Market segmentation

Market segmentation is the process of dividing a broad-based consumer or business market , and consists of sub-groups of consumers (known as segments ). In dividing or segmenting markets, they typically look for common interests, common interests, similar lifestyles or even similar demographic profiles . The overall aim of segmentation is to identify high yield segments – that is, those segments that are likely to be most profitable or that have growth potential – so that they can be selected for special attention (ie become target markets ).

Many different ways to market have been identified. Business-to-business (B2B) sellers might segment the market into different types of businesses or countries . While business to consumer (B2C) sellers might segment the market into demographics segments, lifestyle segments, behavioral segments or any other meaningful segment.

Market segmentation assumes that different market segments require different marketing programs – that is, different offers, prices, promotion, distribution or some combination of marketing variables. Market segmentation is not only designed to identify the most profitable segments, but also to develop profiles of key segments in order to better understand their needs and purchase motivations. Insights from segmentation analysis are subsequently used to support marketing strategy development and planning. Many marketers use the STP approach; S egmentation → T argeting → P ositioningto provide the framework for marketing planning objectives. That is, a market segmented, one or more segments are selected for targeting, and those services are services in the form of resonators with the selected target market or markets.

History

The business historian, Richard S. Tedlow , identifies four stages in the evolution of market segmentation: [1]

  • Fragmentation (pre 1880s) : The economy was characterized by small regional suppliers
  • Gold Mass Marketing Unification (1880s-1920s) : As transportation systems improved, the economy became unified. Standardized, branded goods were distributed at a national level. Manufacturers tend to insist on strict standardization in order to achieve scale economies with a view to penetrating markets in the early stages of a product’s life cycle. eg the Model T Ford
  • Segmentation (1920s-1980s) : As marketed size, they were able to meet the needs of different demographic and psychographic market segments. This is the era of market differentiation based on demographic, socio-economic and lifestyle factors.
  • Hyper-segmentation (1980s +) : a shift towards the definition of ever more narrow market segments. Technological advancements, especially in the area of ​​digital communications, allow marketers to communicate with individual consumers or very small groups. This is known as one-to-one marketing.

The practice of market segmentation is well before marketers. [2] Archaeological evidence suggests that Bronze Age traders segmented trade routes according to geographical circuits. [3]Other evidence suggests that the practice of modern market segmentation was developed incrementally from the 16th century onwards. Retailers, operating outside the major metropolitan cities, could not afford to serve one type of customerele exclusively, yet retailers needed to find ways to separate the wealthier customerele from the “riff raff.” One simple technique was to be opened up on the street. This allowed the sale of goods to the common people, without encouraging them to come inside. Another solution, that came into vogue from the late sixteenth century, was to invite customers to a back-room of the store, where goods were permanently on display. Yet another technique that evolved around the same time to be a showcase of goods in the shopkeeper ‘ Private home for the benefit of wealthier customers. Samuel Pepys, for example, writing in 1660, describing an invitation to the home of a wooden jack.[4] The eighteenth century English entrepreneurs, Josiah Wedgewood and Matthew Boulton , both staged expansive showcases of their wares in their private residences or in rented halls to the upper classes. the masses. [5] Evidence of early marketing segmentation has been noted in other parts of Europe. A study of the German book trade market and market segmentation differentiation and market segmentation in the 1820s. [6] Such activities suggest that basic forms of market segmentation have been practiced since the 17th century and possibly earlier.

Wendell R. Smith is credited with being the first to introduce the concept of market segmentation into the marketing literature in 1956 with the publication of his article, “Product Differentiation and Market Segmentation as Alternative Marketing Strategies.” [7] Smith’s article makes it clear that it has been observed that “many examples of segmentation” are emerging and that this is a natural force in the marketplace that “would not be denied.” [8] As Schwarzkopf points out, Smith was codifying implicit knowledge that had been used in advertising and marketing since at least the 1920s. [9]

Contemporary market segmentation emerged in the twentieth century as marketers responded to two pressing issues. They are available for groups, but rarely for single consumers. Between 1902 and 1910, George B Waldron, working at Mahin’s Advertising Agency in the United States used tax registers, city directories and census data to show advertisers of the proportion of educated vs. illiterate consumers and the earning capacity of different occupations etc. in a very early example of simple market segmentation. [10] [11] In 1924 Paul Cherington developed the ‘ABCD’ household typology; the first socio-demographic segmentation tool. [10] [12]With access to group level data only, brand marketers approached the task from a tactical viewpoint. Thus, segmentation was essentially a brand-driven process.

