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�Identifying Market Segments and Targets

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Chapter Questions

What are the different levels of market segmentation?
How can a company divide a market into segments?
What are the requirements for effective segmentation?
How should business markets be segmented?
How should a company choose the most attractive target markets?

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Effective Targeting Requires…

Identify and profile distinct groups of buyers who differ in their needs and preferences
Select one or more market segments to enter
Establish and communicate the distinctive benefits of the market offering

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What is a Market Segment?

A market segment consists of a group of customers who share a similar set of

needs and wants.

Market segmentation divides a market into well-defined slices. A market segment consists of a group of customers who share a similar set of needs and wants. The marketer’s task is to identify the appropriate number and nature of market segments and decide which one(s) to target. We use two broad groups of variables to segment consumer markets. Some researchers try to define segments by looking at descriptive characteristics: geographic, demographic, and psychographic. Then they examine whether these customer segments exhibit different needs or product responses. For example, they might examine the differing attitudes of “professionals,”“blue collars,” and other groups toward, say, “safety” as a car benefit. Other researchers try to define segments by looking at behavioral considerations, such as consumer responses to benefits, usage occasions, or brands.

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Segmenting Consumer Markets

Geographic

Demographic

Psychographic

Behavioral

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Geographic Segmentation

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Claritas’ Prizm

Education and affluence
Family life cycle
Urbanization
Race and ethnicity
Mobility

Some approaches combine geographic data with demographic data to yield even richer descriptions of consumers and neighborhoods. Nielsen Claritas has developed a geoclustering approach called PRIZM (Potential Rating Index by Zip Markets) that classifies over half a million U.S. residential neighborhoods into 14 distinct groups and 66 distinct lifestyle segments called PRIZM Clusters. The groupings take into consideration 39 factors in five broad categories: (1) education and affluence, (2) family life cycle, (3) urbanization, (4) race and ethnicity, and (5) mobility. The neighborhoods are broken down by zip code, zip+4, or census tract and block group. The clusters have descriptive titles such as Blue Blood Estates, Winner’s Circle, Hometown Retired, Shotguns and Pickups, and Back Country Folks. The inhabitants in a cluster tend to lead similar lives, drive similar cars, have similar jobs, and read similar magazines. Table 8.2 has examples of four PRIZM clusters.

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Demographic Segmentation

Age and life cycle
Life stage
Gender
Income
Generation
Social class
Race and Culture

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Age and Lifecycle Stage

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Gender and Income

Men and women have different attitudes and behave differently, based partly on genetic makeup and partly on socialization. Women tend to be more communal-minded and men more self-expressive and goal-directed; women tend to take in more of the data in their immediate environment and men to focus on the part of the environment that helps them achieve a goal. A research study examining how men and women shop found that men often need to be invited to touch a product, whereas women are likely to pick it up without prompting. Men often like to read product information; women may relate to a product on a more personal level.

Victoria’s Secret studied women and learned that while women need underwear, they want lingerie. It went on to develop the retail chain very successfully based on this insight.

Income segmentation is a long-standing practice in such categories as automobiles, clothing, cosmetics, financial services, and travel. However, income does not always predict the best customers for a given product. Blue-collar workers were among the first purchasers of color television sets; it was cheaper for them to buy these sets than to go to movies and restaurants.

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Generational Influences

Each generation or cohort is profoundly influenced by the times in which it grows up—the music, movies, politics, and defining events of that period. Members share the same major cultural, political, and economic experiences and have similar outlooks and values. Marketers often advertise to a cohort by using the icons and images prominent in its experiences.

Millennials are also known as the Echo Boomers, these consumers have been “wired” almost from birth— playing computer games, navigating the Web, downloading music, connecting with friends via instant messaging and mobile phones. They have a sense of entitlement and abundance from growing up during the economic boom and being pampered by their boomer parents. Yet they are highly socially conscious and concerned about environmental issues. They are selective, confident, and impatient.

