Identifying Market Segments And Selecti Selecting ng Target Markets
GROUP MEMBERS : Usman Badar and Kainaat Rizvi 1
TABLE OF O F CONTENTS CONTE NTS Introduction LEVELS OF SEGMENTATION Levels of market segmentation Mass Marketing • Micromarketing • Segment Marketing • Niche Marketing • Local Marketing • Individual Customer Marketing • Patterns of Market Segmentation Market Segmentation Procedure Effective Segmentation SEGEMENTING CONSUMER AND BUSINESS MARKET Bases for Segmenting Consumer Markets Geographic Segmentation Demographic Segmentation Age and Life-Cycle stage Life Stage Gender Income Generation Social Class Psychographic Segmentation Lifestyle Personality Values Behavioral segmentation Occasions Benefits User Status Usage rate Loyalty Status Buyer-Readiness Stage Attitude
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MARKET TARGETING Evaluating & Selecting the Market Segments Single-Segment Concentration • Selective Specialization • Product Specialization • Market Specialization • Full Market Coverage •
Conclusion
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INTRODUCTION
A company cannot serve all customers in a broad market such as computers or soft drinks. The customers are too numerous and diverse in their buying requirements. A company needs to identify the market segments it can serve effectively. effectively. Here we will examine levels of segmentation, patterns of segmentation, market segment procedures, bases for segmenting consumer and business markets, and requirements for effective segmentation. Many companies are embracing target marketing. Here sellers distinguish the major market segments, target one or more of these segments, and develop products and marketing programs tailored to each. Instead of scattering.
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LEVELS AND PATTERNS OF SEGMENTATION
LEVELS OF MARKET SEGMENTATION
Mass Marketing The seller engages in mass production, mass distribution, and mass promotion of one product to all buyers. Mass marketing creates the largest potential market, which leads to the lowest costs, which in turn can lead to lower prices or higher margins. Now a day the explosion of advertising media and distribution channels has made it difficult and increasingly expensive to reach a mass audience.
Micromarketing Many companies are turning to micromarketing these days by choosing one of the four levels; segments, niches, local areas, and individuals.
SEGMENT MARKETING A market segment consists of a group of customers who share a similar set of wants. A segment further contains con tains a sector. E.g. A Car Company might say that it will target young, middle-income car buyers. But the young, middle-income car buyers will differ about their wants in a car; low cost or expensive car. So, the young, middle-income car buyer is a sector. Segment marketing offers several benefits over mass marketing, some of them are: 1. The company company can can create create a more finefine-tuned tuned produc productt or service service offeri offering ng and price it appropriately for the target segment. 2. The company company can can more easily easily select select the best best distribu distribution tion and and communicat communications ions channels. 3. The company company can also also have have a clearer clearer pictur picturee of its its competit competitors. ors.
NICHE MARKETING A niche is amore narrowly defined group seeking a distinctive mix of benefits. Marketers usually identify niches by dividing a segment into sub segments. An attractive niche has the following characteristics: 1. The customers customers in the the niche niche have have a distinct distinct set of needs. needs. 2. They will will even even pay a premiu premium m to the firm firm that that best satisf satisfies ies their their needs. needs. 3. The niche is not not likely likely to attrac attractt other other compe competito titors. rs. 4. The nicher nicher gains certain certain economi economies es through through specializ specializatio ation. n. 5. The niche has size, size, profit profit and growt growth h potenti potential. al.
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LOCAL MARKETING Target marketing is leading to marketing programs tailored to the needs and wants of local customer groups (trading areas, neighborhoods, even individual stores)
INDIVIDUAL CUSTOMER MARKETING The ultimate level of segmentation leads to “segments of one,” “customized marketing,” or “one-to-one marketing”. Ultimately every individual has a unique set of wants and preferences. In past centuries, producers customized their offerings to each customer: the tailor fitted a suit and a cobbler made shoes for each individual.
Mass-customization It is the ability of a company to prepare on a mass basis individually designed products, services, programs, and communications, to meet each customer’s requirements.