Until relatively recently, these strategies have been pursued in this way. such as describing the current “market served” and are concerned with informing marketing mix decisions. However, with the advent of digital communications and mass data storage, it has been possible for marketers to conceive of segmenting the level of the individual consumer. Extensive data is now available to support segmentation at very narrow groups or even for the single customer, allowing marketers to be personalized via real-time communications. [13]

Criticisms of market segmentation

The limitations of the segmentation have been discussed in the literature. [14] Perennial criticisms include:

  • it is no better than mass marketing at building brands [15]
  • that in competitive markets, segments .
  • it fails to identify narrow clusters [17]
  • Demographic / demographic segmentation is overly descriptive and lacks sufficient insights into the motivations necessary to drive communications strategy [18]
  • with the dynamics of market dynamics, particularly the instability of segments over time [19] [20] and structural change which leads to segment creep and membership migration to individuals [21]

Market segmentation has many critics. But in spite of its limitations, market segmentation remains one of the enduring concepts in marketing and continues to be widely used in practice. One American study, for example, suggests that almost 60 percent of senior executives had used market segmentation in the past two years. [22]

Market segmentation strategy

See also: Niche market and Porter’s generic strategies

A key consideration for marketers is whether to segment or not to segment. Depending on the company’s philosophy, resources, product type or market characteristics, a business may develop an undifferentiated approach or differentiated approach . In an undifferentiated approach, the marketer ignores segmentation and develops a product that meets the needs of the largest number of buyers. [23] In a differentiated approach the firm targets one or more market segments, and develops separate offers for each segment. [23]

Even simple products like salt, which may be considered as commodities, are highly differentiated in practice.

In consumer marketing, it is difficult to find examples of undifferentiated approaches. Even goods such as salt and sugar , which have been once treated, are now highly differentiated. Consumers can purchase a variety of salt products; cooking salt, salt table, sea salt, rock salt, salt kosher, mineral salt, herbal or vegetable salts, iodized salt, salt substitutes and many more. Sugar also comes in many different types – sugar cane, sugar beet, raw sugar, white refined sugar, brown sugar, sugar caster, sugar lumps, icing sugar, sugar syrup, sugar invert and a plethora of sugar substitutes including smart sugarwhich is essentially a blend of pure sugar and a sugar substitute. Each of these products is designed to meet the needs of specific market segments. Invert sugar and sugar syrups, for example, are marketed to food manufacturers where they are used in the production of canned goods, chocolate and baked goods. Sugars marketed to consumers appeal to different use segments – refined sugar is primarily for use on the table, while caster sugar and icing sugar are primarily designed for use in home-baked goods.

Different types of sugar: White, unrefined, brown, unprocessed cane
Main Strategic Approaches to Segmentation [24]
Number of segments Segmentation strategy Comments
Zero Undifferentiated strategy Mass marketing: no segmentation
One Focus strategy Marketing niche: focus on small, tightly defined target market
Two or more Differentiated strategy Multiple niches: focus efforts on 2 or more, tightly defined targets
Thousands hypersegmentation One-to-one marketing: customize the offer for each individual customer

A number of factors are likely to affect a company’s segmentation strategy: [25]

  • Company resources: When resources are restricted, a concentrated strategy may be more effective.
  • Product variability: For highly uniform products (such as sugar or steel) an undifferentiated marketing may be more appropriate. For products that can be differentiated, then such a differentiated or concentrated approach is indicated.
  • Product life cycle: For new products, one version may be used at the launch stage, but this may be expanded to a more segmented approach over time. As more competitors enter the market, it may be necessary to differentiate.
  • Market characteristics: When all buyers have similar tastes, then they are unwilling to pay a premium for different quality, then undifferentiated marketing is indicated.
  • Competitive activity: When competitors apply differentiated or concentrated market segmentation, using undifferentiated marketing may prove to be fatal. A company should consider a different market segmentation approach.

