SEGMENTATION & TARGETING

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MARKETING MANAGEMENT, SEGMENTATION, TARGETING, MARKET SEGMENTATION, MARKET TARGETING, TYPES OF SEGMENTING (Geographic, Demographic, Psychographic, Behavioral), SEGMENTING CONSUMER MARKETS, SELECTING TARGET MARKET SEGMENTS, EVALUATING MARKET SEGMENTS, TARGETING STRATEGY
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  • 1. Course: Marketing Management (5565) ASSIGNMENT No. 1 / Q-2 Level: COL. EMBA Q.2 Segmentation implies dividing the marketplace into parts, or segments, which are definable, accessible, actionable, and profitable and have a growth potential. On what basis the market can be segmented? Explain with examples, why targeting a specific segment is better than targeting the whole market? (20) INTRODUCTION MARKET SEGMENTATION Buyers/customers in any market vary in respect of their needs, resources, locations, buying behaviour, and buying routines. It is not possible for companies to connect with all customers in large, broad, or diverse markets. So, companies divide large, diverse markets into smaller segments that can be reached more efficiently and effectively with products and services that match their unique needs. The market segmentation is done with a keen understanding of consumer behavior and careful strategic thinking. So, to develop the best marketing plans, managers/marketers have to make each segment unique and different. Identifying and satisfying the right market segments is often the key to marketing success. (Kotler & Armstrong, 2018). MARKET TARGETING After market segmentation, market targeting takes place. Attractiveness of each market segment is evaluated and then one or more selecting one or more segments are selected in same way. Definitions:  Market segment: “A group of consumers who respond in a similar way to a given set of marketing efforts.” (Kotler & Armstrong, 2018).  Market segmentation: “Dividing a market into distinct groups of buyers who have different needs, characteristics, or behaviors and who might require separate marketing strategies or mixes.” (Kotler & Armstrong, 2018).  Market targeting (targeting): “Evaluating each market segment’s attractiveness and selecting one or more segments to serve.” (Kotler & Armstrong, 2018). MARKET SEGMENT & SEGMENTATION TYPES OF SEGMENTING Market can be segmented on basis of three areas. Segmenting by ….  Consumer Markets  Business Markets  International Markets
  • 2. Course: Marketing Management (5565) ASSIGNMENT No. 1 / Q-2 Level: COL. EMBA  SEGMENTING CONSUMER MARKETS 1. Geographic Segmentation 2. Demographic Segmentation 3. Psychographic Segmentation 4. Behavioral Segmentation 1. Geographic Segmentation Kotler & Keller (2012) define geographic segmentation as: “Geographic segmentation is dividing a market into different geographical units, such as nations, states, regions, counties, cities, or even neighborhoods”. A company may decide to operate in one or a few geographical areas or operate in all areas but pay attention to geographical differences in needs and wants. Moreover, many companies today are localizing their products, services, advertising, promotion, and sales efforts to fit the needs of individual regions, cities, and other localities. This marketing approach is common for small businesses that serve a wide demographic customer base in a local or regional territory. Examples: Seasonal Products: Such as coats and winter gear and swimwear and beach attire, often are marketed to geographic segments. Community Size: One company may market lawn mowers to rural communities where most residents have a yard but target city dwellers with weed trimmers or leaf blowers for manicuring lawns or sidewalks. Local Retailer: Local discount or department store retailers that sell a variety of product categories appealing to different demographics often use local geographic segmentation in their marketing efforts. Food Preferences: Certain foods have very specific geographic interest, e.g. at some places people are fond of fast food, and some places near coastal areas people like seafood, and so marketers segment the areas accordingly. New Territory: In some situations, companies use geographic segmentation selectively to target new local territories or regions. So, the company has a promotional objective of customer growth in a new market, and also increased market share or higher profits. (Kokemuller, 2018) 2. Demographic Segmentation Demographic segmentation is dividing the market into segments based on variables such as age, life- cycle stage, gender, income, occupation, education, religion, ethnicity, and generation. Demographic factors are the most popular bases for segmenting customer groups. One reason is that consumer needs, wants, and usage rates often vary closely with demographic variables. Another is that demographic variables are easier to measure than most other types of variables. Life Stage. People in the same part of the life cycle may still differ in their life stage. Life stage defines a person’s major concern, such as going through a divorce, going into a second marriage, taking care of an older parent, deciding to cohabit with another person, deciding to buy a new home, and so on. These life stages present opportunities for marketers who can help people cope with their major concerns. (Kotler & Keller, 2012).
