CHAPTER: STRATEGIC
MARKET SEGMENTATION
Topics to be covered:
Levels and Types of Market Segmentation
Market-Driven Strategy and Segmentation
Activities in Market Segmentation
Levels and Types of Market Segmentation
• Segmentation may serve several purposes at levels which
range from strategic to operational as they are shown in
the figure given below:
Market-Driven Strategy and Segmentation
• Market segmentation needs to be considered
early in the development of market driven
strategy. The following figure depicts the place of
segmentation in the market-driven strategy
process:
(continued…)
• Segments are identified, customer value
opportunities and new market space are explored in
each segment, organizational capabilities are
matched to promising segment opportunities, market
target(s) are selected from the segment(s) of interest,
and a positioning strategy is developed and
implemented for each market target.
Activities and Decisions in Market Segmentation
• The process of segmenting a market involves several
interrelated activities and decisions beginning with
defining the market to be segmented as they are shown in
the figure given below:
Defining the Market to be Segmented
• Market segmentation may occur at any of the product-
market levels shown in the exhibit given below:
• An important consideration in defining the market to be
segmented is estimating the variation in buyers’ needs
and requirements at the different product-market levels
and identifying the types of buyers included in the
market.
Identifying Market Segments
• After the market to be segmented is defined, one or more variables
are selected to identify the segments. The following exhibit depicts
illustrative segmentation variables:
Forming Market Segments
• The idea and process of market segments can be
explained by clarifying the following aspects:
• Requirements for Segmentation
• Approaches to Segment Identification
(continued…)
• Requirements for Segmentation: It is important
to decide if it is worthwhile to segment a product-
market. The following five criteria are useful for
evaluating a potential segmentation strategy:
• Response Differences
• Identifiable Segments
• Actionable Segments
• Cost/Benefits of Segmentation
• Stability over Time
(continued…)
• Marketers must remember that product
differentiation is not same as the market
segmentation. Product differentiation occurs
when a product offering is perceived by as
different from the competition on any physical or
nonphysical product characteristics.
(continued…)
• Approaches to Segment Identification: Two approaches to
segment identification are shown in the figure given below:
(continued…)
• Customer Group Identification: When using
customer group identification approach, it is
necessary to select one or more of the
characteristics of people or organizations as the
basis of segmentation. Using these variables,
segments are formed by (1) management
judgment and experience; or (2) supporting
statistical analyses. The objective is to find
differences in responsiveness among the customer
groups.
(continued…)
• Forming Groups Based on Response
Differences: The alternative to selecting
customer groups based on descriptive
characteristics is to identify groups of buyers
using response differences to form the segments.
Here commonly used statistical analyses are
cluster analysis, perceptual map, and factor
analysis.
Finer Segmentation Strategies
• Logic of Finer Segmentation: Several factors
working together point to the benefits of
considering very small segments, in some cases,
segments of one. They include:
• The capabilities of companies to offer cost effective,
customized offerings
• The desires of buyers for highly customized products
(diverse customer base)
• The organizational advantages of close customer
relationships
(continued…)
• Finer Segmentation Strategies: The most
popular three approaches for finer segmentation
are:
• Micro-Segmentation
• Mass Customization
• Variety-Seeking Strategy
(continued…)
• Finer Segmentation Issues: There are several issues
need to be examined when considering finer
segmentation strategies:
• How much variety should be offered? What attributes
are important in buyers’ choices and to what extent do
they need to be varied?
• Will too much variety have negative effects on buyers?
Confused or frustrated them?
• Is it possible to increase buyers’ desire for variety,
creating a competitive advantage?
• What process should be used to learn about customer
preferences?
Selecting the Segmentation Strategy
• Several approaches to market segmentation have
been considered. Now selecting the
segmentation strategy involves the two following
considerations:
• Deciding How to Segment
• Strategic Analysis of Market Segments
(continued…)
• Deciding How to Segment: The choice of segmentation
method depends on such factors as the maturity of the
market, the competitive structure, and the organization’s
experience in the market. The previously mentioned five
segmentation criteria help to evaluate potential segments.
Segmentation strategy should not be static. The
competitive advantage gained by finding (or developing) a
new market segment can be very important.
(continued…)
• Strategic Analysis of Market Segments: Each market
segment of interest needs to be studied to determine its
potential attractiveness as a market target. The major
areas of analysis include:
• Customer Analysis
• Competitor Analysis
• Positioning Analysis
• Estimating Segment Attractiveness
• Segment “FIT” and Implements
• Segment Attractiveness Analysis
Thank You!
