A brief overview of the major issues surrounding market segmentation and target marketing.

1. An Introduction to Market
Segmentation and Target Marketing
In search of Competitive Advantage
William Baker Consulting
Marketing Strategy
Communication Strategy
Branding
Advertising
Award Winning Author, Professor and Consultant
619-402-3990, wbaker@uakron.edu
Google Scholar Page: https://scholar.google.com/citations?
hl=en&user=If0w9hoAAAAJ

2. Definition of Market
Segmentation
Market Segmentation is the process of dividing the market into a
subset of customers that are likely to have similar needs and wants
and are likely to respond similarly to marketing efforts:
•Respond to the same set of product or service benefits and/or
•Respond to the same prices and/or
•Utilize the same distribution channels and/or
•Consumer the same media and/or
•Respond to the same advertising and promotional message appeals

3. Market Segmentation
Meaningful market segments should meet the following criteria
•Homogenous Within Segment: Individuals within the segment
should be as similar as possible with respect to their likely response
to one or more marketing mix variables
•Heterogeneous Between Segments: Individuals in different
segments should be as different as possible with their likely
response to one or more marketing mix variables.

4. Indicators of a Need for
Market Segmentation:
1. Products sold across a wide spectrum of customers and
industries
2. Low market penetration
3. Significant customer base churn
4. Unclear understanding of the ‘ideal’ customer or customers
5. Low response rate on solicitation
6. Low acceptance/’win’ rates

5. Final Objective of Market
Segmentation
Market Segments
It is your goal to:
Identify segments that
have the greatest profit
potential based on their
requirements and your
capabilities

6. Behavioral Segments
Where do You want to Compete?
Where can you Compete?
Basic
Performance
Premium
Performance
Ultra
Performance
Quality
Segmentation
Benefit
Segmentation
Distribution
Segmentation
Handling Comfort Styling
Mass
Merchandiser
Department Specialty Online

7. Defining Market Segments:
Demographics and Psychographics
Demographics and psychographics may be a primary means of defining
segments, but more importantly they are critical to be able to effectively reach
and relate to market segments.
In fact, psychographics are more important than demographics.
Demographics Psychographics
1.Age 1. Activities, interests
2.Income 2. Shopping behavior
3.Stage of the family life cycle 3. Group memberships
4.Education 4. Decision-making style
5.Ethnicity 5. Risk propensity
6.Social Class 6. Status orientation

8. Demographic/Psychographic
Segments
Where do You want to Compete?
Where can you Compete?
18-34 35-54 55+
Age
Segmentation
Lifecycle
Segmentation
Lifestyle
Segmentation
Single
Married with
Children
Empty
Nester
Urban
Uptown
Middleburbs
Metro-City
Blues
Rustic
Living

9. In General, the Priority for Defining
B2C Market Segments is:
Behavioral: You are defining segments on how they are likely to respond to
pricing, benefits, distribution and promotional appeals
Geographic: Some markets vary on key factors such as competition, distribution
availability, purchasing power, etc.
Demographic: Important for understanding segments and reaching segments, but in
many cases, response to marketing mix variables varies too much
within segments to define segment this way
Psychographic: Ditto with demographics, must also be concerned that
sometimes these segments cannot be efficiently reached
All four can and should be used to describe the segments

10. B2B Market Segment Definitions
Industry/Category/NAIC (Automotive/Trucks/Braking Systems)
Total Sales
Number of Employees
Buying Center Characteristics (selling cycle length, number of
decision-makers and influences, final decision-maker, bidding process)

11. Evaluating Market Segments
Market AUDIT BY SEGMENT
Key Descriptive Elements for each segment:
•Market Size
•Market Growth Rate
•Number of Key Competitors
•Competitive Intensity
•Market Share of all competitors including your firm

12. Evaluating Market Segments
CUSTOMER AUDIT BY SEGMENT
Factors Influence Attractiveness of Segment
•Relative brand loyalty/churn
•Relative brand equity
•Relative satisfaction
•Purchase frequency
•Decision Process
Factors Helping You to Effectively, Understand Reach and Relate
•Demographics of segment members
•Psychographics of segment members

13. Benefit Segment A in Home Theatre
“Moderate Quality – Ease of USE”
Benefit Segment B In Home
Theatre
“Superior Quality – Full
Immersion”
Behavioral
1.$1,500 - $2,000 purchases
2.Seek moderate level of service
3.Big Box Stores
4.Seek 3D and easy connectivity to video gaming and DVR
Geography
1.Suburban
Demographics and Psychographics
1.Families w/children under 18
2.$50-$100k household income
3.Family movie/TV show viewers
Market Audit
$22 billion dollars (U.S.)
14% growth rate
8 major competitors
Competitively Intense
16% market share
Customer Audit
Comparable brand loyalty
Superior Brand Equity
Superior Brand Satisfaction
Satisficing Decision Process
Behavioral
1.$4,000 - $8,000
2.Seek high level of service
3.Specialty Stores
4.Seek fully integrated immersive experience
Geography
1.Urban
Demographics and Psychographics
1.Single and Married w/out Children
2.$125-$250k household income
3.Status Seekers
4.Sports and pay per viewing emphasis
Market Audit
$8 billion dollars (U.S.)
22% growth rate
3 major competitors
moderately Intense
4% market share
Customer Audit
Low Brand Equity
Optimizing Decision Process

