LITERATURE REVIEW OF MARKET SEGMENTATION, MARKET
SEGMENT EVALUATION AND SELECTION
Professor: Ta Chung Chu
Student: Nguyen Khoa Tu Uyen – M977Z215
Nguyen Phan Anh Huy – M987Z264
Steps in Market Segmentation, Targeting and Positioning
(FUZZY MCDM APPROACH)
Market segmentation

Market segmentation is a concept in economics and marketing. A
market segment is a sub-set of a market made up of people or organizations
sharing one or more characteristics that cause them to demand similar
product and/or services based on qualities of those products such as price or
function. (Wikipedia).

Market segmentation involves detecting, evaluating and selecting
homogeneous groups of individuals regardless of whether consumers or not
with the intention of designing and directing appropriate competitive
strategies (Ou, Chou and Chang, 2009).

Market Segmentation:
- is the process of dividing the total market for a particular product or
product category into relatively homogeneous segments or groups.
- should create groups where the members are similar to one another but
where the groups are dissimilar from one another.
- involves a fundamental decision of whether to segment at all.
- typically allows firms to be more successful due to the fact that they
can tailor products to meet the needs or requirements of a particular
market segment.
(Ferrell and Hartline, 2008)
Segmentation variables
Consumer Markets

Personal characteristics

Geodemographics

Psychographics (values and lifestyles)

Benefits sought (quality, price, style, image)

Behavioral Measures (product usage and
actual behavior such as buying patterns,
usage data, channel, ownership, quantities,
brand loyalty, attitudes)
Ferrell and Hartline, 2008

The first is behavior segmentation includes:
- Benefits sought such as quality, value, taste, image enhancement, beauty,
speed, excitement, entertainment, nutrition, convenience;
- Product usage such as heavy, medium, and light users or nonusers,
former users, first-time users;
- Occasions or situations such as emergencies, celebrations, birthdays,
anniversaries, weddings, births, funeral, graduation;
- Price sensitivity such as price sensitive, value conscious, status
conscious.

The second is demographic segmentation includes:
- Age such as newborns, 0-5, 6-12, 13-17, 18-25, 26-34, 35-49, 50-64;
- Gender such as male, female;
- Income such as under $15,000, $15,000-$30,000, $30,000-$50,000;
- Occupation such as blue collar, white collar, technical, professional,
managers, laborers, retired, homemakers, unemployed;
- Education such as high school graduate, some college, college graduate,
graduate degree;
- Family life cycle such as single, married no children, married with
young children, married with teenage children, married with grown
children, divorced, windowed;
- Generation such as generation X, generation Y, baby boomers, seniors; - Social class such as upper class, middle class, lower class, working class,
poverty level, etc.

The third is psychographic segmentation includes:
- Personality such as outgoing, shy, compulsive, individualistic,
materialistic, civic minded, controlled, anxious, venturesome;
- Lifestyle such as outdoor enthusiast, sports-minded, homebody, couch
potato, family centered, workaholic;
- Motives such as safety, status, relaxation, convenience.

The fourth is geographic segmentation includes:
- Regional such as Northeast, Southeast, Midwest, etc;
- City or country size such as under 50,000, 50,000-100,000, etc;
- Population density such as urban, suburban, rural.
Segmentation in B2B Market

Business markets:
- purchase products for use in their operations, such as acquiring raw
materials to produce finished goods or buying office supplies or leasing
cars.
- consist of four types of buyers: Producer markets, reseller markets,
government markets, and institutional markets.
- possess four unique characteristics not typically found in consumer
markets:
+ The buying center: Economic buyers, technical buyers, and users
comprise this element.
+ Hard and soft costs: Soft costs (downtime, opportunity costs, or
human resource costs) are just as important as hard costs (monetary price
or purchase costs).
+ Reciprocity: Business buyers and sellers often buy products from
each other.
+ Mutual dependence: Sole-source or limited-source buying makes
both buying and selling firms mutually dependent.
(Ferrell and Hartline, 2008)
Segmentation variables
B2B Markets
(Segmentation in B2B Markets, A White Paper by Paul Hague of B2B International)
The evaluation of the segment
The following criteria could be used:

The expected demands on the company

The potential profit compared with the related risk

The competition, number of competitors, and their strengths,
preferences, etc.