Segmentation, targeting, positioning

The process of segmenting the market is deceptively simple. Seven basic steps describe the entire process including segmentation, targeting and positioning. In practice, however, the task requires a lot of work, and requires a great deal of skill in analysis, interpretation and some judgment. ALTHOUGH a great deal of analysis needs to be Undertaken, And Many decisions need to be made, marketers tend to use the so-called STP process , That Is Segmentation → T argeting → P ositioning, as a broad framework for Simplifying the process. [26]Including segmentation identifying the market to be segmented; identification, selection, and application of bases in segmentation; and development of profiles. Targeting included an evaluation of each segment’s attractiveness and selection of segments to be targeted. Positioning including identification of optimal position and development of the marketing program.

Identifying the market to be segmented

The market for a product or Service Given Known As the market potential or the total addressable market (TAM). Given that this market is marketed, the market analyst should begin by identifying the size of the potential market. For existing products and services, estimating the size and value of the market is relatively straight forward. However, estimating the market potential can be very challenging when a product is totally new to the market.

Another approach is to use historical analogy. [27] For example, the manufacturer of HDTV might assume that the number of consumers willing to adopt high definition TV will be similar to the adoption rate for Color TV. To support this type of analysis, data for household TV, Radio, PCs and other communications technologies is available from government. Finding useful analogies can be challenging because every market is unique. However, analogous product adoption and growth rates can provide the analyst with benchmark estimates, and may be used to cross-validate other methods that may be used to forecast sales or market size.

A more robust technique for estimating the market potential is known as the Bass diffusion model , the equation for which follows: [28]

N (t) – N (t-1) = [p + qN (t-1) / m] x [m-N (t-1)]

Where:

  • N (t) = the number of adopters in the current time period, ( t )
  • N (t-1) = the number of adopters in the previous time period, ( t-1 )
  • p = the coefficient of innovation
  • q = the coefficient of imitation (the social contagion influence)
  • m = an estimate of the number of eventual adopters

The major challenge with the Bass model is estimating the parameters for p and q . HOWEVER, the Bass model has-been so Widely used in empirical studies que le values of p and q for more than 50 consumer and industrial categories-have-been and are Determined Widely published in tables. [29] The average value is 0.037 and for q is 0.327.

Bases for segmenting consumer markets

A major step in the segmentation process is the selection of a suitable base. In this step, marketers are looking for a means of achieving internal homogeneity (similarity within the segments), and external heterogeneity (differences between segments). [30] In other words, they are searching for a process that minimizes differences between members of a segment and maximizes differences between each segment. In addition, the segmentation approach must yield segments that are meaningful for the specific marketing problem or situation. For example, a person’s hair may be a base for a shampoo manufacturer, but it would not be relevant for a financial services provider. Selecting the right base a good deal of thought and a basic understanding of the market to be segmented.

In reality, marketers can be identified, substantial, responsive, actionable and stable. [31]

  • Identifiability refers to the extent to which managers can identify or recognize distinct groups within the marketplace
  • Substantiality refers to the extent to which a segment or group of customers represents a sufficient size to be profitable. This could not be done
  • Accessibility refers to the extent to which marketers can reach the targeted segments with promotional or distribution efforts
  • Responsiveness refers to the extent to which consumers in a defined segment will respond to marketing targeted
  • Actionable – segments are said to be actionable when they provide guidance for marketing decisions. [32]

For example, although dress size is not a standard base for segmenting a market, some fashion houses have successfully segmented the market using women’s dress size as a variable.[33]However, the most common bases for segmenting consumer markets include: geographics, demographics, psychographics and behavior. Marketers normally select a single base for the segmentation analysis, although some bases can be combined into a single segmentation with care. For example, geographics and demographics are often combined, but other bases are rarely combined. It makes little logical sense to combine psychographics with demographics or other bases. Any attempt to use a combined foundation and a logical foundation.

