Targeting and segmentation

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Kotler on Marketing
“Don’t buy
market share.
Figure out how
to earn it.”

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Market Segmentation and Market Targeting
Market segmentation is the process of disaggregating
the total market into a number of sub-markets.
 Market consists of buyers who will differ in one
or more respects,
 They may differ in their wants, purchasing
power, geographical locations, buying attitudes
and buying practices. These variables can be used to
segment the market.

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 Requirements for effective segmentation.
 Measurable, accessible, actionable, substantial
and differentiable.
 Evaluating the market segments.
 Segment size and growth.
 Segment structural attractiveness.
 Company objective and resources.

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♦ Evaluating and Selecting the Market Segments
 Single – segment concentration.
 Selective specialization.
 Product specialization.
 Market specialization.
 Full market coverage.

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 Preference segments:
 Homogeneous preferences
 Diffused preferences
 Clustered preferences

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 Niche Marketing
 Local Marketing
 Customerization

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 Bases for Segmenting Consumer Market :
 The marketing firm may have to investigate
different segmentation variables in order to gain an
insight into the structure of the overall market.
 Generally the organizations use a combination of
variables in order to define a precise market
segment.
 Geographic Segmentation

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 Demographic Segmentation :
 It is one of the most straight forward and
meaningful bases for segmenting consumer
markets. The demographic variables are :
 Age & life – cycle stage
Gender
Generation
 Social class / income

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 Psychographic segmentation :
 Life style
 Personality
 Values

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 Behavioural Segmentation – Here, the buyers
are divided into groups on the basis of their
knowledge of, attitude toward, use of, or
response to a product.
 Many marketers believe that behavioural
variables like occasions, benefits, user status,
usage rate, loyalty status, buyer – readiness stage,
and attitude are useful for segmenting.

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 Occasions - Buyers are distinguished
according to the occasions
a) When they develop a need
b) When they purchase a product
c) When they use a product
e.g. : Airline, Fruit juices etc.

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 Segmentation by usage – consumption rates
for many consumer products are not evenly
distributed across all household. Hence,
meaningful segments could be defined in terms
of usage of the product itself.
 If a firm can identify heavy users – it may be
able to develop special marketing strategy aimed
at winning more of them to the brand.

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 E.g., heavy users of beer/cigarettes/supari’s etc.
in a particular country could be of working class,
between 25 – 50 years of age, watch television more
than 2 1/2 hours per day and may prefer to watch
regional programme,
 Consumer profiles such as this are obviously
helpful to the marketing firm in developing pricing
and communication strategies,

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 Loyalty Status – A market can also be
segmented according to the degree of consumers
brand loyalty. Kotler has divided them into 4
groups. According to loyalty status :
a. Hard-core loyals : undivided loyalty to one brand
eg., AA, A,A,A
b. Split loyals : Divided loyalty between 2 or 3
brands
eg., A, B, B, A, B

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c. Shifting loyals : Consumers shift loyalty from
one brand to another
d. Switchers : No brand loyalty at all, instead
switches from one brand to
another. eg. B, E, C, A, D

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 A company may usually attract switchers, at
least in the short term, by price reductions or
other forms of sales promotions.
 A careful analysis of brand loyalty categories
can tell the firm a lot about its present marketing
strategy and can point the way to improvements.

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 For eg., from an analysis of ‘shifting loyals’ the
firm may learn about possible inadequacies in its
marketing programme that are causing people to
switch brands.
♦ Attitude : Five groups are Enthusiastic, Positive,
Indifferent, Negative and Hostile. Understanding
attitudes helps in formulating communication
strategies.

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 Benefit Segmentation :
 Benefit segmentation uses casual rather than
descriptive variables to group consumers,
 Different people buy the same or similar
products for different reasons, e.g, some people
buy a car purely as a means of transport, while
others as a status symbol or as an extension of
their personality.

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 In using benefit segmentation, the marketing firm
needs to determine the major benefits people are
seeking from a particular product class, to identify
the profiles of the people seeking each benefit and
recognize the existing competitors products that
are close to delivering each of the benefits, e.g.
toothpaste.

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 Some of the benefits sought may not be serviced
by existing products – and this will give the firm
the opportunity of capitalizing on an unsatisfied
market segment.

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Variables Examples
Organizational
variables
Purchasing
situation/phase
New task, modified or straight re-buy;
stage in the purchasing, decision
process
Customer
experience stage
Product life-cycle stages (i.e.
introduction, growth, and maturity) as
it relates to customer adoption process
(i.e., early and late adopters)
Customer
interaction needs
Dependence on supplier in
implementing decision-making process
or supplier’s knowledge compared to
customer’s knowledge
Industrial Segmentation

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Product
innovativeness
Innovative firms versus followers
Organizational
capabilities
Extent of operating, technical, or financial
capabilities
Purchases situation
variables
Inventory
requirements
Purchase importance
Purchase policies
Purchasing criteria
Material requirement planning or just-in-
time systems
Degree of perceived risk (i.e., cost, usage
factors, or time)
Market-based prices, bids, or leasing
preferences
Supplier reputation, technical services,
reliability, flexibility, etc.

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Structure of the
buying center
Key influencers and decision makers
(e.g., engineering, marketing, plant
managers, and R&D)
Individual
variables
Personal
characteristics
Demographics (e.g., age and
experience), personality, non-task
motives, perceptions, and risk
takers/avoiders

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Categories of Buyers’ Choice Criteria
Criteria Explanation
1. Performance criteria These criteria evaluate the extent to
which the product is likely to maximize
performance in the application(s)
envisaged for it.
2. Economic criteria These criteria evaluate the anticipated
cost outlays associated with buying,
storing, using, and maintaining the
product.
3. Integrative criteria These criteria evaluate the willingness
of suppliers to cooperate and go beyond
minimal standards in providing services
to integrate their efforts in accordance
with the buyers’ requirements.

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4. Adaptive criteria These criteria evaluate the extent to
which the buying firm may have to
adapt its plans to accommodate
uncertainty about the capability of the
supplier to meet the buyer’s
requirements for production and
delivery.
5. Legalistic criteria These criteria evaluate the impact on
the buying decision of legalistic or
quasi-legalistic constraints (e.g.
government regulations, company
policies and practices)
Source: Donald R.Lehmann and John O’Shaughnessy, “Decision Criteria Used in Buying Different Categories
of Products.” Journal of Marketing, 38 (April 1974)

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Industrial Market Segmentation
Characteristic Segment by Question
Demographi
c
Industry
Company Size
Location
Which industry to focus on?
Can we produce enough for
large needs?
What geographical areas?
Operating
Variables
Technology
User / Nonuser
Status
Customer
Capabilities
What Customer technologies?
Heavy, medium, light
nonusers?
Needing many services, few?

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Purchasing
Function
Power Structure
Nature of Existing
relationships
Purchasing
Policies
Purchasing
Criteria
Centralized or decentralized?
national account vs. field
oriented
Engineer dominated, finance,
etc.?
Strong relationships or most
desirable companies?
Leasing, service, price, bid?
Quality, service, price?
Purchasing
Approaches

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Situational
Factors
Urgency
Specific
Application
Size of order
Quick delivery or Service
Certain or all
applications?
Large or small orders?
Personal
People
Purchases
Buyer-Seller
Similarity
Attitudes toward
Risk
Loyalty
Values similar to ours?
Risk-taking,
risk-avoiding customers?
High loyalty to suppliers?
Source : Thomas V. Bonoma and Benson P. Shapiro.