Market Segmentation

Market Segmentation

• Divides a broad consumer or organizational target market into sub-groups of consumers based on shared characteristics

Advantages of Marketing Segmentation

• Helps cut through market clutter
  • Improves success rate and proper budget use
• Improves focus on important customers
  • Allows for efficient allocation of resources
• Improves product development
  • Gives a better understanding of consumer product or service wants
• Improves brand loyalty
  • Customers who believe that a company’s products or services are suitable for them tend to stick with the respective brand

Methods of Segmentation

• Segmenting consumer markets include geographic, demographic, behavioral, and psychographic segmentation

Geographic Segmentation

• Considers the where in segmentation
• Includes cultural preferences, climate conditions, language and population

Demographic Segmentation

• Considers the who in segmentation
• Includes gender, income, age, education, ethnicity, and family structure

Behavioral Segmentation

• Considers the how in segmentation
• Includes occasion based and usage based purchasing behavior
  • Occasion: special, traditional, cultural events
  • Usage: convenience, everyday, emergency use

Psychographic Segmentation

• Considers the why in segmentation
• Focuses on interests, activities, opinions, social media habits, and personality to define consumer segments

VALS Framework

• Innovators: High income, high resource individuals motivated by achievement
• Thinkers: Resourceful individuals motivated by knowledge
• Believers: Individuals motivated by peer affirmation and possessing fewer resources than innovators/thinkers
• Achievers: High resource consumers who excel in workplace and family settings
• Strivers: Lower-resource consumers influenced by achievers
• Experiencers: High-resource consumers who want to experience "being different"
• Makers: Those wanting self-expression, like experiencers, but lack resources
• Survivors: Individuals with the least resources, unlikely to adopt innovative products

B2B Market Segmentation

• B2B segmentation has several advantages but also faces unique market challenges

Challenges in B2B Segmentation

• B2B markets are complex due to buying centers inside organizations that have varying influence
  • Makes it difficult to identify purchase decision makers
• Involves rational buyers which makes consumer buying decisions more deliberate, with a focus on price
  • Marketers must understand the drivers of these needs
• Products can be complex and tweaked to meet company specifications

Advantages in B2B Segmentation

• Improves marketing campaign performance
  • There is a noted 14.3% higher email open rate
• Improves customer loyalty and retention
  • Marketers are better able to meet customer objectives, this builds greater customer retention
• Assists in product development
  • Refines its products or services to meet needs of B2B customers, increasing general product appeal
• Improves profitability
  • Increases competitive edge, ability to properly price products and target new customers

B2B Market Segmentation Methods

• Firmographics: Industry, location, size, legal structure, performance
• Technographic: Hardware, software, tech ownership, usage
• Needs-based: Ability for customer to make purchases and express needs
• Values-based: Customer value to the enterprise
• Behavioral: Customer interaction metrics

International Market Segmentation

• International Markets have differences, challenges and advantages compared to domestic markets

Challenges in International Market Segmentation

• Cultural, economic, political, and diverse international market factors
• Segmentation is significantly larger than domestic markets

Advantages in International Market Segmentation

• Segmentation and research helps marketers understand international customer behavior
• Focus on similarities allows combining segments across countries or regions

Methods of International Market Segmentation

• Based on geography
  • Involves countries in a region, and internal infrastructure
• Based on political and legal factors
  • Focuses on government stability/receptiveness to foreign firms, monetary regulations, and level of bureaucracy
• Based on economic factors
  • Looks at the levels of economic development, income, and economic status
• Based on cultural factors
  • Considers language, religion, values, and attitudes

Geert Hofstede’s cultural dimensions

• Power distance index (PDI)
  • Focuses on the varying degrees of power inequality
• Individualism versus collectivism (IDV)
  • Considers priority of individual needs and goals versus collective ones
• Uncertainty avoidance (UAI)
  • Focuses on tolerance for risk/ambiguity
• Masculinity/femininity (MAS)
  • Focuses on how gender-specific roles are defined

Effective Market Segmentation

• ADAMS is a five point guide to evaluating market segments
• Includes concepts for determining access and effectiveness

ADAMS

• (A) Accessible: Can a market segment be effectively reached for promotional purposes?
• (D) Differentiable: Is the market segment internally homogenous, but externally heterogeneous?
• (A) Actionable: Is it possible to profitably deliver to this market segment?
• (M) Measurable: Can accurate estimates be made regarding the size of the market?
• (S) Substantial: Is the market segment large enough to be profitable?

Selecting Target Markets

• Requires creation of a customer profile, aka buyer persona, with important details such as
  • Name
  • Age
  • Interests
  • How they use media
  • Finance information
  • Brand affinities

Target Market Strategies

• Undifferentiated marketing relies on mass market appeal
• Differentiated marketing makes appeals via segmented marketing strategies
• Concentrated marketing relies on focusing on niche marketing
• Micromarketing uses customized marketing to appeal to specific groups

Product Positioning

• STP Model provides a guide to segmentation and positioning strategy
  • Step 1: Segment a broad market into individual sections
  • Step 2: Choose the segment/s with the highest potential value
  • Step 3: Target segment with marketing message

Approaches to Positioning

• Head-to-head: Product positioning that directly competes with market competitors
• Differentiation: Positioning that highlights the unique qualities that set a product apart
• Positioning statements: Statements for the product, service, brand, and target market.

Perceptual Mapping

• Perceptual maps are visual descriptions indicating the comparison of products against competing products
• Uses qualities that factor into customer purchases decision making