Market Segmentation
Chapter 2
Market Segmentation - is the process of
dividing the total market into smaller groups
seeking similar needs and wants from a
product or service.
Positioning is the third step of the process. It
emphasizes key attributes or benefits that
differentiate products in the consumer’s
mind.
Effectiveness market segmentation has two
important features:
Positioning is always formulated before
marketing mix but is communicated via
advertising, hence the order of the chapters.
1. It defines needs wants on which the
groups strongly differ;
2. These needs and wants must be
capable of being by the firm.
Market Segmentation is in contrast to mass
marketing or Total Marketing Approach that
assumes that everybody has the same needs
and wants, and will therefore look for the
same products or services.
The Market segmentation is evolved from
the simple three-tier of price segmentation
of consumers into high-, medium-, and lowend.
I.
•
MARKETING MANAGEMENT
PROCESS
The marketing management process
starts with identifying an
opportunity, which can come either
in the form of either a new or
existing product opportunity or a
market opportunity.
Marketing Management process
OPPORTUNITIES
MARKET SEGMENTATION
POSITIONING
MARKETING MIX
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II.
MARKET SEGMENTATION
Market segmentation enables a company
to develop a positioning and marketing mix
strategy that can satisfy a smaller, more
focused range of customer’s needs and
wants given the identified opportunity (this
smaller focus is also referred as niche).
•
It reduces competitive pressure
because the firm is focused on its
niche or a combination of niche
groups seeking similar benefits.
•
It enables the company to have a
better understanding of its target
market and employ the best ways to
reach them instead of trying to serve
all or different markets at the same
time.
There are various ways to do market
segmentation for consumer products:
1.
2.
3.
4.
By needs and wants (or benefits)
By Socio-demographics
By psychographics
By consumer behaviour
A. Need Segmentation
A major way to segment a market is by
identifying the needs and wants.

Segment market is based on:
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Market Segmentation
Chapter 2
o Component
o Taste Preferences or Occasions
o Reasons for travel –business,
convention of leisure
B. Emotive Need Segmentation
 Most need segmentation is based on
consumer’s functional needs. There
is another way to do segmentation,
and this is via emotive needs
classified by market research firm
TNS as “Needscope”:


o Expressive or how one looks
–used by fashion and
personal care
o Gratification or how one feels
–used by food and
pharmaceutical products
o Combination of how one
looks and feels –used by the
automotive, telecom products
and medical care
Brands must establish emotional
connection with their customers as
this can help identify commonalities
better than others traditional
segmentation methods.
Market Segmentation is not the same
as product segmentation
C. Socio-Demographic Segmentation
Market segmentation most often starts
with demographics. Demographics
segmentation deals with questions such as
“who you are” and “how much do you earn”
and is commonly used when planning and
allocating selling efforts.
During political elections, demographics can
be used to plot a candidate’s strategy. In the
year 2000 presidential elections of the
United States, then Texas Governor George
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W. Bush won over then incumbent vice
president Al Gore with support from the
following groups based on:
•
o Religious orientation (63%
attends church more than once a
week vs. Gore’s 36%)
o Geographical difference (59%
are rural residents vs. Gore’s
Religious orientation (63%
attends church more than once a
week vs. Gore’s 36%)
o Civil Status (53% married vs.
Gore’s 44%).
Demographic Segmentation
Variables
D. Psychographics Segmentation
Psychographics segmentation is
concerned more with answers to questions
such as “What you do” (instead of “who you
are”) and “How you spend your money
“(instead of “How much you earn”) and is
now often used for creating advertising
messages.
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Market Segmentation
Chapter 2
•
•
It is done by asking consumers
various questions and classifying
them according to a cluster of
answers.
Psychographics segmentation relates to
social issues, personal interests, and
specific product attributes:
Psychographics Segmentation Variables
Psychographics Segmentation of Metro
Manila Consumers
 THE SMOOTH SAILERS 34%
“The Smooth Sailers are highly sociable,
secure and active but conservative. They
have a positive self-concept and are
security-conscious, and prefer the simple
and essential, abhorring complications.
