MARKET SEGMENTATION:Steps in Target Marketing, Mass Marketing

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Principles of Marketing MGT301

Lesson 17

Lesson overview and learning objectives:

The Lesson emphasizes the key steps in: market segmentation; market targeting, and market

positioning. Market segmentation provides a method to divide or segment the market into narrow

segments (using a variety of different meaningful variables. Today we will be discussing the major

variables that can be used to segment the consumer markets.

MARKET SEGMENTATION

A. Market Segmentation:

Markets consist of buyers, and buyers differ in one or more ways. They may differ in their wants,

resources, locations, buying attitudes, and buying practices. Through market segmentation,

companies divide large, heterogeneous markets into smaller segments that can be reached more

efficiently and effectively with products and services that match their unique needs. Companies

today recognize that they cannot appeal to all buyers in the marketplace, or at least not to all buyers

in the same way. Buyers are too numerous, too widely scattered, and too varied in their needs and

buying practices. Moreover, the companies themselves vary widely in their abilities to serve

different segments of the market. Rather than trying to compete in an entire market, sometimes

against superior competitors, each company must identify the parts of the market that it can serve

best and most profitably.

Thus, most companies are more selective about the customers with whom they wish to connect.

Most have moved away from mass marketing and toward market segmentation and targeting--

identifying market segments, selecting one or more of them, and developing products and

marketing programs tailored to each. Instead of scattering their marketing efforts firms are

focusing on the buyers who have greater interest in the values they create best.

B. Steps in Target Marketing:

Figure shows the three major steps in target marketing. The first is market segmentation--

dividing a market into smaller groups of buyers with distinct needs, characteristics, or behaviors

who might require separate products or marketing mixes. The company identifies different ways to

segment the market and develops profiles of the resulting market segments. The second step is

market targeting--evaluating each market segment's attractiveness and selecting one or more of

the market segments to enter. The third step is market positioning--setting the competitive

positioning for the product and creating a detailed marketing mix. We discuss each of these steps

in turn.

C. Levels of Market Segmentation

Because buyers have unique needs and wants, each buyer is potentially a separate market. Ideally,

then, a seller might design a separate

Market Segmentation

marketing program for each buyer.

However, although some companies 1. seentiey tinsets eomarket

f ba

f r

gm n g h

attempt to serve buyers individually, many 2. Develop segment profiles

others face larger numbers of smaller buyers

Market Targeting

and do not find complete segmentation

3. Develop measure of

worthwhile. Instead, they look for broader

segment attractiveness

classes of buyers who differ in their product

4. Select target segments

needs or buying responses. Thus, market

segmentation can be carried out at several

Market positioning

different levels. Figure shows that

5. Develop positioning for

target segments

companies can practice no segmentation

6. Develop a marketing

(mass marketing), complete segmentation

mix for each segment

Principles of Marketing MGT301

(micromarketing), or something in between (segment marketing or niche marketing).

Levels of marketing segmentation

a) Mass Marketing

Companies have not always practiced target marketing. In fact, for most of the 1900s, major

consumer products companies held fast to mass marketing--mass producing, mass distributing,

and mass promoting about the same product in about the same way to all consumers. Henry Ford

epitomized this marketing strategy when he offered the Model T Ford to all buyers; they could

have the car" in any color as long as it is black." Similarly, Coca-Cola at one time produced only

one drink for the whole market, hoping it would appeal to everyone.

The traditional argument for mass marketing is that it creates the largest potential market, which

leads to the lowest costs, which in turn can

translate into either lower prices or higher

margins. However, many factors now make

mass marketing more difficult. The

proliferation of distribution channels and

advertising media has also made it difficult

to practice "one-size-fits-all" marketing.

Segm entation

b) Segment Marketing

A company that practices segment

marketing isolates broad segments that make

up a market and adapts its offers to more

closely match the needs of one or more

segments. Thus, Marriott markets to a variety of segments--business travelers, families, and

others--with packages adapted to their varying needs. Segment marketing offers several benefits

over mass marketing. The company can market more efficiently, targeting its products or services,

channels, and communications programs toward only consumers that it can serve best and most

profitably. The company can also market more effectively by fine-tuning its products, prices, and

programs to the needs of carefully defined segments. The company may face fewer competitors if

fewer competitors are focusing on this market segment.

c) Niche Marketing

Market segments are normally large, identifiable groups within a market--for example, luxury car

buyers, performance car buyers, utility car buyers, and economy car buyers. Niche marketing

focuses on subgroups within these segments. A niche is a more narrowly defined group, usually

identified by dividing a segment into sub segments or by defining a group with a distinctive set of

traits who may seek a special combination of benefits. Whereas segments are fairly large and

normally attract several competitors, niches are smaller and normally attract only one or a few

competitors. Niche marketers presumably understand their niches' needs so well that their

customers willingly pay a price premium.

