09/07/2023

Marketing Management
Session 2 Market Segmentation

Professor Nnamdi Madichie

Background
• Consumer markets consist of individuals.
• Business markets buy goods and services for further
processing or use in their production processes, whereas
reseller markets buy goods and services to resell at a profit.
• Government markets consist of government agencies that
buy goods and services to produce public services or transfer
the goods and services to others who need them.
• International markets consist of these buyers in other
countries, including consumers, producers, resellers, and
governments. Each market type has special characteristics
that call for careful study by the seller.

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The segmentation process

• Segmentation: Identify and describe market segments
• Targeting: Evaluate segments and decide which one to pursue
• Positioning: A market offering occupying a clear, distinctive,
and desirable place relative to competing products in the minds
of target consumers.
– Design a product and marketing mix to meet the segment’s needs
• Differentiation: Differentiate the firm’s market offering to
create superior customer value

Segmenting consumers

Geographic Demographic

Psychographic Behavioral

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Geographic Segmentation
• Dividing the market into different geographical
units such as nations, regions, states, counties,
cities, or even neighborhoods.
• Think of Provinces, Districts and Sectors in the
case of Rwanda.

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Demographic segmentation

• Demographic segmentation divides the market into groups based

on variables such as age, gender, family size, family life cycle, income,
occupation, education, religion, race, generation, and nationality.

SEGMENTATION BY
PSYCHOGRAPHICS

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Psychographic segmentation
• Psychographic segmentation divides buyers
into different groups based on social class,
lifestyle, or personality traits.

Behavioral segmentation
Behavioral segmentation divides buyers into groups based on their knowledge,
attitudes, uses, or responses to a product.
• Occasion segmentation is grouping buyers according to occasions when they
get the idea to buy, actually make their purchase, or use the purchased item.
• Benefit segmentation is grouping buyers according to the different benefits that
they seek from the product.
• User Status is segmenting markets into nonusers, ex-users, potential users, first-
time users, and regular users of a product.
• Usage Rate is grouping markets into light, medium, and heavy product users.
• Loyalty Status is dividing buyers into groups according to their degree of
loyalty.

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What is the difference between behavioral

segmentation and psychographic segmentation?
• Behavioral segmentation groups people based on how they act, but
psychographic segmentation groups them based on how they think or feel.
• Psychographic segmentation examples include luxury items and articles that
appeal to a particular lifestyle such as vegetarians and pescatarians. Examples
of behavioral segmentation include choosing one product over another due
to variation or functionality.
• On the one hand, Psychographic segmentation may make use of
behavioral data to understand the perceptions and preferences of
consumers.
• On the other hand, behavioral segmentation does not depend on
psychographic data to understand how consumers act in the marketplace.

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International Segmentation
Companies can segment international markets using one or a
combination of several variables.
• Geographic factors: Nations close to one another will have many
common traits and behaviors.
• Economic factors: Population income levels and overall level of
economic development.
• Political and legal factors: Type and stability of government,
receptivity to foreign firms, monetary regulations, and the amount of
bureaucracy.
• Cultural factors: Common languages, religions, values and attitudes,
customs, and behavioral patterns.

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NOT FOR SALE

OUTSIDE SOUTH
ASIA

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Segmentation in Business Markets

• Consumer and business marketers use many of the
same variables to segment their markets.
• Business marketers also use some additional variables,
such as:
– customer operating characteristics.
– purchasing approaches.
– situational factors.
– personal characteristics.

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attention
Remember its only when
done well that segmentation
reveals where opportunities
exist for you to create a value
proposition.

Anything else…?
DISASTER!

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USEFUL SEGMENTS ARE..

ADAMS

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ACCESSIBLE
• The market segments can be
effectively reached and served.
• Is the segment accessible with
media in an efficient manner.
For example, brides are an
accessible segment because of
the many bridal magazines.
There are few media vehicles
targeted at men getting married,
so their accessibility is poor.

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Differentiable…

The segments are

conceptually
distinguishable and
respond differently
to different
marketing mix
elements and
programs.

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actionable
Effective programs
can be designed
for attracting and
serving the
segments.

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• The size, purchasing

power, and profiles of
the segments can be
measured.
• Is the profit potential
calculable?

measurable

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Substantial
Large enough for you?
Sales?
Think Again!
Profitability?

Requires
attention?

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Substantial
• Substantial: The market segments are large or
profitable enough to serve.
• Is the market large enough to make a profit?
• Marketers need to be careful because there is often
heavy competition for the larger segments.

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Activity #1
In pairs discuss the following.
1. Is oversegmentation possible?
2. What are the implications of oversegmentation
of markets?

Time allocation: 10-15 minutes

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Evaluating segments

Size & growth

Structural
attractiveness

Company objectives
& resources

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Evaluating segments
• In evaluating different market segments, a firm
must look at three factors:
– Segment size and growth
– Segment structural attractiveness, and
– Company objectives and resources.

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Evaluating segments cont. /1

• Size and Growth: The largest, fastest-growing segments are
not always the most attractive ones for every company.
• Attractiveness: The company also needs to examine major
structural factors that affect long-run segment attractiveness.
A segment is less attractive if it already contains many strong
and aggressive competitors. The existence of many actual or
potential substitute products may limit prices and the profits.
– The relative power of buyers also affects segment attractiveness. A
segment may be less attractive if it contains powerful suppliers who
can control prices.

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Evaluating segments cont. /2

Company objectives and resources
• Key considerations:
– Does the company wish to have a large market
share?
– Does it have the resources to serve just a few or
many segments?