E.g. English Boot House has been in business since 1947. They launched their internet business in 2001. Initially orders were mostly based from and Middle East. However in 2002, since acceptance of credit cards for deliveries within through Gerry’s Gerry’s Pakistani shop.com, internal business has been very promising. People who have used EBH shoes and are now living abroad still love to buy EBH www.ebhshop.com offers one of the best collections of shoes you’ll ever see. www.ebhshop.com www.ebhshop.com boasts boasts over 57 years of shared shoe industry experience with its founders, leading consumer-driven footwear company in the country, country, and the leader in technically advanced comfort footwear. footwear. They say “Imagine, more than 57 years of researching, studying, buying and selling shoes--shoes are our life. Our sole mission is simple--to provide you, our customers with the best selection of shoes you can ask for from the brands you know and want”. www.ebhshop.com offers exceptional value and the utmost convenience with an extensive selection of styles, and expert advice on footwear. There, buyers scour the market and work closely with manufacturers in order to offer their consumers the best selection of styles from only the top quality brands. Shopping with ebhshop.com is like having a friend in the business. “Our service is built on a simple concept: the customer is always right. We We stand behind this philosophy with a 100% ebhshop.com Satisfaction Guarantee. Our knowledgeable and friendly shoe experts help you, the ebhshop.com customer, with your selection, sizing, and the purchase of your new shoes. As for fit, don’t even think twice about it, our sizing guide and Fit Assistant will ensure just the right fit and, with our 30day Return Policy customers may return unworn shoes for any reason, no questions asked. It’s It’s that simple. ebhshop.com—the brands you know and the styles you love”.
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Choiceboard Online companies today are offering customers a Choiceboard, which is an interactive online system that allows individual customers to design their own services and products by choosing from a menu of attributes, components, prices, and delivery options. Some of the advantages of Choiceboard are: 1. The Choicebo Choiceboard ard facilit facilitates ates up selling selling,, cross-sell cross-selling, ing, and, and, and repeat repeat business business by opening customer’s eyes to further possibilities and by satisfying their preferences. 2. The Choice Choiceboard board provides provides real-t real-time ime market market research research and insight insight into into customer’s current preferences. 3. The Choiceb Choiceboard oard reduces reduces costs costs for for manufactur manufacturers ers and suppli suppliers ers by avoidin avoiding g the production of unwanted goods and discounting to get rid of them. E.g. ICI Dulux Pakistan provides the choiceboard to its online customers on dulux.com. They provide you with the color schemes of paints; you can choose the kind of surface you want to paint and they show you the available list of paint types and colors. Dulux.com provides you a facility, so that you don’t need to visit their outlets for information, you can simply log on to www.dulux.com Similarly www.marriott.com facilitates you to make reservations, search for any other hotel etc.
Customerization It combines operationally driven mass customization with customized marketing in a way that empowers consumers to design the product or service offering of their choice. The firm no longer requires prior information about the customer, customer, nor does the firm need to own manufacturing. The firm provides a platform and tools and rents out to customers the means to design their own products. Each business unit will have to decide whether it would gain more by designing its business system to create offerings for segments or for individuals. Companies that favor segmentation see it as more efficient, requiring less customer information, and permitting more standardization of market offerings. Those who favor individual marketing claim that segments are a fiction, that individuals within so-called segments differ greatly and that marketer can achieve much more precision and effectiveness by addressing individual needs.
PATTERNS OF MARKET SEGMENTATION Market segments can be build up in many ways, one way is to identify preference segments. For example cookies buyers are asked how much they value sweetness and saltiness in biscuits as two product attributes. Three Three different patterns can emerge. Preferences: shows a market where all the consumers 1. Homogeneous Preferences:
have roughly the same preferences. The market shows no natural segments. We We would predict that existing brands would be similar and cluster around the middle of the scale in both sweetness & saltiness.
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2. Diffused Preferences: At the other extreme, consumer preferences maybe scattered throughout the space, indicating that customers vary greatly in their preferences. The first brand to enter the market is likely to position in the center to appeal to the most people
3. Clustered Preferences: The market might reveal distinct preference clusters, called natural market segments. The first firm in this market has three options. It might position in the center, hoping to appeal to all groups. It might position in the largest market segment (concentrated marketing). It might develop several brands, each positioned in a different segment. If the first firm developed only one brand, competitors would enter and introduce brands in the other segments.
