aChapter 9

A Company cannot serve all customers in a broad market - customers are too numerous and
diverse in their requirements. The company needs to identify the market segments that it can
serve more effectively.
Many companies embrace target marketing where sellers distinguish the major market
segments, target one or more of those segments, and develop products and marketing
programmes tailored to each. Instead of scattering the marketing effort (shotgun approach)
they focus on the buyers the have the greatest chance of satisfying (Rifle approach).
Target marketing requires three steps:
 Identify and profile distinct group of buyers who might require separate products or
marketing mixes-market segmentation.
 Select one or more market segments to enter-market targeting.
 Establish and communicate the products' key distinctive benefits to the target market -
market positioning.

Four levels of marketing

 Segment Marketing:
o A market segment consists of a large identifiable group within a market with similar
wants, purchasing power, geographical location, buying attitudes or buying habits.
For example, for an auto company might have four broad segments: customers
seeking basic transportation or high performance or luxury or safety.
o Each segment buyers are assumed to be quite similar in needs and wants. Anderson
and Narus urge to present flexible market offering instead of a standard offering ("one
size fits all") to all members within the segment. A flexible market offering consists of
two parts:

 Naked Solution: Product and service element that all segment members value
 Options: That some segment members value, each option carries extra chrge.

o For example seat, food and drinks offered to the economy class passenger of an airline
are naked Solution while extra amount charged for an alcoholic beverage/ Internet
facility to those who are ready to pay for it would be option.
o Benefits of Segment Marketing are:

 The company can create more fine tuned product or services offering and price
it appropriately for target audience
  Choice of distribution channel and communication channel becomes much
easier
 The company also may face fewer competitions in a particular segment.

 Niche Marketing:
o A niche is more narrowly defined group, typically a small market whose needs
are not well served. Marketers usually identify niches by dividing a segment
into sub segments or defining a group seeking a distinctive mix of benefits.
o Niches are fairly small and attract very few competitors. Large companies
loose pieces of their market to nichers and Dalgic has labelled this
confrontation as "Guerrillas against gorillas".
o Niche marketing requires more decentralization and changes in the way
normal business is done. Niche marketers understand their customers so well
that customer's willingly pay a premium.
o Attractive niches are characterized as:
 Customers in the niche have a distinct set of needs
 They will pay a premium to the firm that best satisfies their needs
 The niche is not likely to attract other competitors
 The nichers gain certain economies trough specialization
 The niche has size, profit and growth potential

 Local Marketing:
o Marketing programmes being tailored to the needs and wants of local
customer groups trading areas, neighbourhood, individual stores.
o Disadvantages of local marketing are - it drives up the manufacturing and
marketing cost by reducing the economies of scale, logistical problems
become magnified and a brands overall image may be diluted if the product
and message differ in different localities.

 Individual Marketing:
o Ultimate level of marketing - "segment of one", "customised marketing", "one-to-one
marketing". Tailors, cobblers etc.
o B2B marketing today is customised. Mass customisation is the ability to prepare on a
mass basis individually designed products and communication to meet each
customer's requirements.
o New technologies such as computers, Internet, databases, robotic production, email,
fax etc. permit companies to adopt mass customisation.

Patterns of Market Segmentation

Way to build up market segments - preference segments. Three different patterns
1. Homogeneous Preferences: Markets where all customers have roughly same
preference. The market shows no natural segments.
2. Diffused Preferences: Consumer preferences are scattered through out the space -
consumers vary widely in their preferences. The first brand to enter the market is
likely to position itself in the centre to appeal the most people. A brand in the centre
minimizes the total customer dissatisfaction.
3. Clustered Preferences: The market reveals distinct preference clusters - natural market
segments. The first firm to enter the market has three options-
 Position in the center to appeal to all groups. It will develop only one brand,
competitors would enter and introduce brands in the other segments
 Position in the largest market segment - concentrated marketing o Develop
several products positioned in a different segment.

Market segmentation procedure

3-step procedure
1. Service stage: the researcher conducts exploratory interviews and focused groups to
gain insights into consumer motivations attitudes and behaviours. Then the researcher
prepares a questionnaire and collects data on attributes and their importance ratings,
brand awareness and brand ratings, product usage patterns, attitudes towards product
category and demographics, psychographics and media graphics of the respondents.
2. Analysis Stage: under this he applies factor analysis to the data to remove highly
correlated variables then apply cluster analysis to create specific number of
maximally different segments
3. Profiling stage: each cluster is profiled according to its distinguishing attitudes,
behaviour, demographics, psychographics and media graphics and media patterns.
Each segment is given a name depending on its dominant characteristics. Market
segmentation should be redone periodically because they change.

