Segmentation
Market Segmentation is the process of dividing a
market into distinct subsets of consumers with
common needs or characteristics and selecting one or
more segments to target with a distinct marketing mix.
WHY SEGMENTATION?
 Rather than trying to compete with an entire market,
company must identify parts of market that can serve
better than competition
 Segmentation helps sellers develop the right product and
adjust prices, set distribution channels and advertising &
promotions strategies effectively
 Segmentation strategy differentiates offerings
through styling, packaging, promo appeals,
method of distribution
 Segmentation helps sellers develop the right
product and adjust prices, set distribution
channels and advertising & promotions strategies
effectively
HOW MARKET SEGMENTATION
WORKS
 Segmentation studies
- to discover needs/wants on specific consumer gaps
- to guide repositioning of existing products and add
new market segment
HOW MARKET SEGMENTATION
WORKS (..cont’d)
 Segmentation research
- to determine most appropriate media to place ads
through surveys and analysis of data
- i.e AC Nielsen, Acorn,
 Segmentation versus aggregation strategies
 Consumer preference heterogeneity
 The Majority Fallacy
 The sales-costs tradeoff cannibalization
 Bases of segmentation
Segmentation vs. Aggregation Strategy
When should a firm pursue a segmentation versus
aggregation strategy?
• Consumer Preference Heterogeneity
• Majority Fallacy
• Cost-Benefit Analysis
Consumer Preference Heterogeneity
How much Variability Exists in Consumer
Preferences?
The Majority Fallacy
Strategy error which leads to the mistaken belief that
the largest segment of a market is the most lucrative.
In reality, however, it may be the least profitable one
due to the intense rivalry among a large number of
competitors
The sales-costs trade-off of segmentation
Bases of segmentation
Bases
Geographic
Demographic
Psychographic
Behavioral
Examples
Postal ZIP code districts, metropolitan
statistical areas, countries, states, provinces,
regions, nations, continents
Gender, age, education, occupation, income
marital status, household size, ethnic
background
Personality characteristics, attitudes,
beliefs, lifestyles
Usage situations, usage frequency
Potential segmentation bases
 Determined in advance (sex, race, age, residential
status)
 Objective (can be observed/measured)

General or behavioral
 Inferred (assessed thru questionnaire)
 General or behavioral
 Self-selection bases
 Segments define themselves thru response to campaign
 Rarely indicates why response occurred
BASE FOR SEGMENTATION (..cont’d)
 Geographic segmentation
- market divided by location/localizing the
marketing strategy
- usually people in the same area share the same
needs and wants
- different spending patterns/demands
 Demographic segmentation
- identifiable, measurable stats of a population i.e
age, sex, marital status etc
- easier to measure, to assess size of target market
 Socio-cultural segmentation
- family life cycle i.e passing through similar phases
in their formation
- social class: education, occupation, income
- culture/subculture and cross-culture affiliation
 User-situation segmentation
- Usage of product depends on occasion; i.e greeting
cards, drinks, airlines
 Benefit segmentation
- Rewarding consumers with product benefits i.e
-
-
microwave that requires less time to prepare meals
Toothpaste
Socially active
Smokers
Children
 Hybrid segmentation
- Combination of two or more exciting
segmentation variables, commonly done by
marketers
Hybrid Segmentation
 Marketers commonly segment markets by combining
several segmentations variables rather than relying on a
single segmentation base.
 Types of Hybrid segmentation covered
 Psychographic-Demographic Profile
 Geo-demographics
 VALS
Psychographic-Demographic Segmentation
Widely used in advertising campaigns to answer three
questions
 Whom should we target
 What should we say and
 When should we say it.
E.g.. Newsweek audience profile-Newsweek Asia .doc
offering media buyers such carefully defined dual profiles of their audiences, mass
media publishers and broadcasters make it possible for advertisers to select media
whose audiences most closely resemble their target markets.
Geo-Demographic
Segmentation
This type of hybrid segmentation
scheme based on the notion
that people who live close to
one another are likely to have
similar financial means,
tastes, preferences, lifestyles,a
and consumption habits.
VALS

Draws on Maslow’s
Need Hierarchy and concept of social
character
Three major self-orientations
Principle oriented –consumers whose
choices are driven by their beliefs rather
than their desires
Status oriented- consumers whose
choices are guided by the
actions,
approvals and opinion of others
Action oriented-consumers who are
driven by a desire for social or physical
activity, variety and risk taking
 Each of these self-orientations
represent distinct attitudes,
and lifestyles, decision making
style.
 Resources include the range of
psychological, physical,
demographic and material
means the consumer has to
draw upon.
Criteria for Effective Targeting of Marketing
Segments
 Identifiable
 Sufficient
 Stable or growing
 Accessible (reachable)in
terms of both media and
cost.