Market Segmentation
What is market segmentation?
Process of assigning consumers with
similar needs or wants into the same
group.
Results in distinct subsets of consumers
with distinct demand curves.
Requires unique marketing mix for each
segment.
Benefits of Segmentation
More effective marketing.
Increasing sales in the long run.
Allows firm to develop a competitive
advantage.
Disadvantages of
Segmentation
Increased costs in short run.
Increased research costs
Increased marketing costs
If segmentation is not carefully done, may
result in missing segments, ineffective
marketing efforts.
How is market
segmentation done?
First, identify consumers with similar
needs/wants--benefit segmentation.
Second, use additional segmentation
variables to further identify consumers
within groups with similar needs/wants.
Example:
What might the needs be of consumers of
a coffee shop?
Need stimulant in the morning
Quiet place to read, study, reflect
Socialize with friends
Place to meet with business associates
Further identify each subset of
consumers:
Need stimulant (caffeine) in the morning
Employed
In a hurry
Wide age range
Men and women
Enough disposable income to afford buying coffee
every morning vs. making it
Segmentation Variables are
Related to Segmentation Bases
Geographic segmentation
Region
City size
Density of area
climate
Segmentation Bases,
continued
Demographic segmentation
Age
Sex
Marital status
Income
Education
occupation
Segmentation Bases,
continued
Psychological segmentation
Needs-motivation
Personality
Perception
Involvement
Attitudes
Psychographic/lifestyle
AIO Categories of
Lifestyle Studies
Activities
Interests
Opinions
Demographics
Work
Family
Themselves
Age
Hobbies
Home
Social issues
Education
Social events
Job
Politics
Income
Vacation
Community
Business
Occupation
Entertainment
Recreation
Education
Family size
Club
membership
Community
Food
Future
Geography
Media
Culture
City size
Sports
Achievements
economics
Stage in life cycle
Shopping
Fashion
Products
Dwelling
Segmentation Bases,
continued
Sociocultural segmentation
Cultures
Religion
Subculture
Social class
Family life cycle
Segmentation Bases,
continued
Use-related segmentation
Usage rate
Awareness status
Brand loyalty
Segmentation Bases,
continued
Use-situation segmentation
Time
Objective
Location
Person
Hybrid Segmentation
Combine two or more segmentation
variables
Psychographic/demographic
Geographic/demographic
Geodemographic Segmentation
Clusters neighborhoods throughout the
U.S. that have similar housing, incomes,
lifestyles, preferences, consumption
habits.
PRIZM
Young Influentials
1.1% of U.S. households
Predominant employment: professional, whitecollar
Key education level: college grads
Adult age range: 24, 25-34
Characteristics: high tech, metropolitan
sophisticates, childless, college basketball,
American Express card, imported beer,
progressive rock radio, style/fashion magazines.
Psychographic/demographic
VALS (SRI)
Based on the values of consumers and the
lifestyles they choose to live.
Two main factors:
Self-orientation of the consumer
• Principle orientation--beliefs and principles guide choices
• Status orientation--choices are guided by actions, approval,
and opinions of others
• Action orientation--choice are influenced by desire for social
and physical activity and variety
Abundance of resources
• Minimal vs. abundant
Segmentation Criteria
Effective segmentation is more likely
when certain conditions are in place:
Identifiable
Sufficient
Stable
Accessible
Efficiency potential
Segmentation Strategy
Strategy is based on target markets and
firm’s financial resources
Differentiated marketing
Concentrated marketing
Countersegmentation strategy