CHAPTER THREE

Identifying Market Segments and

Targets
 r 3
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Identifying Market
Segments and Targets
Discussion Questions
1. What is 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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• Companies cannot connect with all customers in large,
broad, or diverse markets.
• But they can divide such markets into groups of consumers
or segments with distinct needs and wants.
• A company then needs to identify which market segments it
can serve effectively.
• This decision requires a keen understanding of consumer
behavior and careful strategic thinking.
• To develop the best marketing plans, managers need to
understand what makes each segment unique and different.
• Identifying and satisfying the right market segments is often
the key to marketing success.

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Market Segmentation
• Market segmentation is the process of dividing
the total, heterogeneous market for a product
in to distinct and meaningful groups of buyers,
each of which tends to be homogenous in all
significant aspects.
• Management then selects one or more of
these market groups or segments as the
organization's target market.

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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).

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3.1 Bases for Segmenting Consumers

Geographic

Demographic

Psychographic Behavioral
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Classification of Four General Targeting
Characteristics

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 Bases of Market segmentation
• A market segment consists of a group of customers
who share a similar set of needs and wants. Major
segmentation variables are:
• Geographic,
• Demographic
• Psychographic
• Behavioral

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3.2 Geographic Segmentation

Geoclustering

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• Geographic segmentation divides the market by nations,
states, regions, counties, cities, or neighborhoods.
• Nielsen Claritas developed PRIZM NE, a geo-clustering
approach that combines geographic data with demographic
data that yields richer descriptions of consumers and
neighborhoods.
• The groupings take into consideration 39 factors from 5
broad categories: (1) education and affluence, (2) family life
cycle, (3) urbanization, (4) race and ethnicity, and (5)
mobility.
• Inhabitants in a cluster tend to lead similar lives, drive
similar cars, have similar jobs, and read similar magazines.

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3.3 Demographic Segmentation

Age and Life-cycle Stage

Life Stage
Gender
Income
Generation
Race and Culture

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• Demographic segmentation divides the market on
variables such as age, family size, family life cycle,
gender, income, occupation, education, religion,
race, generation, nationality, and social class.
• Demographic variables are often associated with
consumer needs and wants and are easy to
measure.

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Age and Life-Cycle Stage

Wants and abilities change

with age. Companies such as
Crest and Colgate offer
products that target kids,
adults and older consumers.

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 Life Stage
Life stage defines a person’s major
concern, such as going through a divorce,
going into a second marriage, taking care
of an older parent, deciding to cohabit
with another person, deciding to buy a
new home, and so on. These life stages
present opportunities for marketers who
can help people cope with their major
concerns..

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

Men and women have different attitudes and behaviors

due in part to genetics and socialization. Women are
more communal-minded, men more self-expressive and
goal directed. A recent study found that men need to
be invited to touch a product, whereas women are
more likely to pick up without prompting.

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Income

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• Income segmentation is used in categories such as
clothing, travel, financial services, and automobiles.
Income does not always predict the best customers –
• blue collar workers were among the first adopters of
color TVs as it offered entertainment at a lower cost
than going to movies or restaurants.

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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

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• Each generation or cohort is profoundly influenced
by the times in which it grows up—the music,
movies, politics, and defining events of that period.
• Members share the same major cultural, political,
and economic experiences and have similar outlooks
and values.
• Marketers often advertise to a cohort by using the
icons and images prominent in its experiences.
• They also try to develop products and services that
uniquely meet the particular interests or needs of a
generational target.

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Race and Culture

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• Multicultural marketing is an approach recognizing that
different ethnic and cultural segments have sufficiently
different needs and wants to require targeted marketing
activities, and that a mass market approach is not refined
enough for the diversity of the marketplace.
• Multicultural marketing can result in different marketing
messages, media, channels, and so on.
• Hispanic Americans are the largest minority group in
America and have an annual purchasing power estimated to
exceed $1 trillion.
• By 2020, 17% of Americans are projected to be of Hispanic
origin.
• African Americans have had a significant economic, social,
and cultural impact on the U.S. life.

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• African Americans are the most fashion-conscious
of all racial and ethnic groups, but strongly
motivated by quality and selection.
• Children have a strong influence on product
selection.
• The Asian American market has been called the
“invisible market” because, compared to Hispanic
Americans and African Americans, it has
traditionally received a relatively small portion of
multicultural marketing dollars.

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3.4 Psychographic Segmentation

• Personality
traits
• Lifestyle
• Values

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 Psychographics
• Psychographics is the science of using psychology
and demographics to better understand consumers.
• People within the same demographic group can
exhibit very different psychographic profiles.

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 .1
3
u r e VALS Segmentation
F ig
System

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 VALS Psychographic Segments

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 VALS Psychographic Segments

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3.5 Behavioral Segmentation
Usage occasions
User status

Usage rate
Buyer-readiness
Loyalty status
Decision Roles User and Usage

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• 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.
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• 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.

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Cont...
Needs and Benefits Loyalty Status-marketers
• Enthusiast usually envision four
• Image Seekers groups based on brand
• Savvy Shoppers loyalty status:
1. Hard-core loyals
• Traditionalist
2. Split loyals
• Satisfied Sippers 3. Shifting loyals
• Overwhelmed 4. Switchers

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 .2
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u r e Brand Funnel
F ig

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• User and Usage

• 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

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 1.Split loyals—Consumers who are loyal to two or three brands
2.Shifting loyals—Consumers who shift loyalty from one brand
to another
3.Switchers—Consumers who show no loyalty to any brand51
• Figure 3.2 displays a funnel for two hypothetical brands.
Compared to Brand B, Brand A performs poorly at converting
one-time users to more recent users (only 46 percent convert for
Brand A compared to 61 percent for Brand B).
• Depending on the reasons consumers didn’t use again, a
marketing campaign could introduce more relevant products,
find more accessible retail outlets, or dispel rumors or incorrect
beliefs consumers hold.

