Chapter 5 MARKET SEGMENTATION. Compiled by: Ms. Madhuri 1

Chapter 5 MARKET SEGMENTATION. Compiled by: Ms. Madhuri 1

Chapter 5 Market Segmentation. After completion of the chapter, the student shall be able to understand: Define and explain market segmentation, target markets, and product differentiation and positioning. Understand the criteria used for evaluating the likely success of a segmentation strategy. Know the role of market segmentation in the development of marketing strategies and programs. Compiled by: Ms. Madhuri 2

Chapter 5 Market Segmentation. Describe the issues involved in product and brand positioning. Understand the alternative bases for segmenting consumer and business-to-business markets. Evaluate alternative approaches for pursuing segmentation strategies. Compiled by: Ms. Madhuri 3

5.1 Introduction. Little of what is best in marketing theory and practice works without correct market segmentation. It is one of the most fundamental concepts in marketing and your choice of which approach to adopt will directly affect the impact of segmentation on your business. This insight is used to form groups of customers who share the same or very similar value criteria. The primary objective of segmentation, therefore, must be how to win and retain the customers you want to serve. Compiled by: Ms. Madhuri 4

5.1.1. Definition of Market Segmentation. A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will respond similarly to a marketing action. Market segmentation enables companies to target different categories of consumers who perceive the full value of certain products and services differently from one another. Compiled by: Ms. Madhuri 5

5.1.1. Definition of Market Segmentation. The process of defining and subdividing a large homogenous market into clearly identifiable segments having similar needs, wants, or demand characteristics. Its objective is to design a marketing mix that precisely matches the expectations of customers in the targeted segment. The process of splitting customers, or potential customers, in a market into different groups, or segments, within which customers share a similar level of interest in the same or comparable set of needs satisfied by a distinct marketing proposition. Compiled by: Ms. Madhuri 6

5.1.2. A Customer s view of Segmentation meet my needs! Customers segment themselves and take no notice of how companies segment their market(s). When choosing between competing products and services, customers select the proposition that meets their needs better than any other. To win market share, therefore, a company must ensure that their offers meet these needs better than any other at a price they perceive as providing superior value for money as this is how customers operate in a market, then a segmentation project should have these as its segmentation criteria. Compiled by: Ms. Madhuri 7

5.1.2. A Customer s view of Segmentation meet my needs! Four basic factors that affect market segmentation are: 1. Clear identification of the segment, 2. Measurability of its ineffective size, 3. Its accessibility through promotional efforts, 4. Its appropriateness to the policies and resources of the company. Compiled by: Ms. Madhuri 8

5.1.2. A Customer s view of Segmentation meet my needs! Four basic market segmentation strategies are based on: 1. Behavioral Differences, 2. Demographic Differences, 3. Psychographic Differences & 4. Geographical Differences. Compiled by: Ms. Madhuri 9

5.1.2. A Customer s view of Segmentation meet my needs! Market segmentation is a marketing strategy that involves dividing a broad target market into subsets of consumers who have common needs and applications for the relevant goods and services. Depending on the specific characteristics of the product, these subsets may be divided by criteria such as age and gender, or other distinctions, like location or income. Marketing campaigns can then be designed and implemented to target these specific customer segments. Compiled by: Ms. Madhuri 10

5.1.3. Why Segment? One of the main reasons for using market segmentation is to help companies to better understand the needs of a specific customer base. Mass marketing assumes that all customers are the same and will respond to the same advertising. By looking at ways in which potential customer groups are different from each other, the marketing message can be better targeted to the needs and wants of those people. Compiled by: Ms. Madhuri 11

5.1.3. Why Segment? Often, dividing consumers by clearly defined criteria will help the company identify other applications for their products that may not have been obvious before. These revelations often help the company target a larger audience in that same demographic classification, improving market share among a specific base. Segmenting the market can also serve to identify smaller groups of people who make up their own, previously unknown subsets, further improving the overall efficiency of the company's marketing efforts. Compiled by: Ms. Madhuri 12

5.1.4. Segmentation Strategies. According to experts, in order to be a good market segment, a group should meet five criteria: 1. It should be possible to identify and measure it, 2. It should be big enough to be worth the effort, 3. It should be easy to reach it, 4. It should not change quickly, 5. It should be responsive. Compiled by: Ms. Madhuri 13

5.1.4. Segmentation Strategies. Market segmentation strategies that meet these criteria can cover wide range of consumer characteristics. Subsets may be defined by basic demographics like age, race, or gender Compiled by: Ms. Madhuri 14

