Benefits of market segmentation
Market Segmentation consists of viewing a
heterogeneous market (one characterized by divergent
demand) as a number of smaller, more homogenous
.markets
:Benefit of segmentation
Enables costs to be reduced via a closer matching of -1
.company resources with market requirements
Customer satisfaction can be enhanced by meeting -2
.customer requirements more accurately
Focusing efforts on narrower target, enables the -3
company to gain a specialized knowledge of the needs
.and requirements of that target
More understanding of customers while migration -4
from existing segment to another, as well as, projecting
.known segment characteristics onto new potentials
Bases for segmenting F.S
consumers
Proxy variables: are variables which are assumed to have
a correlation or association with behavior “segmentation
.”bases
Segmentation bases: are characteristics or group of
characteristics of consumers used to assign consumers
.to segments
Segmentation bases can be broadly divided into two
groups: ‘Customer-specific’ bases and ‘situation specific’
bases. These two groups can be classified further
according to whether they can be measured objectively
(Observable bases) or whether they must be inferred
.(unobservable bases) Figure 3.1 page 68
Step 1: Targeting Strategy:
(1) Undifferentiated strategy (cont.)
Step 1: Targeting Strategy:
(2) Concentrated strategy (through market segmentation)
Step 1: Targeting Strategy:
(3) Differentiated strategy (through market segmentation) (cont.)
Variables for Segmenting
Consumer Markets
Demographic Bases
:Age
One of the simplest methods of segmenting a market. Assuming that
.individuals with similar ages have similar needs and requirements
Younger customers generally have a larger demand for loan facilities than their
.older counterparts who are more likely to deposit rather than borrow funds
Financial Institutions have developed a number of different accounts to respond
:to various age segment
Student accounts aimed at school leavers going into further education.
“Students are very loyal and brand conscious” or school children because
they constitute a large proportion of society and possess significant
discretionary purchasing power through pocket money, monetary gifts and
.earned income, and they save extensively
Greys or Third agers” Financial institutions should avoid viewing ‘the old’ as“
.a single homogenous segment
Five attitudinal segments among the 50-70 year old segment: Astute
cosmopolitans, thrifty traditional, temperate xenophobes, apathetic
spenders, outgoing fun lover
Demographic Bases
Life Cycle: If financial institutions target only young customers,
they may lose them as they age if the company doesn’t meet their
.changing requirements as they move into more mature segment
A key aspect of the life cycle approach is that it enables financial
institutions to develop a relationship with their customers and also
retain them by offering the right product at the right time as and
.when the customer requires
In an intense competition, it’s hard to financial institutions to attract new
customers. Thus, retaining of existing customers is crucial to the
.long-term prosperity of the organization
.Youth: is important for the income it may generate in the future
Independent: School leavers who are entering employment or
.undertaking training
Family
Empty Nester
Retired
Bases for segmentation
Geographic bases: segmenting markets to nations,
regions, local. Many financial services like building
societies segment the markets on geographic bases by
default. Advances in IT have achieved a broadening of
customer base out side the local geographic area for
.many small institutions
Demographic bases: grouping people according to
gender, age, family life cycle, etc. Demographic
variables have been used widely since customers are
placed on definite scales of measurements which are
easily understood, information is easily interpreted,
relatively easily gathered, and easily transferable from
.one study to another
Socio-economic bases
Social class: is a measurement of the type of -
educational background, occupation, income level that a
.person has
Traditionally, an individual’s belonging to a particular social
class may have been determined by parentage, in
modern society it is relatively easy to upscale as well as
.downscale
The social class premise implies that individuals in a certain class will behave like and exhibit similar
preferences and values to the other members in that
.class
Socio-economic bases
Income: is money received through wages, rents, investments,
.pensions, and other sources for a given period
Disposable income (or after-tax income) is used for spending or
saving. It is affected by wage levels, rate of unemployment,
.interest rates, dividend rates, and tax rates
Discretionary income is disposable income available for spending
and saving after an individual has purchased the basic
.necessities of food, clothing, and shelter
High income families often have high financial commitment for
housing cost, school fees and support for dependents, that they
.have little discretionary income to spend
Associated with income is the affluence or ‘worth’ of the person.