  • 3. Course: Marketing Management (5565) ASSIGNMENT No. 1 / Q-2 Level: COL. EMBA Gender. Gender segmentation has long been used in marketing clothing, cosmetics, toiletries, toys, and magazines. Men and women have different attitudes and behave differently, based partly on genetic makeup and partly on socialization. (Kotler & Keller, 2012). Income. Many companies (such as automobiles, clothing, cosmetics, financial services, and travel) target wealthy consumers with luxury goods and convenience services. Other marketers use high-touch marketing programs to court the well-to-do. Some companies target low- and middle-income groups. (Kotler & Armstrong, 2018). Generation. Each generation (or cohort) is intensely 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. They also try to develop products and services that uniquely meet the particular interests or needs of a generational target. (Kotler & Keller, 2012). 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. (Kotler & Keller, 2012). 3. Psychographic Segmentation Kotler & Keller (2012) define geographic segmentation as: “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”. Kotler & Armstrong (2018) define geographic segmentation as: “Dividing a market into different segments based on lifestyle or personality characteristics. People in the same demographic group can have very different psychographic characteristics.” Psychographic segmentation can be defined using the following factors:  Personality traits  Values  Priorities  Interests  Lifestyles  Psychological influences  Attitudes  Motivations  Subconscious and conscious beliefs Psychographic segments are often more useful for marketing than demographic or geographic factors because they describe the heart and soul of ideal audience. They are behavioral segmentation factors that explain more about who the audience is, what they need, what they want, and how a brand can best connect with them. This market segmentation information is powerful because it allows getting to know the emotional and personal side of the customer. Marketers can understand why their audience acts the way they do, which enables them to predict how they may respond to their brand. You can use the psychographic insights to adjust your products, services, and marketing messages to connect with your audience on a more personal and powerful level. (Kotler & Armstrong, 2018).
  • 4. Course: Marketing Management (5565) ASSIGNMENT No. 1 / Q-2 Level: COL. EMBA 4. Behavioral Segmentation Kotler & Armstrong (2018) define it as: “Behavioral Segmentation is dividing a market into segments based on consumer knowledge, attitudes, uses of a product, or responses to a product”. Behavioral segmentation is based on user behaviors, including patterns of use, price sensitivity, brand loyalty and benefits sought. A company may have customers with a similar demographic characteristics but varying behavioral tendencies. Some may use the product daily, while others use it weekly or monthly. Higher-income earners may have more interest in higher-quality models versus low-cost models. This may prompt the provider to target higher-end products and services to one group and more value-oriented offerings to lower-income or budget-conscious customers. (Kokemuller, 2018). In behavioral segmentation, buyers are divided into groups on the basis of their knowledge of, attitude toward, use of, or response to a product. (Kotler & Keller, 2012). Needs and Benefits. Needs or wants of a product cannot be same for all buyers, nor do they get the same benefits from it. Needs-based or benefit-based segmentation is a widely used approach because it identifies distinct market segments with clear marketing implications. Decision Roles. Buyer for many products can be identified easily. Five roles are played by a buyer in a buying decision: “Initiator, Influencer, Decider, Buyer, and User”. For example, a wife (Initiator) asks for a new treadmill. Then husband seeks information from many sources, including his friend (Influencer) who is already using treadmill. Then he presents alternative choices to his wife (Decider), and finally he (Buyer) purchases her preferred model, which ends up being used by the entire family (User). User and Usage -- Real User and Usage-Related Variables. There are many variables used by marketers that are good starting points for constructing market segments. These variables are related to various aspects of users or their usage; i.e. occasions, user status, usage rate, buyer- readiness stage, and loyalty status. Major Segmentation Variables for Consumer Markets Segmentation Variables Examples Geographic region Pacific Mountain, West North Central, West South Central, East North Central, East South Central, South Atlantic, Middle Atlantic City or metro size Under 5,000; 5,000–20,000; 20,000–50,000; 50,000–100,000; 100,000– 250,000… Density Urban, suburban, rural Climate Northern, southern Demographic age Under 6, 6–11, 12–17, 18–34, 35–49, 50–64, 64+ Family size 1–2, 3–4, 5+ Family life cycle Young, single; young, married, no children; young, married, youngest child under 6; young; married, youngest child 6 or older; older, married, with children; older, married, no children under 18; older, single; other Gender Male, female Income Under $10,000; $10,000–$15,000; $15,000–$20,000; $20,000–$30,000; $30,000–$50,000; $50,000–$100,000; $100,000+ Occupation Professional and technical; managers, officials, and proprietors; clerical sales; craftspeople; forepersons; operatives; farmers; retired; students; homemakers; unemployed Cont…
