Lecture 7 Identifying Market Segments and Targets


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Lecture 7 Identifying Market Segments and Targets

  1. 1. Lecture 7: Identifying Market Segments and Targets; Prepared by Zaved Mannan 1 | P a g e Lecture 7 Identifying Market Segments and Targets Objectives At the completion of this lecture, you should be able to : • explain what it means to ‘segment’ a market; • list the basic steps in segmenting a market; • describe the bases used to segment consumer and business markets; • evaluate and select segments for targeting; and • understand the importance of positioning to segmenting and targeting. Commentary We have all heard the saying that ‘the company should aim for a market niche’ or that ‘your company should aim for a different segment’. But what does this mean? The purpose of this lecture is to introduce you to the concept of market segmentation and show how intelligent companies rarely try to be ‘all things to all people’ but instead, deliberately choose which group of customers they wish to serve best. Essential Reading Textbook: Kotler et al. (2009), Chapter 8. Optional Reading 7.1: Tan, A. Y. F., & Lo, A. S. Y. (2008). A benefit-based approa to market segmentation: A case study of an American specialty coffeehouse cha in Hong Kong. Journal of Hospitality and Tourism Research, 32(3), 342-362.
  2. 2. Lecture 7: Identifying Market Segments and Targets; Prepared by Zaved Mannan 2 | P a g e Market Segmentation Organizations can basically adopt the following approaches to a market. Mass Marketing This is the decision to mass produce and mass distribute one product and attempt to attract all kinds of buyers. Segment Marketing Companies identify groups of consumers with broadly similar needs, then develop products services to meet such needs. For example baby Boomers (those born between 1976 to 1961), Generation N (born early 60s to early 80s) and Generation Y (born mid 80s to mid 90s) are broad market segments. Niche Marketing A niche is really a very small group within a segment with distinctive needs and generally willing to pay a premium price for products that meet their needs. For example, vegans or lactose intolerant consumers constitute two different niche markets. Local Marketing Perhaps a good example of local marketing is the case of large real estate chains which target various ethnic groups in certain suburbs with agents able to speak a range of Asian languages. Customerisation Taken to the ultimate level, organization can develop products and services suitable for a ‘segment of one’. This type of customisation was not possible in the past due to the high cost of creating individualised products for each customer. An example of Customerisation is offered by Dell where you can basically design your own computer suitable for your needs including software and even colour. Kotler et al. (2009, pp. 200-205) provide good coverage of these approaches. Market-segmentation procedure In segmenting a market, the following are the usual steps. Survey the market gather data on attributes, brand awareness, product usage patterns, demographics, etc. Analyse data the data is analysed to reveal clusters of similar groups with similar preferences.
  3. 3. Lecture 7: Identifying Market Segments and Targets; Prepared by Zaved Mannan 3 | P a g e Profile each cluster is then profiled along a group of important variables. The clusters are then usually given a descriptive label, e.g. young and outgoing, which is meant to convey the essential characteristics of the cluster. Bases for Segmenting Consumer Markets There are a number of variables on which consumer markets can be segmented. These are listed briefly in Table 7.1 below. See Kotler et al. (2009, pp. 206-218) for a detailed description. Table 7.1: Segmentation variables for consumer markets 1. Geographic Nations, states, regions, countries, cities 2. Demographics Age & life-cycle, gender, income, social class 3. Psychographic Lifestyle, personality 4. Behavioural Purchase occasions, benefits sought, user status, usage rate, loyalty status, buyer-readiness stage, attitude 5. Multi-attribute (Geo-clustering) This technique assumes that people who live near each other exhibit similar traits in many of the above bases for segmentation Bases for Segmenting Business Markets Again, Kotler et al. (2009, pp. 218-219) provides more detail in table 8.2. Briefly, the following (in order of importance) are considered useful means for segmenting business markets. READ Optional Reading 7.1: Tan, A. Y. F., & Lo, A. S. Y. (2008). A benefit-based approach to market segmentation: A case study of an American specialty coffeehouse chain in Hong Kong. Journal of Hospitality and Tourism Research, 32(3), 342-362. This article gives you a chance to see market segmentation in action. In this case the research has been carried out on existing customers. The descriptions of the segments that emerged from the research show clearly the implications for marketing practice, with clear insight into how products, services, and promotions could be matched to the preferences of particular segments.
  4. 4. Lecture 7: Identifying Market Segments and Targets; Prepared by Zaved Mannan 4 | P a g e 1. Demographic 2. Operating variables. 3. Purchasing approaches. 4. Situational factors 5. Personal characteristics. Requirements for Effective Segmentation Regardless of whether segmenting consumer or business markets, useful market segments should be meet the following criteria. 1. Measurable. 2. Substantial. 3. Accessible. 4. Differentiable. 5. Actionable. Market Targeting Assuming that the company has segmented the market, it now has to decide which segments it should target. Segment evaluation There are two factors of importance: 1. Segment size, growth and structural attractiveness 2. Company objectives and resources. Essentially, the company has to identify those segments that appear to be profitable (currently and in the future) and that the company has the resources to compete effectively in. Selecting the Market Segments Basically, there are five broad ways in which the company can select the market segments as shown in Table 7.2 below. Table 7.2: Market coverage approaches 1. Single-segment concentration The company decides to serve one segment of the market only. This is sound in that the company becomes a specialist; however, it also means the company has ‘all its eggs in one basket’. 2. Selective specialisation This is basically an extension of the above strategy, with the obvious
  5. 5. Lecture 7: Identifying Market Segments and Targets; Prepared by Zaved Mannan 5 | P a g e difference being that the firm is now serving more that on specialised segment. Main benefit is the company is no longer overexposed by only serving one segment. 3. Product specialization Here, the company makes one type of product only, which it then markets to more than one segment. 4. Market specialization Here, the company meets the various needs of one particular market segment. 5. Full market coverage Here, the company, usually a large organization, attempts to cover all segments of the market with a varity of product offerings, known as differentiated marketing. However, the firm may also attempt full market coverage by offering one product to the whole market, e. g. Gillete Sensor razor blade. Positioning All marketing strategy is built on segmentation, targeting and positioning. A company discovers different needs in the marketplace, targets those needs it can satisfy in a superior way and finally, positions its offering so that the target market recognises the company’s distinctive offering and image. This positioning is based on a ‘value proposition’ or a set of benefits that meets the target segment’s needs. An example of this is the Pedigree positioning statement ‘We’re for dogs.’ This provides a clear, unambiguous message to their consumers about the company focus and products. Their target segment is dog owners, not pet owners in general. With this they are establishing themselves as a specialist in the eyes of their consumers. This important concept of positioning will be expanded in greater depth in Lecture 8. Conclusion Market segmentation is all about identifying groups of people with relatively similar needs, so that marketers are better able to manage their offerings. A number of considerations need to be taken into account when segmenting the market including whether it is manageable, accessible, feasible or profitable. A number of characteristics of those who comprise the market can be used to segment the
  6. 6. Lecture 7: Identifying Market Segments and Targets; Prepared by Zaved Mannan 6 | P a g e market. These include psychographic, demographic, behavioural and geographic. The business market can also be segmented, but usually by different characteristics. Prepared by Zaved Mannan Adjunct Faculty Member University of Liberty Arts Bangladesh