CRITERIA FOR SUCCESSFUL CUSTOMER SEGMENTATION

  • Identifiable and Measurable-characteristics of segment’s number must be easily identifiable.  Allows the firm to measure identifying characteristics, including the segment’s size and purchasing power.
  • Substantial-must be large and profitable enough to make it worthwhile for the firm.  The profit potential must be greater than the costs involved in creating a marketing program specifically for the segment.
  • Accessible-The segment must be accessible in terms of communication (advertising, email, telephone) and distribution (channels, merchants, retail outlets, etc.)
  • Responsive-Must responds to the firms marketing efforts, including changes to the marketing program over time.  Respond differently than other segments.
  • Viable and Sustainable-Meet the basic criteria for exchange, including being ready, willing, and able to conduct business with the firm.  Must also be sustainable over time for serving the needs of the segment.

Identifying Market Segments
Ability to identify the characteristics of buyers within those markets.  Variables including demographics, lifestyles, product usage, or firm size, derived from the situation analysis.  Target markets shift in response to changing elements of marketing strategy: Reducing price to enhance value, increasing the price to connote higher quality, adding a new product feature to make the benefits more meaningful, or selling through retail stores instead of direct distribution, to add the convenience of immediate availability. Target market and the marketing program are interdependent, and changes in one typically require changes in the other.

Segmenting Consumer Markets
Goal-isolate individual characteristics that distinguish one or more segments from the total market.  China is the world’s most populous country and is the second-largest economy.  Difficult to market because of the sheer size of the country, its complicated language with multiple dialects, and its relatively low personal incomes compared to western standards.  Prefer tea to soft drinks.  China’s retail market is growing faster than the U.S.market. Trust-mart-China’s top retailer.  Chinese consumers favor local merchants because of their low prices and freshness of foods.  Difficulty in segmenting consumer markets lies in isolating one or more characteristics that closely align with these needs and wants.

Segmentation Variables
Behavioral Segmentation
Variables: product usage, occasions or situations, price sensitivity
Examples: Quality, value, taste, image enhancement, beauty, sportiness, speed, excitement, entertainment, nutrition, and convenience
Heavy, medium, and light users; nonusers; former users; first-time users
Emergencies, celebrations, birthdays, anniversaries, weddings, births, funerals, graduation
Price sensitive, value conscious, status conscious (not price sensitive)

Demographic segmentation
Age: 0-5, 6-12, 13-17, 18-25, 26-34, 35-39, 50-64, 65+
Gender
Income
Occupation
Education
Family Life cycle
Generation
Ethnicity
Religion
Nationality
Social Class

Psychographic segmentaion:  Personality, Lifestyle, Motives

Geographical segemtaion: Regional
City/County Size
Popualtion Density

Behavioral Segmentation
The most powerful approach because it uses actual consumer behavior or product usage to make distinctions among market segments.  Most closely associated with consumer needs.  Group consumers based on their extent of product usage-heavy, medium, and light users.  Create market segments based on specific consumer benefits.  Conducting research to identify segments is expensive, time-consuming, and sometimes unclear.  The key to successful behavioral Market Segmentation is to clearly understand the basic needs and benefits sought by different consumer groups.  Then this information can be combined with demographic, psychographic, and geographic segmentation to create complete consumer profiles.

Demographic Segmentation
Divides markets into segments using demographic factors such as gender, age, income, and education.  Widely Available and relatively easy to measure.  The connection between demographics, needs, and desired product benefits can make demographic segmentation quite easy.  The problem in understanding consumer motives and values is that these variables depend more on what consumers think and feel rather than on who they are.  Delving into consumer thoughts and feelings is the subject of psychographic segmentation.

Psychographic segmentation
Deals with state-of-mind issues such as motives, attitudes, opinions, values, lifestyles, interests, and personality.  Issues are more difficult to measure, and often require primary marketing research to properly determine the makeup and size of various market segments.  Once firm identifies one or more psychographic segments, they can be combined with demographic, geographic, or behavioral segmentation to create fully developed consumer profiles.
VALS Values and lifestyles.  Consumption motives: ideals knowledge and principles, achievement demonstrating success to others, or self-expression (social or physical activity) variety, and risk taking).  Many companies use Vales including new product development, product positioning, brand development, promotional strategy, and media placement. Psychographic segmentation is useful because it transcends purely descriptive characteristics to help explain personal motives, attitudes, emotions, and lifestyles directly connected to buying behavior.

Geographic segmentation
Consumer preferences for certain purchases based on geography are a primary consideration in developing trade areas for retailers such as grocery stores, gas stations, and dry cleaners.  Geodemographic segmentation, or geoclustering, is an approach that looks at neighborhood profiles based on demographic, geographic, and lifestyle segmentation variables.  Geoclustering tools: Claritas’ PRIZM NE Segmentation system, which classifies every neighborhood in the United States into one of 66 different demographic and behavioral clusters.

Target Marketing Strategies
Once firm has completed segmenting a market, it must then evaluate each segment to determine its attractiveness and where it offers opportunities that meet the firms capabilities and resources.  Attractive segments may be dropped for lack of resources, no synergy with the firms mission, overwhelming competition in the segment, an impeding technology shift, or ethical and legal concerns over targeting a particular segment.

  • Single Segment Targeting-capabilities are intrinsically tied to the needs of a specific market segment.  This strategy is for true specialists in a particular product category.  Firms fully understand their customers’ needs, preferences, and lifestyles.  Constantly strive to improve quality and customer satisfaction by continuously refining their products to meet changing customer preferences.
  • Selective Targeting-Firms that have multiple capabilities in many different product categories.  Advantages include diversification of the firm’s risk and the ability to cherry pick only the most attractive market segment opportunities.  P an G uses selective targeting to offer customers many different products in the family care, household care, and personal care markets.  Success is that the company does not try to be all things to all customers.  Company carefully selects product/market combinations where its capabilities match customers’ needs.
  • Mass Marketing Tactics-only the largest firms, which involves the development of multiple marketing programs to serve all customer segments simultaneously.
  • Product Specialization-where their expertise in a product category can be leverage across many different market segments.
  • Market Specialization-when their intimate knowledge and expertise in one market allows them to offer customized marketing programs that not only deliver needed products but also provide needed solutions to customers’ problems.

Non-customers do not purchase a firms products because they can include unique customer needs, better competing alternatives, high switching costs, lack of product awareness, or the existence of the long-held assumptions about a product.  The key to targeting non-customers lies in understanding the reasons why they do no buy and then finding ways to remove these obstacles.  Removing obstacles to purchase, whether they exist in product design, affordability, distribution convenience, or product awareness, is a major strategic issue in developing an effective marketing program.

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