Marketing Management

Part : 03
Connecting
with Chapter-08
Customers

Identifying Market Segments

and Targets

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MARKETING MANAGEMENT
12th edition

8
Identifying Market
Segments and
Targets

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Kotler Keller
 Chapter Questions
 What are the different levels of market segmentation?
 How can a company divide a market into segments?
 How should a company choose the most attractive target
markets?
 What are the requirements for effective segmentation?

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 Market Segmentation
 Market Segmentation : Dividing a market into distinct groups
of buyers who have distinct needs, characteristics or behavior
and who might require separate products.

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 Market Segmentation

Mature consumers
are a rapidly
growing market

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 Levels of Market Segmentation
A) Mass Marketing : The starting point for discussing
segmentation is Mass Marketing in which a seller engages in
mass production, mass distribution and mass promotion of
one product for all buyers.
 The argument for mass marketing is that it creates the
largest potential market which leads to the lowest costs and
lower prices.
 The critics say the market is increasingly splintering, hence
mass marketing is dying.

B) Micro-Marketing : Most companies are turning to Micro-

Marketing at one of four levels : segments, niches, local
areas, and individuals.

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 Levels of Market Segmentation

Ford’s Model T Followed

a Mass Market Approach

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 Four Levels of Micromarketing

Segment Niche
Marketing Marketing

Local Individual
Marketing Marketing

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 Levels of Micromarketing

a. Segment Marketing : Selecting a particular segment to target.

A market segment consists of a group of consumers who
share a similar set of needs and wants.

b. Niche Marketing : A niche is a more narrowly defined

customer group seeking a distinctive mix of benefits.
Marketers usually identify niches by dividing a segment into
sub-segments.

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 Levels of Micromarketing
 An attractive niche is characterized as follows :

i. The customers in the niche will pay premium to the firm that
best satisfies their needs.

ii. The niche is not likely to attract other competitors.

iii. The nicher gains certain economies through specialization;

the niche has size, profit and growth potential.

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 Niche Marketers: Tom’s

Niche Marketer Tom’s of Maine

makes environmentally friendly
products and participates in a
number of environmental action
programs, like the ‘Tom’s of
Maine National Rivers
Awareness Program’.

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 Levels of Micromarketing
c. Local Marketing : Marketing programs tailored to the needs
and wants of local customer groups, such as trading areas,
neighbourhoods, individual stores. Local marketing reflects a
growing trend called grassroots marketing in which marketing
activities concentrate on getting as close and personally
relevant to individual customers as possible.

d. Customerization : The ultimate level of segmentation leads to

“segments of one”, “customized marketing”, or “one-to-one
marketing”. A company is customerized when it is able to
respond to individual customers by customizing its products,
services and messages on one-to-one basis.
Customization is certainly not for every company. It may be
very difficult to implement for complex products such a
automobiles etc.
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 Segmenting Consumer Markets

 Consumer Markets can be segmented on the basis of

following variables.

A. Geographic
B. Demographic
C. Psychographic
D. Behavioural Considerations

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 Segmenting Consumer Markets

Geographic

Demographic

Psychographic

Behavioral

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 Major Segmentation Variables
a. Geographic Segmentation

a. Geographic Segmentation : Dividing the market into different

geographical units such as nations, states, cities etc.

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 Major Segmentation Variables
b. Demographic Segmentation

b. Demographic Segmentation : Dividing the market on the basis of

variables such as age, family life-cycle, gender, income,
occupation, education, religion, generation, nationality and social
class) (Age and Life-Cycle Stage, Gender, Income, Generation
(Cohorts, Baby-Boomers, Generation X, Generation Y etc.),
Social Class Segmentations).

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 Major Segmentation Variables
c. Psychographic Segmentation

c. Psychographic Segmentation (Psychographics is the science of

using psychology and demographics to better understand
consumers) (It is dividing buyers into groups on the basis of
psychological/personality traits) (VALS Segmentation System-See
Next Slide).

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 Toyota Scion targets Gen Y consumers

Scion is an attempt
by Toyota to attract
the Gen Y audience

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 Major Segmentation Variables
c. Psychographic Segmentation
VALS Segmentation System
 VALS Segmentation System (One of the most popular
commercially available classification systems based on
psychographic measurements is SRI Consulting Business
Intelligence’s VALS (Values, Attitudes and Lifestyles).
 VALS system classifies US adults into eight primary groups
based on personality traits and key demographics. VALS
system is continually updated with new data through surveys.
 In VALS, major tendencies of the four groups with higher
resources are Innovators, Thinkers, Achievers, Experiencers.
 In VALS, major tendencies of the four groups with lower
resources are Believers, Strivers, Makers, Survivors.
 Psychographic segmentation schemes, like VALS, are often
customized by culture.
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 The VALS
Segmentation
System

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 Major Segmentation Variables
d. Behavioral Segmentation

d. Behavioural Segmentation (Dividing buyers on the basis of their

knowledge of, attitude toward, use of, or response to a product)
(Decision Roles (See Next Slide), Occasions, Benefits, User
Status, Usage Rate, Buyer Readiness Stage, Loyalty Status,
Attitude Segmentations (See Next Slide))

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 Major Segmentation Variables
d. Behavioral Segmentation

Decision Roles Behavioral Variables

 Occasions
 Initiator  Benefits
 Influencer  User Status
 Decider  Usage Rate
 Buyer  Buyer-Readiness
 User  Loyalty Status
 Attitude

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 Major Segmentation Variables
d. Behavioral Segmentation
Decision Roles
 People play five roles in a buying decision.