Governmental and public moves

The ability to reach buyers in the market

Technology

Ability to gain a competitive advantage

The connections between present networks (such as strategic alliances)
and the identified segments and the possibility of any conflicts
(Freytag and Clarke, 2001)
The evaluation of the segments
Freytag and Clark, 2001

In many later discussions of segment evaluation, the contributions of
researchers revolve around determining segment attractiveness by using
Kotler’s measurability, substantiability, accessibility, and actionability
criteria. These often are translated into numerous other related criteria,
such as segment size, segment growth, segment structural attractiveness,
expected segment profitability, and risk.

Segments need to be selected where the company can create competitive
advantages and gain the position in the segment that they want. Segments
that may seem attractive, big, growing and with little competition, may
not suit the company if the segment cannot be handled well enough
internally to gain the desired position in the market. Because no two
companies are the same, the process of finding the segments that best
match a company’s capabilities should reflect the company’s unique
situation.

The evaluation of the segments is a process that runs throughout the
identification of the segments. The evaluation process is broken into two
steps. The remaining segments being identified become more qualified as
the process goes on, until only the most potentially worthwhile segments
are left. First the segments need to be scanned for a few crucial, relatively
easily identified variables defined by the company themselves, because
they should reflect the goal of the segmentation. These variables need
only be estimated. Examples include segment size, growth, customer
needs, and the fit with the company’s core competence.
Market Segment Evaluation and Selection

Non Fuzzy Approaches:
“Using a strategy-aligned fuzzy competitive analysis approach for market
segment evaluation and selection”,
Ou, Chou and Chang, 2009.

Abstract:
This study applies Five Forces Analysis to evaluate and select market
segments for international business using a strategy-aligned fuzzy
approach. An illustration segment evaluation procedure is used to
demonstrate that our procedure is an effective quantification approach for
integrating five forces, generic strategies and marketing information in a
group decision-making process. The final decision-maker (DM)
synthesizes the total crisp scores of individual alternatives by choosing
judgmental coefficients k based on individual attitude towards core
business competitiveness and market risks to accommodate differences
among market segments to the specific environment with a better
understanding of the decision problem and individual decision-making
behavior. In the illustration presented here, the final solution is then
obtained by identifying the best market segment for further development
and negotiation.

In evaluating different market segments, firms must look at three factors:
segment size and growth, segment structural attractiveness, and company
objectives and resources. Firms must first collect and analyze data on
current segment sales, growth rates, and expected profitability.

A review of academic research reveals that existing studies have relatively
neglected segment evaluation and selection. Most existing studies merely
evaluate the sales potential, attractiveness, or stability of individual
segments, and fail to consider the needs of competitive strategic
management.

The attributes of market segments must be associated with firm
competitive strategies. The model of five forces of Porter thus enables a
systematic and structured analysis of market structure and competitive
situation. This model can be applied to specific companies, market
segments, industries or regions. Therefore, the scope of the market to be
analyzed must be determined in a first step. Subsequently, all relevant
forces for this market are identified and analyzed. Hence, it is not
necessary to analyze all of the elements of all competitive forces in the
same detail.