.Wealth can be liquid and illiquid
Geo-demographic bases
In an attempt to overcome some of the inabilities of single variable bases and social class grouping to sufficiently differentiate
consumer requirements have led to the development of geodemographics
Systems combine geographic with demographic information, and more recently also including consumption patterns of a wide range
.of products and services and lifestyle
The system is based on the premise that individuals living in - neighborhoods with similar social and economic characteristics will
.exhibit similar lifestyle features and patterns of behavior
Burglars already know: The areas in which people live tell something about the products they buy and the things they own
Psychographic bases
Demographic bases are descriptive and not casual and that individuals with the
same external characteristics (such as age, gender, income, occupation)
can exhibit very different behaviors and lifestyles. The psychographic
premise argues that this result from different internal characteristics such as
.attitude, beliefs, preferences and motives
Attitude segmentation: A study made by Midland Bank used attitude
.segmentation to group its customer base
The bases for the segmentation was two attitudinal dimensions. ‘confidence’
.’and ‘respect for the banking authority
:Research identified four segments
New Bankers- low levels of confidence and high respect for the authority of -1
.banking system
.Traditionalists- Use the full range of banking services -2
Minimalists- low respect for the authority of the banking system and make -3
.only infrequent use of the services
Opportunists- high level of confidence and are most likely to take the -4
opportunity to avail themselves of the best offers, willing to switch financial
.institutions to obtain them
Psychographic variables )C(
Psychographic variables can be used by themselves to
segment a market or combined with other types of
segmentation variables. They are three types:
1. Personality characteristics: personality traits that can be
used when a product resembles many competing products and
consumers’ needs are not greatly affected by other
segmentation variables (i.e. Marketers select personality
characteristics that many people view positively).
2. Motives: consumers’ reasons for making a purchase. (i.e.
personal appearance, affiliation, status, safety, and health are
examples of motives affecting the types of products purchased
and the choice of stores in which they are bought).
3. Lifestyle: a way of living. That is, grouping individuals
according to their activities, interests, and opinions. (i.e. how
people spend their time, importance of things in their
surroundings, beliefs about themselves and broad issues).
Awareness, knowledge, and
understanding
It considers the dimensions of individual perceived
knowledge of financial services, attitudes towards
financial services and level of involvement (Interest) in
financial services in the segmentation of financial
.consumers
Use of financial services was measured in terms of the
.degree of financial maturity
Segmentation along this basis produced four segments
(figure 3.3) page.81
Financially confused -1
Apathetic minimalists -2
Cautious investors -3
Capital accumulators -4
Requirements for effective market
segmentation
Segments should exhibit measurability- size and -1
.purchasing power of the identified segments
.Substantiality of the segment in volume and value terms -2
Accessibility of the segment- it should be possible to -3
reach them effectively and serve them
Actionability- effective marketing programs can be -4
designed and implemented to attract and serve segments
Differentiability- the segments should be conceptually -5
distinguishable and should respond differently to the
.different marketing variables
Stability- Although segments are not static they should -6
possess a certain degree of stability over time in order
that marketing programs can be designed and
.implemented before the segment has shifted
Segmentation Strategies
Single segment concentration: Occurs when the -1
organization targets just one segment to the exclusion of
all others; the total marketing effort is aimed solely at this
.one segment
selective specialization “multi segment coverage”: -2
Occurs when a firm choose a number of segments. This
may be as a result of a variety of offerings or an attempt to
.minimize the effects of competition
Product specialization: Occurs when a firm concentrates -3
.on marketing a certain product to several segments
Market specialization: is when a firm concentrates on -4
.serving the many needs of a particular customer group
Full market coverage: is when a firm attempts to serve all -5
customer groups with all the products that they might need
.within the range of the company
Approaches to segmentation
The ability of segmentation to identify casual relationships or associations between variables depends to some extent on the
.methods used to classify or partition the data
:Method of segmentation fall into two broad categories A priori segmentation: is planned in that the researcher chooses some segment-defining characteristics in advance, such as age or
income, and respondents are classified into segments. (driven by
theoretical expectations)
Post hoc segmentation: is driven by empirical concerns and occurs after seeing the data. Hence, respondents are grouped according to
.the similarities
:In addition two statistical methods are to be used
Descriptive methods: ‘structural interdependence methods’ since -1
they analyze the mutual association across a set of segmentation
variables, with no distinction between dependent and independent
.variables
Predictive methods: ‘functional dependence techniques’ since they -2
.analyze the relationships between two sets of variables