mma6e chapter-08 final

Marketing Management:An Asian Perspective, 6th Edition

Instructor Supplements Created by Geoffrey da Silva

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Identifying Market Segments and Targets

8© Pearson Education South Asia Pte Ltd 2013. All rights reserved

Learning Issues for Chapter Eight

1. What are the different levels of market segmentation?

2. In what ways can a company divide a market into segments?

3. What are the requirements for effective segmentation?

4. How should business markets be segmented?

5. How should a company choose the most attractive target markets?

4 © Pearson Education South Asia Pte Ltd 2013. All rights reserved

Importance of Market Segmentation

• Companies cannot connect with all customers in large, broad, or diverse markets.

• But they can divide such markets into groups of consumers or segments with distinct needs and wants.

• A company then needs to identify which market segments it can serve effectively.

• This decision requires a keen understanding of consumer behavior and careful strategic thinking.

• To develop the best marketing plans, managers need to understand what makes each segment unique and different.


Target Marketing

• To compete more effectively, many companies are now embracing target marketing.

• Effective target marketing requires that marketers: a. Identify and profile distinct groups of buyers who differ in their

needs and wants (market segmentation).b. Select one or more market segments to enter (market

targeting).c. For each target market, establish and communicate the

distinctive benefit(s) of the company’s market offering (market positioning).


Bases for Segmenting Consumer Markets

• Market segmentation divides a market into well-defined slices.

• A market segment consists of a group of customers who share a similar set of needs and wants.

• The marketer’s task is to identify the appropriate number and nature of market segments and decide which one(s) to target.


Bases for Segmenting Consumer Markets

• There are two broad groups of variables to segment consumer markets.

a. Descriptive characteristics: geographic, demographics, and psycho-graphic.

b. Behavioral considerations: consumer responses to benefits, usage occasions, or brands.

• Regardless of which type of segmentation scheme we use, the key is adjusting the marketing program to recognize customer differences.


Table 8.1: Major Segment Variables for Consumer Markets


Table 8.1 Major Segment Variables for Consumer Markets (cont’d)


Geographic Segmentation

• Geographic segmentation calls for dividing the market into different geographical units such as nations, states, regions, counties, cities, or neighborhoods.

• The company can operate in one or a few areas, or operate in all but pay attention to local variations.

• In that way, it can tailor marketing programs to the needs and wants of local customer groups in trading areas, neighborhoods, and even individual stores.


Example of Geographic Segmentation

Even in a small country like Singapore, Esprit practices segmentation. Its Liat Towers store carries a wider range and attracts a different clientele, mostly tourists and expatriates, while a few hundred meters away, its Wisma Atria store attracts locals.


Geographic Segmentation: Grassroots Marketing

In a growing trend called grassroots marketing, such activities concentrate on getting as close and personally relevant to individual customers as possible.


Geographic Segmentation: Grassroots Marketing

Example: HP in India

Working with the local government, as well as a branch of HP Labs based in India, the company, through grassroots marketing, provides the rural poor with access to government records, schools, health information, crop prices, and so on. Its hope is to stimulate small, tech-based businesses. Not only does this build goodwill and the HP brand in India, it also helps the company discover new, profitable lines of business.


Geographic Segmentation: Regional Marketing

• More and more, regional marketing means marketing right down to a specific district.

• Some companies use mapping software to show the geographic locations of their customers.

• By mapping the densest areas, the retailer can resort to customer cloning, assuming that the best prospects live where most of his customers come from.


Geographic Segmentation: Regional Marketing

• Some approaches combine geographic data with demographic data to yield even richer descriptions of consumers and neighborhoods.

• Called geo-clustering, it captures the increasing diversity of the population.


Using Data Mining to Determine Shopper Profiles (Circle K in Hong Kong)

Hong Kong convenience store chain, Circle K, uses data mining to find out the purchase profile of shoppers in different geographic area. Each outlet carries different items depending on the profile.


Demographic Segmentation

In demographic segmentation, we divide the market by variables such as age, family size, family life cycle, gender, income, occupation, education, religion, race, generation, nationality, and social class.


Reasons for Popularity of Demographic Segmentation

• First, consumer needs, wants, usage rates, and product and brand preferences are often associated with demographic variables.

• Second, demographic variables are easier to measure.

• Even when the target market is described in non-demographic terms (say, a personality type), the link back to demographic characteristics is needed to estimate the size of the market and the media that should be used to reach it efficiently.


