6/5/20161 CHAPTER 5 MARKET SEGMENTATION

6/5/20162 Market Segmentation n Market is where the product sold and profit is generated, and consists of all the potential group of customers sharing needs and wants. n To understand the market, marketers must understand the customers, and marketing research is an effective tool in this process. n Channels play important role in segmentation decision.

6/5/20163 Market Boundaries Market can be defined by the following factors: n Product and service category:actual product n Geography: location of seller n Physical customer groupings: suppliers in industrial market n Intangibles: price as a differentiation factor

6/5/20164 Market Boundaries (Cont.) n Customers: Current buyers as well as those who have switched. n Users: End users rather than purchasers n Prospects: potential customers. n Penetration: percentage of users. n Brand share: sales of a brand in a particular market n The pareto, 80:20 effect

6/5/20165 Market Segmentation n By use: 1. occasional, 2. benefits, 3.loyalty 4.frequency n By price and quality n By consumer characteristics: 1. geographic, 2.demographic, 3.socio-economic(income, social class), 4. life styles(culture). n By product benefit

6/5/20166 Market Segmentation (Cont.) n Segmentation across national boundaries- set of socio-economic, political and cultural criteria. n Market segmentation is dividing market into groups of similar characteristics, and selecting the most appropriate group(s) to serve

6/5/20167 A Model of Market Segmentation Process n Delineate firm’s current situation »opportunities, resources, objectives and constraints n Determine customers needs and wants »Marketing research is used for this purpose n Divide market on relevant dimensions »A prior or post hoc segmentation n segmentation decision before and after market research »Relevance of segmentation Dimensions n managers’ expertise and experience play an important role n All variables should be included in segmentation

6/5/20168 A Model of Market Segmentation Process (cont.) »Basis for segmentation n Benefit sought –attempts to measure consumers’ value system. It is a market-oriented approach that seeks to identify consumer needs and wants to develop product and satisfy the desired benefits. n Psychographic segmentation –VALS2 model: values and life styles. Vertical dimensions represent resources such as income, education, health and intelligence, the horizontal dimensions are self-orientations such as principle, action and self orientations. They represent 9 to 17 percent of the US adult population.

6/5/20169 »Basis for segmentation (cont.) n Psychographic segmentation (cont.) –VALS2: (1)Principle oriented consumer-guided by their views of how the world is, or should be (2)Status oriented consumers-guided by the action and opinion of others (3)Action oriented consumers-guided by a desire for social or physical activity, variety and risk taking

6/5/ VALS2 Model

6/5/ A Model of Market Segmentation (cont.) n Develop product positioning n Decide segmentation strategy »Measurable »Meaningful-large enough »Marketable-reachable n Design marketing mix strategy

6/5/ Segmentation Methods n Background investigation: hypotheses about which segments are viable n Qualitative research: focus group n Quantitative research: n Analysis: discriminant analysis, factor analysis, cluster analysis n Segmentation/positioning: positioning map.

6/5/ Product/Service Positioning n Homogeneous n Diffuse n Clustered n Positioning/Perceptual maps »graphic indication of firm’s product against to competitors. n It shows: –competitors which are closer to your product – positioning gap – a sound base for re-positioning.

6/5/ Positioning Process n Market segmentation n Target marketing n Product positioning segmentationtargeting positioning

6/5/ Possible Approaches to Segmentation n Single segment »concentration and specialization(niche market) n Multiple segment »one or more product, two or more segments. n Cross segment »same product for different segment n Full coverage »undifferentiated(coca cola) »differentiated(IBM).

6/5/ Branding and Policies n Product differentiation n Effect consumers’ perception n Brand monopoly »trademarks, registration n Branding policies »company name »family branding »individual branding

6/5/ Branding and Policies (Cont.) n Brand extension »a strong brand name can be used for a new product(Diet Coke) n Multibrand »one company, several brands. n Co-branding »two different brands from two different companies may be team up. n Private and generic brand