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MARKET SEGMENTATION PRECEDURE How can we identify market segments? One approach would be to classify consumers demographically. demographically. A bank, for example, may decide to group its customers by wealth, annual income, and age. Suppose it distinguishes five wealth classes, seven income classes, and six age classes. This alone would create 210 market segments (5 × 6 ×7). But consumers in any one group do not really have same needs, attitudes and preferences. Roger Best proposed the seven-step approach to advocate the needs-based segmentation approach
Description
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Needs-Based Segmentation Group customers into segments based on similar needs and benefits sought by customer in solving a particular consumption problem.
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Segment Segment Identifi Identificati cation on For each needs-base needs-based d segment, segment, determine determine which demographics, lifestyles, lifestyles, and usage behaviors make the segment distinct and identifiable (actionable).
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Segment Attractiveness Using predetermined segment attractiveness criteria (such market growth, competitive intensity, intensity, and market access), determine the overall attractiveness of each segment.
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Segment Segment Profitab Profitability ility
Determin Determinee segment segment profitabil profitability ity..
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Segment Segment positioni positioning ng For each segment; segment; create create a “value “value proposition” and product-price positioning strategy based on that segment’s unique customer needs and characteristics. characteristics. 6. Segment “Acid Test” Create “segment storyboards” to test the attractiveness of each segment’s segment’s positioning strategy. strategy. 7.
Marketing-mix strategy Expand segment positioning strategy to include all aspects of the marketing mix: product, price, promotion and place.
EFFECTIVE SEGMENTATION Not all segmentation is useful. For example, table salt buyers could be divided into blond and brunette customers, but hair color is not relevant to the
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purchase of salt. Furthermore, if all salt buyers buy the same amount of salt each month, believe all salt is the same, and would pay only one price for salt, this market would be minimally segmentable from a marketing point of view. view. To be useful, market segment must be: •
Measurable: The size, purchasing power, and characteristics characteristics of the segment can be measured.
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Substantial: The segments are large and profitable enough to serve. A segment should be the largest possible homogeneous group worth going after with a tailored marketing program. It would not pay, pay, for example, for an automobile manufacturer to develop cars for people who are under four feet tall.
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Accessible: The segments can be effectively reached and served.
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Differentiable: The segments are conceptually distinguishable and respond differently to different marketing-mix elements and programs. If married and unmarried women respond similarly to a sale on perfume, they do not constitute separate segments.
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Actionable: Effective programs can be formulated for attracting and serving the segments.
SEGMENTING CONSUMER AND BUSINESS MARKETS The major segmentation variables – geographic, demographic, psychographic, and behavioral segmentation.
GEOGRAPHIC SEGMENTATION Geographic segmentation calls for dividing the market into different geographical units such as nation, states, regions, countries, cities, or neighborhoods . The company can operate in one or a few geographic areas, or operate in all but pay attention to local variations . For example Hilton Hotels customizes rooms and lobbies according to the location of its hotels.
DEMOGRAPHIC SEGMENTATION In demographic segmentation , the market is divided into groups on the basis of variables such as age , family life cycle , gender , income , occupation , education , religion , race , generation , nationality , and social class. Demographic variables are the most popular bases for distinguishing customer groups. One reason is that consumer wants, preferences, and usage rates are often associated with demographic variables. Another Another is that demographic variables are easier to measure.
Age and Life-Cycle Stage
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Consumer wants and abilities change with age. Age and life cycle can be tricky variables. For example, the Ford Motor Company designed its Mustang automobile to appeal to young people who wanted an inexpensive sports car . But Ford found that many mustangs were purchased by older buyers. It then realized that its target market was not the chronologically young but the psychologically young. young.
Life Stage Person in the same part of the life cycle may 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 older parents, deciding to cohabit with another person, deciding to buy a new home, and so on.
Gender Men and women tend to have different attitudinal and behavioral orientations, based partly on genetic makeup and partly on socialization practices. Gender differentiation has long been applied in clothing, hairstyling, cosmetics and magazines. The automobiles industry is beginning to recognize gender segmentation, since there are now more women car owners, some manufacturers are designing features to appeal to women, although they stop short of advertising the cars as women’s women’s cars.