14. Criteria to Evaluate Market Segment
Attractiveness
1. Fit with Resources and Capabilities
2. More Opportunities than Threats
3. Sales and profit potential
1. Can sales and profit objectives be achieved with this segment?
4. Predisposition to buy brand
1. Do members of this segment view your brand favorably?
2. What perceptual obstacles must be overcome?
3. Are they loyal to another brand?

15. Market Attractiveness – Business Position
Strong
Position
Moderate
Position
Weak
Position
High
Attractivenes
s
DANGER
Moderate
Attractivenes
s
Low
Attractivenes
s
CASH COW

16. Primary Target Market Definition
Process
A complete B2C definition should include:
O Benefits Sought
O User Type
O Geography
O Demographics
O Psychographics
Most
Concrete
Least
Concrete

17. Primary Target Market Analysis
Objectives
O Create a target that is tightly defined both in
terms of what they want and who they are.
What
Who
O A larger target market is not a better target
market
O Focus!

18. Primary Target Market Size
Your primary target market is ill-defined and
too large if….
OYou “average” together too many different benefits sought to
effectively relate to the customer.
OYou “average” together too many demo/psycho factors to effectively
relate to the customer.

19. Finding Your Target Market
O A common approach to begin to identify a primary
target market is to identify the heavy users of your
brand.
O The profile of the heavy user often differs
dramatically from the overall user profile which
includes infrequent, low potential customers.

20. Find and Profile the Heavy Users
Heavy vs. Light Users by Product Category
Users Heavy User Light User
Heavy/Light
U.S. Adults Half Half Use
Ratio
Shampoo 94% 79% 21% 3.8
Cake Mixes 74% 83% 17% 4.9
Cola 67% 83% 17% 4.9
Beer 41% 87% 13% 6.7
Bourbon 20% 95% 5% 19

21. $40,000 ‘Luxury’ Sedan
Example
OTarget Market Portrait Painting
OUse of Logic and Creativity

22. Step One: Product Benefits Sought
Action: Identify the number and size of benefit segments
Example: The manufacturer of a small foreign automaker identifies four key benefit
segments for luxury sedans: Comfort, styling, performance and status.
It selects the performance segment because:
•The company has the capability to make competitive high performance cars
•The performance segment tends to be younger and, hence, less prone to have strong
loyalties to any specific manufacturer.
Potential Index: 100--175

23. Step Two: User Type
Action: Segment the category by user type. This includes brand/category usage (current
brand user, user of competitors only, first time category user) and category purchase
frequency (light, medium, heavy).
Example: The company decides to target first time buyers of luxury sedans
- They don't have the resources to compete against the major manufacturers who target
the heavy user.
- They don't think they can switch heavy users away from the top three or four makers.
Potential Index: 175--215

24. Step Three: Geography
Action: Segment the market by geographic area (census region, states) and/or by type
of neighborhood (e.g., urban, suburban, small town and rural)
Example: The company decides to put its marketing emphasis in the suburban areas of the
10th through the 30th largest metro areas in the country.
- Competitor activity is too intense in the top ten markets.
- There is a lack of available dealerships in smaller markets
Potential Index: 215--274

25. Step Four: Demographics
Action: Form segments on the basis of age, income, education, stage in the family life
cycle, etc.
Example: The company decides to target college educated, married males earning
$60,000-$100,000 per year whose children are pre-teen or older.
- The income fits the $40,000 price tag of the automobile
- Families with children younger than 11 rarely buy luxury sedans.
- The specific parameters will permit more efficient purchasing of media.
Potential Index: 274--355

26. Step Five: Psychographics
Action: Segment the market according to consumer lifestyles, activities, opinions
and beliefs
Example: The manufacturer decides to target sports oriented households that are
known to subscribe to an Internet sports service (e.g., espn.com) and/or a cable or
satellite sports package (e.g., NFL Direct Ticket).
- This provides a platform for emotionally connecting with this group.
- It makes efficient reach more possible with online media
- It provides a platform for sales and event promotions and sponsorships
Potential Index: 355 - 470

27. Targeting Strategies
Undifferentiated
One product targeted to a
mass audience
Differentiated
One product targeted to each
meaningful segment
Concentrated
One product targeted to one
segment