Week 11 Segmentation Reading

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INTRODUCTION
A market is all of the potential customers for a product or service. To be successful, a marketing program
must find the means to satisfy the needs of a significant number of customers. It must also generate
profits for the company. An important characteristic of a successful marketing program is a well defined
target market for the company's products.
By studying customer needs and by grouping customers into categories with similar characteristics,
A target market is the group of customers that a company seeks to satisfy through its marketing
program. In determining the target market for its products, a company seeks groups of customers whose
needs are not currently being met by the products that are already available. These customers are
potential buyers of the firm's products. Some examples of target markets that will be familiar to you
include:
consumers concerned with tooth decay and excess sugar in their diets are the target market for
Trident Sugarless gum;
Lean Cuisine's target market is young professionals who want more variety in frozen food and
fewer calories.
In order to find a group of customers whose needs are not being met, a business will conduct research. If
a group of potential buyers is large enough to give the company a good chance of making profits, then a
marketing program can be developed that caters to their needs.
Market segmentation is the process of breaking
down large markets into smaller groups
according to customer needs and characteristics. For example, professional working women
between the ages of 25 and 35 may represent
one group of customers. New Canadian
families from Hong Kong represent another
consumer group. Marketers attempt to assess
what products exist or need to be developed to
satisfy the needs of a particular customer
group. When a product has been matched with
a consumer group, a market segment has been
defined.
Market segmentation begins, then, with a
thorough study of current and potential
customers. Marketers ask whether all customer
needs are currently being satisfied through
available products. Are any customers not
being satisfied? How could the product or
marketing strategy be changed to more fully
satisfy customer needs? Or, how could
strategies be changed so as to reach entirely
new customer groups?
One example of a company that successfully used market segmentation is Canon.
Before entering the copier market, Canon did a
thorough study of available products and copier
customers. Research revealed that small
business owners were not being well served by
existing copier products. Most copy machines
were too large and too expensive for the small
business owner. In order to meet the needs of
these customers, Canon created a line of
personal and compact copiers.
Canon found a new target market - small
business owners - that the company then
attempted to satisfy with a well-defined
marketing program. The target market for
Porsche is professionals with high incomes.
The main market for Toyota Tercels is families
in the middle-income range.
A company can serve many different target
markets, but separate marketing programs must
be designed for each one. Customer needs vary
from one market segment to the other. Ford
designs one marketing program for the
Mustang and another for the Thunderbird,
because these cars appeal to different types of
automobile consumers.
IMPORTANCE OF MARKET SEGMENTATION
Carefully defining market segments and then designing marketing programs that are specifically
tailored to those segments leads to marketing success. Companies that first define their target markets and
design their products accordingly have a much greater chance of increasing profits than a company that first
designs a product and then looks for a market. understand how market segmentation can lead to success, let
us look at two major advantages of market segmentation:
increased market size;
greater market share.
INCREASED MARKET SIZE
Market segmentation can lead to an overall increase in the size of the market. During the market
segmentation process, marketers may uncover unmet customer needs. New product categories can be
created to meet these
needs, and since more people are now buying' the products, the size of the market will Increase.
When scientists discovered the importance of fibre in the human diet, consumers looked for
products with high-fibre content.
Producers of bran cereals, a good source of fibre, targeted their marketing efforts to these people,
and a new market segment was created. People who had not eaten cereals for years were now purchasing
bran cereals to add fibre to their diets, thereby increasing the total size of the cereal market.
MARKET SHARE
Market segmentation also leads to increased market share for a company. Market share is
the percentage of the total market that a company holds for its product(s). For instance, Kellogg's holds
45.7 per cent of the market for presweetened cereal with products like Sugar Frosted Flakes, Froot Loops,
and Sugar Smacks.
Think of the total market for a product as a pie made up of all customers who buy the product.
Each company selling that product has a piece of the pie, that is, a share, or portion of the total market. One
key objective of marketing is to increase a company's share of the total market in order to increase profits
and gain more control over the market as a whole.
In some markets, even a small increase in market share can mean huge increases in sales and
profits. In the soft drink market, a market-share increase of 1 per cent can mean several million dollars in
sales for the company that gains that share.