  • 5. Course: Marketing Management (5565) ASSIGNMENT No. 1 / Q-2 Level: COL. EMBA Contd… Major Segmentation Variables for Consumer Markets Segmentation Variables Examples Education Grade school or less; some high school; high school graduate; some college; college graduate Religion Catholic, Protestant, Jewish, Muslim, Hindu, other Race White, Black, Asian, Hispanic Generation Silent Generation, Baby boomers, Gen X, Gen Y Nationality North American, Latin American, British, French, German, Italian, Chinese, Pakistani, Japanese Social class Lower lowers, upper lowers, working class, middle class, upper middles, lower uppers, upper uppers Psychographic lifestyle Culture-oriented, sports-oriented, outdoor-oriented Personality Compulsive, gregarious, authoritarian, ambitious Behavioral Occasions Regular occasion, special occasion, religious occasions, Benefits Quality, service, economy, speed User status Nonuser, ex-user, potential user, first-time user, regular user Usage rate Light user, medium user, heavy user Loyalty status None, medium, strong, absolute Readiness stage Unaware, aware, informed interested, desirous, intending to buy Attitude towards product Enthusiastic, positive, indifferent, negative, hostile Using Multiple Segmentation Bases Several business information services provide multivariable segmentation systems that merge geographic, demographic, lifestyle, and behavioral data to help companies segment their markets down to zip codes, neighborhoods, and even households. (Kotler & Armstrong, 2018).
  • 6. Course: Marketing Management (5565) ASSIGNMENT No. 1 / Q-2 Level: COL. EMBA  SEGMENTING BUSINESS MARKETS “Consumer and business marketers use many of the same variables to segment their markets. Business buyers can be segmented geographically, demographically (industry, company size), or by benefits sought, user status, usage rate, and loyalty status. Yet business marketers also use some additional variables, such as customer operating characteristics, purchasing approaches, situational factors, and personal characteristics”. (Kotler & Armstrong, 2018). Business markets can be segmented with some of the same variables used in consumer markets, with other variables. Kotler & Keller (2012) presented following table that shows one set of these variables. Major Segmentation Variables for Business Markets Demographic 1. Industry: Which industries should we serve? 2. Company size: What size companies should we serve? 3. Location: What geographical areas should we serve? Operating Variables 4. Technology: What customer technologies should we focus on? 5. User or nonuser status: Should we serve heavy users, medium users, light users, or nonusers? 6. Customer capabilities: Should we serve customers needing many or few services? Purchasing Approaches 7. Purchasing-function organization: Should we serve companies with a highly centralized or decentralized purchasing organization? 8. Power structure: Should we serve companies that are engineering dominated, financially dominated, and so on? 9. Nature of existing relationship: Should we serve companies with which we have strong relationships or simply go after the most desirable companies? 10. General purchasing policies: Should we serve companies that prefer leasing? Service contract? Systems purchases? Sealed bidding? 11. Purchasing criteria: Should we serve companies that are seeking quality? Service? Price? Situational Factors 12. Urgency: Should we serve companies that need quick and sudden delivery or service? 13. Specific application: Should we focus on a certain application of our product rather than all applications? 14. Size or order: Should we focus on large or small orders? Personal Characteristics 15. Buyer-seller similarity: Should we serve companies whose people and values are similar to ours? 16. Attitude toward risk: Should we serve risk-taking or risk-avoiding customers? 17. Loyalty: Should we serve companies that show high loyalty to their suppliers?  SEGMENTING INTERNATIONAL MARKETS Kotler & Armstrong (2018) define Intermarket (cross-market) segmentation as: “Forming segments of consumers who have similar needs and buying behaviors even though they are located in different countries.” Different countries, even those that are close together, can vary greatly in their economic, cultural, and political makeup. Thus, just as they do within their domestic markets, international firms need to group their world markets into segments with distinct buying needs and behaviors.
