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© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3
Segmentation
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© 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3.3. 2
Marketing Framework
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3. 3
Discussion Question #1
• Name a product in which everyone
wants the same thing.
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3. 4
Segmentation
(slide 1 of 3)
• Psychologists
• Consumers have different motivations that
drive their purchases
• Economists
• Imperfect competition exists; consumers
have unique needs
• Marketers
• The market is comprised of different
segments
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3. 5
Segmentation
(slide 2 of 3)
• Segmentation
• Breaking the market into more homogeneous
consumer groups
• A single product, price, or promotion is
unlikely to satisfy all consumers’ needs
• e.g., Taylor Swift appeals to tweens; Robert
Redford appeals to seniors
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3. 6
Segments Defined
• Market segment
• A group of customers who share similar
inclinations toward a brand
• e.g., One segment might purchase a car
primarily to get from A to B while another
segment may purchase a car primarily to
impress their friends
• Marketers’ goal
• Create marketing mixes that meet the
segment’s needs
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3. 7
Marketing Segmentation
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3. 8
Types of Segmentation
(slide 1 of 2)
• Mass marketing
• All customers are treated the same
• Is usually more efficient but not effective in
meeting customer needs
• e.g., Pepsi seems to be mass marketed but
is not
– Pepsi, Diet Pepsi, caffeine-free Pepsi,
2-liters, 12-pack cans, 6-pack bottles, etc.
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3. 9
Types of Segmentation
(slide 2 of 2)
• One-to-one marketing
• Each customer serves as a segment
• Product is tailored for each person’s desires
• Is usually more effective in meeting
customers’ needs but hard to achieve
efficiently and may involve quality issues
• e.g., Dell allows customers to “build” their
own computers; however, options are limited
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3. 10
Discussion Questions #2
1. List companies/products that are close
to providing
• One-to-one marketing and
• Mass marketing.
2. What are the pros/cons of mass
marketing?
3. What are the pros/cons of one-to-one
marketing?
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3. 11
Segmentation
(slide 3 of 3)
• Segmentation falls between one-to-one
and mass marketing
• As segment size increases, segments
become more heterogeneous
• As segment size decreases, segments
become less profitable
• Marketers need the “optimal” segment size
• Niche
• Targeting small market that firm serves well
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3. 12
Bases for Segmenting in B2C
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3. 13
Segmentation: Demographics
• Demographics
• Gender, age, household composition, stage
in life cycle, education, income, ethnicity
• Demographic variables are clear and
easy to recognize
• However, they border on being simplistic
stereotypes
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3. 14
Segmentation: Geographic
• Geographic distinctions between
customers can change preferences/needs
• Cultural differences can exist between
countries or within a country
• e.g., Southern USA prefers spicier food
• Urban living is different than small town
• e.g., NYC residents want smaller dishwashers
• Hot climates require different products than
cold climates
• e.g., Minnesotans need snow-blowers
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3. 15
Segmentation: Geographic/Demographic
• Combining geographic and demographic
information can be powerful
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3. 16
Segmentation: Psychological
• Psychological: get inside the heads and
hearts of customers
• Attitudes: e.g., Favorable attitude toward “green” products
• Knowledge & awareness: e.g., Don’t know about the product
• Wants and needs: e.g., Need for safety
• Affiliations: e.g., Members of the AMA
• Traits: e.g., Extroverts who want to socialize
• Expertise & involvement: e.g., New motorcycle enthusiasts
• Brand attributes sought: e.g., Low price and red color
• Risk orientation: e.g., Risk-adverse late technology adopters
• Aspirations: e.g., Want to be a better cook
• Vary in terms of relevancy to the product
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3. 17
Segmentation: Psychological/Lifestyle
• Psychological & lifestyle
• e.g., Gardeners, food connoisseurs
• VALS: psychographic segmentation tool
• Marketers determine people’s attitudes and
what they value and use this knowledge to
communicate effectively
• e.g., Strivers are trendy, like to impress, often
impulsive
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3. 18
Segmentation: Behavioral
(slide 1 of 2)
• Behavioral: behaviors people engage in
• Attitudes can’t be observed; behaviors can
• Intentions do not always equal behaviors
• Behaviors help predict future behavior
• Current users; Nonusers
• Nonusers may use competitors or don’t buy
• 80:20: 80% of sales come from 20% of
customers
• It costs 6 times more to acquire a new
customer compared to retaining a loyal one
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3. 19
Segmentation: Behavioral
(slide 2 of 2)
• Patterns of co-purchasing
• Purchase a new house, usually purchase
new appliances, curtains, etc.