MARKET SEGMENTATION METHODS
Good marketers know that they cannot sell a product until they have a market. Marketers find out
if there is a market for their particular product using market segmentation methods.
Think of yourself and your schoolmates. What makes you similar? Age? The clothes you wear?
Your interests and activities? To marketers, you and your friends represent a market segment because
your similar needs and wants will lead you to purchase similar goods.
Market segmentation methods are based on determining ways in which customers might be
similar. Customers might be similar because they are the same age, live in the same region of Canada, or
engage in the same types of hobbies and activities. If customers have similar characteristics, they will
probably have similar product needs and wants.
Four categories used in market segmentation are:
geography;
demography;
benefits;
lifestyle.
Each of these categories reveals different kinds of information about customers and their
purchasing habits - information that marketers can use in designing the marketing program.
GEOGRAPHIC SEGMENTATION
Geographic segmentation divides the market into different units, such ,as countries, regions,
provinces, cities, towns, or communities. Consumers' purchasing habits differ depending on where they
live. By studying geographic differences in purchasing habits, a company can match its marketing mix
with customer characteristics in those areas. Some of the different geographic segments include:
climate;
regional differences;
urban/rural differences;
urban/suburb differences;
areas within a city;
international differences
CLIMATE
Climate is an important geographic factor for Canadian marketers. Across the country, there are
great variations in climate and weather patterns. Climate affects the type of products a marketer can sell in
any particular region and the timing of the marketing program.
Snow tires, warm winter clothing, and snowblowers are important products in many regions of
Canada. In central and northern Alberta, for instance, these products must be available in retail stores
from October through to March or April. Stores and distribution outlets have to estimate the length and
severity of the upcoming winter to know when to begin stocking winter tires and how many to hold in
inventory.
In southwestern British Columbia, the season for snow tires and warm clothing is much shorter.
However, the popularity of winter activities, such as downhill and crosscountry skiing, requires that
retailers begin stocking new equipment in October for the season ahead.
REGIONAL DIFFERENCES
Across Canada, there are many regional variations in history, culture, tastes, and lifestyles. Our
two major cultures, French and English, enjoy different tastes in food and entertainment.
Studies show that residents of Toronto are more conservative in choice of business attire than
people on the West Coast. Sales of business suits for both men and women, therefore, are much higher in
Toronto than in Vancouver. Albertans tend to shop in large department stores and shopping centres, while
people from Montreal and Vancouver prefer boutiques and smaller stores. All of these regional variations
in taste have implications for marketers.
URBAN/RURAL DIFFERENCES
City dwellers (urbanites) make different purchases than small community or rural dwellers. City
dwellers spend more on time-saving goods and services, such as microwaves, telephone-answering
machines, cleaning services, and fast-food restaurants. Residents of smaller communities buy more in
bulk, more garden supplies, and larger automobiles than their urban counterparts.
URBAN/SUBURB DIFFERENCES
Many Canadians live in suburbs of large metropolitan cities. They tend to have larger homes and
yards than city residents. They purchase more household appliances, furniture, and yard maintenance
equipment. They also tend to shop in large central shopping centres.
City dwellers often live in apartments, are more likely to be single, or in the "over 55 and without
children" age segment than suburban residents. Their purchases reflect their different needs and lifestyles.
AREAS WITHIN A CITY
Cities have different neighbourhoods. The downtown core is often made up of large office
buildings, retail stores, hotels, and some apartments. Some areas are more residential, without being
suburbs, and are home to people from different income brackets and/or from different ethnic
backgrounds.
When deciding where to open a retail store within a city, marketers will analyze the
characteristics of different neighbourhoods to determine in which area the product or service will sell best.
A health-food store will probably do well within the city centre where a number of young professionals
live who are concerned with nutrition, health, and fitness.
International companies often use some form of geographic segmentation when deciding where to
locate overseas operations. They divide the world into regions such as Asia-Pacific, Europe, or EasternBlock countries.
Within each of these regions, there are differences in language, history, culture, laws, and
customer characteristics. So, when determining in which countries to locate, a company will also use
demographic segmentation to get a better idea of consumer needs in those countries.