  • 7. Course: Marketing Management (5565) ASSIGNMENT No. 1 / Q-2 Level: COL. EMBA As described by Kotler & Armstrong (2018), companies can segment international markets using one or a combination of several variables. They can segment by  Geographic location, grouping countries by regions such as Western Europe, the Pacific Rim, South Asia, or Africa. Geographic segmentation assumes that nations close to one another will have many common traits and behaviors.  Economic factors. A country’s economic structure shapes its population’s product and service needs and therefore the marketing opportunities it offers.  Political and legal factors such as the type and stability of government, receptivity to foreign firms, monetary regulations, and amount of bureaucracy.  Cultural factors can also be used, grouping markets according to common languages, religions, values and attitudes, customs, and behavioral patterns. Segmenting international markets should consist of clusters of countries. However, as new communications technologies, such as satellite TV and online and social media, connect consumers around the world, marketers can define and reach segments of like-minded consumers no matter where in the world they are. Using intermarket segmentation (also called cross-market segmentation), they form segments of consumers who have similar needs and buying behaviors even though they are located in different countries.  REQUIREMENTS FOR EFFECTIVE SEGMENTATION Not all segmentation schemes are useful. We could divide buyers of table salt into blond and brunette customers, but hair color is undoubtedly irrelevant to the purchase of salt. Furthermore, if all salt buyers buy the same amount of salt each month, believe all salt is the same, and would pay only one price for salt, this market is minimally segmentable from a marketing point of view. According to Kotler & Armstrong (2018), useful market segments must be..  Measurable. The size, purchasing power, and profiles of the segments can be measured.  Accessible. The market segments can be effectively reached and served.  Substantial. The market segments are large or profitable enough to serve. A segment should be the largest possible homogeneous group worth pursuing with a tailored marketing program. It would not pay, for example, for an automobile manufacturer to develop cars especially for people whose height is greater than seven feet.  Differentiable. The segments are conceptually distinguishable and respond differently to different marketing mix elements and programs. If men and women respond similarly to marketing efforts for soft drinks, they do not constitute separate segments.  Actionable. Effective programs can be designed for attracting and serving the segments. For example, although one small airline identified seven market segments, its staff was too small to develop separate marketing programs for each segment.
  • 8. Course: Marketing Management (5565) ASSIGNMENT No. 1 / Q-2 Level: COL. EMBA TARGETING After identifying market segments, the marketer decides which present the greatest opportunities— which are its target markets. For each, the firm develops a market offering that it positions in the minds of the target buyers as delivering some central benefit(s). Targeting: “Consists of a set of buyers who share common needs or characteristics that the company decides to serve”. (Kotler & Armstrong, 2018) Market segmentation reveals the firm’s market segment opportunities. The firm now has to evaluate the various segments and decide how many and which segments it can serve best.  EVALUATING MARKET SEGMENTS In terms of evaluating markets, three core considerations are essential:  Segment size and growth  Segment structural attractiveness  Company objectives and resources. There are no formulas for evaluating the attractiveness of market segments and a good deal of judgment must be exercised. The following quest
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