Age and Life-Cycle Stage

• Consumer wants and abilities change with age.

• Nevertheless, age and life cycle can be tricky variables.

• The target market for some products may be the psychologically young.


Eversoft Infinite

Eversoft Infinite targets the young segment who wants anti-aging products. It has Charmaine Sheh, a mature but youthful-looking celebrity, endorse the product.


Gender Segmentation

• Gender differentiation has long been applied in clothing, hairstyling, cosmetics, and magazines.

• Men and women have different attitudes and behave differently, based partly on genetic makeup and partly on socialization.

• Examples:–Women tend to be more communal-minded and men tend to be

more self-expressive and goal-directed.–Men often like to read product information; women may relate to a

product on a more personal level.


Gender Segmentation

• Some traditionally more male-orientated markets are beginning to recognize gender segmentation, changing how they design and sell their products.

• Example: Several Korean car manufacturers have designed cars specifically for women. Banks are also finding women a lucrative segment in Japan.


Income

• Income segmentation is a long-standing practice in product and service categories.

• However, income does not always predict the best customers for a given product.

• Increasingly, companies are finding their markets are hourglass-shaped as middle-market consumers migrate toward both discount and premium products.


Example of Income Segmentation: Banyan Tree

Banyan Tree is a niche international chain of high-end resorts and hotels catering to the affluent.


Example of Income Segmentation: Kraft in Rural Indonesia

• In Indonesia, for instance, such rising rural incomes have not gone unnoticed and Kraft has adapted its products to suit this segment.

• Rural consumers are still extremely price sensitive. Television ads are thus adapted to make the products more approachable and affordable.

• Kraft offers products in biscuit and soft cake forms, and in smaller packages to be sold at snack kiosks in towns and villages.

• Small packets costs 500 rupiah (6 cents) thereby making it extremely affordable to the rural customer.


Marketing Insight: Trading Up, Down, and Over

• A new pattern in consumer behavior has emerged in recent years: “New Luxury” and in order to trade up to these brands that offer emotional benefits, consumers often “trade down” by shopping at discounters.

• Three main types of New Luxury products are identified:–Accessible super-premium brands–Old Luxury brand extensions–Masstige goods


Generation

• Each generation or cohort is profoundly influenced by the times in which it grows up.

• Demographers call these groups cohorts.

• They share similar outlooks and values.

• Marketers often advertise to a cohort by using the icons and images prominent in its experiences.


Gen Y

• A generation group of interest to marketers is the Gen Y.

• Because Gen Y members are often turned off by overt branding practices and “hard sell,” marketers use different approaches to reach and persuade them.

• These include online buzz, student ambassadors, product placements in computer games, and sponsoring cool events.


Gen Y in China

China’s Gen Y are more entrepreneurial, more Internet connected, and know more about Westerners than Westerners know about them.


Psychographic Segmentation

• Psychographics is the science of using psychology and demographics to better understand consumers.

• In psychographic segmentation, buyers are divided into different groups on the basis of psychological/personality traits, lifestyle, or values.

• People within the same demographic group can exhibit very different psychographic profiles.


Psychographic Segmentation

• One of the most popular commercially available classification systems based on psychographic measurements is Strategic Business Insights’ VALSTM framework.

• VALS classifies adults into eight primary groups based on personality traits and key demographics.

• The segmentation system is based on responses to a questionnaire featuring four demographic and 35 attitudinal questions (see Figure 8.1).


Figure 8.1: The VALS Segmentation System

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The main dimensions of the VALS segmentation framework are consumer motivation (the horizontal dimension) and consumer resources (the vertical dimension).

© Pearson Education South Asia Pte Ltd 2013. All rights reserved

Four groups with HIGHER resources

1. Innovators—Successful, sophisticated, active, and “take-charge” people with high self-esteem. Purchases often reflect cultivated tastes for relatively upscale, niche-oriented products and services.

2. Thinkers—Mature, satisfied, and reflective people who are motivated by ideals and value order, knowledge, and responsibility. Favor durability, functionality, and value in products.


Four groups with HIGHER resources

3. Achievers—Successful career- and work-oriented people who value consensus and stability. They favor established and prestige products that demonstrate success to their peers.

4. Experiencers—Young, enthusiastic, and impulsive people who seek variety and excitement. Spend a comparatively high proportion of income on fashion, entertainment, and socializing.


