How to divide markets into meaningful customer groups
To design a winning marketing strategy, we must answer two important questions:
What customers will we serve (what’s our target market)?
How can we serve these customers best (what’s our value proposition)?
customer needs and
customers and the
Design a customer-
to serve: market
Decide on a value
Construct an integrated
that delivers superior
Pricing: create real
and supply chains
create customer delight
Capture value from
customers to create
profits and customer
Increase share of
market and share
1. - Selecting Customers to Serve
We do this by dividing the market into segments of customers (market segmentation)
and selecting which segments it will go after (target marketing).
2. - Choosing a Value Proposition
We must also decide how we will serve targeted customers and
How we will differentiate and position ourselves in the marketplace.
Divide the total market
into smaller groups
Select the segment or
segments to enter
market offering to
Position the market
offering in the minds
of target customers
Select customers to serve Decide on a value proposition
Market segmentation involves dividing a market into smaller groups of clients
with different needs, characteristics, or behaviors.
We need to identify a way to segment the market and develop profiles of the resulting
Segmenting Consumer Markets
•Geographic Segmentation calls for dividing the market into different geographical units
such as nations, regions, provinces, parishes, cities, or even neighborhoods.
A company may decide to operate in one or a few geographical areas,
or to operate in all areas but pay attention to geographical differences in needs and wants.
World region or country Europe, Spain, Africa, Ivory Coast, Middle East, Qatar, North America, Canada
Country region East Asia, South Asia, North Asia
City size Under 5,000; 5,000-20,000; 20,000-50,000; 50,000-100,000; 100,000-250,000; 250,000-
500,000; 500,000-1,000,000; 1,000,000-4,000,000; over 4,000,000
Density Urban, suburban, exurban, rural
Climate Northern, southern
Segmenting Consumer Markets
•Demographic Segmentation divides the market into groups based on variables such as
age, gender, family size, family life cycle, income, occupation, education, religion,
race, generation, and nationality.
Age Under 6; 6-11; 12-19; 20-34; 35-49; 50-64; 65+
Gender Male, Female
Family size 1-2; 3-4; 5+
Family life cycle Young, single; married, no children; married with children; single parents; unmarried
couples; older, married, no children under 18; older, single; other
Income Under € 20,000; € 20,000-€ 30,000; € 30,000-€ 50,000; € 50,000-€ 100,000; € 100,000-€
250,000; € 250,000 and over
Occupation Professional and technical; managers, officials, and proprietors; clerical; sales; craftspeople;
supervisors; farmers; retired; students; homemakers; unemployed
Education Primary School or less; some secondary school; secondary school graduate; some college;
Religion Jewish; Muslim; Hindu; Buddhist; Christian, other
Race Asian; Hispanic; Black; White
Generation Baby boomer, Generation X, Millenial
Nationality British, Swiss, Spanish French, German, Italian, Japanese
Segmenting Consumer Markets
•Psychographic Segmentation divides buyers into different groups based on
social class, lifestyle, or personality characteristics.
People in the same demographic group can have very different psychographic profiles.
Social class Lower lowers; upper lowers; working class; middle class; upper middles; lower uppers;
Lifestyle Achievers; strivers; survivors
Personality Compulsive; gregarious; authoritarian; ambitious
Segmenting Consumer Markets
•Behavioral Segmentation divides buyers into groups based on
their knowledge, attitudes, uses, or responses to a product or service
Many marketers believe that behavior variables are the best starting point
for building market segments.
Occasions Regular occasion; special occasion; holiday; seasonal
Benefits Quality; service; economy; convenience; speed
User status Nonuser; ex-user; potential user; first-time user; regular user
User rates Light user; medium user; heavy user
Loyalty status None; medium; strong; absolute
Readiness stage Unaware; aware; informed; interested; desirous; intending to buy
Enthusiastic; positive; indifferent; negative; hostile
As Marketers we need to move away from market segments based on characteristics,
and instead embrace consumer tribes, which are based on behavior.
Tribes are now a part of the social landscape and companies will need to learn
to engage with them if they are to be competitive.
In his 1997 bestseller “Sex in the Snow” Michael Adams argues that individuals' identities
are increasingly defined not by traditional demographic markers such as age, race, gender,
and class, but by their personal values and worldviews.
For me a Tribe is a group that Shares a Given Interest
“The issue is not that it’s difficult to get your word out,
the thing that is difficult is to get people to care,
the thing that is difficult is to get people to listen.
The answer is not get your word out more.
The answer is change what you’re talking about”.
“People buy because of the story and the way it makes them feel”.
“So rather than saying to everyone in the world, everyone should buy this because its best,
they should just say: No. There’s only 5,000 of them.
It’s not for everyone, if you’re one of the people it’s for, we’d live to hear from you.
And that’s how you build a culture, a movement. Not by saying everyone must buy this”.
Consumer tribe members are highly influenced by consumer tribe leaders.
What types of leaders head your target tribes?
Who are the leaders and the followers in your target tribes?
