ASSIGNMENT ON

MARKET SEGMENTATION

Submitted To: Submitted By:

MRS.Ritu sehgal Nishant Jain ( 2130)

Lec. in MBA Himani (2120)

Contents

Introduction Reasons Requirement Steps Bases Benefits Limitations Critique Conclusion

INTRODUCTION

Market segment is a group of people or organizations sharing one or more characteristics that

cause them to have similar product and/or service needs. A true market segment meets all of the

following criteria: it is distinct from other segments (different segments have different needs), it

is homogeneous within the segment (exhibits common needs); it responds similarly to a market

stimulus, and it can be reached by a market intervention. The term is also used when consumers

with identical product and/or service needs are divided up into groups so they can be charged

different amounts. These can broadly be viewed as 'positive' and 'negative' applications of the

same idea, splitting up the market into smaller groups.

DEFINITION BY PHILIP KOTLER

Market segmentation is subdividing into homogeneous sub set of customer,

where any subset may conceivably be selected as market target to be reached

with distinct marketing mix.

Market segmenting is the process that a company divides the market into distinct groups who

have distinct needs, wants, behavior or who might want different products & services

Broadly, markets can be divided according to a number of general criteria, such as by industry or

public versus private although industrial market segmentation is quite different from consumer

market segmentation, both have similar objectives. All of these methods of segmentation are

merely proxies for true segments, which don't always fit into convenient demographic

boundaries.

Consumer-based market segmentation can be performed on a product specific basis, to provide a

close match between specific products and individuals

The process of segmentation is distinct from targeting (choosing which segments to address) and

positioning (designing an appropriate marketing mix for each segment). The overall intent is to

identify groups of similar customers and potential customers; to prioritize the groups to address;

to understand their behavior; and to respond with appropriate marketing strategies that satisfy the

different preferences of each chosen segment. Revenues are thus improved.

Improved segmentation can lead to significantly improved marketing effectiveness. Distinct

segments can have different industry structures and thus have higher or lower attractiveness.

With the right segmentation, the right lists can be purchased, advertising results can be improved

and customer satisfaction can be increased leading to better reputation.

Successful segmentation requires the following

Homogeneity within the segment

heterogeneity between segments

Segments are measurable and substantial

Segments are differentiable

Segments are accessible and actionable

Target segment is large enough to be profitable

Effective market segmentation

Improves understanding of the customer base

Provides a clear classification of the customers

Enables the generation of a targeted product portfolio that responds to the needs of

market place

Helps gauge a company's market position relative to the competition

Leads to the effective fine tuning of marketing strategies

Reasons for Market Segmentation

As already stated, segmentation is the basis for developing targeted and effective marketing

plans. Furthermore, analysis of market segments enables decisions about intensity of marketing

activities in particular segments. A segment-orientated marketing approach generally offers a

range of advantages for both, businesses and customers. 

Better serving customers needs and wants

It is possible to satisfy a variety of customer needs with a limited product range by using

different forms, bundles, incentives and promotional activities. The computer manufacturer Dell,

for instance, does not organize its website by product groups (desktops, notebooks, servers,

printers etc), but by customer groups (privates, small businesses, large businesses, public/state

organizations). They offer the same products to all customer groups. Nevertheless, they suggest

product bundles and supporting services that are individually tailored for the needs of each

particular group. As an example, Dell offers to take on all IT-administration for companies. This

service provides a huge potential for savings for corporate customers. However, it would be

absolutely useless for private customers. Thus, segment-specific product bundles increase

chances for cross selling.  

Higher Profits

It is often difficult to increase prices for the whole market. Nevertheless, it is possible to develop

premium segments in which customers accept a higher price level. Such segments could be

distinguished from the mass market by features like additional services, exclusive points of sale,

product variations and the like. A typical segment-based price variation is by region. The

generally higher price level in big cities is evidence for this.

When differentiating prices by segments, organizations have to take care that there is no chance

for cannibalization between high-priced products with high margins and budget offers in

different segments. This risk is the higher, the less distinguished the segments are.  