Basic segmentation Brief explanation of base (and example) Typical segments
Demographic Quantifiable population characteristics. (eg age, gender, income, education, socio-economic status, family size or situation). eg Young, Upwardly-mobile, Prosperous, Professionals (YUPPY); Double Income No Kids (DINKS);Greying, Leisured And Moneyed (GLAMS); Empty-nester, Full-nester
Geographic Physical location or region (eg country, state, region, city, suburb, postcode). eg New Yorkers; Remote, outback Australians; Urbanites, Inner-city dwellers
Geo-demographicor geoclusters Combination of geographic & demographic variables. eg Rural farmers, Urban professionals, sea-changers, tree-changers
psychographics Lifestyle, social or personality characteristics. (usually includes basic demographic descriptors) eg Socially Aware; Traditionalists, Conservatives, Active ‘club-going’ young professionals
Behavioral Purchasing, consumption or usage behavior. (eg Needs-based, benefit-sought, use-by-purpose, purchase frequency, customer loyalty, buyer readiness). eg Tech-savvy (aka tech-heads); Heavy users, Enthusiasts; Early adopters, Opinion Leaders, Luxury-seekers, Price-conscious, Quality-conscious, Time-poor
Contextual and situational The same consumer changes in their attractiveness to marketers based on context and situation. This is particularly used in digital targeting via programmatic bidding approaches eg Actively shopping, just entering a life change event, being physically in a certain location or a particular retailer which is known from GPS data via smart phones.

Source: Based on Wikiversity, Marketing [E-Book], c. 2015

The following sections provide a detailed description of the most common forms of consumer market segmentation.

Geographic segmentation

Geographic segmentation of markets according to geographic criteria. In practice, markets can be segmented as broadly as continents and as narrowly as neighborhoods or postal codes. [34] Typical geographic variables include:

  • Country eg USA, UK, China, Japan, South Korea, Malaysia, Singapore, Australia, New Zealand
  • Region eg North, North-west, Mid-west, South, Central
  • Population density : eg central business district (CBD), urban, suburban, rural, regional
  • City or town size : eg under 1,000; 1,000-5,000; 5,000-10,000 … 1,000,000-3,000,000 and over 3,000,000
  • Climatic zone : eg Mediterranean, Temperate, Sub-Tropical, Tropical, Polar,

The geo-cluster approach (also called geodemographic segmentation ) combines demographic data with geographic data to create richer, more detailed profiles. [35] Geo-cluster approaches are a consumer classification system designed market segmentation and consumer profiling purposes. They classify residential regions or postcodes on the basis of census and a range of sources. This allows the segmentation of the population to be smaller than the size of the population, and the socio-economic or other socio-demographic characteristics.

Geographic segmentation may be considered as the first step in international marketing, where marketers must decide whether to adapt their existing products and market programs for the unique needs of distinct geographic markets. Tourism Marketing Boards often segment international visitors based on their country of origin.

A number of proprietary geo-demographic packages are available for commercial use. Geographic segmentation is widely used in direct marketing campaigns to identify areas of potential candidates for personal selling, letter-box distribution or direct mail. Geo-cluster segmentation is widely used by governments and public sector departments such as urban planning, health authorities, police, criminal justice departments, telecommunications and public utility organizations such as water boards. [36]

Demographic segmentation

Segmentation based on consumer-demographic variables such as age, income, family size, socio-economic status, etc. [37] Demographic segmentation assumes that consumers with similar demographic profiles will exhibit similar patterns of motivation, motivations, interests and lifestyles and that these characteristics will translate into similar product / brand preferences. [38] In practice, demographic segmentation can be used by the census collectors. Typical demographic variables and their descriptors are as follows:

  • Age : eg Under 5, 5-8 years, 9-12 years, 13-17 years, 18-24, 25-29, 30-39, 40-49, 50-59, 60+ [39]
  • Gender : Male, Female [40]
  • Occupation : Professional, self-employed, semi-professional, clerical / admin, sales, trades, mining, primary producer, student, homework, unemployed, retired [41]
  • Social class (or socio-economic status): A, B, C, D, E, or I, II, III, IV or V (normally divided into quintiles) [42]
  • Marital Status : Single, married, divorced, widowed
  • Family Life-internship : Young single; Young married with no children; Young family with children under 5 years; Older married with children; Older married with no children at home, Older living alone [43]
  • Family size / number of dependents : 0, 1-2, 3-4, 5+
  • Income : Under $ 10,000; 10,000-20,000; 20.001 to 30.000; 30,001-40,000, 40,001-50,000 etc.
  • Educational attainment : Primary school; Some secondary, Completed secondary, Some university, Degree; Post graduate or higher degree
  • Home ownership : Renting, Home Ownership , Home owned outright
  • Ethnicity : Asian, African, Aboriginal, Polynesian, Melanesian, Latin American, African American, American Indian etc.
  • Religion : Catholic, Protestant, Muslim, Jewish, Buddhist, Hindu, Other

In practice, most demographic segmentation used in combination of demographic variables.

Visualization of two approaches to demographic segmentation using one and two variables. On the left, a single variable (age) is used. On the right, two variables (income and occupation) are used to form the segments.

The use of multiple segmentation variables. It should be noted that these types of analysis require very large sample sizes. However, data-collection is expensive for individual firms. For this reason, many companies buy data from market research firms, many of whom develop proprietary software to query the data.

The labels applied to some of the most popular demographic segments in the 1980s. [44] [45] [46] These include the following: [47] [48]

DINK : Double (or dual) income, no children, a member of the family
GLAM : Greying, Leisured and Moneyed. Retired older persons, wealthy asset and high income. Tend to exhibit higher spending on recreation, travel and entertainment
GUPPY : (aka GUPPIE) Gay, Upwardly Mobile, Prosperous, Professional; blend of gay and YUPPY (can also refer to the London-based equivalent of YUPPY)
MUPPY : (aka MUPPIE) Mid-aged, Upwardly Mobile, Prosperous, Professional
Preppy : (American) Well educated, well-off, upper class young persons; a graduate of an expensive school. Often distinguished by a style of dress.
SITKOM : Single Income, Two Kids, Oppressive Mortgage. Tend to have a little discretionary income, struggle to make ends meet
Tween : Young person who is approaching puberty, aged approximately 9-12 years; to be considered a child, but too young to be a teenager; they are ‘in between’.
WASP : (American) White, Anglo-Saxon Protestant. Americans to Protestant ancestry.
YUPPY : (aka yuppie ) Young, Urban / Upwardly-mobile, Prosperous, Professional. Tend to be well-educated, career-minded, ambitious, affluent and free spenders.

Psychographic segmentation

Psychographic segmentation, qui est Sometimes called Expired lifestyle segmentation is Measured by studying the activities, interests, and opinions (Aios) of customers. It considers how to spend their leisure, [49] and which external influences they are most responsive to and influenced by. Psychographics is a very widely used basis for segmentation, because it enables marketers to identify narrowly defined market segments and better understand consumer motives for product or brand choice.

While many of these proprietary psychographic segmentation analyzes are well-known, the majority of studies based on psychographics are custom designed. That is, the segments are developed for individual products at a specific time. One common thread among psychographic segmentation is that they use quirky names to describe the segments. [50]

Behavioral segmentation

Behavioral segmentation divides consumers into groups according to their observed behaviors. Many marketers believe that behavioral variables are superior to demographics and geographics for market segments [51] and some analysts have suggested that behavioral segmentation is killing off demographics. [52] Typical behavioral variables and their descriptors include: [53]

  • Purchase / Usage Occasion : eg regular occasion, special occasion, festive occasion, gift-giving
  • Benefit-Sought : eg economy, quality, service level, convenience, access
  • User Status : eg First-time user, Regular user, Non-user
  • Usage Rate / Purchase Frequency : eg Light user, heavy user, moderate user
  • Loyalty Status : eg Loyal, switcher, non-loyal, lapsed
  • Buyer Readiness : eg Unaware, aware, intention to buy
  • Attitude to Product or Service : eg Enthusiast, Indifferent, Hostile; Price Conscious, Quality Conscious
  • Adopt Status : eg Early adopt, late adopt, laggard

Note that these descriptors are only commonly used examples. Marketers customize the variable and descriptors for both local conditions and specific applications. For example, in the health industry, planners often segmented according to ‘health consciousness’ and identified low, moderate and highly health conscious segments. This is an example of behavioral segmentation, which is used as a key descriptor or variable, which has been customized for the specific application.

