2. What is Market Segmentation?
• Process of dividing a potential market into
distinct subsets of consumers with
common needs or characteristics.
• Separating a heterogeneous market into
smaller homogeneous units.
3. Important Elements of Market
Segmentation
• Each market segment has unique needs
and wants and will have a unique demand
curve.
• Each market segment requires its own
marketing strategy and marketing plan.
4. • Market segmentation produces increased
costs to the firm in the short run.
• Increased costs are generally offset by
increasing sales in the long run.
7. Segmentation Bases
• Geographic
– Country
– Region
– County size
– SMSA population
– Density
• Demographic
– Age
– Sex
– Education
– Occupation
– Race
– Family life cycle
10. Market Attractiveness
• Market attractiveness represents the
degree of market opportunity offered by a
market segment and the ability of the firm
to meet the segment’s needs within a
competitive setting.
• Determining market attractiveness is a
four-step process.
12. Market Attractiveness Factors
• Market/customer
– Size ($’s, units)
– Market potential
– Market growth rate
– Product life cycle stage
– Differentiation potential
– Customer loyalty
– Price elasticity
• Economic/technological
– Investment intensity
– Industry capacity
– Level & maturity of
technology utilization
– Ability to pass through
inflation effects
– Barriers to entry/exit
– Access to raw materials
13. Market Attractiveness Factors
• Competitive
– Industry structure
– Competitive groupings
– Substitution threats
– Perceived differentiation
among competitors
– Individual competitors’
strengths
• Environmental
– Regulatory climate
– Degree of social
acceptance
14. Competitive Position Factors
• Market Position
– Relative market share
– Rate of change in share
– Perceived actual or
potential differentiation
– Breadth of current or
planned product line
– Company image
• Economic/technological
– Relative cost position
– Capacity utilization
– Technological position
– Patented technology
15. Competitive Position Factors
• Capabilities
– Management strength &
depth
– Financial
– R&D/product
development
– Manufacturing
– Marketing
– Salesforce
• Capabilities, con’t
– Distribution system
– Labor relations
– Relations with
regulators
• Interactions with other
segments
– Market synergies
– Operating synergies
16. Determining Market
Attractiveness (continued)...
• Second, weight the market attractiveness
and competitive position factors.
– What is the relative importance of each factor
to your firm?
• Third, rate each segment on attractiveness
and competitive position.
17. Example of Weighting and
Rating
Attractiveness
Factor Group Weight Rating* Total
Market 50 8 400
Economic/technolgy 20 9 180
competition 20 9 180
Environment 10 10 100
Total 100 36 860
Attractiveness rating = 860/10 = 86
Business Strengths
Factor Group Weight Rating* Total
Market position 20 9 180
Economic/technology 20 8 160
Capabilities 50 9 450
Interaction with other segments 10 10 100
Total 100 36 890
Business strength rating = 890/10 = 89
*Rating scale = 0-10.
18. Determining Market
Attractiveness (continued)...
• Fourth, evaluate the implications of
alternative positions within the market
attractiveness/competitive position matrix
for target market selection, strategic
objectives, and resource allocation.
– Select segment(s) that offer best opportunity
for profits.
19. Strong Medium Weak
High Desirable
Protect position:
- Invest to grow
- Concentrate on
maintaining
strength
Desirable
Invest to build:
- Challenge for
leadership
- Build on
strengths
- Reinforce
vulnerable areas
Build selectively:
- Specialize
around limited
strengths
- Overcome
weaknesses
- Withdraw if
sustainable
growth is not
possible
Medium Desirable
Build selectively:
- Emphasize
profitability by
increasing
productivity
- Build up ability to
counter
competition
Manage for
earnings:
- Protect existing
strengths
- Invest to improve
position only in
areas where risk
is low
Limited expansion
or harvest:
- Look for ways to
expand without
high risk
- Minimize
investment and
focus
operations
Low Protect & refocus:
-Defend strengths
-Seek ways to
increase earnings
without speeding
market’s decline
Manage for
earnings:
- Protect position
- Minimize
investment
Divest:
- Sell when
possible to
maximize cash
value
Market
Attractiveness
Competitive Position
20. The Segmentation Process
Needs-Based
Segmentation
Segment
Identification
Segment
Attractiveness
Segment Positioning
Strategy
21. Positioning
• Match offerings of firm to the needs and wants of
market segments.
• Effective positioning involves understanding
customers’ perceptions about both the
psychological and physical characteristics of
offerings.
• Positioning starts with a product. But positioning
is not what you do to a product—it’s what you do
to the mind of the customer. That is, you position
the product in the mind of the customer.
22. Positioning Strategy
• Learn the customer’s viewpoint. Create
positioning statement based on unique
customer needs.
Primary Needs
Articulated Needs
Exciting Needs
23. Positioning Statements
• To communicate positioning, a marketing
plan should include a positioning
statement following the form:
“To (target group and need) our (brand)
is (concept) that (point of difference).”
24. Example:
“To young, active soft-drink consumers
who have little time for sleep, Mountain
Dew is the soft drink that gives you more
energy than any other brand because it
has the highest level of caffeine. With
Mountain Dew, you can stay alert and
keep going even when you haven’t been
able to get a good night’s sleep.”
25. Points to Remember About
Positioning:
• Based on consumer perceptions of
tangible and intangible characteristics of
offering.
• The intensity of the brand will affect
positioning.
26. The Segmentation
Process
Needs-Based
Segmentation
Segment
Identification
Segment
Attractiveness
Segment Positioning
Strategy
Positioning
“Acid” Test
27. Testing the Positioning
Statement
• Test the positioning statement with target
consumers--what do they think, how do
they react to the statement?
• Assess need level: the stronger the need,
the higher the expected customer interest.
– “Do you see this product as solving a problem
or filling a need for you?”
28. Testing, continued...
• Communicability and believability: if the
scores on these dimensions are low, the
positioning must be refined or revised.
– “Are the benefits clear to you and believable?”
29. Testing, continued...
• Perceived value: The higher the
perceived vale, the higher the expected
consumer interest.
– “Is the price reasonable in relation to the
value?”
30. Testing, continued...
• Gap level between the new product and
existing products: The greater the gap,
the higher the expected consumer interest.
– “Do other products currently meet this need
and satisfy you?”
31. The Segmentation
Process
Needs-Based
Segmentation
Segment
Identification
Segment
Attractiveness
Segment Positioning
Strategy
Positioning
“Acid” Test
Strategy
Implementation
33. Multisegment Strategy
• Pursue two or more segments that are
attractive and profitable, but not the whole
market.
34. Sequential Segment Strategy
• Multisegment approach, but rather than
pursuing all the attractive segments
simultaneously, pursue the most
attractive first; when cash flow from that
segment is positive, then pursue the next
most attractive segment, and so on.
