“Even if you are on the right track, you’ll get run over if you just sit there.”
- Will Rodgers
Market Segmentation and Segmentation Strategies
1.
Defining Strategy
2.
Needs-Based Market Segmentation
3.
The Segmentation Process
4.
Market Segmentation Strategies
Market Segmentation and Segmentation Strategies
1.
Defining Strategy
2.
Needs-Based Market Segmentation
3.
The Segmentation Process
4.
Market Segmentation Strategies
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1

What is Strategy?
“Strategy is the creation of a unique and valuable position , involving a different set of activities.”
-
Michael Porter
“What is Strategy?”
Harvard Business Review
“In terms of the three key players (competitors, customers, company) strategy is defined as the way in which a corporation endeavors to differentiate itself positively from its competitors, using its relative corporate strengths to better satisfy customer needs .”
Kenichi Ohmae
“The Mind of the Strategist”
PPT 1-4
Business Strategy
§   4 dimensions of business strategy:
§   Investment strategy (business scope)
§   Customer value proposition
§   Sustainable competitive advantage
§   Implementation
à   Change is a constant challenge!
How to manage change? How to stay ahead of competition?
Examples of Investment Strategies
§   Invest to grow (or enter a product market)
§   Invest only to maintain the existing position
§   Milk the business by minimizing investment
§   Recover as many of the assets as possible by liquidating or divesting the business
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Examples of Customer Value Proposition
§   A good value (Wal-Mart)
§   Excellence on an important product or service attribute (Tide)
§   The best overall quality (Lexus)
§   Product line breadth (Amazon)
§   Innovative offerings (3M)
§   A shared passion for an activity or a product (Harley-Davidson)
§   Global connections and prestige (CitiGroup)
“For (target consumers), (brand name) provides (consumer benefits) compared to (competition) because (supporting facts).”
Business Strategy vs. Marketing Strategy
§
Business strategy is more comprehensive, contains significant financial data
§   Marketing strategy – subset of business strategy, has a narrow focus, driven by targeting a customer and developing a needssatisfying marketing mix
§
Marketing is no longer solely tactical
§   Best asset?
à ACCESS TO DATA
Ø   Define the business in terms of the customer needs (rather than the product)
Market Segmentation and Segmentation Strategies
1.
Defining Strategy
2.
Needs-Based Market Segmentation
3.
The Segmentation Process
4.
Market Segmentation Strategies
1/11/20
3

Market Segmentation
Understanding Market Segments
The 90% failure rate of
30,000 new products is due to poor market segmentation*
Why would market segmentation help with a business’ customer focus and spend their marketing and sales dollars more efficiently?
*[Marketing Malpractice: The Cause and the Cure, HBR, 2005]
What is a Market Segment?
A market segment consists of a group of customers who share a similar set of needs and wants.
Market Segmentation
What are some of variables that can be used to segment a market?
Demographics:
§   Age
§   Life stage
§   Gender
§   Income
§   Generation
§   Social class
§   Race and Culture, Education, Religion, Nationality …
Why are demographics so popular?
They are often associated with customer needs
They are easy to measure, useful to estimate the market size
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The Millennials Segment
The needs of Millennials are unique: creativity, identity, fun.
They influence younger and older age group.
They are the largest age-based segment worldwide.
The Millennials Segment
The Millennials Segment
Why are Millenials important to a company like Apple?
They influence other generations
Large market potential
Do not have many product loyalties
Fit with the company’s image (innovative, non conformative)
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Market Segmentation
Need to start segmenting based on NEEDS and then determine which demographics influence those needs.
1.
Group customers into needs-based segments: a.
What are the benefits that customers are seeking? b.
Group customers based on those needs
2.
What are the demographics that distinguish one group from the other?
Market Segmentation
Why is market segmentation important?
§   Solving customer problems requires knowing who their target customers are and what they need.
§   Need based segmentation provides the basic guideline for product positioning strategies and marketing communications.
§   A proper segment help develop specific segment value propositions.
§   It reduces the possibility of an artificial segmentation.
What Drives Customer Needs?
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Toothpaste – Needs-Based Segments
Toothpaste – Needs-Based Segments
B2B – Needs-Based Segments
Industrial, commercial and hi-tech customers needs are also shaped by company demographics, company culture and usage behaviors.
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Market Segmentation
But beware the demographic trap!
Given the strong role of demographics, lifestyle and usage in shaping customer needs, it can lead to too many variables and too many meaningless combinations.
The demographics selected have to be relevant .
Market Segmentation and Segmentation Strategies
1.
Defining Strategy
2.
Needs-Based Market Segmentation
3.
The Segmentation Process
4.
Market Segmentation Strategies
1.
Need-based segmentation
2.
Segment identification
3.
Segment attractiveness
4.
Segment profitability
5.
Segment positioning
6.
Segment acid test
7.
Market mix strategy
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The Segmentation Process
Step 3 – Segment Attractiveness
Health Insurance Company
What is the most attractive segment?
Most presence in the least profitable segment!
Step 4 – Segment Profitability
But segment attractiveness is not enough!
The segment should target the desired level of profit.
How to assess segment profitability?
Net Marketing Contribution.
NMC = Segment Demand x Segment Share x Price per Unit x
% Margin – Marketing & Sales Expenses
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Step 4 –
Segment
Profitability
NMC = Segment
Demand x Segment
Share x Price per
Unit x % Margin –
Marketing & Sales
Expenses
NMC=___________
ROS=___________
ROI=___________
Step 5 – Segment Positioning
Same product, two segment applications and positioning strategies.
Steps 6 – Segment Acid Test
Asking potential customers to select the most appealing segment, which in turn should fit the customer demographics.
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Market Segmentation and Segmentation Strategies
1.
Defining Strategy
2.
Needs-Based Market Segmentation
3.
The Segmentation Process
4.
Market Segmentation Strategies
Segmentation Strategies
Segmentation Strategies
§   Mass Market: differences in customer needs are small or demographics are not distinctive (might modify sometimes their product and communications to meet specific customer needs in international markets)
§   Large Segment: market is segmented and marketing resources are limited .
§   Adjacent Market: opportunity for market growth (it’s a closely related segment).
§   Multi-Segment: greater marketing efficiency
§   Smallest Segment: often ignored by large competitors
§   Niche Segment: for customers in a given segment sharing common needs but different demographics (upscale refrigerators)
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Mass Market vs. Segment Strategy
Why would James Hardie (manufacturer of Handie Plank siding) be more profitable with a segment strategy?
Adjacent Segment Strategy
What was the logic of Toyota’s adjacent segment strategy that started in 1957 at the low end of the price-quality car market?
Market Segmentation of Gasoline Market
How would a local gas station select and segment and position its gas station?
Multi Segment Strategy
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Sub-Segment Strategies
Core segments can be further segmented based on unique needs within
a segment. How would this help a company sell its products?
It adds value and build loyalty BUT there is a trade off between the cost of extra benefits and the benefit to the company.
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