Four groups with LOWER resources

1. Believers—Conservative, conventional, and traditional people with concrete beliefs. Favor familiar and established products and are loyal to established brands.

2. Strivers—Trendy and fun-loving people who seek the approval of others but are resource-constrained. Favor stylish products that emulate the purchases of those with greater material wealth.


Four groups with LOWER resources

3. Makers—Practical, self-sufficient, traditional, and family-oriented people who focus on their work and home context. Favor basic products with a practical or functional purpose.

4. Strugglers—Elderly, resigned, and passive people who are concerned about change. Loyal to their favorite brands.


Behavioral Segmentation

In behavioral segmentation, marketers divide buyers into groups on the basis of their knowledge of, attitude toward, use of, or response to a product.


Needs and Benefits

• Not everyone who buys a product has the same needs or wants the same benefits from it.

• Needs-based or benefits-based segmentation is a widely used approach because it identifies distinct market segments with clear marketing implications.


Needs and Benefits Segmentation – P&G

Procter & Gamble, for instance, has different shampoo brands according to the needs of each segment.

• Head & Shoulders is for those who need to control their dandruff problem;

• Pantene is for those who want to protect their hair from environmental damage from the sun;

• Rejoice is for those who want a mild shampoo for everyday use.


Tourism Australia

• Tourism Australia wanted to find out the needs of various tourists to attract them to visit Australia.

• It used two dimensions to identify tourist needs—the level of experience travellers have in long-haul travel and preference towards challenging themselves when traveling.

• There are four main segments:i. Family Focus Koreansii. Comfort Touristsiii. Adventure Seekersiv. Functional Travelers


Decision Roles

• It is easy to identify the buyer for many products.

• People play five roles in a buying decision: initiator, influencer, decider, buyer, and user.

• Different people are playing different roles, but all are crucial in the decision process and ultimate consumer satisfaction.


User and Usage—Real User and Usage-related Variables

Many marketers believe that behavioral variables—occasions, benefits, user status, usage rate, loyalty status, buyer-readiness stage, and attitude—are the best starting points for constructing market segments.


Occasions

• Occasions are determined by a time of day, week, month, year or other well-defined temporal aspects of a consumer’s life.

• Buyers can be distinguished according to the occasions when they develop a need, purchase a product, or use a product.


Occasions

• For example, air travel is triggered by occasions related to business, vacation, or family.

• Occasion segmentation can help firms expand product usage.


User Status

• Markets can be segmented into non-users, ex-users, potential users, first-time users, and regular users of a product.

• Each will require a different marketing strategy.

• The key to attracting potential users, or even possibly nonusers, is understanding the reasons they are not using.

• Market-share leaders tend to focus on attracting potential users because they have the most to gain.

• Smaller firms focus on trying to attract current users away from the market leader.


Usage Rate

• Markets can be segmented into light, medium, and heavy product users.

• Heavy users are often a small percentage of the market but account for a high percentage of total consumption.

• Marketers would rather attract one heavy user than several light users.

• A potential problem is that heavy users are often either extremely loyal to one brand, or never stay loyal to a brand and are always looking for the lowest price.


Usage Rate—The Chinese Internet Market

The Digital Junkies are the most intensive Internet users among the Chinese. They spend more than 34 hours a week with digital media compared to the average of 15.8 hours.


Buyer Readiness Stage

• Some people are unaware of the product, some are aware, some are informed, some are interested, some desire the product, and some intend to buy.

• To help characterize how many people are at different stages and how well they have converted people from one stage to another, some marketers employ a marketing funnel.

• See Figure 8.2: The Brand Funnel.


Figure 8.2: The Brand Funnel

The relative numbers of consumers at different stages make a big difference in designing the marketing program.


Loyalty Status

Buyers can be divided into four groups according to brand loyalty status:

1. Hard-core loyals—Consumers who buy only one brand all the time.

2. Split loyals—Consumers who are loyal to two or three brands.

3. Shifting loyals—Consumers who shift loyalty from one brand to another.

4. Switchers—Consumers who show no loyalty to any brand


Marketing Applications

A company can learn a great deal by analyzing the degrees of brand loyalty:

i. By studying its hard-core loyals, the company can identify its products’ strengths;

ii. By studying its split loyals, the company can pinpoint which brands are most competitive with its own; and

iii. By looking at customers who are shifting away from its brand, the company can learn about its marketing weaknesses and attempt to correct them.


