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Chapter 10 Identifying Market Segments and Selecting Target Markets

“Don’t buy market share. Figure out how to earn it.”

Chapter Objectives

We focus on the following questions: How can a company identify the segments that

make up a market? What criteria can a company use to choose the

most attractive target markets?

Target Marketing Target marketing requires marketers to take three

major steps: Identify and profile distinct groups of buyers who

differ in their needs and preferences (market segmentation).

Select one or more market segments to enter (market targeting).

For each target segment, establish and communicate the key distinctive benefit(s) of the company’s market offering (market positioning).

Levels and Patterns of Market Segmentation

Levels of Market Segmentation Mass marketing: mass production, mass distribution, and mass

promotion of one product for all buyers. Micromarketing: four levels of marketing – segments, niches,

local areas, and individuals.

Segment marketingMarket segment: Group of customers who share a

similar set of wants.

Sector: Young, middle income car buyers is a sector rather

than a segment.

Flexible market offering Naked solution: products & services that all segment

members value. Discretionary options: some segment members value.

Niche Marketing Niche: more narrowly defined group seeking a distinctive mix of

benefits. By dividing segments into sub segments.Characteristics of Niches:

Customer in the niche have a distinct set of needs. Customer will pay a premium to the firm that best satisfies

their needs. Niche is not likely to attract other competitors. Nicher gains certain economies through specialization Niche has size, profit, and growth potential.

Local MarketingNeeds and wants of local customer groups – trading areas, neighborhoods, even individual stores.



Individual Customer MarketingUltimate level of segmentation. Mass-customization: Mass basis individually designed

products, services, programs, and communications to meet each customer’s requirements.

Choiceboard: Interactive online system allowing customers designing their own products and services.

Customerization: operationally driven mass customization with customized marketing empowering customers to design the product and service offering. Products or services for -

Segments or Individuals


Patterns for Market Segmentation Preference segments: According to buyers’ preferences.

Homogeneous preferences: consumers have roughly the same preferences.

Diffused preferences: consumers may be scattered throughout the space, indicating variation in preferences.

Clustered preferences Natural market segments: distinct preference cluster. Concentrated marketing: largest market segment.

Center position: hoping to appeal to all groups. In largest market segment. Several brands in different positions.


Sweetness Sweetness Sweetness

(a) Homogeneous preferences

(b) Diffused preferences

(c) Clustered preferences


Market Segmentation Procedure Needs-based market segmentation approach

Steps in Segmentation Process1. Needs-Based SegmentationGroup customers into segments based on similar needs and benefits sought by customer in solving a particular consumption problem.2. Segment IdentificationFor each needs-based segment, determine which demographics, lifestyles, and usage behaviors make the segment distinct and identifiable (actionable).3. Segment AttractivenessUsing predetermined segment attractiveness criteria (such as market growth, competitive intensity, and market access), determine the overall attractiveness of each segment.

4. Segment Profitability

Determine segment profitability.

5. Segment Positioning

For each segment, create a “value proposition” and product-price positioning

strategy based on that segment’s unique customer needs and

characteristics.

6. Segment “Acid Test”

Create “segment storyboards“ to test the attractiveness of each segment’s

positioning strategy.

7. Market-Mix Strategy

Expand segment positioning strategy to include all aspects of the marketing

mix: product, price, promotion, and place.


Market partitioningInvestigating the hierarchy of attributes consumers examine in choosing a brand.

Brand-dominant hierarchy: Toyota > Toyota Corolla Nation-dominant hierarchy: Japanese Car > Toyota

Effective Segmentation Measurable: size, purchasing power, and characteristics of the

segments. Substantial: large and profitable enough to serve. Accessible: effectively reached and served. Differentiable: conceptually distinguishable and respond

differently to different marketing mix elements and programs. Actionable: effective programs can be formulated to attract and

serve the segments.


Segmenting Consumer and Business Markets

Bases for Segmenting Consumer MarketsMajor Segmentation Variables for Consumer Markets:

Segmentation Variable

Variable Type

Geographic Region, city or metro size, Density,Climate

Demographic Age, family size, family life cycle, gender, income, occupation, education, religion, race, generation, nationality, social class

Psychographic Life style, personality

Behavioral Occasions, benefits, user status, user rate, loyalty status, readiness stage, attitude toward product


Loyalty Status Hard-core loyal: buy one brand all the time. Split-loyal: loyal to two or three brands. Shifting-loyal: shift from one brand to another. Switchers: no loyalty to any brand.


Bases For Segmenting Business MarketsMajor Segmentation Variables for Business Markets:

Segmentation Variables

Variable Types

Demographic Industry, Company size, Location

Operating Variables Technology, user or nonuser status, customer compatibilities.

Purchasing Approaches Purchasing function organization, power structure, nature of existing relationships, general purchase policies, purchasing criteria.

Situational Factors Urgency, specific application, size of order

Personal Characteristics Buyer-seller similarity, attitudes towards risk, loyalty.


Rackman and Vincentis proposed a segmentation scheme that classifies business buyers into three groups Price-oriented customers (transactional selling)

They want value through lowest price. Solution-oriented customers (consultative selling)

They want value through more benefits and advice. Strategic-value customers (enterprise selling)

They want value through the supplier co-investing and

participating in the customer’s business.

Market Targeting Evaluating and Selecting the Market Segments

Single-Segment Concentration: mini pack chips.

Selective Specialization: BAT, gold leaf for A,B&H for B, Star for C.

Product Specialization : Otobi, products for Univ, office, home … all segments. ISP, PDB.

Market Specialization: Firms sell products only to

university labs. Full Market Coverage: Coca cola, IBM, GM.

Undifferentiated marketing Differentiated marketing

Market Targeting

M1 M2 M3

M1 M2 M3M1 M2 M3M1 M2 M3

M1 M2 M3

P1

P2

P3

P1

P2

P3

P1

P2

P3

P1

P2

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Single-segmentconcentration

Market Specialization

Full MarketCoverage

Product Specialization

Selective specialization

Higher costs using differentiated marketing include Product modification cost: R&D, engineering, and

special tooling costs. Manufacturing cost: less economies of scale. Administrative cost: separate marketing plans, research,

forecasting, sales analysis, promotion, and channel management.

Inventory cost: different inventories to meet different requirements.

Promotion cost: increased promotion planning and media costs.

Market Targeting

Market Targeting

Super segment: set of segments sharing some exploitable similarity. Orchestra targets broad cultural interests.

Mega marketing: strategic coordination of economic, psychological, political, and public-relations skills, to gain the cooperation of a number of parties in order to enter or operate in a given market. Pepsi in India.

Segment-by-Segment Invasion Plan

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