Market Segmentation: A Market Segment can be thought of as any group of people who respond in a relatively homogeneous way to a given offering. It can also be thought of as a group of people who have similar needs and wants.

Market Segmentation strategy involves several interrelated steps. It involves figuring out what relevant segments exist, examining those segments with the competion and a company's own competencies in mind in order to choose one or more segments to target with the company's offering. Segmentaion also involves decisions about how a company will develop its market position and the psychological position it is attempting to create in the minds of customers for its offering.

Why Segment?

Segmentation is the primary means used by companies to focus their energies and activities toward things that they can do well and profitably. The company matches its strengths and its offering to the group of customers most likely to respond to it.

By selcting and concentrating on some segments to the exclusion of other segments, the marketing mix can be tailored to fit those customers who are most likely to want to buy more of the things that a company has for sale.

A good segmentation strategy will alow a company to develop one or more marketing mixes that are both Effective and Efficient. Effective in that they result in sales, efficient in that the sales are highly profitable -- high revenue/cost ratio.

Bases of Segmentation

Anything that can serve to divide customers into distinguishable groups can be a base for segmentation.

Not all bases are equally good.

For a base of segmentation to be EFFECTIVE it must provide division of the market into segments which are:

actionable (can do something in regard to the group)
measurable (we can find out how many customers there are in it, where they are, and how much they have to spend on our offering.)
accessible (the segment can be reached and served)
substantial $$ (The segment represents true demand -- Wants backed by purchasing power.)
The segments must be formed based on something about customers that relates to their purchasing behavior.

Teenmark from MRI summary of the "Teen Market" 2003

What are some bases used to segment markets?

Note that just because you can effectively segment a market, does not mean that your overall segmentation strategy will necessarily be effective!

BENEFITS SOUGHT

is the most important base...

While many bases are discussed, most other bases can be shown to be operationalizations of a benefits sought segmentation. That is, marketers use a given segmentation variable as a surrogate for benefits sought.

e.g. A cosmetics company might use the segment "females under 20" as a surrogate for the benefit sought:

"I want to look older, more beautiful, and sophisticated, so that I feel better about myself"

It makes sense for it to do this because most females under 20 do want those benefits.

Conversely, a cosmetics company might use the segment "females over 35" as a surrogate for the benefit sought:

"I want to look younger, more beautiful, and rested, so that I feel better about myself"

This also makes sense because most females over 35 actively want those benefits.

One effective geographic method made possible by recent advances in mapping software and census databases is to segment regions by lifestyle as at Claritas

See your book for lists of other bases...

A word about Brand Loyalty

Really no such thing as measured in the industry.

Loyalty implies that there is some emotional committment.
Most measures of loyalty only measure repeated purchase behavior, which may be an example of many other things.

e.g. habit, preference, availability

There are true Brand Loyal people, but these tend to be a small minority of the people who are regular repeat purchasers. These are the people who start fan clubs for their brands, always wear the t-shirts, and otherwise need a life.

For most, a change in circumstance can change the buying behavior.
Kodak film .. then Fuji..

On the other hand, Heavy Users, is often a good segmentation variable, even if there is no emotional committment to the brand because of the sheer volume involved.

Brand Equity

While not a segmentation base, brand equity replaces brand loyalty as an important way to assess the value of a brand. There are different ways to measure brand equity, but all involve determining the amount extra that people are willing to pay for the branded product over an unbranded parity product. In the aggregate, this ends up being the basis for setting a price when selling a brand itself to some other company.

PRODUCT LOYALTY

% OF TEENS/TWEENS WHO SAY THEY ALWAYS...

                                                                   
                                               Try       Stick  Don't
                               Look for    something      to     know/
                             something     new from     favorite   no
                                new       time to time   brand    answer
                                                                   
Clothing-jeans)                     39%        40%       18%      3%
Shoes (non-athletic)                38         36        19       8
Music                               35         32        29       3
Athletic shoes                      33         20        25      12
Electronic games                    32         25        12      32
Cable TV channels                   30         33        24      16
Jeans                               29         36        29       6
Car/truck/other auto                28         16        22      34
Computer-related products           26         30        11      34
Magazines                           24         32        30      13
TV programs                         23         46        26       5
Skin care                                                          
 products/cosmetics                 18         25        23      34
                                                                    
Note:
Numbers may not add up to 100% due to rounding.              
                                                                   
Source:
Primedia/Roper Starch                                      
                                                                   
Note: Table
made from bar graph

Target Markets

Target markets are the embodiment of the marketing principle of selectivity and concentration. The firm seeks to match its goals and abilities to a particular group or groups of customers.

A firm focuses its marketing effort toward the chosen target market, essentially ignoring other possible customers. If people outside the target segment become customers, great, but unless they have great potential and need of a change in the marketing mix, there will be little effort expended toward them.

A target market is chosen for the distinct ability of firm/organization to serve the segment better (more profitably) than it can serve other segments.

Choosing one or more target markets and developing different marketing mixes for each targeted segment is known as Differentiated Marketing.

Target markets should always be chosen so that companies can exploit any competitive advantages and differential advantages that they might have over their competitors.

Competitive advantages are any advantage that the company may have that allow it to perform better than the competition.

Differential advantages are the special cases where the competitive advantage also results in customers' preferring the offering of the company over that of its competitors.

Note that targeting a particular market must come after market segments have been identified. (You cannot choose unless you have choices.)

Companies can attempt to differentiate their offering on any attribute that is perceptible to the customers. A commonly used phrase for a perceptible differentiation between offerings is the just noticeable difference.

The Value Proposition that customer's perceive for your offering is the answer to their question: What's in it for me?: Notice that the perceived value of any given offering will be the synergetic effect of all the marketing mix and non-marketing mix elements of that offering.; In Economic terms, the total utility will be composed of the various component utilities such as posession, time, place, and even symbolic utility.; In a very fundamental sense, an offering is worth exactly what people are willing to pay for it. If two companies command different prices for products that seem to be identical in all respects except for the brand, it merely demonstrates that the brand has symbolic value to the customer. This symbolic value of a brand is often equated with brand equity.

Positioning is not the same as Segmentation, but is intimately related.

When a company seeks to set itself apart from its competitors by focusing on only one of the attributes of it's offering, the benefit from this attribute is often called the offering's Unique Selling Proposition, or USP; When a company seeks to set itself apart from its competitors by focusing on only one of the attributes of it's offering, the benefit from this attribute is often called the offering's Unique Selling Proposition, or USP

Related videos... Levis, Spice Girls, Mushrooms Incorporated, Merchants of Cool, Persuaders, Colonel goes to Japan, MacDonalds in Moscow, Ice Cream Wars. Basically, everything we do all quarter is related directly to segmentation.

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Market Segmentation