Segmentation and Targeting
Basics
Market Definition
Segmentation Research and Methods
Behavior-Based Segmentation
Market Segmentation
Market segmentation is the
subdividing of a market into
distinct subsets of customers.
Segments
Members are different between
segments but similar within.
Segmentation Marketing
Definition
Differentiating your product and
marketing efforts to meet the
needs of different segments, that
is, applying the marketing concept
to market segmentation.
Primary Characteristics
of Segments
Bases—characteristics that tell us why
segments differ (e.g. needs, preferences,
decision processes).
Descriptors—characteristics that help us find
and reach segments.
(Business markets) (Consumer markets)
Industry Age/Income
Size Education
Location Profession
Organizational Life styles
structure Media habits
A Two-Stage Approach
in Business Markets
Macro-Segments:
First stage/rough cut
Industry/application
Firm size
Micro-Segments:
Second-stage/fine cut
Different customer needs, wants, values within macro-segment
Relevant Segmentation
Descriptor
Variable A: Climatic Region
1. Snow Belt
2. Moderate Belt
3. Sun Belt
Fraction of
Customers
Segment 1
Segment 2
Segment 3
0 100%
Likelihood of Purchasing Solar Water Heater
(a)
Irrelevant Segmentation
Descriptor
Variable B: Education
1. Low Education
2. Moderate Education
3. High Education
Fraction of
Customers
Segment 1
Segment 2
Segment 3
0 100%
Likelihood of Purchasing Solar Water Heater
(b)
Variables to Segment
and Describe Markets
Consumer Industrial
Segmentation Needs, wants benefits, Needs, wants benefits, solutions to
Bases solutions to problems, problems, usage situation, usage rate,
usage situation, usage rate. size*, industrial*.
Descriptors Age, income, marital status, Industry, size, location, current
Demographics family type & size, supplier(s), technology utilization,
gender, social class, etc. etc.
Psychographics Lifestyle, values, & Personality characteristics of
personality characteristics. decision makers.
Behavior Use occasions, usage level, Use occasions, usage level,
complementary & complementary & substitute
substitute products used, products used, brand loyalty, order
brand loyalty, etc. size, applications, etc.
Decision Making Individual or group Formalization of purchasing
(family) choice, low or high procedures, size & characteristics
involvement purchase, of decision making group, use of
attitudes and knowledge outside consultants, purchasing
about product class, price criteria, (de) centralizing buying,
sensitivity, etc. price sensitivity, switching costs, etc.
Media Patterns Level of use, types of Level of use, types of media used,
media used, times of use, time of use, patronage at trade shows,
etc. receptivity of sales people, etc.
Segmentation in Action
We segment our customers by letter volume, by
postage volume, by the type of equipment they use.
Then we segment on whether they buy or lease
equipment.
Based on this knowledge, we target our marketing
messages, fine tune our sales tactics, learn which
benefits appeal to which customers and zero in on
key decision makers at a company.
—
Segmentation
If you’re not thinking segments, you’re not
thinking. To think segments means you
have to think about what drives customers,
customer groups, and the choices that are
or might be available to them.
—Levitt, Marketing Imagination
STP as Business Strategy
Segmentation
Identify segmentation bases and segment the market.
Develop profiles of resulting segments.
Targeting
Evaluate attractiveness of each segment.
Select target segments.
Positioning
Identify possible positioning concepts for each target segment.
Select, develop, and communicate the chosen concept.
… to create and claim value
Overview of Methods for STP
Clustering and discriminant
analysis
Choice-based segmentation
Perceptual mapping
- later
Segmentation (for Carpet
Fibers)
Perceptions/Ratings for one respondent:
Customer Values
.. . . .
Strength
.
.A. .. ..
. .
.
D. . .
... ....
Distance between
(Importance)
.
B. .
.
segments C and D
.. .. . . C. .
A,B,C,D:
.. . . .. . .. .
Location of
segment centers. .. . .
Typical members:
A: schools
B: light commercial
C: indoor/outdoor
carpeting Water Resistance
D: health clubs
(Importance)
Targeting
Segment(s) to serve
.. . . .
.. ... .
. . .... .. . .
.
Strength
(Importance) . .
.. ... . . .
.. . . .. ... .
.. . .
Water Resistance
(Importance)
Positioning
Product Positioning
.. .
Comp 1
Comp 2
Us
. .
.. ... .
.. . .
Strength
(Importance) . .
.. ... . . .
.. . . .. ... .
.. . .
Water Resistance
(Importance)
A Note on Positioning
Positioning involves designing an offering so that the
target segment members perceive it in a distinct and
valued way relative to competitors.
Three ways to position an offering:
1. Unique (“Only product/service with XXX”)
2. Difference (“More than twice the [feature] vs.
[competitor]”)
3. Similarities (“Same functionality as [competitor];
lower price”)
What are you telling your targeted segments?
Behavior-Based Segmentation
Traditional segmentation
(eg, demographic,
psychographic)
Needs-based segmentation
Behavior-based segmentation
(choice models)
Steps in a Segmentation Study
Articulate a strategic rationale for segmentation (ie, why are
we segmenting this market?).
Select a set of needs-based segmentation variables most
useful for achieving the strategic goals.
Select a cluster analysis procedure for aggregating (or
disaggregating customers) into segments.
Group customers into a defined number of different
segments.
Choose the segments that will best serve the firm’s strategy,
given its capabilities and the likely reactions of competitors.
Segmentation: Methods
Overview
Factor analysis (to reduce data
before cluster analysis).
Cluster analysis to form segments.
Discriminant analysis to describe
segments.