Purchase / use occasion

Purchase or usage occasion segmentation focuses on analyzing occasions when consumers might purchase or consume a product. This approach is available to customers of different levels of use and time. Unlike traditional segmentation models, this approach assigns more than one segment to each single customer.

Benefit-Sought

Benefit Sought (sometimes called Expired needs-based segmentation ) Divides into separate markets needs, Perceived value, benefits Sought gold That advantage increased from the purchase of a product or service. Marketers using benefit-sought segmentation may be different, performance, customer service, special features, or any other meaningful and different products. Benefit segmentation is one of the most commonly used approaches to segmentation and is widely used in motor vehicles, fashion and clothing, furniture, consumer electronics and holiday-makers. [54]

Loker and Purdue, for example, used the segmentation to segment the pleasure holiday market. The segments identified in this study were the naturalists, pure excitement seekers, escapists, [55]

Attitudinal segments

Attitudinal segmentation provides insight into the mindset of customers, especially the attitudes and beliefs that drive consumer decision-making and behavior. An example of attitudinal segmentation comes from the UK’s Department of Environment which segmented the British population into six segments, based on attitudes towards environmental protection: [56]

  • Greens : Driven by the belief that protecting environment is critical; try to conserve whenever they can
  • Conscious with a conscience : Aspire to be green ; primarily concerned with wastage; lack awareness of other behaviors related to climate change
  • Currently constrained : Aspire to be green but they can not afford to buy organic products; pragmatic realists
  • Basic contributors : Skeptical about the need for behavior change; aspire to conform to social norms; lack awareness of social and environmental issues
  • Long-term resistance : Have a serious life that takes precedence before behavioral change is a consideration; their every day behaviors often have low impact on the environment but for other reasons than conservation
  • Disinterested : View greenies as an eccentric minority; exhibit no interest in changing their behavior; may be aware of climate change but it has not been internalised to their decision-making process.

Other types of consumer segmentation

In addition to geographics, demographics, pyschographics and behavioral databases, marketers occasionally turn to other means of segmenting the market, or to develop segment profiles.

Generational segments

A generation is defined as “a cohort of people born within a similar span of time (15 years at the upper end) who share a comparable age and life stage and who were shaped by a particular span of time (events, trends and developments) . ” [57] Generational segmentation refers to the process of dividing and analyzing population by cohorts based on their birth date. Generational segmentation assumes that people’s values ​​and attitudes are shaped by the key events that occur during their lives and that these attitudes translate into product and brand preferences.

Demographers, studying population change, disagree about accurate dates for each generation. [58] Dating is usually achieved by identifying population peaks or troughs, which can occur at different times in each country. For example, in Australia, the post-war population boom peaked in 1960, [59] while the peak occurred in the United States and Europe, [60] with most estimates converging on 1964. Accordingly, Australian Boomers are normally defined as those between 1945-1960; while American and European Boomers are normally defined as those between 1945-64. Thus, the generational segments and their dates should be taken as approximations only.

The primary generational segments identified by marketers are: [61]

  • Builders: born 1920 to 1945
  • Baby boomers : born about 1945-1965
  • Generation X : born about 1966-1976
  • Generation Y: also known as Millennials ; born about 1977-1994
  • Generation Z : also known as Centennials; born 1995-2015
Unique characteristics of selected generations [62]
Millennials Generation X Baby Boomers
Technology use (24%) Technology use (12%) Work ethic (17%)
Music / popular culture (11%) Work ethic (11%) Respectful (14%)
Liberal / tolerant (7%) Conservative / traditional (7%) Values ​​/ morals (8%)
Smarter (6%) Smarter (6%) Smarter (5%)
Clothes (5%) Respectful (5%) n / A

Cultural segmentation

Cultural segmentation is used to classify markets according to cultural origin. Culture is a major dimension of consumer behavior and can be used to enhance customer insight and a component of predictive models. Cultural segmentation enables appropriate communications to be crafted to particular cultural communities. Cultural segmentation can be applied to existing market segments by product, brand, channel and traditional measures of recency, frequency and monetary value. These benchmarks form an important evidence-base to guide strategic direction and tactical campaign activity, allowing engagement trends to be monitored over time.