REQUIREMENTS OF MARKET SEGMENTATION

Philip Kotler mentioned five criteria for an effective segmentation which states that

Segmentation should be: -

1. Measurable: - it should be possible to determine the values of the variable used for the

segmentation.

2. Relevant: - it should justify the expected profits and the growth potential.

3. Accessible: - the target customers must be reachable and servable for the organization.

4. Distinguishable: - the target audiences must be diverse and able to show different

reactions to different marketing mix.

5. Feasible: - the firm must have an ability to draw an effective marketing program for its

customers.

The market which is segmented must meet the following

criteria:

Measurability of segment: Can you measure the size and growth of the segment. Is the

segment growing? In the UK the DVD market is growing at an extremely fast pace. From

January 2002 – June 2002 900,000 DVD’s were sold. The fast growth rate is attracting

many players within the market.

Accessibility of segment: Is it easy for you to target and reach your segment? Can they

be reached with basic communication tools such as radio and TV advertising? If you

cannot target your segment effectively with marketing communication then it is not

viable.

Suitability of segment: Is there enough spending power within the segment for the

company to sustain itself.? Will spending within the DVD marketing continue?

Actionability of segment: If you were a car manufacturer the organisation would not

concentrate on the affluent and price sensitive market if they did not have the resources to

do so.

STEPS INVOLVED IN MARKET SEGMENTATION

The most widely employed model of market segmentation comprises 7 steps, each of

them designed to encourage the marketer to come with a creative approach.

STEP 1: Identify and name the broad market

You have to have figured out by this moment what broad market your business aims at. If

your company is already on a market, this can be a starting point; more options are

available for a new business but resources would normally be a little limited.The biggest

challenge is to find the right balance for your business: use your experience, knowledge

and common sense to estimate if the market you have just identified earlier is not too

narrow or too broad for you.

STEP 2: Identify and make an inventory of potential customers' needs

This step pushes the creativity challenge even farther, since it can be compared to a

brainstorming session. What you have to figure out is what needs the consumers from the

broad market identified earlier might have. The more possible needs you can come up

with, the better.Got yourself stuck in this stage of segmentation? Try to put yourself into

the shoes of your potential customers: why would they buy your product, what could

possibly trigger a buying decision? Answering these questions can help you list most

needs of potential customers on a given product market.

STEP 3: Formulate narrower markets

McCarthy and Perreault suggest forming sub-markets around what you would call your

"typical customer", then aggregate similar people into this segment, on the condition to

be able to satisfy their needs using the same Marketing mix. Start building a column with

dimensions of the major need you try to cover: this will make it easier for you to decide if

a given person should be included in the first segment or you should form a new segment.

Also create a list of people-related features, demographics included, for each narrow

market you form – a further step will ask you to name them.There is no exact formula on

how to form narrow markets: use your best judgement and experience. Do not avoid

asking opinions even from non-Marketing professionals, as different people can have

different opinions and you can usually count on at least those items most people agree on.

STEP 4: Identify the determining dimensions

Carefully review the list resulted form the previous step. You should have by now a list

of need dimensions for each market segment: try to identify those that carry a

determining power.Reviewing the needs and attitudes of those you included within each

market segment can help you figure out the determining dimensions.

STEP 5: Name possible segment markets

You have identified the determining dimensions of your market segments, now review

them one by one and give them an appropriate name.A good way of naming these

markets is to rely on the most important determining dimension.

STEP 6: Evaluate the behavior of market segments

Once you are done naming each market segment, allow time to consider what other

aspects you know about them. It is important for a marketer to understand market

behavior and what triggers it. You might notice that, while most segments have similar

needs, they're still different needs: understanding the difference and acting upon it is the

key to achieve success using competitive offerings.