Price does not seem to be a very important
factor in their buying decisions. “
The Nielsen Company, conducted a lifestyle
study in the second quarter of 1990 called
“Pulse Lifestyle ’90”. A thousand males
and females, 15 to 65 years, representing
about 63% of Metro Manila‘s population
were involved.
o Using a questionnaire, respondents
were asked to mention their habits,
product consumption, and
demographics, and their agreement
or disagreement with pyschographics
statements.
o In analyzing the result, different
clusters were formed. Each cluster
was examined in relation to lifestyle,
product/brand usage, media habits,
and demographics.
o Finally, an analysis of predictors and
determinants of product usage was
applied in the preparation of target
market reports
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 THE HIGH SPIRITS 31%
“The High Spirits are the most vibrant and
fun-loving. They would like to maintain a
high social profile, and appear to be then
trendsetters among the five groups. They
think positively and do not seem to be the
homebody type. They would rather go out
with friends than stay at home.”
 THE TIGHT GUARDS 26%
“The Tight Guards have the strongest
feelings of inadequacy and uncertainty
compared to the others. They are health
conscious and are meticulous about personal
and family cleanliness. There are slightly
more females (55%) than males in the
group, and over half of them are married.”
 THE HOMEMAKERS 5%
“These are the most upscale among the five
lifestyle groups. The Homemakers have the
highest percentage of college degree holders
(higher even the average for the population),
and slightly more than one-half (55%) of
this group belong to class ABC households.”
 THE BYSTANDERS 4%
“The Bystanders are rather passive people,
usually “painfully shy” and not too inclined
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Market Segmentation
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to socialize. They may buy “tingi” (by
piece). About 9 out of 10 Bystanders belong
to the lower income households (class D).
They also appear to be the oldest of the five
lifestyle groups.”
Understanding customer behavior has its
obvious applications.
For instance:
▫
Customers who tend to be
loyal to a brand will most
likely not respond to a
competitor’s price cut, at
least, not immediately.
▫
Place or distribution, display,
and packaging can be critical
for self-conscious buyers of
intimate products such as
lingerie and conditions.
Psychographics Segmentation of the
stomach remedy market:
 THE SEVERE SUFFERERS
“The severe sufferers are the extreme group
on the potency side of the market. A cost
advanced product with new ingredients best
satisfies their need for potency and fast
relief, and ties in their psychosomatic
beliefs.”
 THE ACTIVE MEDICATORS
“The active medicators are on the same side
of motivated spectrum. They are influenced
by a brand’s reputation and by how well it is
advertised. They tend to develop strong
brand loyalties.
Behavioral Segmentation Variables
 THE HYPOCHONDRIACS
“The hypochondriacs are on the opposite
side of the motivated spectrum. They want a
simple, single-purpose remedy that is safe
and free from side effects and backed by
doctors or a reputable company.”
 THE PRACTICALISTS
“The practicalists are in the extreme position
on this side of the motivated spectrum. They
seek simple products whose efficacy are
well proven, and are skeptical of
complicated modern remedies with new
ingredients and multiple functions.”
E. Behavioral Segmentation
Another method of market
segmentation is by consumer behavior.
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F. Internet Segmentation
For online behavior, Forrester
Research released their North American
Technographics Empowerment Survey done
in 2009 with the following behaviour
segments of the internet audience:
 Inactives (17%)
 Spectators or those who simply read
listen or watch online content (70%)
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Market Segmentation
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 Joiners or those who maintain a
profile on social networking sites
(59%)
 Collectors or those who use RSS
feeds, vote for websites online or add
“tags” to web pages or photos (20%)
 Critics or those who comment on
somebody else’s blog, forums, or
rate products and services. (37%)
 Conversationalists or those who
post updates on social networking
sites (33%)
 Creators or those who share
personal blogs, web pages or video
or music they created (24%)
G. Price Segmentation
Profitability is Key
All possible market segments must
be considered and reviewed periodically
with the best being the segment that offers
the highest profitability in relation to the
return on investment.