• Create opportunities for cross-selling
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3. 20
Discussion Questions #3
• What bases should you use when
segmenting a market?
1. A music lesson business?
2. A mayoral candidate?
3. A grocery store?
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3. 21
B2B Compared to B2C Segmentation
• Primary distinction between B2B & B2C
is that the data sources are different
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3. 22
Concept in Action
• Insurance industry example
• Industry is large and competitive
• Segment market using cluster analysis
• Survey customers; identify questions where
there is variability in responses
• If no variability in responses, do not segment
on that variable
– Useful segmentation has variation across
groups
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3. 23
Concept in Action: Discussion Question
• Which variables would you segment on?
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3. 24
How to Segment the Market
(slide 1 of 2)
• Iterate between two approaches
• Managerial: top-down ideation
• Customer-based: bottom-up customer
needs assessment
• Doing both approaches is important
• Managers may hold beliefs that are not
consistent with systematically gathered data
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3. 25
How to Segment the Market
(slide 2 of 2)
• Begin with understanding the
marketplace and then gather information
on the customer’s perspective
• A segment may look desirable in terms of
size and growth but be saturated with
competitors and not consistent with firm
goals
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3. 26
How to Evaluate Segmentation Schemes
(slide 1 of 3)
• Does the segmentation scheme have
1. Data to identify segments?
• Census data: available but may not be useful
• VALS & Prizm: expensive
• Specific survey may not be available
2. Databases to access segments?
• Databases that give access to the specific
people within your chosen segments
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3. 27
How to Evaluate Segmentation Schemes
(slide 2 of 3)
• Does the segmentation scheme have
3. Profitability?
• Size matters but so does frequency & depth
($) of purchase, price sensitivity, segment
stability, growth potential, competitive
intensity, etc.
– Use information to estimate segment value
• Be careful not to segment too narrowly
– Determine what matters to your product
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3. 28
How to Evaluate Segmentation Schemes
(slide 3 of 3)
• Does the segmentation scheme
4. Fit with corporate goals?
• Consider your firm’s goals and image
• e.g., Subzero (high-end refrigeration) does
not “fit” with the low-end refrigerator market
5. Actionable?
• Marketers must focus on the right criteria
• It is common to link usage, attitudinal, etc.,
variables to demographic variables to make
the segment more actionable
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3. 29
Anatomy of a Market Segment
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3. 30
Discussion Questions #4
1. Develop a segmentation scheme for a
new pizza shop located two blocks from
campus.
2. Does your scheme meet all of the
criteria for a good segmentation
scheme?
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3. 31
Segmentation Strategies
(slide 1 of 4)
• Segments in the Marketplace
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3. 32
Segmentation Strategies
(slide 2 of 4)
• Breadth Strategy: Reaching Multiple
Segments
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3. 33
Segmentation Strategies
(slide 3 of 4)
• Depth Strategy: Serving One Segment
Well
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3. 34
Segmentation Strategies
(slide 4 of 4)
• Tailored Strategy: Customizing for
Segments
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3. 35
Discussion Question #5
• You are currently selling pizza to college
students. Discuss at least two methods
to expand your pizza shop business.
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3. 36
Managerial Recap
(slide 1 of 4)
• Segments should be
• Profitable
• Identifiable
• Accessible
• Actionable
• Compatible with company goals
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3. 37
Managerial Recap
(slide 2 of 4)
• Marketers create segments because
customers vary in preferences
• It is usually impossible to please all
customers with one product
• Market segments are groups of
customers with similar reactions to the
company’s brand
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3. 38
Managerial Recap
(slide 3 of 4)
• Segments can be formed on nearly any
kind of differentiating information
• Segments are best created by iterating
between the managerial understanding
of the marketplace and good data that
may be processed (e.g., via cluster
analysis) to identify similarities in
purchasing propensities
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3. 39
Managerial Recap
(slide 4 of 4)
• Segmentation schemes should be
• Based on data
• Sustained by a database to help access the
customers
• Profitable enough to serve
• Sensible with respect to the larger corporate
goals and planning
• Actionable
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3. 40