Empirical Example:
A lucrative rental-car company growth strategy has been expansion into
global markets. The company must aim at each national competition
condition of the market selects the most beneficial market segment. The
company first collects and analyzes data on each potential segment,
including sales, growth rates, and expected profitability. Three market
segments are considered for inclusion, including the home-city market,
enterprise-rental market and airport-rental market. Evaluating and
selecting these market segments is made considerably more complex and
risky because of volatility and uncertainty in the global business
environment. The company decision uses five forces as analytical tools.
When evaluating such market segment, not only may the DMs’ judgments
be imprecise, but the forces (criteria and sub-criteria) themselves may be
imprecise and vague. Market segment evaluation and selection thus can be
considered a MADM problem in fuzzy environments. The following
market segment evaluation and selection example is applied to illustrate
the proposed FFRS with GDM process.
Step 1:
Management appoints a special committee responsible for selecting the
best segment for the rental-car market. The committee consists of five top
managers from various functional departments within the company, that
is, the general marketing manager D1, the financial manager D2, the
customer service manager D3, the car maintenance manager D4, and the
business section manager D5. Global market information had been
received. The marketing research personnel collect the data and tidy it up
to provide it to the special committee. The committee organizes a series of
meetings to determine a profile of the firm market strategy and the most
beneficial potential market segment using the tools provided by this study.
Step 2:
Following the compromised mechanism of the committee on the
discussion, the importance weights of individual DMs It, (I1 = 3.0, I2 =
2.0, I3 = 3.0, I4 = 1.0, I5 = 2.0), are assigned by the final DM. Then, use
linguistic weighting variables and their respective fuzzy numbers for DMs
to assess the importance weights of the sub-criteria and criteria. Based on
the assessment values, the fuzzy weights of individual sub-criteria and
criteria can be computed or calculated.
Step 3:
Compute the defuzzified values of these aggregated fuzzy weights and the
standardized weights of the sub-criteria and criteria.
Step 4:
Use the linguistic rating variables and their respective fuzzy numbers for DMs
to assess the fuzzy ratings of the three alternatives with respect to each subcriterion, and then compute the aggregated fuzzy rating of each sub-criterion.
Step 5:
Compute the aggregated fuzzy rating of each segment-criterion
combination, and then form the fuzzy rating matrix.
Step 6:
Compute the total fuzzy scores for the individual segment. Then compute
the individual defuzzified values of these total fuzzy scores.
The ranking order for the three alternative segments is S2, S1 and S3. The
final DM and the committee thus should identify S2 as the best selection and
recommend it as the target segment.
The advantages of fuzzy approaches compare with statistical approaches:
Ou, Chou and Chang, 2009:

Market segment evaluation and selection (MSE/MSS) is a crossfunctional, group decision-making (GDM) problem, frequently solved by
a non-programmed decision making process, with long-term strategic
implications for firms. Decision groups contain decision-makers/experts
(DMs) dealing with specific issues, for example the marketing, sales,
market research, and accounting and finance personnel dealing with MSS/
MSE issues, or other experts who are more experienced than others. In
reality, the importance of individual DMs against a decision-making
attribute may not be equal or uniform. Notably, the final outcome of the
GDM process may be markedly influenced by the degree of importance of
such individual DMs.

Additionally, from a long-term perspective, MSE/MSS is a semistructured decision-making problem at the strategic management level.
The inherent imprecision of the relevant information and decision process
associated with such problems is broad, has foresight, and is non-recurring
and external. Most of these attributes are evaluated by human perception
and judgment, and thus the evaluation is subjective. Accordingly,
MSE/MSS problems, particularly for new task situations, typically
involve the vagueness inherent in linguistic assessment and multiple
attributes/criteria decision-making (herein namely MADM). Approaches
employing only exact numerical (crisp) values cannot support decisionmaking procedures for such evaluation problems.
Advantages and Disadvantages of fuzzy journal for market segment evaluation
and selection:

Advantage:
They established fuzzy MADM (MCDM) model for market segment
evaluation and selection.

Disadvantages:
In their research, they just focus on the competitive analysis and did not
mention the other criteria while they are also important.
Accordingly, they did not divide the criteria into quantitative and
qualitative as well as benefit and cost.
Selected Criteria for Market Segment Evaluation
Source
Freytag
&
Clarke,
2001
Others
Criteria
Description
Quantitative
Expected demand (C1)
The expected demands on the company
Benefit
Potential Profit (C2)
The potential profit compared with the related risk
Benefit
Competitive advantage (C3)
Ability to gain a competitive advantage
Competition (C4)
Number of competitors
Cost
Cost To Reach (C5)
How much does your company need to pay for reaching that segment?
Cost
Actionability (including
organizational capabilities)
(C6)
(Jones et al., 2005)
Can programs be designed to attract and service this segment?
Can we, given our current staff and services, develop and implement
activities for this market?
Segment Size (C7)
(Jones et al., 2005)
How many people, what percentage of population?
Accessibility (or
reachability) (C8)
(Jones et al., 2005)
Can we access and provide products/services this group?
Expected growth (C9)
Freytag & Clarke, 2001
The expected growth rate of that segment
Qualitative
Benefit
Benefit
Benefit
Benefit
Benefit