Cultural segmentation can also be mapped according to state, region, suburb and neighborhood. This provides a geographical market view of the population and the availability of local markets.

Census data is a valuable source of cultural data but can not be applied to individuals. Name analysis ( onomastics ) is the most reliable and efficient means of describing the cultural origin of individuals. The accuracy of using the analysis of a surrogate for cultural background in Australia is 80-85%. The extent of the data will be reduced to a minimum of 99 percent of individuals with their most likely ancestral origin.

On-line customer segmentation

On-line market segmentation is likely to be identifiable, substantial, accessible, stable, differentiable and actionable. [63] However, on-line segmentation is used with eCRM and addresses on-line consumer behaviors. Forsyth et al, in an article ‘Internet research’ group active online on-line consumers in six groups: Simplifiers, Surfers, Bargainers, Connectors, Routiners, and Sportsters. The segments differ in respect of four customers’ behaviors, namely: [64]

• the amount of time they spend actively on-line, • the number of pages and sites they access, • the time they spend actively viewing each page, and • the types of sites they visit.

For example, Simplifiers make over 50 percent of all online transactions. Their main characteristic is that they need easy (one-click) access to information and services. Amazon.com is a good example of a company. They also ‘dislike unsolicited e-mail, uninviting chat rooms, pop-up windows intended to encourage impulse buys, and other features that complicate their on- and off-line experience’. Surfers like notary C. lot of time online, THUS companies must have a variety of products to offer and constant update, Bargainers are looking for the best price, Connectors like to relates to others, Routiners want happy and Sportsters like sport and entertainment sites.

Selecting target markets

In targeting, a group of consumers is selected to become the focus of the marketing program

Another major decision in developing the segmentation strategy is the selection of market segments that will become the focus of special attention (known as target markets ). The marketer faces a number of important decisions:

  • What criteria should be used to evaluate markets?
  • How many markets to enter (one, two or more)?
  • Which market segments are the most valuable?

When a marketer enters more than one market, the segments are often labeled the primary target market , secondary target market. The primary market is the target market. The secondary target market is likely to be as large as the primary market, but has growth potential. Alternatively, the secondary target group may be of a small number of purchasers that accounts for a relatively high proportion of sales volume.

In terms of evaluating markets, three core considerations are essential: [65]

  • Segment size and growth
  • Attractiveness structural segment
  • Company objectives and resources.

Criteria for evaluating segment attractiveness

There are no formulas for evaluating the attractiveness of market segments and a good deal of judging must be exercised. [66] Nevertheless, a number of considerations can be used to assist in evaluating market segments for overall attractiveness. The following lists a series of questions that can be asked.

Segment size and growth

  • How large is the market?
  • Is the market segment substantial enough to be profitable? (Segment size may be measured in number of customers)
  • Is the market segment growing or contracting?
  • What are the indications that growth will be sustained in the long term? Is any observed growth sustainable?
  • Is the segment stable over time? (Segment must have sufficient time to reach desired performance level)

Structural segment attractiveness

  • To what extent are competitors targeting this market segment?
  • Do marketers have bargaining power in the market?
  • Are substitute products available?
  • Can we carve out a viable position to differentiate from any competitors?
  • How responsive are the members of the market segment to the marketing program?
  • Is this market segment reachable and accessible? (ie, with respect to distribution and promotion)

Company objectives and resources

  • Is this market segment aligned with our company’s operating philosophy?
  • Do we have the resources to enter this market segment?
  • Do we have prior experience with this market segment or similar market segments?
  • Do we have the skills and / or know-how to enter this market segment successfully?

