Identifying Market Segments and Targets

Identifying Market
Segments and Targets

Discussion Questions
1. What are the different levels of market
segmentation?
2. In what ways can a company divide a market
into segments?
3. What are the requirements for effective
segmentation?
4. How should business markets be segmented?
5. How should a company choose the most
attractive target markets?
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Target Marketing Requirements
1. Identify and profile distinct groups of
buyers (market segmentation).
2. Select one or more market segments to

enter (market targeting).
3. For each, establish and communicate

benefits of offering (market positioning).

Bases for Segmenting Consumers
Geographic
Demographic
Psychographic Behavioral
Geographic Segmentation
5 broad categories:
(1) education and affluence, Geoclustering
(2) family life cycle,
(3) urbanization,
(4) race and ethnicity, and
(5) mobility.
Demographic Segmentation
Age and Life-cycle Stage

Life Stage
Gender
Income
Generation
Race and Culture

Age and Life-Cycle Stage

Life Stage

Gender
Women:
Influence 80% of consumer purchases
Make 75% of new home decisions
Purchase 60% of cars

Income

Generation
Gen X (1964-1978)
Baby Boomers (1946-1964)
Silent Generation (1925-1945)
Millennials (Gen Y) – (1979-1994)

-78 Million people
-$187 annual spending power

Race and Culture

Psychographic Segmentation
• Personality traits
• Lifestyle
• Values

VALS Segmentation System

VALS™ framework signifies values and lifestyles, classifies U.S. adults into eight primary groups
based on responses to a questionnaire featuring 4 demographic and 35 attitudinal questions. The
VALS system is continually updated with new data from more than 80,000 surveys per year.
The four groups with higher resources are:
1. Innovators—Successful, sophisticated, active, “take-charge” people with high self-esteem.
Purchases often reflect cultivated tastes for relatively upscale, niche-oriented products and
services.
2. Thinkers—Mature, satisfied, and reflective people motivated by ideals and who value order,
knowledge, and responsibility. They seek durability, functionality, and value in products.
3. Achievers—Successful, goal-oriented people who focus on career and family. They favor
premium products that demonstrate success to their peers.
4. Experiencer—Young, enthusiastic, impulsive people who seek variety and excitement. They
spend a comparatively high proportion of income on fashion, entertainment, and socializing.
The four groups with lower resources are:
1. Believers—Conservative, conventional, and traditional people with concrete beliefs. They
prefer familiar, U.S.-made products and are loyal to established brands.
2. Strivers—Trendy and fun-loving people who are resource-constrained. They favor stylish
products that emulate the purchases of those with greater material wealth.
3. Makers—Practical, down-to-earth, self-sufficient people who like to work with their hands.
They seek U.S.-made products with a practical or functional purpose.
4. Survivors—Elderly, passive people concerned about change and loyal to their favorite brands.

Behavioral Segmentation
Usage occasions
Initiator
User status
User Influencer
Usage rate
Buyer-readiness
Buyer Decider Loyalty status
Decision Roles User and Usage
Needs and Benefits

Behavioral segmentation divide buyers into groups on the basis of their knowledge of, attitude toward, use of,
or response to a product.
Needs and Benefits: Not everyone who buys a product has the same needs or wants the same benefits from it.
Needs-based or benefit-based segmentation is a widely used approach because it identifies distinct market
segments with clear marketing implications.
Decision Roles: People play five roles in a buying decision: Initiator, Influencer, Decider, Buyer, and User.
User and Usage: variables related to various aspects of users or their usage—occasions, user status, usage
rate, buyer-readiness stage, and loyalty status—are good starting points for constructing market segments.
• Occasions: We can distinguish buyers according to the occasions when they develop a need, purchase or use
a product. For example, air travel is triggered by occasions related to business, vacation, or family.
• User Status: The key to attracting potential users, or even possibly nonusers, is understanding the reasons
they are not using. Included in the potential-user group are consumers who will become users in connection
with some life stage or life event. Mothers-to-be are potential users who will turn into heavy users.
• Usage Rate Heavy users are often a small slice but account for a high percentage of total consumption.
• Buyer-Readiness: Some people are unaware of the product, some are aware, some are informed, some are
interested, some desire the product, and some intend to buy. To help characterize how many people are at
different stages and how well they have converted people from one stage to another, marketers can employ
a marketing funnel to break down the market into different buyer-readiness stages.
• Loyalty Status: Marketers usually envision four groups based on brand loyalty status:
1. Hard-core loyals—Consumers who buy only one brand all the time
2. Split loyals—Consumers who are loyal to two or three brands
3. Shifting loyals—Consumers who shift loyalty from one brand to another
4. Switchers—Consumers who show no loyalty to any brand51

Bases for Segmenting B2B Markets
Demographic Industry, company size, location
Operating Variables Technology, user status, customer capabilities
Purchasing Approach Power structure, nature of existing relationship
Situational Factors Urgency, specific application, size of order
Personal Characteristics Buyer-seller similarity, loyalty, risk attitude

Market Targeting
Effective Segmentation Criteria

Measurable
Substantial
Accessible
Differentiable
Actionable

Market Targeting
Porter’s Five Force
Substitute Buyer
Products Power
Supplier
New Power
Entrants
Rivals
Michael Porter has identified five forces that determine the intrinsic long-run
attractiveness of a market or market segment:
1. Threat of intense segment rivalry—A segment is unattractive if it already contains
numerous, strong, or aggressive competitors.. The cellular phone market has seen fierce
competition due to segment rivalry.
2. Threat of new entrants—The most attractive segment is one in which entry barriers
are high and exit barriers are low. The worst case is when entry barriers are low and exit
barriers are high: Here firms enter during good times but find it hard to leave during bad
times. The result is chronic overcapacity and depressed earnings for all.
3. Threat of substitute products—A segment is unattractive when there are actual or
potential substitutes for the product. Substitutes place a limit on prices and on profits. Air
travel has severely challenged profitability for Greyhound and Amtrak.
4. Threat of buyers’ growing bargaining power—A segment is unattractive if buyers
possess strong or growing bargaining power. The rise of retail giants such as Walmart has
led some analysts to conclude that the potential profitability of packaged-goods
companies will become curtailed.
5. Threat of suppliers’ growing bargaining power—A segment is unattractive if the
company’s suppliers are able to raise prices or reduce quantity supplied.

Evaluating and Selecting Segments
Multiple segment
specialization
Full market coverage
Single-segment
concentration Individual marketing
Application Question
If you were to segment the market for the

following product and service, what base/
bases of segmentation will you choose to do
so? Justify your choice.
a) Kinder Garden School
b) Battery Run Cycle

Identifying Market Segments and Targets

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Identifying Market

Segments and Targets

2. Select one or more market segments to

3. For each, establish and communicate

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Age and Life-cycle Stage

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Millennials (Gen Y) – (1979-1994)

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Needs and Benefits

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Demographic Industry, company size, location

Operating Variables Technology, user status, customer capabilities

Purchasing Approach Power structure, nature of existing relationship

Situational Factors Urgency, specific application, size of order

Personal Characteristics Buyer-seller similarity, loyalty, risk attitude

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Effective Segmentation Criteria

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Full market coverage

If you were to segment the market for the

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