1. McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

2. Chapter Four Strategic Market Segmentation
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

3. STRATEGIC MARKET SEGMENTATION
Segmentation and market-driven strategy
Identifying market segments
Forming segments
Finer segmentation strategies
Selecting the segmentation strategy

4. Segmentation and Market-Driven Strategy
SEGMENTS
VALUE
OPPORTUNITIES
CAPABILITIES/
SEGMENT
MATCH
TARGET(S)
POSITIONING
STRATEGY

5. From Mass Markets to Micro Markets
OLD NEW
CONSUMERS Passively receive Empowered media users
whatever TV control and shape content
networks thanks to TiVo, iPod and
broadcast Internet
ASPIRATIONS To keep up with To standout from the
the crowd crowd
TV CHOICE Three networks Hundreds of channels
plus maybe a plus video on demand
PBS station
MAGAZINES Age of the big Age of the special interest
glossies: Time, magazine for every age
Life, Newsweek and affinity group
ADS Everyone hums Talking to a group of
the Alka-Seltzer one, ads go ever
jingle narrower
BRANDS Rise of the big, Niche brands, product
ubiquitous brands extensions and mass
from Coca-Cola customization mean many
to Tide product variations
Source: Anthony Bianco, “The Vanishing Mass Market”, Business Week, July , 58-62

6. Identifying the Health and Beauty Supplies Market Segments
Level of
Competition
Generic
Product
Type
Variant
Product
Definition
Health &
Beauty
Aids
Shaving
Equipment
Electric
Razors
Illustrative
Competitors
Consumer
Product
Companies
Gillette, Remington, Bic
Braun,
Norelco,
Remington,
Panasonic
Need/Want
Satisfied
Enhancement
of Health & Beauty
Shaving
Electric

7. Exhibit 4-3 Market Segmentation Activities and Decisions
Market to be
Segmented
Strategic
Analysis
of Segments
Decide How
to Segment
Finer
Segmentation
Strategies
Form
Segments

8. Product Variant Segmentation
Product Type Segmentation
Generic Segmentation

9. Segmentation Variables
Purchase
Behavior
Characteristics
of People/
Organizations
Buyers’ Needs/
Preferences
Use
Situation

10. Illustrative Segmentation Variables
Consumer
Markets
Industrial/
Organizational
Markets
Characteristics
of people/
organizations
Age, gender,
income,
family size,
lifecycle stage,
geographic
location,
lifestyle
Type of industry,
size, geographic
location, corporate
culture, stage of
development,
producer/
intermediary
Use situation
Occasion,
importance of
purchase, prior
experience with
product, user
status
Application,
purchasing
procedure
(new task, modified
rebuy, straight
rebuy
Buyers’ needs/
preferences
Brand loyalty
status, brand
preference,
benefits sought,
quality, proneness
to make a deal
Performance
requirements, brand
preferences, desired
features, service
requirements
Purchase
behavior
Size of purchase,
frequency of
purchase
Volume, frequency
of purchase

11. Requirements for Segmentation
Identifiable
segments
Response
differences
Actionable
segments
Segmentation
Requirements
Stability
over time
Favorable
cost/benefit

12. Approaches to Segment Identification
IDENTIFIERS
OF CUSTOMER
GROUPS
CUSTOMER
RESPONSE
PROFILE
Characteristics
of People and
Organizations
Use Situation
Buyers Needs
and Preferences
Purchase
Behavior and
Loyalty

13. Segment Dimensions for Hotel Lodging Services

14. llustrative Example: Gasoline Buyers
Road
Warriors
Higher-income, middle-aged
men, drive miles a year
… buy premium with a credit card
… purchase sandwiches and drinks
from the convenience store
… will sometimes use carwash
16% of
buyers
True
Blues
Men and women with moderate to
high incomes, loyal to a brand and
sometimes a particular station …
frequently buy premium, pay in cash
16% of
buyers
Generation
F3 (Fuel,
Food & Fast)
Upwardly mobile men and women -
half under 25 years of age -
constantly on the go … drive a lot
snack heavily from the convenience
store
27% of
buyers
Homebodies
Usually housewives who shuttle
children around during the day and
use whatever gas station is based on
town or on route of travel
21% of
buyers
Price
Shoppers
Not loyal to brand or station and
rarely buy premium … frequently on
tight budgets.
20% of
buyers

15. Illustrative Consumer Perception Map
Expensive
GROUP II
Brand A
Brand E
Brand B
GROUP V
Low
Quality
High
Quality
GROUP I
GROUP
III
Brand C
Brand D
GROUP IV
Inexpensive

16. Finer Segmentation Strategies
Logic of finer segments
customized offerings
diverse customer base
close customer relationships
Finer segmentation strategies
microsegmentation
mass customization
variety-seeking strategy

17. SELECTING THE SEGMENTATION STRATEGY
Deciding how to segment
Strategic analysis of market segments
Customer analysis
Competitor analysis
Positioning analysis
Estimating segment attractiveness
Segmentation “fit” and implementation

18. Strategic Analysis of Market Segments
Customer
Analysis
Financial and
Market
Attractiveness
Competitor
Analysis
Positioning
Analysis

19. Exhibit 4-11 Segment Financial and Market Attractiveness
X Y Z
Estimated
($ million)
Sales*
Variable costs*
Contribution margin*
Market share ~ % % %
Total segment sales
Segment position:
Business strength High Medium Low
Attractiveness # Medium Low High
*For a two-year period.
~Percent of total sales in the segment.
#Based upon a five-year projection.

20. Segmentation “Fit” for Implementation
Segment Attractiveness
and Internal Compatibility
Internal Compatibility
High
Low
Attractive segments
that match with
company
capabilities
Attractive segments
but with poor match
with company
capabilities
High
Market Segment
Attractiveness
Unattractive segments
that do not match with
company capabilities
but with match to
company
capabilities
Low