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Market Segmentation: Understanding Customer Needs and Wants

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  1. CHAPTER 5 MARKET SEGMENTATION

  2. Market Segmentation • Market is where the product sold and profit is generated, and consists of all the potential group of customers sharing needs and wants. • To understand the market, marketers must understand the customers, and marketing research is an effective tool in this process. • Channels play important role in segmentation decision.

  3. Market Boundaries Market can be defined by the following factors: • Product and service category:actual product • Geography: location of seller • Physical customer groupings: suppliers in industrial market • Intangibles: price as a differentiation factor

  4. Market Boundaries (Cont.) • Customers: Current buyers as well as those who have switched. • Users: End users rather than purchasers • Prospects: potential customers. • Penetration: percentage of users. • Brand share: sales of a brand in a particular market • The pareto, 80:20 effect

  5. Market Segmentation • By use: 1. occasional, 2. benefits, 3.loyalty 4.frequency • By price and quality • By consumer characteristics: 1. geographic, 2.demographic, 3.socio-economic(income, social class), 4. life styles(culture). • By product benefit

  6. Market Segmentation (Cont.) • Segmentation across national boundaries- set of socio-economic, political and cultural criteria. • Market segmentation is dividing market into groups of similar characteristics, and selecting the most appropriate group(s) to serve

  7. A Model of Market Segmentation Process • Delineate firm’s current situation • opportunities, resources, objectives and constraints • Determine customers needs and wants • Marketing research is used for this purpose • Divide market on relevant dimensions • A prior or post hoc segmentation • segmentation decision before and after market research • Relevance of segmentation Dimensions • managers’ expertise and experience play an important role • All variables should be included in segmentation

  8. A Model of Market Segmentation Process (cont.) • Basis for segmentation • Benefit sought • attempts to measure consumers’ value system. It is a market-oriented approach that seeks to identify consumer needs and wants to develop product and satisfy the desired benefits. • Psychographic segmentation • VALS2 model: values and life styles. Vertical dimensions represent resources such as income, education, health and intelligence, the horizontal dimensions are self-orientations such as principle, action and self orientations. They represent 9 to 17 percent of the US adult population.

  9. Basis for segmentation (cont.) • Psychographic segmentation (cont.) • VALS2: (1)Principle oriented consumer-guided by their views of how the world is, or should be (2)Status oriented consumers-guided by the action and opinion of others (3)Action oriented consumers-guided by a desire for social or physical activity, variety and risk taking

  10. VALS2 Model

  11. A Model of Market Segmentation (cont.) • Develop product positioning • Decide segmentation strategy • Measurable • Meaningful-large enough • Marketable-reachable • Design marketing mix strategy

  12. Segmentation Methods • Background investigation: hypotheses about which segments are viable • Qualitative research: focus group • Quantitative research: • Analysis: discriminant analysis, factor analysis, cluster analysis • Segmentation/positioning: positioning map.

  13. Product/Service Positioning • Homogeneous • Diffuse • Clustered • Positioning/Perceptual maps • graphic indication of firm’s product against to competitors. • It shows: • competitors which are closer to your product • positioning gap • a sound base for re-positioning.

  14. Positioning Process • Market segmentation • Target marketing • Product positioning positioning segmentation targeting

  15. Possible Approaches to Segmentation • Single segment • concentration and specialization(niche market) • Multiple segment • one or more product, two or more segments. • Cross segment • same product for different segment • Full coverage • undifferentiated(coca cola) • differentiated(IBM).

  16. Branding and Policies • Product differentiation • Effect consumers’ perception • Brand monopoly • trademarks, registration • Branding policies • company name • family branding • individual branding

  17. Branding and Policies (Cont.) • Brand extension • a strong brand name can be used for a new product(Diet Coke) • Multibrand • one company, several brands. • Co-branding • two different brands from two different companies may be team up. • Private and generic brand

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