Marketing Management

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Chapter
9

Identifying

Market Segments and Targets

Learning Objectives

In what ways can a company divide the consumer market into segments?

How should business markets be segmented?

How should a company choose the most attractive target markets?

What are the requirements for effective segmentation?

What are the different levels of market segmentation?

Bases for Segmenting Consumer Markets

Market segment

A group of customers who share a similar set of needs and wants

Geographic segmentation

Psychographic segmentation

Demographic segmentation

Behavioral segmentation

Market segmentation divides a market into well-defined slices. A market segment consists of a group of customers who share a similar set of needs and wants. The marketer’s task is to identify the appropriate number and nature of market segments and decide which one(s) to target. The major segmentation variables—geographic, demographic, psychographic, and behavioral segmentation—are summarized in Table 9.1.

Geographic Segmentation

Geographical units

Nations, states, regions, counties, cities, or neighborhoods

Nielsen Claritas’ PRIZM

Education and affluence

Family life cycle

Urbanization

Race and ethnicity

Mobility

Geographic Segmentation

Geoclustering captures the increasing diversity of the U.S. population. PRIZM has been used to answer questions such as: Which neighborhoods or zip codes contain our most valuable customers? How deeply have we already penetrated these segments? Which distribution channels and promotional media work best in reaching our target clusters in each area?

Demographic Segmentation

Age & life-cycle stage

Life stage

Gender

Income

Generation

Race & culture

One reason demographic variables such as age, family size, family life cycle, gender, income, occupation, education, religion, race, generation, nationality, and social class are so popular with marketers is that they’re often associated with consumer needs and wants. Another is that they’re easy to measure.

Demographic Segmentation

Age and life-cycle stage

Our wants and abilities change with age

Life stage

A person’s major concern (e.g., divorce)

Age and life cycle can be tricky variables. The target market for some products may be the psychologically young.

People in the same part of the life cycle may still differ in their life stage. Life stage defines a person’s major concern, such as going through a divorce, going into a second marriage, taking care of an older parent, deciding to cohabit with another person, buying a new home, and so on.

Demographic Segmentation

Gender

Men and women have different attitudes and behave differently

Income

Income segmentation is a long-standing practice

Demographic Segmentation

Generation

Millennials (Gen Y)

Baby Boomers

Gen X

Silent Generation

Demographic Segmentation

Race and culture

Hispanic Americans

African Americans

Asian Americans

LGBT

Psychographic Segmentation

Buyers are divided into groups on the basis of psychological/personality traits, lifestyle, or values

Psychographics is the science of using psychology and demographics to better understand consumers. People within the same demographic group can exhibit very different psychographic profiles.

Figure 9.1: VALS
Segmentation System

BEHAVIORAL SEGMENTATION

Marketers divide buyers into groups on the basis of their knowledge of, attitude toward, use of, or response to a product

Although psychographic segmentation can provide a richer understanding of consumers, some marketers fault it for being somewhat removed from actual consumer behavior.

BEHAVIORAL SEGMENTATION

Needs and benefits
Decision roles

Initiator

Influencer

Decider

Buyer

User

USER AND USAGE-RELATED VARIABLES

Occasions

User status

Usage rate

Buyer-readiness stage

Loyalty status

Attitude

Figure 9.2
Marketing Funnel

Figure 9.2 displays a funnel for two hypothetical brands. Compared with Brand B, Brand A performs poorly at converting one-time users to more recent users (only 46 percent convert for Brand A compared with 61 percent for Brand B). Depending on the reasons consumers didn’t use again, a marketing campaign could introduce more

relevant products, find more accessible retail outlets, or dispel rumors or incorrect beliefs consumers hold.

Figure 9.3
Behavioral Segmentation Breakdown

Combining different behavioral bases can provide a more comprehensive and cohesive view of a market and its segments. Figure 9.3 depicts one possible way to break down a target market by various behavioral segmentation bases.

How Should Business Markets Be Segmented?

Demographic

Operating variables

Purchasing approaches

Situational factors

Personal characteristics

Market targeting

Effective
Segmentation Criteria

Measurable

Substantial

Accessible

Differentiable

Actionable

Porter’s five forces

Threat of Rivalry

Threat of Supplier

Bargaining Power

Threat of Buyer Bargaining Power

Threat of

New Entrants

Threat of Substitutes

Evaluating & Selecting the Market Segments

Figure 9.4: Possible Levels of Segmentation

One-to-one marketing

Identify your prospects and customers

Differentiate customers in terms of their needs and value to your company

Interact to improve your knowledge about customers’ needs and to build relationships

Customize products, services,

and messages to each customer

Legal and Ethical Issues

Marketers must avoid consumer backlash

Labeling consumers

Vulnerable groups

Disadvantaged groups

Potentially harmful products