Segmenting consumer and business markets

Methods of Segmentation
1. Geographic segmentation:
 it calls for dividing the market into different geographic units such as nations, states,
regions, counties, and cities.
 The company can operate in one or few geographic areas or operate in all but pay
attention to local variations.

2. Demographic segmentation:
 Age and life cycle stage: consumer wants and abilities change with age. Gerber
realized this and began expanding beyond its baby food lines. Nevertheless age and
life cycle can be tricky variables.
 Gender: gender segmentation has been applied to clothing hairstyling cosmetics and
magazines. Other marketers also noticed opportunity for gender segmentation for eg
the cigarette market where brands like Virginia slims was launched to reinforce
female image.
 Income: it is a long standing practice in such product and service categories e.g.
Automobile, clothing and cosmetic and travel.
 Generation:
o Baby boomers born between 1946-64
o Generation X born between 1964-84 - more sophisticated in evaluating products, turn
off by advertising that has too much hype or takes itself too seriously
o Cohort segmentation: cohorts are groups of people who share experiences of major
external events that have deeply affected their attitudes and preferences. Members of
cohort groups feel the bonding with each other for having shared the same major
experiences. Advertising to a cohort group should be done using icons and images
prominent in their experiences.
 Social Class: has a strong influence on preference in cars clothing home furnishing,
leisure activities reading habits and retailers. The taste of social class can change with
years.

3. Psychographic segmentation: Buyers are divided into different groups based on

personality and values. People within the same demographic group can exhibit very
different psychographic profiles.
 Lifestyle: people generally exhibit more lifestyle than are suggested by social classes
generally the goods they consume express their lifestyle such as cosmetics, alcoholic
beverages, furniture etc.
 Personality: Marketers can use personality variables to segment markets. They endow
their products with brand personalities that correspond to consumer personalities.
 Values: some marketers segment by core values, the belief systems that underlie
consumer attitudes and behaviours. Core values go much deeper than behaviour or
attitude and determine at a basic level people's choices and desires over long term.
Marketers who segment by values believe that by appealing to people's inner selves it
is possible to influence their outer selves- their purchase behaviour.

4. Behavioral Segmentation-Buyers are divided into groups on the basis of their

knowledge of, attitude toward, use of, or response to a product.
 Ocassions: Distinguish buyers according to the occasions they develop a need,
purchase a product, or use a product
 Benefits: Buyers classified on the basis of the benefits they seek
 User status: Market segmentation into non-users, ex-users, potential users, first time
users and regular users of a product.
  Usage rate: Market segmented into light, medium and heavy product users.
 Loyal status: Consumers can be divided into 4 groups according to the brand loyalty
status:
o Hard-core loyals - one brand all the time
o Split loyals - loyal to 2 or 3 brands
o Shifting loyals - consumers who shift from one brand to another Switchers -
no loyalty to any brand
o Brand loyal markets - high % of hard-core brand loyal buyers

5. Buyer readiness stage: A market consists of people in different stages if readiness to

buy a product. Stages of readiness:
 Aware of product
 Informed about product
 Interested in product
 Desirous of buying the product
 Intention to buy product

6. Attitude: Five attitude groups can be found in the market:

 Enthusiastic
 Positive
 Indifferent
 Negative
 Hostile

Multi-Attribute segmentation (geoclustering)

Marketers no longer talk about the average consumer or even limit their analysis to only a
few market segments. Increasing trend towards combining several variables in an effort to
identify smaller, better defined target groups.
Answers to the following questions for multi-attribute segmentation-
 Which clusters contain our most valuable customers?
 How deeply have we already penetrated these segments?
 Whichh markets, performance sites and promotional media provide us the best
opportunities for growth?

Basis for segmenting business markets

1. Demographic
 Industry: which industries to serve
 Company size: what size companies to serve
 Location: what geographical areas to serve

2. Operating variables
 Technology: what customer technologies should we focus on
 User or non-user status: should we serve heavy users, medium users, light users, or
non-users?
 Customer capabilities: should we serve customers needing many or few services

3. Purchasing approaches
 Purchasing-function organisation: should we serve companies with centralized or
decentralized
 Power structure: should we serve companies that are engineering dominated
 Nature of existing relationships: should we serve companies with which we have a
strong relationships or simply go after the most desirable companies
 General purchase policies: Should we serve companies that prefer leasing or service
contracts or systems purchases or bids?
 Purchasing criteria: Should we serve companies that are seeking quality or service or
price?

4. Situational factors
 Urgency
 Specific application: focus on specific application rather than all applications
 Size or order

5. Personal characteristics
 Buyer seller similarity
 Attitudes towards risk
 Loyalty