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7 Identifying Market Segments and Targets Chapter Questions What are the different levels of market segmentation? How can a company divide a market into segments? What are the requirements for effective segmentation? How should business markets be segmented? How should a company choose the most attractive target markets? Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-2 Effective Targeting Requires Marketers to: Identify and profile distinct groups of buyers who differ in their needs and preferences Select one or more market segments to enter Establish and communicate the distinctive benefits of the market offering Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-3 What Is a Market Segment? A market segment consists of a group of customers who share a similar set of needs and wants. Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-4 Segmenting Consumer Markets Geographic Demographic Psychographic Behavioral Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-5 Geographic Segmentation Geographic segmentation divides the market into geographical units such as nations, states, regions, counties, cities, or neighborhoods. The company can operate in one or a few areas, or it can operate in all but pay attention to local variations. Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-6 SEC Rural Consumers Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-7 Demographic Segmentation Age and life cycle Life stage Gender Income Generation Social class Race and Culture Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-8 Age and Lifecycle Stage Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-9 Gender and Income Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-10 SEC Classification: Urban Markets Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-11 Psychographic Segmentation and The VALS Framework Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-12 Behavioral Segmentation Based on Needs and Benefits Needs and Benefits Decision Roles User and Usage Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-13 Behavioral Segmentation: Decision Roles Initiator Influencer Decider Buyer User Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-14 Behavioral Segmentation: Behavioral Variables Occasions Benefits User Status Usage Rate Buyer-Readiness Loyalty Status Attitude Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-15 Figure 7.2 Example of a Brand Funnel Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-16 Loyalty Status Hard-core Split loyals Shifting loyals Switchers Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-17 Figure 7.3 Behavioral Segmentation Breakdown Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-18 Segmenting for Business Markets Demographic Operating variable Purchasing approaches Situational factors Personal characteristics Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-19 Segmenting for Business Markets Demographic: Industry Company Size Location Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-20 Segmenting for Business Markets Operating Variables: Technology User or non-user status Customer capabilities Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-21 Segmenting for Business Markets Purchasing Approaches: Purchasing-function organization (centralized or decentralized) Power structure Nature of existing relationships General purchasing policies Purchasing criteria Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-22 Segmenting for Business Markets Situational Factors: Urgency Specific application Size or order Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-23 Segmenting for Business Markets Personal Characteristics: Buyer-seller similarity Attitude toward risk Loyalty Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-24 Steps in Segmentation Process 1. 2. 3. 4. 5. 6. 7. Need-based segmentation Segment identification (distinct & identifiable – based on segmentation bases) Segment attractiveness Segment profitability Segment positioning Segment acid test Market mix strategy Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-25 Effective Segmentation Criteria Measurable (characteristics, size and purchasing power of the segment) Substantial (large & profitable) Accessible (reachable and servable) Differentiable Actionable Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-26 Attractiveness of a Market Segment The following are some examples of aspects that should be considered when evaluating the attractiveness of a market segment: Size of the segment (number of customers and/or number of units) Growth rate of the segment Competition in the segment Brand loyalty of existing customers in the segment Attainable market share given promotional budget and competitors' expenditures Required market share to break even Sales potential for the firm in the segment (Actionable) Expected profit margins in the segment Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-27 Market Targeting Strategies Five Patterns of Target Market Selection Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition ofTARGET Marketing Management, 14e. MARKET 28 7-28 Porter’s Five Forces Model Threat of Rivalry Threat of Buyer Bargaining Power Threat of Supplier Bargaining Power Threat of Substitutes Threat of New Entrants Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-29 Figure 7.4 Possible Levels of Segmentation Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-30 Strategies for Reaching Target Market Undifferentiated Marketing Differentiated Marketing Concentrated Marketing Micromarketing Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-31 For Review What are the different levels of market segmentation? How can a company divide a market into segments? What are the requirements for effective segmentation? How should business markets be segmented? How should a company choose the most attractive target markets? Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e. 7-32