in the marketplace.the marketplace.

8. Be able to discern differentiation8. Be able to discern differentiation attributesattributes9. To be able to review how different9. To be able to review how different firms are trying to communicate firms are trying to communicate their positioning strategies.their positioning strategies.

Benefits of the SegmentationBenefits of the Segmentation ConceptConcept

1. Market “Reality”1. Market “Reality”2. Provides a Market2. Provides a Market OpportunityOpportunity3. Precise Definition of the 3. Precise Definition of the Market in Terms of Market in Terms of Consumer NeedsConsumer Needs

4. Efficient Allocation of4. Efficient Allocation of Marketing ResourcesMarketing Resources5. Segmentation Leads to a 5. Segmentation Leads to a More Precise Setting ofMore Precise Setting of Market ObjectivesMarket Objectives

Benefits cont.Benefits cont.

The Concept of Segmentation The Concept of Segmentation is Based on Three Propositions:is Based on Three Propositions:

1. Consumers are different.1. Consumers are different.2. Differences in consumers are 2. Differences in consumers are related to differences inrelated to differences in market demandmarket demand3. Segments of consumers can3. Segments of consumers can be isolated within overall be isolated within overall marketmarket

Three Simple Consumer Three Simple Consumer ModelsModels

(Management View of Consumers)(Management View of Consumers)

1. Similarity1. Similarity2. Unique2. Unique3. Difference/ Similarity3. Difference/ Similarity

These views lead to:These views lead to:

Three Alternative MarketingThree Alternative Marketing StrategiesStrategies

1. Market 1. Market AggregationAggregation (mass production)(mass production)2. Extreme Market Segmentation2. Extreme Market Segmentation (mass customization)(mass customization)3. Partial Market Segmentation3. Partial Market Segmentation

Mass Marketer’s View of ItsMass Marketer’s View of Its MarketMarket

PP

OO QQ

DD

Segmenter’s View of the MarketSegmenter’s View of the Market

PP

PP

PP

QQ

QQ

QQ

Levels of Market Levels of Market SegmentationSegmentation

Niche MarketingNiche Marketing

Local MarketingLocal Marketing

Individual MarketingIndividual Marketing

Mass MarketingMass Marketing

nonosegmentationsegmentation

Segment MarketingSegment Marketing

Basic Market-Preference Basic Market-Preference PatternsPatterns

Basic Market-Preference Basic Market-Preference PatternsPatterns

(a) Homogeneous(a) Homogeneouspreferencespreferences

SweetnessSweetness

Cre

amin

ess

Cre

amin

ess

(c) Clustered(c) Clusteredpreferencespreferences

Cre

amin

ess

Cre

amin

ess

SweetnessSweetness

(b) Diffused(b) Diffusedpreferencespreferences

Cre

amin

ess

Cre

amin

ess

SweetnessSweetness

Criteria for SegmentationCriteria for Segmentation

1. Size (Substantiality)1. Size (Substantiality)2. Reachability2. Reachability3. Measurability3. Measurability(size, purchasing(size, purchasing power, profiles of segments can be measured)power, profiles of segments can be measured)

4. Variations in Market 4. Variations in Market ResponseResponse5. Segments are Sufficiently 5. Segments are Sufficiently StableStable6. To minimize within group 6. To minimize within group difference and maximize difference and maximize among group difference.among group difference.

Criteria cont.Criteria cont.

Two Approaches To MarketTwo Approaches To Market SegmentationSegmentation

1. Analysis of1. Analysis of ConsumerConsumer CharacteristicsCharacteristics

A. SocioeconomicA. Socioeconomic

B. PsychologicalB. PsychologicalC. GeographicC. Geographic

(forward segmentation)(forward segmentation)

2. Analysis of 2. Analysis of ConsumerConsumer ResponsesResponses

(Behavioral(Behavioral Differences)Differences)

SubjectiveSubjectiveMeasures ofMeasures ofconsumer consumer ResponsesResponses(Perceptual Factors)(Perceptual Factors)

Objective Measure Objective Measure of Consumer of Consumer ResponsesResponses(Usage Factors)(Usage Factors)

(backward(backward segmentation)segmentation)

A) Social ClassA) Social Class EthnicEthnic DemographicDemographic

B) Personality Type (Compulsive,B) Personality Type (Compulsive, Ambitious)Ambitious) Buyer MotivesBuyer Motives EconomyEconomy Patronage, etc. Patronage, etc.

AgeAgeIncomeIncomeSex, etc.Sex, etc.

Bases for SegmentationBases for Segmentation

1. Socioeconomic and 1. Socioeconomic and DemographicDemographic2. Geographical2. Geographical3. Psychological3. Psychological4. Perceptual Factors4. Perceptual Factors5. Usage Factors5. Usage Factors

Five Patterns of Target Market Five Patterns of Target Market SelectionSelection

Five Patterns of Target Market Five Patterns of Target Market SelectionSelection

Single-segmentSingle-segmentconcentrationconcentration

ProductProductspecializationspecialization

M1 M2 M3 P1

P2

P3

SelectiveSelectivespecializationspecialization

M1 M2 M3 P1

P2

P3

M1 M2 M3

Full marketFull marketcoveragecoverage

P1

P2

P3

MarketMarketspecializationspecialization

M1 M2 M3 P1

P2

P3

P1

P2

P3

M1 M2 M3

P= Product M= Market

Selling lab equipmentto universities only

Microscope to labsMicroscope to labs

Radio Broadcast to …Radio Broadcast to …

MKGMKGMIXMIX MARKETMARKET

MKG MIX 1MKG MIX 1

MKG MIX 2MKG MIX 2

MKG MIX 3MKG MIX 3

SEGMENT 1SEGMENT 1

SEGMENT 2SEGMENT 2

SEGMENT 3SEGMENT 3

Undifferentiated Market Strategy Undifferentiated Market Strategy

Differentiated StrategyDifferentiated Strategy

SEGMENT 2SEGMENT 2SEGMENT 3

MKG MIXMKG MIX

Concentrated marketingConcentrated marketing

Selecting a marketingSelecting a marketingstrategystrategy

1. Company Resources1. Company Resources2. Product Homogeneity2. Product Homogeneity3. Product Stage in P.L.C.3. Product Stage in P.L.C.

cont.cont.

4. Market Homogeneity4. Market Homogeneity5. Competitive Marketing 5. Competitive Marketing StrategyStrategy

Selection of strategySelection of strategy cont.cont.

Evaluating The Market Evaluating The Market SegmentsSegments

1. Segment Size and Growth1. Segment Size and Growth2. Segment Structural 2. Segment Structural AttractivenessAttractiveness Segment RivalrySegment Rivalry

Threat of New EntrantThreat of New EntrantThreat of Substitute P.Threat of Substitute P.Bargaining Power of BuyersBargaining Power of Buyersand Suppliersand Suppliers

3. Company Objectives3. Company Objectives and Resourcesand Resources

Evaluation cont.Evaluation cont.