One alternative view of tribal marketing is that rather than leaders,
brands must become the facilitators of the conversation.
“Our role as marketers as being purely one of facilitators and very hands-off - just creating a
platform and possibly creating a set of rules for consumers to be able to engage on that
platform, ultimately letting the communication flow between the customers”.
“To create the world’s best long-haul flight experience,
one that looks after everyone on the plane –from families to business travelers and holidaymakers”.
Long-haul Flyer Segmentation
The story of this case started in 2005 when Air New Zealand took delivery of its
The new interior was configured in a three class layout of:
• Business Premier, Rows 1 to 7 (26 seats)
• Pacific Premium Economy, Rows 23 to 26 (36 seats)
• and Pacific Economy, Rows 34 to 67 (242 seats)
They suppress the unprofitable First Class and added a bunch of Premium Economy Seats
But after that, the Airline management board understood
that they weren’t innovating
And for a “small” company the only way to compete in the current market is
to be more innovative and to offer customers a unique experience from the
moment they make the decision to choose Air New Zealand.
To prepare for the launch of the new Boeing 777-300 aircraft in November 2010,
Air New Zealand analized its current long-haul offering.
In 2007 Air New Zealand approached Research Solutions (Synovate)
The challenge for Synovate’s researchers was to determine what segments
do in fact exist in sufficient numbers, so that the future long haul product design
could be shaped by their presence in (and their value to) the market.
A segmentation survey was conducted in September and October 2007
and included over 1,000 Air New Zealand long haul travelers who lived in New Zealand.
They were asked about their attitudes to…
• The Airline
• Their personal space
• General rules and processes during the flight
• The Crew
• What to do in-flight
• Other passangers
Respondents answered on a 9-point scale ranging from strongly disagree to strongly agree.
They applied multi-variate analysis to determine the extent to which there were distinct segments
reflecting different traveler typologies.
Synovate’s approach to segmentation is that segments must …
• Be statistically robust (i.e. there must be a reasonable level of statistical validity);
• Be sufficiently large to be useful within the dataset in which they occur;
• Be useful, in the sense that they “make sense” and are distinctly different on things
that matter to the client and the purpose for which the research is being conducted.
As a result, Synovate recommend a five-segment solution –
based on the attitudinal statements developed and analyzed,
as well as our general understanding of travelers, their needs,
and their commitment to Air New Zealand and other competitor airlines.
In addition to clustering and profiling these segments,
the Company brainstormed their individual characteristics, and Synovate’s Qualitative
Director Grant Storry brought them to life by adding a qualitative dimension to the
understanding of the different types of travelers:
“I was sent the segment profiles and asked if I could interpret them.
When I looked at the data I tried to visualize archetypal characters that:
shared some of these characteristics and
would be well known and help the reader “recognize” the segments.
It did not take long for the Simpsons to leap out of the data. They provided the best fit
and range of characters –and that’s how the segments came to life!”,
Positivists: Marge Simpson
Planners and organizers.
Fidgety and excited. The flight is part of the holiday
and they want the fun to start NOW.
Want engagement in everything.
Highly involved in the flight and the romance of travel.
Socialites: Bart Simpson
Social, but needy.
Can’t entertain themselves so need external
stimulation and direction.
Highly involved in the flight and looking
to the airline experience to entertain them.
Cocooners: Lisa Simpson
Flight is necessary part of the trip but not the trip itself.
Zone out, just get me there and let me entertain myself.
Not highly involved in the flight, but can look after themselves.
Prefer a quiet cabin away from families.
Probably snigger at ‘Positivists’.
Disengaged: Mo the Bartender
Jaded flyers. It’s a bus trip, a way to get from A to B.
Don’t like flying so don’t try to make it special because you can’t.
Very hard to please.
Close to the ‘Cocooners’, but differ in their complete lack of enthusiasm.
Territorialists: Mr. Burns
Want their own piece of the plane and to be left alone.
They claim their territory and form a close relationship with their space.
Highly involved in the flight, but selfishly – it’s all about me!
Weighted towards frequent flyers.
While the research segments were used across all aspects of the long haul experience design
from in-flight entertainment to food and beverage, …from segmentation…to the
Simpsons…most significant influence was over the design of new seating experiences.
The Company considered the needs of The Simpsons five customer profiles of airline
passengers when they designed the cabin layout of its new fleet of five Boeings 777-300s.
The most significant shift this project has delivered is that Air New Zealand is now
selling experiences rather than just seats.
In 2009, Air New Zealand served more than 12 million passengers, and Condé Nast Traveller ranked it as the No. 2 long-haul leisure
In 2010 Air NZ was named the Air Transport World Airline of the Year by Penton Media's Air Transport World, the leading monthly
magazine covering the global airline industry.
Despite The uncertainty surrounding the global economic recovery, Air New Zealand has reaffirmed itself as one of the world's top
performing airlines, announcing normalized earnings before taxation of $137 million for the 12 months ended 30 June 2010.