•
What is relevant is not the quantity
sold but what quantity has been sold
at a profit.
The firm should use an objective set of
criteria to shortlist their desired market
segments. Such as:
o
o
o
o
o
o
o
Marketers can always do
segmentation by price. There will always be
buyers who are quite price sensitive,
especially in an economic slowdown and
buyers who are just the opposite, especially
in an economic boom.
Market size
Market growth
Homogeneity
Cost of creating awareness
Purchase of authority
Loyalty Level
Responsiveness of customers
•
The demand of industrial clients is
inelastic, or quantity may not change
despite changes in price and may
fluctuate accordingly to the business
climate.
Industrial or business-to-business
segmentation
III.
MARKET MEASUREMENT
A market is composed of customers
and competition. It has a group of actual and
potential buyers with similar needs and
wants interacting with sellers offering
various products or services to satisfy those
needs and wants.
There are two criteria for market
attractiveness:
1. Market size
2. Market growth
Market size is dependent on the number of
qualified customers and the frequency of
purchase.
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Market Segmentation
Chapter 2
Qualified customers within a market would
have the following characteristics with the
acronym N-P-A:
o by region
•
1. Need
The need characteristic answers the
question “How many percent of the market
would need the product?”
•
2. Pay
Consumer need or interest is not
enough. There must be enough purchasing
power for the consumer to be able to pay for
the product.
3. Authority and Availability
Persons below 18 years of age, for
example, are not legal market for cars and
alcoholic beverages. They have no authority
to use these products.
o Products not distributed in certain
localities further reduce the market
size.
Research suppliers
For fast moving products such as
food and beverages, and personal care
products, one way to know which market
segment to tap, to recognize market trends
and to understand market size is through “
retail audit” reports from Neilsen.
•
The retail audit reports summarize
sales and market shares of over 100
product categories in several ways:
o by brand,
•
It also provides information about
distribution and inventory levels
(including out-of-stock incidence),
and both buying and selling prices of
retailers.
Retail audit reports do not include
products bought via direct sales and
online, hence, TNS (a research firm)
offers Home Panel research service.
A complete list of marketing
research firms like:
1. TNS
2. Neilsen
3. Philippine Survey and Research
Center
4. Milward Brown
5. Synovate
6. Saffron Hill
7. Marketing and Opinion Research
Society of the Philippines
(MORES)
Industrial Products Market Measurement
Total industry sales and not
individual company sales are reported to
maintain confidentiality for each company
in the same industry.
For imported products or products with
imported ingredients, a summary of import
manifests supplied by importation research
companies may be used to estimate demand
and track competitive movement.
o by product group,
o by type of store, and
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Market Segmentation
Chapter 2
Estimating market demand for canned
sandwich spread and light beer
•
BASES enable marketers to choose
from among six to 10 simulations to
get the best possible desired result.
How BASES works
Estimating the demand for canned spread by
multiplying all the variables involved in the
market:
1. Total population
2. Total purchasing power
3. Average expenditures on food
4. Average expenditures on food that is
spent on processed food.
5. Average expenditures on processed
food that is spend on canned food
6. Average expenditures on canned
food that is spent on canned spread
BASES has a property set of calibrations
which are used to compensate for consumer
overstatement and understatement so that a
realistic evaluation of future behaviour is
obtained.
Target Market
The target market is a fairly homogenous
group of people or organizations to whom a
company wishes to appeal
•
Target Market Planning or TPlanning enables the marketing and
product development group to focus
on a target for both product and
communications effort.
•
Primary Target Market (PTM)
BASES Model
(Burke’s Advanced Sales Estimating
System)
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BASES predicts the sales of new or
re-launched products
•
It is capable of forecasting the sales
of line extensions when a new
variety, size, or pack format is
introduced.
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-who are most logical buyers
who should generate the bulk of sales.
•
Secondary Target Market (STM)
-who must also be reached
through different communications and
marketing mixes.
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