STEP 7: Estimate the size of each market segment

Each segment identified, named and studied during the previous stages should finally be

given an estimate size, even if, for lack of data, it is only a rough estimate. Estimates of

market segments will come in handy later, by offering a support for sales forecasts and

help plan the Marketing mix: the more data we can gather at this moment, the easier

further planning and strategy will be. These were the steps to segment a market, briefly

presented. If performed correctly and thoroughly, you should now be able to have a

glimpse of how to build Marketing mixes for each market segment.

This 7 steps approach to market segmentation is very simple and practical and works for

most marketers. However, if you are curious about other methods and want to experiment, you

should take a look at computer-aided techniques, such as clustering and positioning

 BASES OF MARKET SEGMENTATION

Demographic Segmentation

Demographics originates from the word ‘demography’ which means a ‘study of population’. The

population can be divided into age, gender, income, and family lifecycle amongst other

variables. A very popular form of dividing the market is through demographic variables.

Understanding who consumers are will enable you to more closely identify and understand their

needs, product and services usage rates and wants.

Understanding who consumers are requires companies to divide consumers into groups based on variables such as gender, age, income, social class, religion, race or family lifecycle [insert diagram g].

A clear advantage of this strategy over others is that there are vast amounts of secondary data available that will enable you to divide a market according to demographic variables

Figure 7.3 Demographic segmentation

Age

Life-cycleStage

Income

SocialClass

E.g.under 6, 6-11,12-19, 29-34,

35-49,50-64, 65+

E.g.Bachelor State,Newly Wed: No kidsFull Nest 1: w/child under 6Full nest 2: Youngestchild over 6Full nest 3: Older married couples withdependent childrenEmpty nest 1: Oldercouples no children at homeEmpty nest 2: RetiredSolitary survivor: Stillin the labor forceSolitary survivor:Retired

E.g.Under 5,000; 5,000-20,000; 20,000-50,000;50,000-100,00,100,000-250,000etc

E.g. A = Upper, upperB = Upper lowerC1= middle classC2= Working class (skilled workers)D= upper lowersE= Lower, lower

As people age their needs and wants change, some organisations develop specific products

aimed at particular age groups for example  nappies for babies, toys for children, clothes for

teenagers and so on.  

Gender segmentation is commonly used within the cosmetics, clothing and magazine industry.

All Bar One within the UK have developed their bars to attract the female audience, taking

opportunity of the rise in the number of women who now enjoy ‘social drinking’. a male lifestyle

magazine covering male fashion, films, cars, sports and technology. We have also seen the

introduction of unisex cosmetic products like CK1  which works on the similarities between the

two genders..

Income segmentation is another strategy used by many organisations. Stores like Harrods,

Harvey Nicohals are predominantly aimed at the affluent market. Daewoo aim their vehicles at

price sensitive buyers who require a bundle of benefits for the price. In today's globally

competitive environment brands are specifically developed and positioned within particular

income segments inorder to maximise turnover.

Products and services are also aimed at different lifecycle segments. Holidays are developed for

families, the 18-30's singles,  and for those in their 50's.      

Geographic Segmentation

1. Nation

2. State

3. Region

4. City

5. Climate

6. Density (urban/rural)

Geographical segmentation divides markets into different geographical areas. Marketers use

geographic segmentation because consumers in different areas may display certain

characteristics and behaviours in that particular region, for example, in London UK certain parts

of the West End of London are more affluent then the East End and you will find particular

products sold in these regions based on their affluence. An area can be divided by the town, the

region or the country.

If you are an organisation working on a global scale you may divide by global regions such as

Europe, North America, South America, Asia and Africa. Mcdonalds globally, sell burgers

aimed at local markets, for example, burgers are made from lamb in India rather then beef

because of religious issues. In Mexico more chilli sauce is added and so on.

Geographic segmentation is the division of the market according to different geographical units

like continents, countries, regions, counties or neighbourhoods. This form of segmentation

provides the marketer with a quick snapshot of consumers within a delimited area.

Geographic segmentation can be a useful strategy to segment markets because it:

provides a quick overview of differences and similarities between consumers according

to geographical unit;

can identify cultural differences between geographical units;

takes into consideration climatic differences between geographical units;

recognises language differences between geographical units.