Income Income segmentation is long- standing practice in such products and services categories as automobiles, boats, clothing, cosmetics, and travel. However, However, income does not always predict the best customers for a given product.
Generation Many researchers are now turning to generation segmentation. Each generation is profoundly influenced by the times in which it grows up- the music, movies, politics, and defining events of that period. Demographers call these groups “cohorts”.
Social Class Social class has a strong influence on preference in cars, clothing, home, furnishings, leisure activities, reading habits, and retailers. Many companies design products and services for specific social classes.
PSYCHOGRAPHIC SEGMENTATION In psychographic segmentation, buyers are divided into different groups on the basis of lifestyle or personality or values. People within the same demographic group can exhibit very different psychographic profiles.
Lifestyle
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People exhibit many more lifestyles than are suggested by the seven social classes. People differ in attitudes, interest, activities, activities, and these affect the goods and services they consume. Companies making cosmetics and furniture are always seeking opportunities in lifestyles segmentation, but lifestyle segmentation does not always work.
Personality Markers have used personality variables to segment markets. They endow their products with a “brand personality” that corresponds to a target consumer personality. personality. The company utilizes product features, services, and image making to transmit the product’s personality. personality.
Values Some markers segment by core values. Core values go much deeper than behavior or attitude, and determine, at a basic level, people’s choices and desires over the long term.
BEHAVIORAL BEHAVIORAL SEGMENTATION SEGMENTATION In behavioral segmentation, buyers are divided into groups on the basis of their knowledge of, attitude toward, use of, or response to a product. Many marketers believe that behavioral variables-occasions, benefits, user status, usage rate, loyalty status, buyer-readiness stage, and attitude—are the best starting points for constructing market segments.
Occasions Buyers can be distinguished according to the occasions when they develop a need, purchase a product, or use a product. Occasions segmentation can help firms expand product usage. For example in Pakistan tea is usually consumed at breakfast. A company can consider occasions of critical life events or transitionsmarriage, childbirth, illness, relocation, career change—as giving rise to new needs.
Benefits Buyers can be classified according to the benefits they seek, people vary considerably in the benefits they seek from the same product. 1. Road Warriors: Warriors: premium products and quality service. (16%) 2. Generation F: fast fuel, fast service, and fast food. (27%)
3. True Blues: branded products and reliable service. (16%) 4. Home bodies: convenience. (21%) 5. Price Shoppers: Low price. (20%) User Status Markets can be segmented into nonuser, ex-users, potential users, first time users, and regular users of a product. Market-share leaders tend to focus on attracting potential users because they have the most to gain. Smaller firms focus on trying to attract current users away from the market leader.
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Usage Rate Markets can be segmented into light, medium, and heavy product users. Heavy users are often a small percentage of the market but account for high percentage of total consumption.
Loyalty Status Consumers have varying degrees of loyalty to specific brands, stores, and companies. Buyers can be divided into four groups according to brand loyalty status: 1. Hard-core loyals: Consumers who are buy one brand all the time. 2. Split loyals: Consumers who are loyal to two or three brands. another. 3. Shifting loyals: Consumers who shift from one brand to another. 4. Switchers: Consumers who show no loyalty to any brand.
Buyer-readiness stage A market consists of people in different stages of readiness to buy a product. Some are unaware of the product, some are aware, some are informed, some are interested, some desire the product, and some intend to buy. The relative numbers make a big difference in designing the marketing program.
Attitude Five attitude groups can be found in a market: enthusiastic, positive, indifferent, indifferent, negative, and hostile. Door-to-door workers in political campaign use the voter’s attitude to determine how much time to spend with that voter. They thank to enthusiastic voters and remind them to vote; they reinforce those who are positively disposed; they try to win the votes of indifferent voters; they spend no time trying to change the attitudes of negative and hostile voters.