Principles of Marketing MGT301

d) Micro marketing

Segment and niche marketers tailor their offers and marketing programs to meet the needs of

various market segments. At the same time, however, they do not customize their offers to each

individual customer. Thus, segment marketing and niche marketing fall between the extremes of

mass marketing and micro marketing. Micro marketing is the practice of tailoring products and

marketing programs to suit the tastes of specific individuals and locations. Micro marketing

includes local marketing (Local marketing involves tailoring brands and promotions to the needs

and wants of local customer groups--cities, neighborhoods, and even specific stores. Citibank

provides different mixes of banking services in its branches depending on neighborhood

demographics) and individual marketing (tailoring products and marketing programs to the needs

and preferences of individual customers).

Segmenting Consumer Markets

There is no single way to segment a market. A marketer has to try different segmentation variables,

alone and in combination, to find the best way to view the market structure. The major variables

that might be used in segmenting are major geographic, demographic, psychographics, and

behavioral variables.

a) Geographic Segmentation

Geographic segmentation calls for dividing the market into different geographical units such as

nations, regions, states, counties, cities, or neighborhoods. A company may decide to operate in

one or a few geographical areas, or to operate in all areas but pay attention to geographical

differences in needs and wants. It is common to localize products, advertising, promotions, and

sales efforts to fit the needs of geographical areas (regions, cities, and even neighborhoods).

b) Demographic Segmentation

Demographic segmentation divides the market into groups based on variables such as age, gender,

family size, family life cycle, income, occupation, education, religion, race, and nationality.

Demographic factors are the most popular bases for segmenting customer groups. One reason is

that consumer needs, wants, and usage rates often vary closely with demographic variables.

Another is that demographic variables are easier to measure than most other types of variables.

Even when market segments are first defined using other bases, such as benefits sought or

behavior, their demographic characteristics must be known in order to assess the size of the target

market and to reach it efficiently. Demographic variables are easier to measure than most other

types of variables.

I. Age and Life-Cycle Stage

Age and life cycle segmentation consists of offering different products or using different marketing

approaches for different age and life-cycle groups. Marketers must guard against stereotypes when

using this form of segmentation. While certain age and life cycle groups do behave similarly, age is

often a poor predictor of a person's life cycle, health, work or family status, needs, and buying

power. Consumer needs and wants change with age. Some companies use age and life cycle

segmentation, offering different products or using different marketing approaches for different age

and life-cycle groups.

II. Gender segmentation

calls for dividing a market into different groups based on sex. This segmentation form has long

been used for clothing, cosmetics, toiletries, and magazines. New opportunities in this area are

emerging such as automobiles, deodorants, and financial services. There is an increased emphasis

on marketing and advertising to women. Specialized Web sites are becoming very popular with this

group.

Principles of Marketing MGT301

III. Income segmentation

It consists of dividing a market into different income groups. Marketers for automobiles, boats,

clothing, cosmetics, financial services, and travel have long used this form of segmentation. Using

this form, marketers must remember that they do not always have to target the affluent. Other

income groups are also viable and profitable market segments.

c) Psychographics segmentation

calls

for

dividing

market

into

different

groups

based on social class, lifestyle, or personality characteristics. People in the same demographic class

can exhibit very different psychographics characteristics. As previously seen in, lifestyle also

affects people's interest in various goods, and the goods they buy express those lifestyles. This

method of segmentation is gaining in popularity. Personality variables can also be used to

segment markets. Marketers will give their products personalities that correspond to consumer

personalities.

d) Behavioral segmentation

It involves dividing a market into groups based on consumer knowledge, attitudes, uses, or

responses to a product. Many marketers believe that behavior variables are the best starting point

for building market segments. Occasion segmentation consists of dividing the market into groups

according to occasions when buyers get the idea to buy, actually make their purchase, or use the

purchased item. Benefit segmentation involves dividing the market into groups according to the

different benefits the consumers seek from the product. Companies can use benefit segmentation

to clarify the benefit segment to which they are appealing, its characteristics, and the major

competing brands. They can also search for new benefits and establish brands that deliver them.

User status can also be used to divide the market. Segments of nonusers, ex-users, potential

users, first-time users, and regular users of a product are potential ways to segment. Usage rates

are another way that marketers segment markets. These categories might be light, medium, and

heavy user groups. Loyalty status can also be used to segment markets. Consumers can be loyal

to brands, stores, and companies. Consumers can be completely loyal, somewhat loyal, or not loyal

at all. An amazing amount of information can be uncovered by studying loyalty patterns.

Today there is a trend toward targeting multiple segments. Very often, companies begin their

marketing with one targeted segment, and then expand into other segments. This often boosts a

company's competitive advantage and knowledge of the customer base. One of the most

promising developments in multivariable segmentation is "geodemographic" segmentation based

upon both geographic and demographic variables.

KEY TERMS

Market segmentation

dividing a market into smaller groups

Market targeting

evaluating each market segment's attractiveness and selecting one or

more of the market segments to enter

Market positioning

setting the competitive positioning for the product

Geographic segmentation dividing the market into different geographical units

Demographic segmentation divides the market into groups based on variables such as age,

gender, family size, family life cycle, income, occupation, education,

religion, race, and nationality.

Behavioral segmentation involves dividing a market into groups based on consumer

knowledge, attitudes, uses, or responses to a product.

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