Gen Xers feel self-sufficiency and the ability to handle any circumstance are key. Technology is an enabler for them, not a barrier. Unlike the more optimistic, team oriented Gen Yers, Gen Xers are more pragmatic and individualistic.

With many baby boomers moving into their 60s and even the last and youngest wave bearing down on 50, demand has exploded for products to turn back the hands of time. According to one survey, nearly one in five boomers was actively resisting the aging process, driven by the mantra, “Fifty is the new thirty.”

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Race and Culture

Multicultural marketing is an approach recognizing that different ethnic and cultural segments have sufficiently different needs and wants to require targeted marketing activities, and that a mass market approach is not refined enough for the diversity of the marketplace. The Hispanic American, African American, and Asian American markets are all growing at two to three times the rate of nonmulticultural populations, with numerous submarkets, and their buying power is expanding. Multicultural markets also vary in whether they are first and second (or more) generation, and whether they are immigrants or born and raised in the United States. The norms, language nuances, buying habits, and business practices of multicultural markets need to be factored into the initial formulation of a marketing strategy, rather than added as an afterthought.

State Farm decided to make its Hispanic American marketing a priority in 2008. The firm sponsored local Latino community events, soccer matches, the Latin Music Awards, and Univision’s highly rated Saturday night variety show, Sabádo Gigante. Perhaps State Farm’s most original marketing activity, however, was the support and sponsorship of a new band. Los Felinos de la Noche (The Felines of the Night), as the six men (primarily Hispanic immigrants) are called, play the percussion heavy pop-rock sound of Norteño or Northern Mexico regional music. With State Farm’s support, the band recorded singles, shot music videos, and played live concerts to make a name for themselves.

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Psychographic Segmentation �and The VALS Framework

Psychographics is the science of using psychology and demographics to better understand consumers. In psychographic segmentation, buyers are divided into different groups on the basis of psychological/personality traits, lifestyle, or values. People within the same demographic group can exhibit very different psychographic profiles. One of the most popular commercially available classification systems based on psychographic measurements is Strategic Business Insight’s (SBI) VALS™ framework. VALS, signifying values and lifestyles, classifies U.S. adults into eight primary groups

1. Innovators—Successful, sophisticated, active, “take-charge” people with high self-esteem.

2. Thinkers—Mature, satisfied, and reflective people motivated by ideals and who value order, knowledge, and responsibility. They seek durability, functionality, and value in products.

3. Achievers—Successful, goal-oriented people who focus on career and family. They favor premium products that demonstrate success to their peers.

4. Experiencers—Young, enthusiastic, impulsive people who seek variety and excitement. They spend a comparatively high proportion of income on fashion, entertainment, and socializing.

5. Believers—Conservative, conventional, and traditional people with concrete beliefs. They prefer familiar, U.S.-made products and are loyal to established brands.

6. Strivers—Trendy and fun-loving people who are resource-constrained. They favor stylish products that emulate the purchases of those with greater material wealth.

7. Makers—Practical, down-to-earth, self-sufficient people who like to work with their hands. They seek U.S.-made products with a practical or functional purpose.

8. Survivors—Elderly, passive people concerned about change and loyal to their favorite brands

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Behavioral Segmentation Based on Needs and Benefits

Needs-based or benefit-based segmentation is a widely used approach because it identifies distinct market segments with clear marketing implications. Constellation Wines identified six different benefit segments in the U.S. premium wine market ($5.50 a bottle and up).

• Enthusiast (12 percent of the market). Skewing female, their average income is about $76,000 a year. About 3 percent are “luxury enthusiasts” who skew more male with a higher income.

• Image Seekers (20 percent). The only segment that skews male, with an average age of 35. They use wine basically as a badge to say who they are, and they’re willing to pay more to make sure they’re getting the right bottle.

• Savvy Shoppers (15 percent). They love to shop and believe they don’t have to spend a lot to get a good bottle of wine. Happy to use the bargain bin.