5.1.5. Market Segmentation Approaches. Choosing the right segmentation approach requires both a clear understanding of business objectives and intimate familiarity with the methodological options. A firm grasp of the segmentation mechanics, extensive implementation experience, and specialized industry focus are requirements for anticipating and addressing the specific challenges of each market when designing segmentation approaches. Compiled by: Ms. Madhuri 15

5.1.6. Other Benefits. Along with playing a role in the development of new marketing approaches, market segmentation can also help a company identify ways to enhance customer loyalty with existing clients. This may lead to changes in packaging or other similar cosmetic changes that do not necessarily impact the core product, but sometimes making a few simple changes in the appearance sends a clear message to consumers that recognizing their needs is as important to the company as making sales. Compiled by: Ms. Madhuri 16

5.1.6. Other Benefits. This demonstration of good might go a long way to strengthen the ties between the consumer and the producer. Market segmentation is not only beneficial to the manufacturer or retailer, but can also have benefits to a consumer as well. Compiled by: Ms. Madhuri 17

5.1.7. Disadvantages of Market Segmentation. One of the biggest disadvantages of this marketing technique is the expense. A great deal of research often needs to be done to correctly identify those subsets that are most important for a company, and this takes time and money. Once the key subsets are identified, different marketing messages usually need to be developed for each. Compiled by: Ms. Madhuri 18

5.1.7. Disadvantages of Market Segmentation. When the market segments that are identified are too narrow, it may be difficult for a company to be profitable. Niche marketing can work for some industries, but if the tastes of that subset change or a stronger competitor enters the field, a company that has focused too much on the one segment can lose its customer base quickly. Targeting smaller segments also means that potential consumers outside of those groups may be ignored and their business lost. Compiled by: Ms. Madhuri 19

5.2. Technical Market Segmentation. There are four categories marketers generally use when collecting information on customers: 1. Geographic Segmentation, 2. Demographic Segmentation, 3. Psychographic Segmentation, 4. Behavioral Segmentation. Compiled by: Ms. Madhuri 20

5.3. Segmentation & Targeting. The ability to create and sustain a meaningful competitive advantage requires a deep knowledge of customer needs and a disciplined sales and marketing process to ensure that needs are effectively addressed. Market segmentation is a strategic process for achieving alignment between product offerings and customer need. Compiled by: Ms. Madhuri 21

5.3.1. Targeting. After segmenting the market based on the different groups and classes, you will need to choose your targets. No one strategy will suit all consumer groups, so being able to develop specific strategies for your target markets is very important. Compiled by: Ms. Madhuri 22

5.3.1. Targeting. There are three general strategies for selecting your target markets: Undifferentiated Targeting. Concentrated Targeting. Multi-Segment Targeting. Prior to selecting a particular targeting strategy, you should perform a cost benefit analysis between all available strategies and determine which will suit your situation best. Compiled by: Ms. Madhuri 23

5.3.2. Positioning. Positioning is developing a product and brand image in the minds of consumers. It can also include improving a customer's perception about the experience they will have if they choose to purchase your product or service. The business can positively influence the perceptions of its chosen customer base through strategic promotional activities and by carefully defining your business' marketing mix. Compiled by: Ms. Madhuri 24

5.3.2. Positioning. Effective positioning involves a good understanding of competing products and the benefits that are sought by your target market. It also requires you to identify a differential advantage with which it will deliver the required benefits to the market effectively against the competition. Business should aim to define themselves in the eyes of their customers in regards to their competition. Compiled by: Ms. Madhuri 25

5.4. Basic Market Segmentation A Practical Approach Whether or not you map out a detailed blueprint of exactly who your customers are you nevertheless need to have some basic assumptions about your customer base in order to do business. Compiled by: Ms. Madhuri 26

5.4. Basic Market Segmentation A Practical Approach Every sales and marketing enterprise begins by asking the following questions: 1. Who Are My Customers? 2. What Are They Like? 3. What Do They Want? 4. Where Can I Find Them? 5. How Can I Reach Them? 6. What Should I Say To Them? Compiled by: Ms. Madhuri 27

5.4. Basic Market Segmentation A Practical Approach The answers to these questions depend on your business and your specific circumstances. Just as you will classify customers according to what makes sense for you so it is when you engage in more detailed market segmentation where you can group customers together in any number of ways. Compiled by: Ms. Madhuri 28

THANK YOU!! Compiled by: Ms. Madhuri 29