DEMOGRAPHIC SEGMENTATION
The root of the word "demographic" comes from the Greek "demos", meaning "people".
Demographics is the study and gathering of facts about people and populations. Demographic
segmentation divides populations according to:
age groups;
gender;
marital status;
household size;
household income;
education;
occupation;
nationality;
home ownership;
religion.
Marketers use demographic facts as an important basis for segmenting markets. It is easy to get
demographic information for any region, city, town, or community in Canada. The information is
gathered, compiled, and updated by StatsCan, the government's information-gathering department.
The following demographic factors are of particular interest to Canadian marketers: ..
age;
gender;
household factors;
income and occupation;
ethnic background.
Because of its size, few marketers have been able to ignore the baby-boom segment in planning their
marketing programs. Many new products have been created with this segment in mind. Today, the babyboom gen
AGE
Men's roles are also changing. Men are making some purchase decisions once made mostly by
Consumer purchases vary depending on the age of the purchaser. Teenagers purchase more rock
recordings, snack foods, soft drinks, and sweatshirts than any other age group. Children under the age
of two require a host of specialized products, from diapers to formula and small-sized furniture. People
over sixty-five have greater needs for health care and in-home services.
Marketers break down the population into various age groups: under 2, 2-6, 6-11, 12-18, 19-24,
25-35, 35-46, 46-55, 56-65, and 65 +. They assume that consumers in these different age groups will
make similar purchases.
The number of people in each age group is not the same. The 35-45 age group (the baby-boom
generation, born in the years after W orId War II) is the largest in Canada. Because of its size, few
marketers have been able to ignore the baby-boom segment in planning their marketing programs.
Many new products have been created with this segment in mind. Today, the baby-boom gen eration is
middle-aged and has become a major market for products needed in settingup and maintaining homes.
These products include appliances, furniture, insurance, security systems, and second cars.
By the early part of the next century, the baby-boomers will begin to retire. They will require many
new goods and services for their retirement years. Marketing opportunities wifl be pientiful for those
firms that have studied and understood the changing needs of this important age group.
GENDER
In recent years, the importance of gender as a market segmentation factor has taken on new
significance. This is due to the changing roles of men and women in North America.
Occupational choices for women are almost unlimited. More and more women are
college or university graduates of business, law, and engineering. Women today are also staying single
longer and having children later than their mothers did.
The changing role of women in our society is very important for marketers. Career women
need a range of goods and services associated with their jobs and with saving time. The more educated
woman consumer also demands that marketers use intelligent, informative, and unbiased language in
advertising directed at her.
women. Men are planning menus and doing the grocery shopping. They are buying the children's clothes
and making more household purchases. This change has occurred because there are now more singleparent families, more women working outside the home, and more men who are also staying single
longer.
HOUSEHOLD FACTORS
Demographic data on households provides marketers with information on the number of people in each
household in their market area, and the age and income of family members.
North American households have changed considerably over the years. The traditional family
grouping (mother, father, children) is no longer the only configuration. Today, there are a variety of
household configurations that include more:
middle-aged and older professional couples who have never had children;
middle-aged couples with younger children;
single-parent families;
single men and women;
families with both parents in the workforce;
extended families.
Changes in the family life cycle have created a new group of market segments. The family life cycle
refers to stages that most individuals and families pass through during their lives. Marketers are interested
in the family life cycle because people make different purchases depending on whether they are single or
married and depending on the ages of their children.
Young married couples with children under six are an important market segment for children's
clothing, food, furniture, and child-care services. A significant new market segment - and one that is
predicted to increase in the future - is families with both parents working.
INCOME AND OCCUPATION
Income is also a useful way to segment markets. Marketers of clothing, vacations, automobiles,
boats, and real estate recognize that consumers with different levels of disposable income make different
purchases. Disposable income is the income left over after all deductions have been taken off one's paycheque. Some consumers with higher disposable incomes purchase higher-priced goods while others, with
lower disposable incomes, purchase lower-priced goods, attempting to get the best value for their money.
Marketers usually combine income with another factor, for example, occupation, to gain a more
complete understanding of how income affects what people buy. For instance, automobile marketers sell
more BMWs to professionals than to non-professionals, even though the incomes of the two groups may
be the same.