Attitude

Five attitude groups can be found in a market: enthusiastic, positive, indifferent, negative, and hostile.


Multiple Bases

• Combining different behavioral bases can help to provide a more comprehensive and cohesive view of a market and its segments.

• Figure 8.3 depicts one possible way to break down a target market by various behavioral segmentation bases.


Figure 8.3: Behavioral Segmentation Breakdown


Bases for Segmenting Business Markets

• Business markets can be segmented with some of the same variables used in consumer market segmentation, such as geography, benefits sought, and usage rate, but business marketers also use other variables.

• Thomas Bonoma and Benson Shapiro proposed segmenting the business market with the variables shown in Table 8.2.


Table 8.2: Major Segmentation Variables for Business Markets


Table 8.2: Major Segmentation Variables for Business Markets (cont’d)


Marketing Applications of Business Segmentation

• The table lists major questions that business marketers should ask in determining which segments and customers to serve.

• Within a chosen target industry, a company can further segment by company size. The company might set up separate operations for selling to large and small customers.

• Within a given target market industry and customer size, a company can segment further by purchase criteria.


Segmenting Business Markets

• Business marketers generally identify segments through a sequential process.

• The company first undertook macro-segmentation.

• It looked at which end-use market to serve: automobile, residential, or beverage containers.

• It chose the residential market, and it needed to determine the most attractive product application: semi-finished material, building components, or aluminum mobile homes.

• Deciding to focus on building components, it considered the best customer size and chose large customers.



• The second stage consisted of micro-segmentation.

• The company distinguished among customers buying on price, service, or quality.

• Because it had a high-service profile, the firm decided to concentrate on the service-motivated segment of the market.



• Business-to-business marketing experts Anderson and Narus have urged marketers to present flexible market offerings to all members of a segment.

• A flexible market offering consists of two parts: a naked solution containing the product and service elements that all segment members value, and discretionary options that some segment members value.

• Each option might carry an additional charge.


Market Targeting

• Once the firm has identified its market-segment opportunities, it has to decide how many and which ones to target.

• Marketers are increasingly combining several variables in an effort to identify smaller, better-defined target groups.

• This has lead some researchers to advocate a needs-based market segmentation approach.


Table 8.3: Steps in the Segmentation Process


Effective Segmentation Criteria

1. Measurable—The size, purchasing power, and characteristics of the segments can be measured.

2. Substantial—The segments are large and profitable enough to serve. A segment should be the largest possible homogeneous group worth going after with a tailored marketing program.


Effective Segmentation Criteria

3. Accessible—The segments can be effectively reached and served.

4. Differentiable—The segments are conceptually distinguishable and respond differently to different marketing-mix elements and programs.

5. Actionable—Effective programs can be formulated for attracting and serving the segments.


Porter’s Five Forces Model and Segment Attractiveness

Michael Porter has identified five forces that determine the intrinsic long-run attractiveness of a market or market segment: industry competitors, potential entrants, substitutes, buyers, and suppliers.



1. Threat of intense segment rivalry—A segment is unattractive if it already contains numerous, strong, or aggressive competitors.

2. Threat of new entrants—The most attractive segment is one in which entry barriers are high and exit barriers are low.

3. Threat of substitute products—A segment is unattractive when there are actual or potential substitutes for the product. Substitutes place a limit on prices and on profits.



4. Threat of buyers’ growing bargaining power—A segment is unattractive if buyers possess strong or growing bargaining power.

5. Threat of suppliers’ growing bargaining power—A segment is unattractive if the company’s suppliers are able to raise prices or reduce quantity supplied.


Evaluating and Selecting the Market Segments

• In evaluating different market segments, the firm must look at two factors: – The segment’s overall attractiveness and– The company’s objectives and resources

• Does a potential segment have characteristics that make it generally attractive, such as size, growth, profitability, scale economies, and low risk?

• Does investing in the segment make sense given the firm’s objectives, competencies, and resources?


Segment Attractiveness

Energy drink, 100 Plus, considers the tertiary segment attractive enough for it to allocate resources such as this promotional banner put up at the National University of Singapore’s Business School to welcome students when they began their new academic year.


Possible Levels of Segmentation

• Marketers have a range or continuum of possible levels of segmentation that can guide their target market decisions.

