Chapter 4:
Market Segmentation
and Other Strategies
Concept of Target Segments
 consider what makes various groups of
consumers different; why they buy as they do
 different segments are motivated by different
things and find different appeals attractive
 target should be compatible with firm’s goals
 must match market opportunity with resources
 target segments must offer potential for profit
 must offer opportunity to compete effectively
Nature of Segmentation
 involves developing a different marketing
approach for different groups of customers
 segments should be as homogeneous as possible
 more efficient use of marketing resources
 advertising and promotions can be targeted
 data bases allow better targeting for some firms
 but may increase marketing expenditures in
some cases as different programs are required
Identifying Segments
 analysis often reveals opportunities or
gaps in the market
 also may result in identifying segments
whose needs are not currently being met
 generally will require measurement of
market potential and of sales to be
realized from each segment
Essence of Segmentation
 can’t be all things to all people; it’s an
efficiency strategy
 branding and packaging variations allow
a company to target more segments
 large volumes of data allow for easier
identification of segments
 minimizes misallocation of resources
Conditions for Segmentation
 basis for segmentation must be measurable and
the data accessible
 the targeted market segment itself must be
accessible through existing channels and media
 each segment should be large enough to be
profitable; should have good buying potential
 easiest to look at segments in terms of location
and demographic profile
 what is important is different across segments
Bases for Segmentation
 may segment the B2C market on:
geographic bases: where they are located
demographics: what their characteristics are
psychographic: their attitudes and values
behavioural: why/how they use the product
 geographic segmentation involves considering
differences across consumer groups based upon where
they live and how this affects lifestyle
 many changes and differences across regions
Figure 4-1 Provincial Distribution of Canadian Population 2000
& Projected Growth to 2006
Segmentation by Demographics
 identifying the target segment involves
developing a detailed profile of its members
 demographic differences are easiest to
observe; but are very simplistic
 consider differences across segments based
upon age, gender, stage of life cycle,
education, ethnic background, or occupation
 think about the target demographic segments
for some new products and services
Figure 4-2 The Family Life Cycle
Segmentation by Income
 income has considerable influence on how people
buy and is an important basis for segmentation
 there is an important distinction between
disposable income and discretionary income
 think about the factors that contribute to
household buying power
 people spend differently at different life cycle
stages and in different income groups
Psychological Segmentation
 personality characteristics definitely influence
consumer behaviour; but personality is not a
very effective basis for segmentation
 consumer lifestyle has become a more widely
used basis for segmentation, as consumers tend
to buy products and services that are consistent
with their lifestyles
 psychographic segmentation employs a variety
of psychological and behavioural descriptors
Psychographic Segmentation
 involves the identification of segments of the
market, based upon differences on a variety of
measures
 these include values; the principles that guide
how we live our lives, but the relative
importance of which vary across individuals
 other measures often used in psychographic
research include attitudes, opinions, interests,
and various behavioural measures such as media
usage and leisure-time activities
Relationship Segmentation
 segments markets on the kind of
relationship the customer has or wants
to have with the company
 some customers want a very close
relationship, others do not
 requires a detailed understanding of the
current nature and state of the
relationship
Behavioural Segmentation - 1
 marketers often segment markets based on
how consumers interact with the product
 different consumers will seek different
benefits from a product or service and will
associate it with different occasions
 benefits arise not only from the product but
from the process of acquiring it
 marketers must determine exactly what
benefits are important to the customer
Behavioural Segmentation - 2
 a widely-used approach to segmentation
involves dividing the market on the basis of
usage rates; many marketers target the “heavy
half” (i.e. those who are heavy users)
 many marketers are now segmenting markets
on the basis of the occasions that customers
associate with use of the product
 once segments have been identified, profiles of
segment members should be prepared
Selecting Target Markets
 target segments should be compatible with the
organization’s goals and image
 the market opportunity represented by the
segment must match the company’s resources
 the segment must represent an opportunity to
produce enough sales to generate a profit
 the company should select target segments
where it can enjoy a competitive advantage
Figure 4-3
The Three Target Market Strategies
Target-Market Strategies
 market aggregation: target the offer to a mass
market with little differentiation
 single-segment segmentation: selecting a single
segment to target; if the segment is small, this
may be considered a “niche” strategy
 multiple-segment segmentation: identifying two
or more segments as target markets; involves
developing a different approach for each
Implications of Segmentation
 market aggregation is really a production-
oriented strategy; it requires that the firm find
some way to differentiate its product or service
 increasingly, firms are turning to superior
service as their differentiating strategy
 multiple-segment marketing requires that the
firm develop different versions of the product
offering for each segment; or it may simply
mean different approaches to serving segments
Positioning - 1
 positioning is a strategy for locating a brand or
company in the consumer’s mind with respect
to its rating on certain attributes
 consider what position the brand or company
occupies in the minds of consumers; very
much related to the concept of image
 the appropriate image is created mainly
through the use of marketing mix variables
Positioning - 2
 may decide to position against competitors;
either in direct comparison, or by trying to
occupy the same position
 or may position by appealing to a specific
segment of the market; the position is closely
tied to characteristics of the target segment
 or may position on the basis of certain
characteristics of the brand or company; may
want to address a market gap or set the brand
apart from obvious competitors
Niche Marketing
 this is a specific form of positioning; the
company decides to occupy a market niche
where it can be distinct and competition weak
 identify segments that are not well served
 determine how to gain a competitive advantage
 expand the niche by meeting consumer needs
 defend the niche position by improving product
and service offerings
Positioning Strategies
 take on the competition head-on
 occupy a gap in the market
 set a brand apart from the competition
 occupy a position of leadership
 appeal to certain lifestyle segments
 from time to time, it may be necessary for a
firm to reposition its brand or the company
itself; change its image in consumers’ minds