Market Segmentation

What is market segmentation?

 Process of assigning consumers with similar needs or wants into the same group.

 Results in distinct subsets of consumers with distinct demand curves.

 Requires unique marketing mix for each segment.

Benefits of Segmentation

 More effective marketing.

 Increasing sales in the long run.

 Allows firm to develop a competitive advantage.

Disadvantages of Segmentation

 Increased costs in short run.

 Increased research costs  Increased marketing costs  If segmentation is not carefully done, may result in missing segments, ineffective marketing efforts.

How is market segmentation done?

 First, identify consumers with similar needs/wants--benefit segmentation.

 Second, use additional segmentation variables to further identify consumers within groups with similar needs/wants.

Example:

 What might the needs be of consumers of a coffee shop?

Need stimulant in the morning Quiet place to read, study, reflect Socialize with friends Place to meet with business associates

 Further identify each subset of consumers: Need stimulant (caffeine) in the morning  Employed  In a hurry  Wide age range  Men and women  Enough disposable income to afford buying coffee every morning vs. making it

Segmentation Variables are Related to Segmentation Bases

 Geographic segmentation  Region  City size  Density of area  climate

Segmentation Bases, continued

 Demographic segmentation  Age  Sex  Marital status  Income  Education  occupation

Segmentation Bases, continued

 Psychological segmentation  Needs-motivation  Personality  Perception  Involvement  Attitudes  Psychographic/lifestyle

AIO Categories of Lifestyle Studies Activities

Work Hobbies Social events Vacation

Interests

Family Home Job Community

Opinions

Themselves Social issues Politics Business Entertainment Club membership Community Sports Shopping Recreation Food Education Future Media Fashion Culture Achievements economics Products

Demographics

Age Education Income Occupation Family size Geography City size Stage in life cycle Dwelling

Segmentation Bases, continued

 Sociocultural segmentation  Cultures  Religion  Subculture  Social class  Family life cycle

Segmentation Bases, continued

 Use-related segmentation  Usage rate  Awareness status  Brand loyalty

Segmentation Bases, continued

 Use-situation segmentation  Time  Objective  Location  Person

Hybrid Segmentation

 Combine two or more segmentation variables  Psychographic/demographic  Geographic/demographic

Geodemographic Segmentation

 Clusters neighborhoods throughout the U.S. that have similar housing, incomes, lifestyles, preferences, consumption habits.

PRIZM

 Young Influentials  1.1% of U.S. households  Predominant employment: professional, white collar  Key education level: college grads  Adult age range: 24, 25-34  Characteristics: high tech, metropolitan sophisticates, childless, college basketball, American Express card, imported beer, progressive rock radio, style/fashion magazines.

Psychographic/demographic

 VALS (SRI)  Based on the values of consumers and the lifestyles they choose to live.

 Two main factors:  Self-orientation of the consumer • Principle orientation--beliefs and principles guide choices • Status orientation--choices are guided by actions, approval, and opinions of others • Action orientation--choice are influenced by desire for social and physical activity and variety  Abundance of resources • Minimal vs. abundant

Segmentation Criteria

 Effective segmentation is more likely when certain conditions are in place:  Identifiable  Sufficient  Stable  Accessible  Efficiency potential

Segmentation Strategy

 Strategy is based on target markets and firm’s financial resources  Differentiated marketing  Concentrated marketing  Countersegmentation strategy