But this strategy fails to take into consideration other important variables such as personality, age

and consumer lifestyles. Failing to recognise this could hinder a company's potential for success.

For example some youth groups across the world appear to be somewhat similar. Youth groups

will tend to listen to similar music and follow similar fashion trends. If you were to do a quick

check of people's nationalities in a 18s-30s club in Mexico, you would find a very international

clientele. You might have found that you can befriend foreign people of your same age easily

because you

Pyschographics Segmentation

Although demographic segmentation is useful, marketers can use alternative segmentation variables which aim to develop more accurate profiles of their target segments. Pyschrographics segmentation can be broken down into lifestyle, social class, and personality characteristics.

Lifestyles segmentation

The Oxford English dictionary defines a lifestyle  'as a way of life'  and lifestyle segmentation

aims to examine the way people live.

Our lifestyle,  our every days activities, our interest, opinions and beliefs on certain issues

dictates who we are.  Marketers refer to these as AIO’s (Activities, Interest and Opinions), and

our AIO’s dictate our everyday behaviour from where we shop to what we buy. Marketers

develop and aim products/services at particular lifestyle groups and develop lifestyle profiles on

their target market. If we understand the lifestyle of a particular group we can sell them a

product/services on the basis that it will enhance their lifestyle. A lifestyle group is a particular

segment defined by the organisation that is marketing a product or service. This lifestyle segment

is labeled because individual within it display similar characteristics. For example in the early

1980s within the UK as the economy was booming the City of London were increasingly

employing young independent staff on very high salaries.

The media termed this group as YUPPIES, they were young upwardly mobile professionals,

associated with mobile phones, money, expensive cars, and prestigious city jobs.

Third agers are another group termed and identified by the marketing industry. They are people

in their 50’s retired from a profession, and have a high disposable income with time on the hand.

Many of these third-agers are adventurous and experimenters, as they have spent their past lives

working hard and they seek enjoyment from their remaining years and have the income to spend

on luxury items. In  the United States there are 70 million third-agers who are the fastest growing

users of the internet, spending more time on the internet then their younger counterpart. 

  Personality Characteristics

Products and brands can also be aimed at particular personalities. Pigaio motorcycles are aimed

at young 18-25 outgoing, independent persons. Often marketers try to develop personalities for

their brands and products that mimic that of their target market. Ask yourself if Nike or Levi’s

was a person, what type of person would they be?

Social Class Segmentation

Divides society into  6 distinct groups based solely on occupation.

A    Professional staff

B    Middle management

C1   Junior management

C2   Skilled manual

D     Semi-skilled and unskilled workers.

E     Those dependent on the state.

Social class segmentation works on the assumption that the higher your profession the more you

will earn. Thus the more affluent lifestyle you will lead.  Marketers use this type of information

to sell products and services based on lifestyle behaviour, and your profession does have an

impact on the way you behave.

 

Behavioural Segmentation

1. Occasions – regular, special

2. Benefits

3. User status – non user, regular

4. Usage rate – light, heavy

5. Loyalty status – medium, strong

6. Readiness stage – unaware, aware

7. Attitude toward product – positive, indifferent

Refers to why people purchase a product or service. Behavioural segmentation can be broken

down into the benefit a consumer seeks from purchasing a product. How will the product

enhance their overall lifestyle. When purchasing a computer the benefit sought maybe of ‘ease of

use’ to the ‘need for speed’

This segmentation strategy divides markets into consumer groups based on their uses,

responses, knowledge and attitudes towards products and services. There are six main

techniques through which marketers can divide the market according to behavioural

variables. For example, Expedia offers holiday packages according to the different types

of experiences people want to have.

Occasions: Segmenting a market according to the occasions when consumers use a

product or service can provide rich insight to expand market possibilities. For example,

'early bird' dinners offered in some restaurants have tapped into the market of consumers

who want to have an early meal but without the pomp and formality of a regular dinner.