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Consumer Attitudes

Enthusiastic Positive Indifferent Negative Hostile

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 Consumer Attitudes
• Five consumer attitudes about products are: enthusiastic,
positive, indifferent, negative, and hostile.
• Door-to-door workers in a political campaign use attitude to
determine how much time to spend with each voter.
• They thank enthusiastic voters and remind them to vote,
reinforce those who are positively disposed, try to win the
votes of indifferent voters, and spend no time trying to
change the attitudes of negative and hostile voters.

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 .3
3
u r e Behavioral Segmentation
F ig

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Demographic Segments by Age
Group
• Preschoolers (5 years or younger)
• Elementary-school-age children (6-11 years)
• Tweens (8-12 years)
• Teenagers (13-19 years)
• Millennial Generation or Generation Y
• Highly conformist, narcissistic, and fickle consumers
• Young adults (20-34 years)
• Generation X (Baby Busters)
• Yup & Comers, Bystanders, Playboys, and Drifters

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3.6 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

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• Table 3.5 lists major questions that business marketers should ask in
determining which segments and customers to serve.

• A rubber-tire company can sell tires to manufacturers of automobiles,

trucks, farm tractors, forklift trucks, or aircraft.
• Within a chosen target industry, it can further segment by company
size and set up separate operations for selling to large and small
customers.
• Business marketers generally identify segments through a sequential
process.
• Consider an aluminum company: The company first undertook
macro-segmentation.
• It looked at which end-use market to serve: automobile, residential, or
beverage containers.

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• It chose the residential market, and it needed to determine
the most attractive product application: semi-finished
material, building components, or aluminum mobile homes.
• Deciding to focus on building components, it considered the
best customer size and chose large customers.
• The second stage consisted of micro-segmentation.
• The company distinguished among customers buying on
price, service, or quality.
• Because it had a high-service profile, the firm decided to
concentrate on the service-motivated segment of the market.

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Effective Segmentation Criteria

Measurable
Substantial
Accessible
Differentiable
Actionable

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 Effective Segmentation Criteria
• Measurable. The size, purchasing power, and characteristics of the
segments can be measured.
• Substantial. The segments are large and profitable enough to serve. A
segment should be the largest possible homogeneous group worth
going after with a tailored marketing program.
• Accessible. The segments can be effectively reached and served.
• Differentiable. The segments are conceptually distinguishable and
respond differently to different marketing-mix elements and
programs. If married and unmarried women respond similarly to a
sale on perfume, they do not constitute separate segments.
• Actionable. Effective programs can be formulated for attracting and
serving the segments.

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 Cont..Effective Segmentation Criteria

Porter’s Five Force

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• 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.

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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.

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3.7 Market Targeting and Positioning
• Targeting: is the process of assessing the
relative worth of different market segments
and selecting one or more segments in which
to compete- these become the target segment.
• Positioning: is the identification of a particular
appeal that the firm can make to customers in
each target segment, which is designed to
convenience customers to choose that firm
over its rivals.
• Target market: a group of customers at which
the seller directed the marketing programs.
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Evaluating and Selecting Segments

Multiple segment
specialization

Full market coverage

Single-segment
concentration Individual marketing
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• In evaluating different market segments, the firm
must look at two factors: the segment’s overall
attractiveness and the company’s objectives and
resources.
• Figure 8.4 shows that marketers have a range or
continuum of possible levels of segmentation that
can guide their target market decisions.

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Levels of Segmentation
• Full Market Coverage
o Undifferentiated or mass marketing
o Differentiated marketing
• Multiple Segment Specialization
o Product Specialization
o Market Specialization
• Single-segment Concentration
o Niche (Sub Segmenting)
• Individual Marketing: One-to-one Marketing

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 .4
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F ig

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• Full market coverage: a firm attempts to serve all customer groups
with all the products they might need.

• Undifferentiated or mass marketing, the firm ignores segment

differences and goes after the whole market with one offer.
• Differentiated marketing, the firm sells different products to all the
different segment of the market.
• Multiple Segment Specialization: With selective specialization, a
firm selects a subset of all the possible segments, each objectively
attractive and appropriate. A supersegment is a set of segments
sharing some exploitable similarity. A firm can also attempt to
achieve some synergy with product or market specialization.
• product specialization, the firm sells a certain product to several
different market segments.

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• market specialization, the firm concentrates on serving many
needs of a particular customer group, such as by selling an
assortment of products only to university laboratories.
• Single-segment concentration: the firm markets to only
one particular segment. Porsche concentrates on the sports
car market and Volkswagen on the small-car market. A niche
is a more narrowly defined customer group seeking a
distinctive mix of benefits within a segment.
• Individual Marketing: “segments of one,” “customized
marketing,” or “one-to-one marketing.”
• Customerization: combines operationally driven mass
customization with customized marketing in a way that
empowers consumers to design the product and service
offering of their choice.
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ETHICAL CHOICE OF MARKET TARGETS
• Marketers must target carefully to avoid
consumer backlash. Some consumers resist
being labelled.
• Singles may reject single-serve food packaging
because they don’ t want to be reminded they
are eating alone.
• Elderly consumers who don‘t feel their age,
may not appreciate products that label them
‘old’.

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Discussion
• Is Mass Marketing Dead or alive?
With marketers increasingly adopting more and
more refined market segmentation schemes
fueled by the Internet and other
customization efforts some claim mass
marketing is dead. Others counter there will
always be room for large brands employing
marketing programs to
target the mass market.

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