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3Chap003StrategicMarketing.pptxStrategic Market Segmentation
Chapter 03
Levels and types of market segmentation
Market-driven strategy and segmentation
Activities and decisions in market segmentation
Defining the market to be segmented
Identifying market segments
Forming market segments
Finer segmentation strategies
Selecting the segmentation strategy
Learning Objectives
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Exhibit 3.1 - Levels of Market Segmentation
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Market segmentation, value opportunities and new market space
Market targeting and strategic positioning
Market-Driven Strategy and Segmentation
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Exhibit 3.2 - Segmentation in the Market-Driven Strategy Process
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Market segmentation - Placing the buyers in a product-market into subgroups
Examining specific market segments helps to identify how to:
Attain a closer match between buyers’ value preferences and the organization’s capabilities
Compare the organization’s strengths (and weaknesses) to the key competitors in each segment
Market Segmentation, Value Opportunities and New Market Space
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Market targeting consists of:
Evaluating and selecting one or more segments whose value requirements provide a good match with the organization’s capabilities
Market Targeting
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Positioning strategy - Combination of actions management takes to meet needs and wants of each market target
Consists of:
Product(s) and supporting services
Distribution
Pricing
Promotion components
Strategic Positioning
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Exhibit 3.3 - Activities and Decisions in Market Segmentation
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Important consideration in defining market to be segmented is:
Estimating variation in buyers’ needs and requirements at different product-market levels
Identifying the types of buyers included in the market
Defining the Market to be Segmented
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Exhibit 3.4 - Market Segmentation in the Health and Beauty Supplies Market
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Segmentation variables
Characteristics of people and organizations
Product use situation segmentation
Buyers’ needs and preferences
Purchase behavior
Identifying Market Segments
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One or more variables may be used to divide the product-market into segments
Demographic and psychographic
Use situation
Needs and preferences
Purchase-behavior
Segmentation Variables
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Consumer markets - Characteristics of people fall into two major categories:
Geographic and demographic
Psychographic
Organizational segmentation is aided by examining:
The extent of market concentration
The degree of product customization
Characteristics of People and Organizations
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Markets can be segmented based on how the product is used
Needs and preferences vary according to different use situations
Mass customization offers a promising means of responding to different use situations at competitive prices
Product Use Situation Segmentation
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Needs and preferences specific to products and brands can be used as segmentation bases and segment descriptors
For example:
Loyalty status
Benefits sought
Proneness to make a deal
Buyers’ Needs and Preferences
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Consumer needs
Physiological needs
Need for safety
Need for relationships with other people
Personal satisfaction needs
Buyers’ Needs and Preferences
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Understanding the nature and intensity of needs is important in:
Determining how well a particular brand may satisfy the need
Indicating what change(s) in the brand may be necessary to provide a better solution to the buyer’s needs
Buyers’ Needs and Preferences
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Attitudes
Enduring systems of favorable or unfavorable evaluations about brands
Reflect the buyer’s overall liking or preference for a brand
May develop from:
Personal experience
Interactions with other buyers
Marketing efforts
Buyers’ Needs and Preferences
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Perceptions
Process by which an individual selects, organizes, and interprets information inputs to create a meaningful picture of the world
People perceive things differently
Buyers’ Needs and Preferences
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Consumption variables useful in segmenting consumer and business markets
Level of product use may not necessarily identify the best value opportunities
Useful to classify buying decisions according to:
Their characteristics
Products to which they apply
Marketing strategy implications of each type of purchase behavior
Purchase Behavior
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Exhibit 3.6 - Consumer Involvement in Purchase Decisions
Source: Eric N. Berkowitz, Roger A. Kerin, Steven W. Hartley, and William Rudelius, Marketing, 5th ed. (Chicago: Richard D. Irwin, 1997), 156. Copyright © The McGraw- Hill Companies. Used with permission.
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Exhibit 3.7 - Illustrative Segmentation Variables
Source: Eric N. Berkowitz, Steven W. Hartley, William Rudelius, and Roger A. Kerin, Marketing, 7th ed. (Burr Ridge, IL: McGraw-Hill/Irwin, 2003).
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Requirements for segmentation
Approaches to segment identification
Customer group identification
Forming groups based on response differences
Forming Market Segments
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Useful criteria for evaluating a potential segmentation strategy:
Response differences
Identifiable segments
Actionable segments
Cost/benefits of segmentation
Stability over time
Product differentiation and market segmentation
Requirements for Segmentation
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Exhibit 3.8 – Approaches to Segment Identification
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Necessary to select one or more of the characteristics of people or organizations as the basis of segmentation
Segments are formed by:
Management judgment and experience
Supporting statistical analyses
Customer Group Identification
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Exhibit 3.9 - Product-Market Segmentation Dimensions for Hotel Lodging Services
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Management’s knowledge of customer needs is a useful guide to segmentation
Business segment variables include:
Type of industry
Size of purchase
Product application
Management Insight and Available Information
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Identify customer groups using descriptive characteristics
Compare response rates by placing the information in a table
Cross Classification Analyses
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Useful in consumer market segmentation
Databases are organized by geography and buyers’ descriptive characteristics
Can be used to identify:
Customer groups
Design effective marketing programs
Improve the effectiveness of existing programs
Data Mining for Segmentation
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Important to recognize that segmentation has an international dimension in many markets
At the simplest level, country differences may dictate the need for variations in the sizes of products
Segmentation Illustrations
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Alternative to selecting customer groups based on descriptive characteristics:
Identify groups of buyers by using response differences to form the segments
Segments vary in responsiveness based on:
Relative price
Relative service
Forming Groups Based on Response Differences
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Cluster analysis
Groups people according to the similarity of their answers to questions
Perceptual maps
Uses consumer research data to construct perceptual maps of buyers’ perceptions of products and brands
Forming Groups Based on Response Differences
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Exhibit 3.11 - Consumer Perception Mapping Illustration
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Logic of finer segments
Finer segmentation strategies
Finer Segmentation Strategies
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Factors add up to the benefits of considering very small segments
The capabilities of companies to offer cost effective, customized offerings
The desires of buyers for highly customized products
The organizational advantages of close customer relationships
Logic of Finer Segments
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Finer Segmentation Strategies
Microsegmentation
Seeks to identify narrowly defined segments using one or more of the previously discussed segmentation variables
Mass customization
Provides customized products at prices not much higher than mass-produced items
Variety seeking
Intended to offer buyers opportunities to vary their choices in contrast to making unique choices
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Finer segmentation issues
How much variety should be offered to buyers?
Will too much variety have negative effects on buyers?
Is it possible to increase buyers’ desire for variety, creating a competitive advantage?
What processes should be used to learn about customer preferences?
Finer Segmentation Strategies
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Deciding how to segment
Strategic analysis of market segments
Selecting the Segmentation Strategy
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Choice of a segmentation method depends on:
The maturity of market
The competitive structure
The organization’s experience in the market
Deciding How to Segment
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Each market segment of interest needs to be studied to determine its potential attractiveness as a market target
Major areas of analysis:
Customers
Competitors
Positioning strategy
Financial and market attractiveness
Strategic Analysis of Market Segments
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Important aspect of evaluating segment attractiveness
How well the segments match company capabilities
The ability to implement marketing strategies around those segments
Segment “Fit” and Implementation
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