Market Segmentation

1
Market Segmentation

• Marketing for Engineers
• ELE 4EMT

George Alexander G.Alexander_at_latrobe.edu.au http/
/www.latrobe.edu.au/eemanage/
19 March, 2007 Lecture 7
2
Business news(Inside Business ABC 18/03/2007)

• Stock markets volatile
• Higher than expected inflation
• Loan defaults in USA at 3-year high
• Qantas takeover still unresolved
• Rebel Sport takeover approved
• Fosters price rise buyback, bid rumours
• Refer http//www.abc.net.au/insidebusiness/

3
Admin. Stuff

• Everybody in teams?
• More about ex. Summary presentations tomorrow

4
Market Segmentation
Market segmentation is one of marketings most
powerful tools. Whatever set of variables they
use, effective marketers try to identify
Meaningful Target Segments so they can develop
customer-satisfying Marketing Mix.
5
In this lecture

• Concept of market segmentation
• Relating meaningful target markets to effective
  marketing mixes
• Undifferentiated, concentrated, differentiated,
  and custom marketing strategies
• 80/20 and majority fallacy
• Market segmentation variables
• Positioning strategy
  
  

6
The Term Market Re-defined
A market is a group of individuals or
organisations that may want the good or service
being offered for sale and that meet these three
additional criteria
1. The purchasing power to be able to buy the
product being offered. 2. The willingness to
spend money or exchange other resources to obtain
the product. 3. The authority to make such
expenditure.
7
Assumptions

• 1. Not all buyers are alike.
• 2. Subgroup of people with similar behaviour,
  values, and background may be identified.
• 3. The subgroups will be smaller and more
  homogeneous than the market as a whole.
• 4. It should be easier to satisfy smaller groups
  of similar customers than large groups of
  dissimilar customers.

8
The Market
C1
C13
C9
C10
C5
C20
C12
C2
C11
C19
C4
C6
C15
C17
C7
C14
C3
C18
C8
C16
9
is broken down
C1
C13
C9
C10
C5
C20
C12
C2
C11
C19
C4
C6
C15
C17
C7
C14
C3
C18
C8
C16
10
and grouped into meaningful market segments
C7
C11
C1
C15
C18
C4
C12
C8
C5
C2
C19
C16
C13
C9
C6
C20
C3
C17
C14
C10
1
3
2
11
so that a TARGET MARKET can be chosen
C15
C18

• Product
• Price
• Place
• Promotion

C19
C16
C20
C17
3
12
Meaningful Market Segment
Is the market potential of adequate size?
Is the segment accessible?
Is there a characteristic that distinguishes the
segment?
Yes
Yes
Yes
No
No
No
The market segment is not meaningful.
13
Cont.
Consider choosing this meaningful market segment
as a Target Market.
Will the market segment respond favourably to a
specialised Marketing Mix?
Yes
No
The market segment is not meaningful.
14
Target Marketing Strategies

• 1. Undifferentiated Marketing
• 2. Concentrated Marketing
• 3. Differentiated Marketing
• 4. Custom Marketing

15
Undifferentiated Marketing
When everyone is a customer
A marketing effort not targeted at a specific
market segment but designed to appeal to a broad
range of customers. This approach is appropriate
in a market that lacks diversity of interest.
16
Examples

• A firm selling hacksaw blades, brass or silver
  polish, or rubbish bins may find it more
  efficient not to distinguish between market
  segments.
• Undifferentiated marketing may result in savings
  in production and marketing costs, which can be
  translated to lower prices.

17
The Marketing Organisation
One well-prepared Marketing Mix
The Target Market

• Product
• Price
• Place
• Promotion

Everybody
A small store in an isolated town
18
Concentrated Marketing
Zeroing in on a single target
Development of a marketing mix and direction of
marketing efforts and resources to appeal to a
single market segment.
19
Example
The Marketing Organisation
One well-prepared Marketing Mix
Target Market Segments

• Product
• Price
• Place
• Promotion

Farm Users
Chain Saw Manufacturer
Urban Users
others
20
The 80/20 Principle

• The situation in which a relatively small
  percentage of customers account for a
  disproportionately large share of the sales of a
  particular product.
• That means 20 of the customers buy 80 of the
  product sold.
• A good reason for concentration on a particular
  market segment.

21
Majority Fallacy

• Blind pursuit of the largest, most easily
  identified, or most accessible segment.
• Tends to be the most competitive.
• Greater profits may be made through less obvious
  target markets.

22
Differentiated Marketing
Different buyers, different strategies
A marketing effort in which the marketer selects
more than one target and then develops a separate
marketing mix for each. Also called multiple
market segmentation.
23
Custom Marketing
To each his own
A marketing effort in which the marketer seeks to
satisfy each customers unique set of needs. In
effect, each customer is an individual market
segment.
24
Basis for Segmentation

• Demographic
• Socioeconomic
• Life Style/Psychographic
• Geographic
• Behaviour patterns
• Consumption patterns
• Consumer predisposition

25
Typical Basis for Segmentation
Demographic
Socio-economic

• Age
• Sex
• Race
• Ethnicity
• Marital Status
• Family Size
• Family Life Cycle

• Occupation
• Education
• Income
• Social Class

26
Cont.
Life Style/ Psychographic
Geographic

• Activities
• Interests
• Opinions
• Values

• Political Boundaries
• Climatic Regions
• Population Boundaries
• Geodemographic and Post Code

27
Cont.
Consumption Pattern
Behaviour Pattern

• Type of store
• Time of purchase
• Number of units purchased
• Shopping frequency
• Media habits

• Frequency of use (heavy, light)
• Occasion
• Loyalty to brand
• Ownership of other products

28
Cont.
Consumer Predisposition

• Product knowledge
• Benefits sought
• Consumer problems

29
Segmenting Business Markets

• Segmentation variables are similar to that of the
  consumer market.
• Based on good understanding of the characteristic
  and behaviour of the organisation.

30
Organisational Markets Segmentation
Organisational Characteristics
Geographic

• Political boundaries (cities, states, etc.)
• Domestic and international boundaries

• Industry type
• Organisational size
• Technology used

31
Cont.
Organisational Policy or Predisposition
Purchase Behaviour and Usage Pattern

• Order size
• Centralised vs. decentralised purchasing
• Type of rebuy

• Product knowledge
• Benefits sought
• Organisational problems
• Multiple vs. single supplier policy

32
Positioning Strategy

• Its about managing consumer perception of the
  product.
• Need to identify the products competitive
  advantage in the consumers minds.
• For example
• Health benefits of margarine vs. butter
• A special wine for a special occasion

33
References

• Zikmund, W. G. dAmico M. Marketing (1996, 5th
  Edition), West Publishing Company.

34
Thanks for your attention