UNIT 2
Market Segmentation
Any market will consist of various types of customers, products and needs. The
marketer has to determine which market segments, offer the best opportunity for
achieving company objectives. Consumers can be grouped and served in various
ways based on geographic, demographic, psychographic and behavioral factors.
The process of dividing a heterogeneous market into distinct groups of buyers who
have different needs, characteristics or behaviors, and who might require separate
products or marketing programmes, is called market segmentation. A market
segment will consist of homogeneous consumers who might respond in a similar
manner to a given set of marketing efforts.
Target Marketing
After defining the market segments, a company decides to enter one or many
segments in each market. Target marketing is the process of evaluating each
market segment’s attractiveness and selecting one or more segments to enter. A
company should target segments in which it can generate the greatest customer
value profitably and sustain it over time. A company with limited resources might
decide to serve only one or a few special segments or‘market niches’. On the other
hand, a big company may decide to offer a complete range of products to serve all
market segments.
Market Positioning
Once the decision on which market segments to enter is made, a company has to
decide what position it wants to occupy in those selected target
[Link] of a product is the place occupied by it in the consumer’s
mind relative to the competitor’s products. Marketing people’s objective is to
create unique market positions for their products which make them stand out
among other similar products. If such differentiated position is not developed,
consumers may not have any justification to produce the product. “Market
positioning is arranging for a product to occupy a clear, distinctive, and desirable
place relative to competing products in the minds of target consumers”.While
positioning a product, the company has to first identify possible competitive
advantages upon which to build the position. To gain competitive advantage, the
company must offer greater value to target customers. Positioning becomes a
reality with actual differentiation of a company’s marketing offer so that it gives
more value compared to the competitor’s offer.
Levels of Market Segmentation
• Based on Philip Kotler’s framework.
• Companies can choose different levels to reach their target audience.
• Ranges from mass marketing to one-to-one marketing.
(i) Undifferentiated marketing (or mass marketing)
(ii)Differentiated marketing (or segmented marketing)
(iii) Niche Marketing Concentrated marketing)
(iv Micromarketing (or local and individual marketing)
(i) Undifferentiated Marketing
The company decides to ignore market segment differences and targets the whole
market with one offer. It focuses on what is common in the needs of consumers
and designs a product and marketing programme that will appeal to the largest
number of customers. The firm relies on mass distribution and mass advertising. It
aims to endow the product with a superior image in people's minds.
Eg Coca-Cola (initially)
(ii) Differentiated Marketing
Here the company decides to operate in several market segments and designs
separate offers for each. By offering product and marketing variations to segments,
companies hope for higher sales and a stronger position within each market
segment. Differentiated marketing creates more total sales than mass marketing,
but at increased costs.
(iii) Niche Marketing
Niche marketing involves marketing in a very small but profitable market segment.
A niche is a very narrowly defined customer group desiring a distinctive mix of
benefits Marketers generally identity niches by dividing a segment into sub
segments
An attractive niche will have the following characteristics:
(a) The niche has adequate size, profitability and growth potential
(b) They are prepared to pay a premium price to the company that best satisfies
their needs
(c) The niche is not likely to attract other competitors
(d) The customers in the niche have a distinctive set of needs
(e) The niche marketer gains some economies of scale through specialization
(IV) Micro Marketing
Micro marketing is the practice of tailoring products and marketing programmes to
suit the tastes of specific individuals and locations. It includes local marketing and
individual
marketing Local marketing involves tailoring brands and promotions to the needs
and wants of local customer groups-cities, neighbourhoods, and even specific
stores. Individual marketing involves tailoring products and marketing
programmes to the needs and preferences of individual customers. This process is
also known as one-to-one marketing, and customized Marketing.
BASIS FOR SEGMENTATION
The marketer will have to try different segmentation bases or segmentation
variables, alone or in combination, to find the best way to view the market
structure.
Segmenting Consumer Markets
The major bases or variables used to segment consumer markets are the following
1. Geographic segmentation: - Nation, Regions, States, Cities, Neighborhoods.
2. Demographic segmentation: - Age, Gender, family size, family life cycle,
Income, occupation and Education.