• As Figure 8.4 shows, at one end is a mass market of essentially one segment; at the other are individuals or segments of one person.

• Between lie multiple segments and single segments.


Figure 8.4: Possible Levels of Segmentation


Full Market Coverage

• The firm attempts to serve all customer groups with all the products they might need.

• In undifferentiated marketing, the firm ignores segment differences and goes after the whole market with one offer.

• In differentiated marketing, the firm operates in several market segments and designs different products for each segment.


Full Market Coverage

Samsung identified six segments of mobile phone users based on their need for style, infotainment, business, multimedia, connection, and basic necessities. It has a slew of mobile phones to address these varied needs.


Undifferentiated Marketing

• In undifferentiated marketing or mass marketing, the firm ignores segment differences and goes after the whole market with one offer.

• It designs a product and a marketing program that will appeal to the broadest number of buyers.

• It relies on mass distribution and advertising.

• It aims to endow the product with a superior image.


Undifferentiated Marketing

• Undifferentiated marketing is “the marketing counterpart to standardization and mass production in manufacturing.”

• The narrow product line keeps down costs of research and development, production, inventory, transportation, marketing research, advertising, and product management.

• The undifferentiated advertising program also reduces costs.

• Presumably, the company can turn its lower costs into lower prices to win the price-sensitive segment of the market.


Differentiated Marketing

• In differentiated marketing, the firm operates in several market segments and designs different products for each segment.

• Differentiated marketing typically creates more total sales than undifferentiated marketing. However, it also increases the costs of doing business.

• Because differentiated marketing leads to both higher sales and higher costs, nothing general can be said about the profitability of this strategy.


Differentiated Marketing – Lenovo

Lenovo practices differentiated marketing to reach out more effectively to consumer and business customers.


Multiple Segment Specialization

• With selective specialization, a firm selects a subset of all the possible segments, each objectively attractive and appropriate.

• There may be little or no synergy among the segments, but each promises to be a moneymaker.



• Keeping synergies in mind, companies can try to operate in supersegments rather than in isolated segments. A supersegment is a set of segments sharing some exploitable similarity.



• With product specialization, the firm sells a certain product to several different market segments. This leads to a strong reputation in the specific product area. The downside/risk is that the product may be supplanted by an entirely new technology.

• With market specialization, the firm concentrates on serving many needs of a particular customer group, such as by selling an assortment of products only to university laboratories. The firm gains a strong reputation among this customer group and becomes a channel for additional products its members can use. The downside/risk is that the customer group may suffer budget cuts or shrink in size.



Although P&G initially targeted very specific segments with its Crest Whitestrips tooth-whitening product, it later expanded both its product offerings and its target markets.


Single-segment Concentration

• With single-segment concentration, the firm markets to only one particular segment.

• Through concentrated marketing, the firm gains deep knowledge of the segment’s needs and achieves a strong market presence.

• Further, the firm enjoys operating economies through specializing its production, distribution, and promotion.

• If it captures segment leadership, the firm can earn a high return on its investment.


Tiger Motorcycles in Thailand

Tiger’s bikes are targeted at a segment that Japanese producers have overlooked—the thrifty, yet style-conscious, rural rider.


Niche Marketing

• A niche is a more narrowly defined customer group seeking a distinctive mix of benefits within a segment. Marketers usually identify niches by dividing a segment into sub-segments.

• Niche marketers aim to understand their customers’ needs so well that customers willingly pay a premium.

• However, there are risks. A market segment can turn sour or a competitor may invade the segment.


Individual Marketing

• The ultimate level of segmentation leads to “segments of one,” “customized marketing,” or “one-to-one marketing.

• Today customers are taking more individual initiative in determining what and how to buy.

• They log onto the Internet; look up information and evaluations of product or service offerings; conduct dialogue with suppliers, users, and product critics; and in many cases design the product they want.

• Customerization combines operationally driven mass customization with customized marketing in a way that empowers consumers to design the product and service offering of their choice.


Ethical Choice of Market Targets

• Market targeting also can generate public controversy when marketers take unfair advantage of vulnerable or disadvantaged groups, or promote potentially harmful products.

• Example, the fast-food industry has been heavily criticized for marketing efforts directed toward children.


Ethical Choice of Market Targets

Socially responsible marketing calls for targeting that serves not only the company’s interests, but also the interests of those targeted.


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mma6e chapter-08 final

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