Segmentation and Targeting
Marketing 5341
Chip Besio
What Is Market
Segmentation?
Market segmentation is the
subdividing of a market into
distinct subsets, where any subset
may conceivably be selected as a
marketing target to be reached
with a distinct marketing mix
Segmentation Dilemma
MASS MARKETING
Economies of Scale
CUSTOMIZATION
Everyone Wants
Something Different
Segmentation Criteria
I. Customer Characteristics
II. Benefits Sought
III. Customer Behaviors
Customer Characteristics
DEMOGRAPHICS
Consumer Markets:
–
–
–
–
Gender
Age
Income
Dual income family
Industrial Markets:
– SIC code
– Size of company
Customer Characteristics
PSYCHOGRAPHICS
Consumer Markets:
– Environmentally-conscious
– Value and lifestyles
VALS (1978); VALS 2 (1989)
Distinct patterns based on attitudes and values
Industrial Markets:
– Corporate culture
– Purchasing orientation
Customer Characteristics
GEOGRAPHY
Regional Segmentation
Zip Clustering
– Distinct marketing strategies created for
similar types of neighborhoods stretched
across the nation
– Examples include PRIZM, Market Metrics
Benefit Segmentation
WHAT BENEFIT DO YOU WANT?
Rationale - The benefits people are
seeking in consuming a given product
are the true reasons for the existence of
segments
Example - Toothpaste
– Cavity prevention (e.g., Crest)
– Fresh breath (e.g., Aquafresh)
– White teeth (e.g., Rembrandt)
Behavior Segmentation
USAGE BEHAVIORS
Volume of usage
– Heavy users, moderate users, light users and
nonusers
– 80/20 rule
Brand usage
– Increase usage among users
– Get users of competing brand to switch
– Get nonusers to start
Usage occasion
What Is “Targeting” a Market
Segment?
“You can’t be all things to all people”

Therefore, companies typically focus
on one or more segments and orient
their marketing activities to those
(potential) customers
Which Are the “Good”
Segments to Target?
The most attractive market segments are:
 Large
 Growing
and have:
 High purchase volume
 High margins
 High customer value
Which Are the “Good”
Segments to Target?
However, the most attractive segments are
frequently already well-served and so are
highly competitive
… so you must also consider:
 Number and strength of competitors
 Ease of entry into the segment
 Company’s current positioning
Targeting Dilemma Segment Attractiveness
SEGMENT VALUE
More Opportunity
COMPETITION
More Companies
Compete for Valuable
Segments
Which Are the “Good”
Segments to Target?
Additional considerations for targeting:
 Customers are addressable - you can
reach them
 The company is capable of building a
marketing program to target them
Targeting
 Examples of successful targeting:
– Wal-Mart - Value-conscious shoppers that
do not want to worry about short-term sales
– Lexus - People with high disposable income
who value reliability and service, as well as
prestige and luxury
– Cray - Price insensitive computer users that
require maximum computing power
– Dupont - Less price-sensitive innovators in
the use of plastics (skim pricing)
Porter’s Market Forces
Model
Porter’s Market Forces Model
An important tool to help us understand
the character of competition in a market
is Michael Porter’s market forces model

It assists in evaluating the attractiveness
of a market for potential entry
Porter’s Market Forces Model

The character of competition in markets
varies widely:
Character of Competition in a Market
“Cooperative”
Competition
Intense
Rivalry
Porter’s Market Forces Model

What determines the attractiveness, or
potential long-term profitability, of a
market?
Potential
Entrants
(Threat of
Mobility)
Suppliers
(Supplier
Power)
Industry
Competition
(Segment
Rivalry)
Substitutes
(Threat of
Substitutes)
Buyers
(Buyer Power)
Michael E. Porter
Porter’s Market Forces Model

How does the model predict the intensity
of competitive rivalry?
Force
Evidence
Effect on Rivalry
Supplier Power
 Concentration of suppliers
 Differentiation among
suppliers
Increases
Buyer Power
 Concentration of buyers
 Proportion of sales
accruing to individual
buyers
Increases
Threat of
Mobility
 Barriers to entry
 Barriers to exit
Decreases
Increases
Threat of
Substitutes
 Availability and adequacy
of close substitutes
 Lack of differentiation
Increases