3. Psychographic segmentation: - lifestyle, Personality Characteristics and
Altitude
4. Behavioural segmentation: - Knowledge, Attitude User or Responses.
Difference between Segmentation, Targeting & Positioning
Segmentation:
• Identifying and dividing consumers into groups.
• Example: Pepsi segments market by age groups.
• Targeting:
• Choosing which segment to serve.
• Example: Nike targets fitness enthusiasts & athletes.
• Positioning:
• Creating a distinct image in consumer minds.
• Example: Volvo = Safety; Apple = Premium Innovation.
VALS2 Segmentation Profile
Drawing on Maslow's need hierarchy, the concept of social character, and
psychographics, researchers at SRI consulting, U.S. developed a generalized
segmentation scheme of the American population known as the Values and
Lifestyles System (VALS) in 1970. This system is based on psychographic
measurements. (Psychographics is the science of using psychology
and demographics to better understand consumers). The original system was
designed to explain the dynamics of societal change and was quickly adapted as a
marketing tool.
SRI Consulting revisited the VALS system in 1989 to focus more explicitly on
explaining consumer purchaser behavior. The current VALS typology classifies
consumers into eight
distinctive sub-groups or segments based on consumer responses to 35 attitudinal
and 4 demographic questions
The major tendencies of the four groups with high resources are as follows:
1. Fulfilled: Mature, satisfied, comfortable, reflective, favour durability,
functionality and value in products.
2. Actualizes: Successful, sophisticated, active "take- charge" people. Purchases
often reflect cultivated tastes for relatively upscale, niche-oriented products.
3. Experiencers: Young, vital, enthusiastic, impulsive and rebellious. Spend a
comparatively income on clothing, fast food, music, movies and video
4. Achievers. Successful career and work-oriented, Favour established, prestige
products that demonstrated success to their peers
The major tendencies of the four groups with lower resources are as below:
1. Makers: Practical self-sufficient, traditional, family oriented. Favour only
products with a practical or functional purpose such as tools, utility vehicles, etc
2. Believers: Conservative, conventional and traditional Favour familiar products
and established brands
3. Strivers: Uncertain, insecure, approval seeking, resource constrained. Favour
stylish products that emulate purchase of those with greater material wealth.
4. Strugglers: Elderly, resigned, passive, concerned, resource constrained. Cautious
consumers who are loyal to favorite brands
In terms of consumer characteristics, the eight VALS segments differ in some
important
ways. For instance. Believers tend to buy local or own country made products and
are slow to alter their consumption-related habits. Actualisers are drawn to top-of-
the-line and new products, especially innovative technologies. Therefore, it is not
surprising that marketers of intelligent in-vehicle technologies (e.g., global
positioning devices) must first target Actualisers, because they are early adopters
of new products.
Criteria for Successful Segmentation
1. Measurability The differences in the consumers' preferences for a product must
be identifiable. These should also be related to measurable variables, such as age,
gender, lifestyle, income levels, occupation, product usage, etc
2. Heterogeneity. There should be clear or visible differences in consumer
preferences for a product in the market. If all consumers in the market use the
product in the same way and wantthe same features or benefits from the product,
there may be no added value from dividing the market into segments for special
targeting. But there exist clear differences in consumer preference or heterogeneity
of demand for many products.
For example, consumers of cars have varied preferences like small cars, sports
utility vehicles, etc., which provide heterogeneity of demand. Hence, Maruti
Udyog provides Maruti 800, Zen, Swift and DZIRE for different segments.
3. Substantiality. The proposed market segment must have enough size and
purchasing power to be profitable. It should also be a growing market segment
ensuring continuous profitability and sustainability. The benefits of modifications
done in the marketing mix must exceed the costs incurred from the changes. A few
years back, the sports utility vehicle (SUV) market in India, a segment within the
automobile market, was not substantial. But today, it has becomea substantial
segment.
4. Accessibility. The final criterion is that the proposed market segment must be
readily accessible and reachable with targeted programmes.
5. Action ability. Marketing companies must be able to respond to different
preferences with an appropriate and profitable marketing mix as an action plan. If
the earlier example of the people requiring large size shoes is taken, although a
marketing mix could be developed directed towards consumers with larger than
average feet, the cost of marketing products only to those consumers may far
outweigh the benefits from the revenue generated