i. Initiator
ii. Influencer
iii. Decider
iv. Buyer
v. User

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 Major Segmentation Variables
d. Behavioral Segmentation
Behavioral Variables
 Many marketers believe that behavioural variables are the
best starting points for constructing market segments which
are as follows.
i. Occasions (Buyers can be distinguished according to
occasions when they develop a need, purchase a product, or
use a product)
ii. Benefits (Buyers can be classified according to benefits they
seek)
iii. User Status (Markets can be segmented into Non-Users, Ex-
Users, Potential Users, First-time Users, Regular Users of a
product)
iv. Usage Rate (Markets can be segmented into light, medium
and heavy product users)

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 Major Segmentation Variables
d. Behavioral Segmentation
Behavioral Variables
v. Buyer-Readiness Stage (Markets can be segmented keeping
in view buyer-readiness stages like aware, unaware,
interested etc.)

vi. Loyalty Status (Markets can be segmented into four groups :

Hard-Core Loyals, Split Loyals, Shifting Loyals, Switchers)

vii. Attitude (Five attitude groups can be found in a market :

Enthusiastic, Positive, Indifferent, Negative, and Hostile)

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 Segmenting for Business Markets
Demographic

Operating Variables

Purchasing Approaches

Situational Factors
Personal
Characteristics
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 Bases for Segmenting Business Markets
 Business markets can be segmented with some of the same
variables used in consumer market segmentation such as
geography, benefits sought, and usage rate, but business
markets also use other variables.
a. Demographic (Industry, Company Size, Location)
b. Operating Variables (Technology, User/Nonuser Status,
Customer Capabilities)
c. Purchasing Approaches (Purchasing-Function Organization,
Power Structure, Nature of existing relationships, Purchase
Policies, Purchasing Criteria)
d. Situational Factors (Urgency, Specific Application, Size of
Order)
e. Personal Characteristics (Buyer-Seller Similarity, Attitude
toward risk, Loyalty)

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 Segmenting Business Markets
 Marketing to Small Businesses (Small businesses are booming
and have become extremely important for business
marketers)
 Sequential Segmentation (Business marketers generally
identify segments through a sequential process. The company
first undertakes Macro-Segmentation, and then Micro-
Segmentation at the second stage).
 Example : An aluminium company first undertook Macro-
Segmentation in which it looked at end-use market , e.g.
residential market, then most attractive product application,
e.g. building components, then customer size, e.g. large
customers. The second stage consisted of Micro-
Segmentation like decisions on price, quality, service etc.

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 Market Targeting
 Once the firm has identified its market-segment opportunities, it
has to decide how many and which ones to target. Marketers
are increasingly combining several variables in an effort to
identify smaller, better-defined target groups.
 Effective Segmentation Criteria (To be useful, market segments
must rate favourably on five key criteria : Measurable,
Substantial, Accessible, Differentiable, Actionable)
 Evaluating and Selecting the Market Segments (In evaluating
different market segments, the firm must look at two factors :
The segment’s overall attractiveness and the company’s
objectives and resources. Some attractive segments may not
mesh with the company’s long-run objectives or company may
lack competencies or resources to offer superior value. After
evaluating different segments, the company can consider five
patterns of target market selection. (See Next Slide).

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 Effective Segmentation Criteria

Measurable

Substantial

Accessible

Differentiable

Actionable

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 Market Targeting
Selecting the Market Segments
 After evaluating different segments, the company can
consider five patterns of target market selection.

a. Single-Segment Concentration
b. Selective Specialization
c. Product Specialization
d. Market Specialization
e. Full Market Coverage

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 Market Targeting
Selecting the Market Segments
a. Single-Segment Concentration : Targeting only one segment.
Risks involved if competitors invade the segment, therefore
many companies prefer to operate in more than one
segment) (Companies can try to operate in Supersegments. A
Super-Segment is a set of segments sharing some exploitable
similarity)
b. Selective Specialization : A firm selects a number of
segments. This multisegment strategy has the advantage of
diversifying the firm’s risk.
c. Product Specialization : The firm makes a certain product that
it sells to several different market segments. The downside
risk is that the product may be replaced by an entirely new
technology.

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 Market Targeting
Selecting the Market Segments
d. Market Specialization : The firm concentrates on serving
many needs of a particular customer group. The downside
risk is that the customer group may suffer budget cuts or
shrink in size.
e. Full Market Coverage : The firm attempts to serve all
customer groups with all the products they might need. Only
very large firms can undertake a full market coverage
strategy. Large firms can cover a whole market in two broad
ways : Undifferentiated Marketing (when a firm ignores
segment differences and goes after the whole market with
one offer) or Differentiated Marketing (when a firm operates
in several market segments and designs different products for
each segment)

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 Market Targeting
Selecting the Market Segments

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 Market Targeting
Selecting the Market Segments

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 Market Targeting
Selecting the Market Segments

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 Market Targeting
Managing Multiple Segments

 The best way to manage multiple segments is to appoint

segment managers with sufficient authority and responsibility
for building the segment’s business.

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 Additional Considerations in Evaluating and
Selecting Segments
 Segment-By-Segment Invasion Plans
 A company would be wise to enter one segment at a time.
The competitors must not know to what segment(s) the firm
will move next.
 A company’s invasion plans can be thwarted when it
confronts blocked markets. The invader must then figure out
a way to break in. The problem of entering blocked markets
calls for a Mega-Marketing approach.
 Mega-Marketing : Mega-Marketing is the strategic
coordination of economic, psychological, political and public
relations skills, to gain the cooperation of a number of parties
in order to enter or operate in a given market. Pepsi used
Mega-Marketing to enter into Indian market.
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 Additional Considerations in Evaluating and
Selecting Segments
Segment-by-Segment Invasion Plan

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 Pepsi used Megamarketing in India

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 Activity

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