ETHNIC BACKGROUND
Canada is a multicultural society. Many different ethnic groups in Canada want to uphold the
traditions and lifestyles of their countries of origin. They want to buy such things as Italian food and
foreign-language newspapers. They want to eat in Greek restaurants and shop at German delis. They want
access to ethnic radio and television stations. Consequently, the ethnic origin of people within a market
area is an important demographic factor for Canadian marketers.
COMBINING DEMOGRAPHIC FACTORS
Most marketers combine a number of different demographic factors when attempting to define a
market segment. For instance, a clothing manufacturer will use age, income, and occupation in designing
clothing lines and setting prices. Marketers of travel services may combine stage in the family life cycle
with income in order to match vacations with customers.
BENEFIT SEGMENTATION
Benefit segmentation divides up the market based on the benefits customers seek from using a product. For
instance, customers have different reasons for purchasing shampoo. Some use shampoo for treatment of
dandruff; others use shampoo to control oily or dry hair; and still others use shampoo to increase hair
strength and shine. In determining the reasons why customers purchase a product, marketers can create very
specific marketing programs that highlight the benefits sought by the customer.
Toothpaste manufacturers have made good use of benefit segmentation. Customers were divided into
four major groups based on benefits sought from toothpaste: decay prevention, flavour, teeth whiteness, and
low price. Once marketers understood the reasons why different groups of people purchase toothpaste, it was
possible to create products that filled those needs and to develop marketing campaigns that emphasized the
major benefits of their brand. For instance, a toothpaste may be positioned as a toothpaste that prevents
cavities, reduces tartar, or as one that has a good flavour.
LIFESTYLE SEGMENTATION
Demographic segmentation can give marketers a lot of information on age, family size, ethnic
origin, and incomes, but it says little about individual differences in tastes and lifestyles. Marketers have
come to realize
tastes and lifestyles are often as important in determining customer purchasing behaviour as the data drawn
from demographic research.
For instance, demographic segmentation may lead marketers to assume that two separate families of
four, with children under six and incomes over $50 000, will have the same purchasing habits, making them
part of the same marketing segment. In fact, these two families may have completely different lifestyles and
spend their time and money in very different ways.
In order to account for differences in individual lifestyles and tastes, marketers use another method
of market segmentation known as psychographic segmentation, or lifestyle segmentation. Lifestyle
segmentation is based on studies of how consumers live, how they spend their time, what they enjoy doing,
and how customers feel about themselves and the world around them. Profiles of customer attitudes,
interests, and opinions often give marketers a much more accurate idea of why customers choose to purchase
particular goods and services.
People may see themselves as "the busy female executive", "the outdoor/health conscious
individual", "the independent free spirit", "the up-and-coming young male executive", or "the concerned
parent". Each of these lifestyle types has implications for marketing.
For instance, the young woman who defines her lifestyle as that of a "busy female executive" will be a
potential consumer for such items as time-saving appliances and quality professional clothing. She will also
make major purchase decisions, such as those for accommodation, transportation, and financial investments.
Smart marketers are directing some of their promotional messages to this lifestyle segment. Among them are
General Motors and Chevrolet, who design automobiles and advertisements with working women executives
in mind
Another important lifestyle segment is the "outdoor/health conscious" segment, who can also be the
"busy female executive". Millions of North Americans are purchasing goods and services that promote
better health. Products and services marketed towards this trend include: adventure vacations, fitness
centres, health clubs, and nutrition products and publications.
MARKET SEGMENTATION: WHICH FACTORS TO USE?
Most marketers use some combination of geographic, benefit, demographic, and/or lifestyle factors in
defining a market segment for their products. In some cases, a single factor may be appropriate. Marketers
of baby food will, for instance, use age as their key segmentation factor. In most cases, however, more than
one factor will be used.
Generally, some combination of demographic and lifestyle segmentation will be used. Demographic
segmentation provides basic information on consumer age groups, income levels, and occupations. Lifestyle
segmentation is then applied to the demographic profile to provide a better picture of consumer lifestyles
and interests and to predict purchasing habits. Marketers of automobiles use both segmentation methods in
developing their marketing programs.
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