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Target marketing
• Dividing the total market
into different segments
based on customer
characteristics, selecting one
or more segments, and
developing products to
meet those segments’ needs

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Undifferentiated, Differentiated and Concentrated

• An undifferentiated strategy is one that essentially avoids segmentation, appealing

to a wide-spectrum of people.
– Products such as anti-freeze or candy bars use this type of approach.
• A company that chooses a differentiated strategy develops separate marketing
programs for several segments of the market. This is a costly approach that is usually
reserved for larger firms such as Nike, Toyota.
– Differentiated marketing targets several different market segments and designs separate
offers for each.
• When a firm focuses its efforts on offering one or more products to a single segment,
it is using a concentrated strategy.
– A concentrated strategy is often useful for smaller firms that do not have the resources or
the desire to be all things to all people.

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Segmentation strategies

All buyers in
MARKETING MIX
1 segment

Undifferentiated

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MARKETING MIX 1 Segment 1

MARKETING MIX 2 Segment 2

MARKETING MIX 3 Segment 3

MARKETING MIX 4 Segment 4

Differentiated

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Concentrated/ Micromarketing

MARKETING MIX Segment 1

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Micro marketing

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Choosing a Target
COMPANY RESOURCES

PRODUCT VARIABILITY

PRODUCT LIFE-CYCLE

MARKET VARIABILITY

COMPETITORS’ MARKETING

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How does it work?

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Positioning
• Product position is the
way the product is
defined by consumers on
important attributes—the
place the product
occupies in consumers’
minds relative to
competing products.

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Positioning
• Its not you… its me
“Product versus mind of the customer”

• The way the product is defined by consumers

on important attributes—the place the product
occupies in consumers’ minds relative to
competing products
– Perceptions
– Impressions
– Feelings

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Picture this
• Indulge your senses in the best flying bed:
• A superior flat-bed: a new ‘flatbed’ (180° flat position)
of two meters, with large pillow & new bedding
amenities.
• Innovative:
• Seat controlled electrically from touch-screens,
adjustable blue mood lighting to create your personal
atmosphere.

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Perceptual mapping
• Perceptual mapping is the
visual representation of the
different competitive brand
offerings/objects of interest in
perceptual space. In other
words, it represents a map of
the various offerings within the
minds of the target consumers.
This is where “perception equals
reality” comes home to
marketing strategists.

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Positioning Map

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Repositioning Volvo

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Choosing a positioning strategy

• The differentiation and positioning

task consists of three steps:
– Identifying a set of differentiating
competitive advantages upon which to
build a position,
– Choosing the right competitive advantages,
and
– Selecting an overall positioning strategy.

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Differentiation
based on:

PRODUCT DISTRIBUTION

SERVICES PEOPLE IMAGE

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Difference to promote should be:

DISTINCTIVE
IMPORTANT SUPERIOR

COMMUNICABLE

PREEMPTIVE
AFFORDABLE

PROFITABLE

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Difference to promote should be:

• Important: The difference delivers a highly valued benefit to
target buyers.
• Distinctive: Competitors do not offer the difference, or the
company can offer it in a more distinctive way.
• Superior: The difference is superior to other ways that customers
might obtain the same benefit.
• Communicable: The difference is communicable and visible to
buyers.
• Preemptive: Competitors cannot easily copy the difference.
• Affordable: Buyers can afford to pay for the difference.
• Profitable: The company can introduce the difference profitably.

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Summary
• Market segmentation is vital for company success.
– Without a clear idea of the nature of the target segments, the firm is forced to use a scatter-
shot approach to marketing strategic decision making with little chance for success.
• Dividing the market up into reasonable segments is only a starting point.
– The firm then must develop a series of strategic goals and strategies for effectively reaching
those identified segments.
• Targeting requires the firm not only to aim at but hopefully to hit its target
segments.
• The final important aspect involves the establishment of an important
perceptual position in the mind of the consumer.
• The company whose brand comes immediately to mind when a need arises
in a particular product/service class has a distinct advantage over its competitors.

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Summary (cont…)
• Kotler (2003) presents the most recognizable series of
requirements for segments to be appropriate. They must be:
– Accessible (reachable by the firm and able to effectively serve the
segment),
– Differentiable (truly distinct from other segments in terms of
composition and response to marketing stimuli.
– Actionable (marketing programs can be developed to effectively
identify, attract and serve the segment).
– Measurable (e.g., size of segment, income and purchasing power,
and characteristics of the segment).
– Substantial (large enough and capable of generating sufficient
profits).

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Summary cont.
• Positioning refers to the placing of the
product or service in a particular perceptual
position within the mind of the consumer. This
would follow the processes described in
segmentation and targeting.

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Resources/ further reading

• Camilleri, M. A. (2018). Market segmentation, targeting and positioning. In Travel
marketing, tourism economics and the airline product (pp. 69-83). Springer, Cham.
• DeSarbo, W. S., Blanchard, S. J., & Atalay, S. (2009). A new spatial classification
methodology for simultaneous segmentation, targeting, and positioning (STP
analysis) for marketing research. In Review of marketing research (Vol. 5, pp. 75-
103). Emerald Group Publishing Limited.
• Moutinho, L. (2000). Segmentation, targeting, positioning and strategic marketing.
Strategic Management in Tourism, 121-166.
• Schlegelmilch, B. B. (2016). Segmenting targeting and positioning in global markets.
In Global marketing strategy (pp. 63-82). Springer, Cham.
• Sharma, R.R., Kaur, T. and Syan, A.S. (2021), Market Segmentation, Targeting and
Positioning, Sustainability Marketing, Emerald Publishing Limited, Bingley, pp. 119-
132. https://doi.org/10.1108/978-1-80071-244-720211009

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