market segmentation - bases of segmentation
It is widely thought in marketing that than segmentation is an art, not a science.
The key task is to find the variable, or variables that split the market into actionable
segments
There are two types of segmentation variables:
(1) Needs
(2) Profilers
The basic criteria for segmenting a market are customer needs. To find the needs of
customers in a market, it is necessary to undertake market research.
Profilers are the descriptive, measurable customer characteristics (such as location,
age, nationality, gender, income) that can be used to inform a segmentation exercise.
The most common profilers used in customer segmentation include the following:
Profiler Examples
Geographic
•
Region
• Urban or rural
of
the
country
Demographic
•
Age,
•
Income,
• Religion, race, nationality
sex,
family
occupation,
size
education
Psychographic
•
•
• Personality type
Behavioural
Social
Lifestyle
class
type
•
Product
usage
e.g.
light,
•
Brand
loyalty:
none,
• Type of user (e.g. with meals, special occasions)
medium
,heavy
medium,
users
high
There are several important reasons why businesses should attempt to segment their
markets
carefully.
These
are
summarised
below
Better matching of customer needs
Customer needs differ. Creating separate offers for each segment makes sense and
provides customers with a better solution
Enhanced profits for business
Customers have different disposable income. They are, therefore, different in how
sensitive they are to price. By segmenting markets, businesses can raise average prices
and subsequently enhance profits
Better opportunities for growth
Market segmentation can build sales. For example, customers can be encouraged to
"trade-up" after being introduced to a particular product with an introductory, lowerpriced product
Retain more customers
Customer circumstances change, for example they grow older, form families, change
jobs or get promoted, change their buying patterns. By marketing products that
appeal to customers at different stages of their life ("life-cycle"), a business can retain
customers who might otherwise switch to competing products and brands
Target marketing communications
Businesses need to deliver their marketing message to a relevant customer audience.
If the target market is too broad, there is a strong risk that (1) the key customers are
missed and (2) the cost of communicating to customers becomes too high /
unprofitable. By segmenting markets, the target customer can be reached more often
and at lower cost
Gain share of the market segment
Unless a business has a strong or leading share of a market, it is unlikely to be
maximising its profitability. Minor brands suffer from lack of scale economies in
production and marketing, pressures from distributors and limited space on the
shelves. Through careful segmentation and targeting, businesses can often achieve
competitive production and marketing costs and become the preferred choice of
customers and distributors. In other words, segmentation offers the opportunity for
smaller firms to compete with bigger ones.
BASIS OF SEGMENTATION
Geographic segmentation tries to divide markets into different geographical units:
these units include:
• Regions: e.g. in the UK these might be England, Scotland, Wales Northern Ireland or
(at a more detailed level) counties or major metropolitan areas
• Countries: perhaps categorised by size, development or membership of geographic
region
• City / Town size: e.g. population within ranges or above a certain level
• Population density: e.g. urban, suburban, rural, semi-rural
• Climate: e.g. Northern, Southern
Geographic segmentation is an important process - particularly for multi-national and
global businesses and brands. Many such companies have regional and national
marketing programmes which alter their products, advertising and promotion to meet
the individual needs of geographic units.
Demographic segmentation consists of dividing the market into groups based on
variables such as age, gender family size, income, occupation, education, religion,
race and nationality.
As you might expect, demographic segmentation variables are amongst the most
popular bases for segmenting customer groups.
This is partly because customer wants are closely linked to variables such as income
and age. Also, for practical reasons, there is often much more data available to help
with the demographic segmentation process.
The
main
demographic
segmentation
variables
are
summarised
below:
Age
Consumer needs and wants change with age although they may still wish to consumer
the same types of product. So Marketers design, package and promote products
differently to meet the wants of different age groups. Good examples include the
marketing of toothpaste (contrast the branding of toothpaste for children and adults)
and toys (with many age-based segments).
Life-cycle stage
A consumer stage in the life-cycle is an important variable - particularly in markets
such as leisure and tourism. For example, contrast the product and promotional
approach of Club 18-30 holidays with the slightly more refined and sedate approach
adopted by Saga Holidays.
Gender
Gender segmentation is widely used in consumer marketing. The best examples
include clothing, hairdressing, magazines and toiletries and cosmetics.
Income
Another popular basis for segmentation. Many companies target affluent consumers
with luxury goods and convenience services. Good examples include Coutts bank; Moet
& Chandon champagne and Elegant Resorts - an up-market travel company. By
contrast, many companies focus on marketing products that appeal directly to
consumers with relatively low incomes. Examples include Aldi (a discount food
retailer), Airtours holidays, and discount clothing retailers such as TK Maxx.
Social class
Many Marketers believe that a consumers "perceived" social class influences their
preferences for cars, clothes, home furnishings, leisure activities and other products &
services. There is a clear link here with income-based segmentation.
Lifestyle
Marketers are increasingly interested in the effect of consumer "lifestyles" on demand.
Unfortunately, there are many different lifestyle categorisation systems, many of
them designed by advertising and marketing agencies as a way of winning new
marketing clients and campaigns!
Behavioural segmentation divides customers into groups based on the way they
respond to, use or know of a product.
Behavioural segments can group consumers in terms of:
Occasions
When a product is consumed or purchased. For example, cereals have traditionally
been marketed as a breakfast-related product. Kelloggs have always encouraged
consumers to eat breakfast cereals on the "occasion" of getting up. More recently, they
have tried to extend the consumption of cereals by promoting the product as an ideal,
anytime snack food.
Usage
Some markets can be segmented into light, medium and heavy user groups
Loyalty
Loyal consumers - those who buy one brand all or most of the time - are valuable
customers. Many companies try to segment their markets into those where loyal
customers can be found and retained compared with segments where customers rarely
display any product loyalty. The holiday market is an excellent example of this. The
"mass-market" overseas tour operators such as Thomson, Air tours, JMC and First
Choice have very low levels of customer loyalty - which means that customers need to
be recruited again every year. Compare this with specialist, niche operators such as
Laskarina which has customers who have traveled with the brand in each of the last
15-20 years. Types of loyalty:
-
hard core loyal
soft core loyal
shifting loyal
switchers
Benefits Sought
An important form of behavioural segmentation. Benefit segmentation requires
Marketers to understand and find the main benefits customers look for in a product.
An excellent example is the toothpaste market where research has found four main
"benefit segments" - economic; medicinal, cosmetic and taste.
PSYCHOGRAPHIC SEGMENTATION
An important form of behavioural segmentation. Benefit segmentation requires
Marketers to understand and find the main benefits customers look for in a product.
An excellent example is the toothpaste market where research has found four main
"benefit segments" - economic; medicinal, cosmetic and taste.
Psychographic segmentation, or behavioral segmentation, is a method of dividing
markets on the bases of the psychology and lifestyle habits of customers. It is the
marketers and the sellers of products and commodities who use this technique in
order to decide their marketing strategy. Marketing a product requires a deep
understanding of the customers psychology, along with their needs, in order for the
product to be accepted. Marketers carry out a number of activities in order to better
understand the psyche and the habits of the customers, so that they can accurately
predict the response to the product they are selling, and thus make accurate sales
projections.
The current eight VALS types are: Innovators, Thinkers, Achievers, Experiencers,
Believers, Strivers, Makers, and Survivors.
Undifferentiated, Concentrated, and Differentiated
Targeting Strategies
Segmentation refers to the process of dividing the market of consumers into groups
based on one or more shared internal or external characteristics. After the segmentation
process is complete, the next step is targeting, which involves the tourism marketer's
choosing a segment or segments to which to communicate the promotional message.
There are three different targeting strategies that a tourism marketer can implement. The
tourism marketer must make the important decision as to whether he or she wishes to
use an undifferentiated, concentrated, or differentiated targeting strategy (Table 5.1).
Table 5.1: Segmentation Strategies
Strategy
Description
Example
Undifferentiated
Sending the same
promotional message to
everyone
Promoting the city as a historic
destination by placing ads in widely
read newspapers
Concentrated
Designing a promotional
Promoting the city as historic by
message that communicates targeting elderly members of historical
the benefits desired by a
societies by placing ads in their
single specific segment
newsletters
Differentiated
Designing more than one
promotional message, with
each communicating different
benefits
Also targeting families by
communicating a promotional
message about the importance of
children learning history
Undifferentiated Strategy
An undifferentiated targeting strategy is used when a company decides to communicate
the benefits of its product by sending the same promotional message to everyone. For
an undifferentiated strategy to be successful, the company's product must be readily
available and affordable and must provide the same benefits to all consumers. Very few
companies with consumer products meet these criteria. However, very large
companies...
POSITIONING STRATEGIES
In positioning their product in the market, a variety of positioning strategies could be
used by the marketing organisation including:

product attributes

price and quality

use or application

product user

product class

competitor.
Product attributes. In this case the firm uses one or more product attributes or features
as the basis for positioning its product. For example, while the Dairy Australia
focuses on the nutritional attributes of milk as a key selling point, Kleenex tissues
focus on softness, strength and absorbency. The firm may also use a key benefit
that the market is seeking as the basis of positioning their product.
Price and quality. Two of the key dimensions used by consumers in evaluating
alternative brands is price and quality. Refer to my example regarding
chocolate. Some firms use a high price (premium pricing) strategy to
indicate that their product is high or superior quality, for example Godiva
chocolates. Other firms use a lower price, good quality strategy, such as Big W with its
everyday low pricing strategy.
Use or application. Products can be positioned as the right product to use for
a particular occasion or purpose. For example, meat pies may be targeted for
consumption at the football, or a CUB Victorian Bitter may be a reward for a hard days
work.
User. This strategy is based on certain products being suited for certain users. For
example, insurance policies that are specifically designed to senior citizens, such as
Australian Pensioner's Insurance Agency. Some of the classical examples of positioning
strategies that have been aimed at gaining new users was the repositioning of Johnson's
baby oil as a sun tanning lotion (not recommended!) and baking soda as a kitchen
deodorising agent. Another example, that I really enjoyed was a campaign that was run
a few years ago by Kellogg's Coco-Pops who traditionally market a chocolate-flavoured
cereal to the children's segment, but the campaign depicted adult males confessing to
secretly eating coco-pops.
Product class. When close substitutes exist, the firm may
focus on the benefits its product class relative to other
product classes. For example, a manufacturer of vinyl
shutters may propose that vinyl is more durable, easier to clean and
need less maintenance than wood shutters. Likewise, the dairy industry may seek to
convince us that real cheese, such as Coon is more natural than processed cheese.
Competitor. Some firms deliberately compare themselves to competitors as a means of
gaining the desired position for their product in the mind of the consumer. For example,
Avis states 'We try harder' as a basis of setting it apart from its competitors and in
particular Hertz. Other firms deliberately position themselves away from competitors,
known as 'comparative advertising'. However, while comparative advertising seems to be
accepted in some countries, this approach can 'back-fire' in Australia due to our notions
of 'fair play'. Further, if claims cannot be backed up, comparative advertising can attract
the attention of the ACCC, for example the case of AAPT versus Telstra. In Australia the
call to buy Australian-made products has led to some examples of comparative
advertising. However, comparative advertising can lead to litigation. For example,
advertising conducted by an Australian company Herron Pharmaceuticals that compared
their products with products of US based competitor has resulted in legal action. Telstra
uses a strong 'I am Australian' theme to appeal to nationalistic buying motives.