Market Segmentation Fundamentals

Market Segmentation

• Market segmentation is the identification of individuals or organizations with similar characteristics that impact marketing strategy.
• Market segmentation divides a diverse market into smaller submarkets with common features.
• The aim is to identify potential customers with similar needs.
• Segmentation provides a commercially viable way to serve customer needs and is fundamental to strategic marketing.

Benefits of Market Segmentation

• Enhanced opportunities for growth
• Enhanced profitability
• Better matching of customer needs
• More effective targeting of communications
• Improved customer retention
• Opportunities for segment dominance

Segmenting Consumer Markets

• Segmentation considers various factors:
  • Behavioral: Benefits sought, purchase occasion, purchase behavior, usage, media behavior.
  • Psychographic: Lifestyle, personality, profile.
  • Profile: Demographic (age, gender, life cycle, social class, terminal education age, income), Geographic (socio-economic group, geographic location).

Key Considerations in Market Segmentation

• Consumers can transition between segments over time.
• Behavioral segmentation is often the most relevant basis for identifying behavioral differences influencing marketing decisions.
• Psychographic segmentation is used when researchers believe purchasing behavior is tied to consumer personality or lifestyle.
• Profiles describe the characteristics of segments, such as socio-economic group and geographic location.

Consumer Segmentation Methods

• Variables: Benefits sought, purchase occasion, purchase behavior, usage, media behavior, lifestyle, personality, profile, age, gender, life cycle, social class, terminal education age, income, geographic, geodemographic.
• Examples: Convenience, status, performance for benefits sought; self-buy or gift, brand loyalty for purchase behavior; heavy or light use.

Five Criteria for Effective Segmentation

• Effective: Segments consist of consumers with homogeneous needs.
• Measurable: Segments are identifiable and their characteristics understandable.
• Accessible: Firms are able to identify effective marketing programs for the segment.
• Actionable: Firms have resources to implement marketing programs within the segment.
• Profitable: Segments are large enough to be profitable.

Target Marketing

• Target marketing is choosing specific segments to be served.
• It's a critical element of marketing strategy.
• Organizations evaluate segments based on the five criteria for successful segmentation.

Target Marketing Strategies

• Undifferentiated marketing: A single marketing mix for the entire market.
• Differentiated marketing: Multiple marketing mixes for different segments (e.g., cars, fashion).
• Focused marketing: A single marketing mix for a niche market.
• Customized marketing: Discrete marketing mixes tailored to individual customers (e.g., advertising agencies).

Target Market Examples

• Ferrari's hybrid car, LeFerrari, targeted existing Ferrari owners.

Positioning

• Positioning is designing a company's offering to occupy a unique and meaningful place in consumers' minds.
• Market segmentation is an initial step to understand different needs in a market.
• Market targeting is selecting which segment (or segments) a firm will serve.
• Effective positioning links offerings to the solutions consumers seek.

Positioning Examples

• Coca-Cola uses similar drinks to position them with different attributes (e.g., Diet Coke vs. Coke Zero).

Developing a Positioning Strategy

• Considerations:
  • Customers: Attributes important to consumers.
  • Competitors: A unique differential advantage.
  • Company: Unique, sustainable attributes.

Keys to Successful Positioning

• Clarity: The idea must be clear in terms of the target market and differential advantage.
• Consistency: Needed to break through communication noise.
• Credibility: Differential advantage must be credible to target consumers.
• Competitiveness: A competitive edge offering something consumers seek.

The Perceptual Map

• Shows the position of a brand in the marketplace.
• Steps to create a perceptual map:
  • Identify competing brands.
  • Identify attributes consumers use when comparing brands.
  • Conduct quantitative research—consumers rate brands on attributes.
  • Plot brands on a two-dimensional map.

Repositioning

• Changing consumer tastes or poor sales performance may necessitate repositioning.
• Repositioning involves changing:
  • Target markets.
  • Differential advantage.
  • Or both.

Alternative Repositioning Strategies

• Same or different product, and same or different target market.
  • Image repositioning: Product remains the same but image is altered.

Explore the concepts and benefits of market segmentation in this quiz. Understand how identifying distinct consumer groups enhances marketing strategies and customer targeting. Dive into behavioral, psychographic, and demographic factors that influence segmentation.