1. IDENTIFYING MARKET SEGMENTS & SELECTING TARGET MARKETS Lecture 8

2. Learning Objectives  How can a company identify the segments that make up a market?  What criteria can a company use to chose the most attractive target markets?

3. Target Marketing  Target Marketing requires Marketers to take three major steps:  Identify and profile distinctive 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 benefits of the company’s market offering (market positioning)

4. Levels and Patterns of Market Segmentation  Levels of Market Segmentation  Segment Marketing  Niches  Local Areas  Individuals

5. Segment Marketing  Market Segment consists of a group of customers who share a similar set of wants  Segment and sector are different!  Marketers do not create segments, they identify them  Benefits of segment marketing:  Companies are better able to create a more fine tuned product/service and price it appropriately for the target segment  They are better able to select the best communication and distribution channels  They have a clearer view of their competitors – which companies are going after the same segment

6. Segment Marketing  However, it is unreasonable to assume that even people within the segment want the same thing!  Solution? Flexible Market Offerings!  Flexible market offerings consist of two parts:  Naked solution: containing the product/service elements that all members of the same segment value  Discretionary options: those elements that some segment members value

7. Niche Marketing  A niche is a more narrowly defined group seeking more distinctive benefits  Niches can be identified by dividing a segment into subsegments  Attractive niches are characterized as follows:  Members have a distinct set of needs  They will pay a premium to satisfy that need  The niche is not likely to attract a lot of competitors  The niche has size, profit, and growth potential

8. Local Marketing  Micromarketing is the practice of tailoring products and marketing programmes to suit the taste of specific individuals and locations. Micromarketing includes local marketing and individual marketing  The local marketing definition of Kotler is broader and it includes strategies for clusters of nearby stores.  Marketing practitioners use the expression local marketing to refer to store-specific use of the marketing mix.

9. Individual Marketing  Individual Marketing – the ultimate level of segmentation – the segment of ONE, customized marketing or one-to-one marketing

10. Patterns of Market Segmentation  Preference segments:  Homogenous preferences  Diffused preferences  Clustered preferences

11. Basis for Segmentation Geographics Demographics Psychological Characteristics / Psychographics Socio-cultural Variables Use-related Characteristics Use-situation Factors Benefits Sought Hybrid Segmentation

12. Process of Market Segmentation Demographics Age Sex Marital Status Income Education Occupation Demographics help locate a target market while psychological and socio-cultural characteristics help to describe how its members think and how they feel

13. Process of Market Segmentation  Psychological / Psychographic Psychological Characteristics – inner or intrinsic qualities of an individual. E.g. needs, motivations, personalities, perceptions, learning, level of involvement, and attitudes Psychographic Research – Lifestyle Analysis (activities, interests, opinions)

14. Process of Market Segmentation Socio-cultural Family Life Cycle Social Class Culture, Subculture and Cross-Culture

15. Process of Market Segmentation Use related Rate of Usage Awareness Status Consumer Awareness Interest Level Buyer Readiness Brand Loyalty

16. Process of Market Segmentation  Usage Situation Marketers recognize that the occasion or situation often determines what consumers will purchase or consume.

17. Process of Market Segmentation  Benefit Segmentation Marketing and Advertising executives constantly attempt to isolate one particular benefit that they should communicate to consumers. Changing Lifestyles play a major role in determining the product benefits that are important to consumers and provide marketers with opportunities for new products and services Benefit Segmentation can be used to position various brands within the same product category

18. Process of Market Segmentation Hybrid Segmentation Psychographic –Demographic Profiles Geo-Demographic Segmentation VALS  VALS™ is a marketing and consulting tool that helps businesses worldwide develop and execute more effective strategies. The system identifies current and future opportunities by segmenting the consumer marketplace on the basis of attitudes and demographic traits that drive consumer behavior. VALS applies in all phases of the marketing process, from new-product development and entry-stage targeting to communications strategy and advertising. The basic tenet of VALS is that people express their personalities through their behaviors. VALS specifically defines consumer segments on the basis of those personality traits that affect behavior in the marketplace. Rather than looking at what people do and segregating people with like activities, VALS uses psychology to segment people according to their distinct personality traits. The personality traits are the motivation—the cause. Buying behavior becomes the effect—the observable, external behavior prompted by an internal driver.

19. Effective Segmentation  Not all segmentation is useful  To be useful, market segments must be:  Measurable  Substantial (large and profitable)  Accessible  Differentiable  Actionable

20. Market Targeting  How to decide how many and which segments to target?  Evaluating and selecting market segments  Additional considerations

21. Evaluating and Selecting the Target Market  Single Segment Concentration  Segment’s overall effectiveness  Company’s objectives and resources  Selective Specialization  Product Specialization  Market Specialization  Full Market Coverage

22.  Undifferentiated Marketing  The firm ignores the differences of segments and goes after the whole market with one offer. It relies on mass distribution and mass advertising  Differentiated Marketing  The firm designs different products for each segment it operates in. It normally has more sales than undifferentiated marketing, however the following costs are higher: Product modification Manufacturing Administrative Inventory Promotion

23. Additional Considerations  Ethical choice of target markets  Segment interrelationships and supersegments  Segment by segment invasion plan  Intersegment cooperation