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  1. 1. 4-1 Chapter Four Strategic Market SegmentationMcGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
  2. 2. 4-2 STRATEGIC MARKET SEGMENTATION Segmentation and market- driven strategy Identifying market segments Forming segments Finer segmentation strategies Selecting the segmentation strategy
  4. 4. 4-4Process understanding:Segments are determined.Customer value opportunities explored in eachsegment.Organizational capabilities matched to promisingsegment opportunities, market target selected formthe segments of interestpositioning strategy developed and implementedfor each market target
  5. 5. 4-5Segmentation is an identification process aimed atfinding subgroups of buyers within a total marketSegmentation offers a company an opportunity tobetter match its products and capabilities to buyersvalue requirements & customer satisfaction can beimproved by providing an value offering that matchesthe value proposition the buyer in a segment considerimportantCustomer value requirement can often be bettersatisfied within a segment, when compared to thetotal marketMarket targeting consists of evaluating and selectingone or more segments who’s value requirementsprovide a good match with the organizationcapabilities
  6. 6. From Mass Markets to Micro 4-6 Markets OLD NEWCONSUMERS Passively receive Empowered media users whatever TV control and shape content networks thanks to TiVo, iPod and broadcast InternetASPIRATIONS To keep up with To standout from the the crowd crowdTV CHOICE Three networks Hundreds of channels plus maybe a plus video on demand PBS stationMAGAZINES Age of the big Age of the special interest glossies: Time, magazine for every age Life, Newsweek and affinity groupADS Everyone hums Talking to a group of the Alka-Seltzer one, ads go ever jingle narrowerBRANDS Rise of the big, Niche brands, product ubiquitous brands extensions and mass from Coca-Cola customization mean many to Tide product variationsSource: Anthony Bianco, “The Vanishing Mass Market”, Business Week, July 12 2004, 58-62
  7. 7. 4-7 Identifying the Health and Beauty Supplies Market Segments Level of Product Illustrative Need/WantCompetition Definition Competitors Satisfied Generic Health & Consumer Enhancement Beauty Product of Health & Aids Companies Beauty Product Shaving Gillette, Shaving Type Equipment Remington, Bic Product Electric Braun, Electric Variant Razors Norelco, Shaving Remington, Panasonic Note: Generic: Super Market Shopper Types Product type: difference in price, quality and features Product Variant: Consider the segment within a category such as electric razors
  8. 8. 4-8 Market Segmentation Activities and Decisions Defining the Market to be Segmented Decide HowStrategic Analysis to Segment: selecting of Segments: Variables like frequency of Which Segment Use of product like regular To target Moderate etc. Finer Form Segments: Segmentation Experts divideStrategies: Smaller Segments like Segements Atlas Air or Stat Analysis
  9. 9. 4-9 Product Variant Segmentation Product Type SegmentationGeneric Segmentation
  10. 10. 4-10 Segmentation Variables Purchase Behavior: size and Frequency of purchaseBuyers Needs/Preferences: Characteristics Brand of People/ Awareness, Organizations; lifestyle Personality etc Attitude & preference Use Situation: buying meal Away from home For entertainment
  11. 11. 4-11Illustrative Segmentation Variables Consumer Industrial/ Markets Organizational Markets Characteristics Age, gender, Type of industry, of people/ income, size, geographic organizations family size, location, corporate lifecycle stage, culture, stage of geographic development, location, producer/ lifestyle intermediary Use situation Occasion, Application, importance of purchasing purchase, prior procedure experience with (new task, modified product, user rebuy, straight status rebuy Buyers’ needs/ Brand loyalty Performance preferences status, brand requirements, brand preference, preferences, desired benefits sought, features, service quality, proneness requirements to make a deal Purchase Size of purchase, Volume, frequency behavior frequency of of purchase purchase
  12. 12. 4-12 Requirements for Segmentation Identifiable segmentsResponse Actionabledifferences segments Segmentation Requirements Stability Favorable over time cost/benefit
  13. 13. 4-13 Approaches to Segment Identification IDENTIFIERS CUSTOMEROF CUSTOMER RESPONSE GROUPS PROFILE Characteristics of People and  Use Situation Organizations  Buyers Needs and Preferences
  14. 14. 4-14Segment Dimensions for Hotel Lodging Services
  15. 15. 4-15 llustrative Example: Gasoline BuyersRoad Higher-income, middle-aged 16% ofWarriors men, drive 25-50000 miles a year buyers … buy premium with a credit card … purchase sandwiches and drinks from the convenience store … will sometimes use carwashTrue Men and women with moderate to 16% ofBlues high incomes, loyal to a brand and buyers sometimes a particular station … frequently buy premium, pay in cashGeneration Upwardly mobile men and women - 27% ofF3 (Fuel, half under 25 years of age - buyersFood & Fast) constantly on the go … drive a lot snack heavily from the convenience storeHomebodies Usually housewives who shuttle 21% of children around during the day and buyers use whatever gas station is based on town or on route of travelPrice Not loyal to brand or station and 20% ofShoppers rarely buy premium … frequently on buyers tight budgets.
  16. 16. 4-16 Illustrative Consumer Perception Map Expensive GROUP • Brand E II • Brand A • Brand B GROUP VLow HighQuality GROUP Quality I GROUP III • Brand C • Brand D GROUP IV Inexpensive
  17. 17. 4-17 Finer Segmentation Strategies Logic of finer segments – customized offerings – diverse customer base – close customer relationships Finer segmentation strategies – microsegmentation – mass customization – variety-seeking strategy
  18. 18. 4-18 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
  19. 19. 4-19 Strategic Analysis of Market Segments Customer AnalysisFinancial and Market CompetitorAttractiveness Analysis Positioning Analysis
  20. 20. 4-20 Exhibit 4-11 Segment Financial and Market Attractiveness Segment X Y ZEstimated($ million)Sales* 10 16 5Variable costs* 4 9 3Contribution margin* 6 7 2Market share ~ 60% 30% 10%Total segment sales 17 53 50Segment position:Business strength High Medium LowAttractiveness # Medium Low High*For a two-year period.~Percent of total sales in the segment.#Based upon a five-year projection.
  21. 21. 4-21 Segmentation “Fit” for Implementation Segment Attractiveness and Internal Compatibility Internal Compatibility High Low Attractive segments Attractive segments that match with but with poor match High company with company capabilities capabilitiesMarket SegmentAttractiveness Unattractive segments Unattractive segments but with match to that do not match with Low company company capabilities capabilities
  22. 22. 4-22 Assignment Write report on Socio Economic Classes forSegmentation and present in Groups