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Segm Segmen enta tati tion on Varia ariabl bles es
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Data Data
Geographic World region
Asia
Country
Pakistan
Cities
All major cities of Pakistan
Density
Urban
Climate
Hot and Dry
Demographic Age
All ages
Gender
Male, Female
Family size
1-2, 3-4, 5+
Family life cycle
Young, Single; Young, Married, no children; Young, Married with children; Older, Married with children; Older, Married with no children under 18; Older, Single; Other
Income
Rs.30,000+
Occupation
From middle class to upper class
Education
Schools, Colleges, Universities
Religion
Major religion of Islam, Christianity an a nd Hinduism and small percentage of others
Race
Asian
Nationality
Pakistani
Psychographic Social class
Working class, Middle class, Upper class.
Lifestyle
Actualizes, Fulfilled, Believers, Ac A chievers, Strivers, Experience’s makers and Strugglers
Behavioral Occasions
Parties, Birthdays, Sports and Regular Occasions
Benefits
Quality, Taste, Economy, Health
User status
First time user
Attitude towards product
Positive
MARKET TARGETING Once the firm has identified its market-segment opportunities, it has to decide how many and which one to target.
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Evaluating and selecting the market segments In evaluating different market segments, the firm must look at two factors: the segment’s segment’s overall attractiveness and the company’s objective and resources. Having evaluated different segments, company can consider five patterns of target market selection.
Single-segment concentration Suzuki concentrates on the small-call market and Honda on the family car market. Through concentrated marketing, the firm gains a strong knowledge of the segment’s segment’s needs and achieves a strong market presence. Furthermore, the firm enjoys operating economies through specializing its production, distribution, and promotion. If it captures segment leadership, the firm can earn a high return on its investment.
Selective specialization The firm selects a number of segments, each objectively attractive and appropriate. There There may be little or no synergy among the segments, but each promises to be a moneymaker. This multisegment multisegment strategy has the advantage of diversifying the firm’s risk.
Product specialization The firm makes a certain product that it sells to several segments. An example would be a microscope manufacturer who sells to university, university, government, and commercial laboratories. The firm makes different microscopes for the different customer groups and builds a strong reputation in the specific product area. The downside risk is that the product may be supplanted by an entirely new technology. technology.
Market specialization The firm concentrates on serving many needs of a particular customer group. An example would be a firm that sells an assortment of products only to university laboratories. laboratories. The firm gains a strong reputation in serving this customer group and becomes a channel for additional products the customer group can use. The downside risk is that the customer group may suffer budget cuts.
Full market coverage The firm attempts to serve all customer groups with all the products they might need. Only very large firms such as IBM (computer market), General Motors (vehicle market), and coca-cola (drink market)
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can undertake a full market coverage strategy. Large firms can cover a whole market in two broad ways: through undifferentiated marketing or differentiated marketing. In undifferentiated marketing, marketing, the firm ignores segment differences and goes after the whole market with one offer. Differentiated Differentiated marketing typically creates more total sales than undifferentiated marketing. However, is also increases the cost of doing business. The following costs are likely to be higher: 1. Product modification costs: Modification a product to meet different market-segment requirements usually involves R&D, engineering , and special tooling costs. 2. Manufacturing costs : it is usually more expensive to produce 10 units of 10 different products than 100 units of one product. The longer the production setup time and the smaller the sales volume each product, the more expensive the product becomes. However, However, if each model is sold in sufficiently large large volume, the higher setup costs may be quite small per unit. 3. Administrative costs: The company has develop separate marketing plans for each market segment. This requires extra marketing research, forecasting, sales analysis, promotion, planning, and channel management. 4. Inventory costs: it is more costly to manage inventories containing many products.
5. Promotion costs: The company has to reach different market segments with different promotion programs. The result is increased promotion-planning cost and media costs. Because differentiated differentiated marketing leads to both higher sales and higher costs.
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CONCLUSION The tools for identifying market segments and selecting target markets all over the world is same and these tools are also implemented in Pakistan. Companies make different segments for their own convenience and target only those markets that in return gives the company most profit and that company can easily serve. Identifying market segments and selecting target markets enable the company to serve their customer in a better way. With With marketers increasingly adopting more and more refined market segmentation schemes— fueled by internet and other customization efforts—some efforts—some critics claim that massmarketing is dead .
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REFERENCE LIST Marketing management , eleventh edition b y Philip Kotler
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www.ebhshop.com
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www.marriot.com
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www.dulux.com