Benefits sought: Grouping consumers based on the benefits they seek from a product or

service provides unique opportunities to define and position a brand's main attributes and

highlight its superiority over competitors.

Research has found four main benefit segments: economic, medical, cosmetic and taste.

While some consumers will dine in an exclusive restaurant for its taste, others will opt to

go to the trendy bistro (cosmetic); some will go for the value for money deals (economic)

and others will prefer the organic food served in an all-vegetarian deli (medical).

User status: Consumers can be divided based on whether or not they are patronising a

product. Hence, a consumer can be a non-user, ex-user, potential user, first-time user or a

regular user of a given product or service. You might have found that you are a regular

user of a particular service provider, like your bank, and an ex-user of a chocolate you

used to like, but not any more.

Usage rate: Consumers can be light, medium or heavy users. Although heavy users

account for a very small percentage of a market, they are also responsible for a high

percentage of the total buying. It is not surprising then to find that hotel chains like

Holiday Inn offer special prizes to reward their frequent visitors.

User readiness: Segments can be divided based on how ready consumers are to make a

purchase. Consumers are typecast according to their readiness state. For example you

might be aware that a tour operator provides excellent travel packages to India, your

friend might be very well informed of its details, your father might be interested in this

product, while your sister is not. This allows marketers to guide consumers through the

many stages leading to a final purchase.

Attitudes towards the product or service: Consumers can be segmented according to their

attitudes towards products and services. For instance you can be enthusiastic, positive,

indifferent, negative or hostile about a product or service.

The following are the advantages of Market Segmentation

o Helps in better understanding of the customers’ needs and wants.

o Better targeting and position of the product.

o Encourages two-way communication among the potential buyer and the

organization.

o Maintaining effective relationship with the customers.

o Retaining the existing customers and attracting new ones.

o Improving service delivery standards.

o Reducing cost / expenses on various marketing activities and increases market

share; resulting in higher profits.

o Provides rich data concerning the psychological make-up of consumers;

o Enables marketers to better understand the reasons behind consumers' purchases;

o Provides marketers with an effective way to match a variety of marketing

communication tools from packaging to taste with consumers psycho-

demographic characteristics;

o Can be used to develop customer profiles that will guide promotional efforts and

ultimately strengthen a brand.

LIMITATION OF THE SEGMENTATION:

Targeting multiple segments increases marketing costs.

Segmentation can lead to proliferation of products.

Narrowly segmenting a market can hamper the

development of broad-brand equity.

Market segmentation: a critique

Products and services are constantly reinvented by consumers. What a marketer intended to be a

children’s toy becomes a cult object among college students [to find out why UK students love

Teletubbies

A fizzy drink is not only drunk but is also used in imaginative ways, it becomes the perfect

cleaning companion, removing rust spots from chrome car bumpers or cleaning corrosion from

car battery terminals [see more creative product usages Consumer’s wacky uses of product and

services hint at some of the shortcomings associated with market segmentation.

Market segmentation assumes that consumers are static and stable. Furthermore it places very

complex behaviours into neat and exclusive categories that fail to account for all the

complexities of human behaviour. Most people find it difficult to describe their own personality.

There is also an underlying supposition that human behaviour is always rational, failing to take

into consideration spontaneous and playful behaviour.

The different roles an individual plays everyday also conflict with the somewhat limited

categories used to segment markets. You are a student, a friend, a sister or a brother, a citizen or

a rebel. While you recognise all these different facets, advertising appeals treat you mostly as an

educated middle class student. Consequently market segmentation strategies provide marketers

with the illusion of a certain and effective tool to operate, but the question remains as to whether

or not this strategy allows marketers to know and talk to consumers.

Finally, Market Segmentation is rightly referred as a marketing term referring to the buyers

into groups (segments) that have common needs and will respond similarly to a marketing

action, it is an identifiable group of individuals, families, firms, or organizations, sharing one or

more characteristics or needs in an otherwise homogenous market. Market Segmentation

generally responds in a predictable manner to a marketing or promotional offer.