• Traditionalist (16 percent). With very traditional values, they like to buy brands they’ve heard of and from wineries that have been around a long time. Their average age is 50 and they are 68 percent female.

• Satisfied Sippers (14 percent). Not knowing much about wine, they tend to buy the same brands. About half of what they drink is white zinfandel.

• Overwhelmed (23 percent). A potentially attractive target market, they find purchasing wine confusing.

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Behavioral Segmentation: Decision Roles

Initiator

Influencer

Decider

Buyer

User

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Behavioral Segmentation: Behavioral Variables

Occasions
Benefits
User Status
Usage Rate

Buyer-Readiness
Loyalty Status
Attitude

Many marketers believe variables related to various aspects of users or their are good starting points for constructing market segments. Occasions mark a time of day, week, month, year, or other well-defined temporal aspects of a consumer’s life. We can distinguish buyers according to the occasions when they develop a need, purchase a product, or use a product. Every product has its nonusers, ex-users, potential users, first-time users, and regular users. We can segment markets into light, medium, and heavy product users. Heavy users are often a small slice but account for a high percentage of total consumption. Some people are unaware of the product, some are aware, some are informed, some are interested, some desire the product, and some intend to buy. Marketers usually envision four groups based on brand loyalty status. Five consumer attitudes about products are: enthusiastic, positive, indifferent, negative, and hostile.

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Figure 8.2 Example of a Brand Funnel

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Loyalty Status

Hard-core
Split loyals
Shifting loyals
Switchers

Loyalty Status Marketers usually envision four groups based on brand loyalty status:

1. Hard-core loyals—Consumers who buy only one brand all the time

2. Split loyals—Consumers who are loyal to two or three brands

3. Shifting loyals—Consumers who shift loyalty from one brand to another

4. Switchers—Consumers who show no loyalty to any brand

A company can learn a great deal by analyzing degrees of brand loyalty: Hard-core loyals can help identify the products’ strengths; split loyals can show the firm which brands are most competitive with its own; and by looking at customers dropping its brand, the company can learn about its marketing weaknesses and attempt to correct them. One caution: What appear to be brand-loyal purchase patterns may reflect habit, indifference, a low price, a high switching cost, or the unavailability of other brands.

People tend to be loyal to their favorite soda brand but less so to airline brands.

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Figure 8.3 Behavioral Segmentation Breakdown

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Segmenting for Business Markets

Demographic
Operating variable
Purchasing approaches
Situational factors
Personal characteristics

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Steps in Segmentation Process

Need-based segmentation
Segment identification
Segment attractiveness
Segment profitability
Segment positioning
Segment acid test
Market mix strategy

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Effective Segmentation Criteria

Measurable
Substantial
Accessible
Differentiable
Actionable

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Porter’s 5 Forces Model

Threat of Rivalry

Threat of Supplier

Bargaining Power

Threat of Buyer Bargaining Power

Threat of

New Entrants

Threat of Substitutes

Five forces determine the intrinsic long-run attractiveness of a market or market segment: industry competitors, potential entrants, substitutes, buyers, and suppliers. The threats these forces pose are as follows:

1. Threat of intense segment rivalry—A segment is unattractive if it already contains numerous, strong, or aggressive competitors.

2. Threat of new entrants—The most attractive segment is one in which entry barriers are high and exit barriers are low.

3. Threat of substitute products—A segment is unattractive when there are actual or potential substitutes for the product.

4. Threat of buyers’ growing bargaining power—A segment is unattractive if buyers possess strong or growing bargaining power.

5. Threat of suppliers’ growing bargaining power—A segment is unattractive if the company’s suppliers are able to raise prices or reduce quantity supplied.

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Figure 8.4 Possible Levels �of Segmentation

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For Review

What are the different levels of market segmentation?
How can a company divide a market into segments?
What are the requirements for effective segmentation?
How should business markets be segmented?
How should a company choose the most attractive target markets?