Developing the marketing program and positioning strategy

See also: Marketing mix , Marketing Positioning , and Perceptual Mapping
The marketing program is designed with the needs of the target market in mind

When the segments have been determined and separate offers developed for each of the core segments, the marketer’s next task is to design a marketing program (also known as the marketing mix) that will resonate with the target market or markets. Developing the marketing program requires a deep knowledge of key market segment’s purchasing habits, their preferred retail outlet, their media habits and their price sensitivity. The marketing program for each brand or product should be based on the understanding of the target market (or target markets) revealed in the market profile.

Positioning is the final step in the S-T-P planning approach; Segmentation→ Targeting → Positioning; a core framework for developing marketing plans and setting objectives. Positioning refers to decisions about how to present the offer in a way that resonates with the target market. During the research and analysis that forms the central part of segmentation and targeting, the marketer will have gained insights into what motivates consumers to purchase a product or brand. These insights will form part of the positioning strategy.

David Ogilvy, David Ogilvy, “Positioning is the act of designing the company’s offering and image to occupy a distinctive place in the minds of the target market. to the firm A branding helps guide marketing strategy by clarifying the brand’s essence, what goals it helps the consumer achieve, and how it is so unique. ” [67]

Perceptual map of the US motor vehicle category

The technique known as perceptual mapping is often used to understand consumers’ mental representations. Traditionally two variables (often, but not necessarily, price and quality) are used to construct the map. A sample of people in the marketplace where they would like to know where they would be. Results are averaged across all respondents, and results are plotted on a graph, as illustrated in the figure. The final map indicates how the average member of the population compares to that of other categories within the same category. While perceptual maps are common, multi-dimensional maps are also used.

There are a number of different approaches to positioning: [68]

  1. Against a competitor
  2. Within a category
  3. According to product benefit
  4. According to product attribute
  5. For use occasion
  6. Along price lines
  7. For a user
  8. Cultural symbols eg Australia ‘s Easter Bilby (as a culturally appropriate alternative to the Easter Bunny).

Bases for segmenting business markets

Segmenting business markets is more straightforward than segmenting consumer markets. Businesses may be segmented according to industry, business size, business location, turnover, number of employees, company technology, purchasing approach or any other relevant variables. [69]

Firmographics (also known as profiled or feature-based segmentation ) is the business community’s answer to demographic segmentation. It is Commonly used in business-to-business markets (it’s Estimated That 81% of B2Bmarketers use this technology). Under this approach is the industry segment or location (country and / or region). [70]

In sales territory management, such as segmenting sales accounts by government, business, customer, and so on. and account size or duration, in effort to increase time efficiency and sales volume. [71]

Use in customer retention

The basic approach to retention-based segmentation is one of the following tags:

Risk of customer cancellation
One of the most common indicators of high-risk customers is a drop off of the company’s service. For example, in the credit card industry could be signaled through a customer’s decline in spending on his or her card.
Risk of customer switching to a competitor
Many times customers move to buy a competitor brand. This may be more difficult to measure. It is many times beneficial to the formation of society to gain meaningful insights, through data analysis. Such insights can lead to effective strategies for winning the customer’s choice.
Customer retention worthiness
This determination is likely to be of benefit to the customer, and includes evaluation of customer lifecycles . [72] [73]
Tactics to use for customer retention
This analysis of customer lifecycles is usually included in the growth plan of a business. [74] Reinforcing the value proposition of the given service.

Segmentation: algorithms and approaches

The choice of an appropriate statistical method for segmentation, depends on a number of factors, the broad approach ( a priori or post-hoc ), the availability of data, time constraints, the marketer’s skill level and resources.

A priori segmentation

A priori research occurs when “a theoretical framework is developed before the research is conducted”. [75] In other words, the marketer has an idea about whether to segment the market geographically, demographically, psychographically or behaviorally before undertaking any research. For example, a marketer might want to learn more about the motivations and demographics of light and moderate users in an effort to understand what tactics could be used to increase usage rates. In this case, the target variable is known – the marketer has already been segmented using a behavioral variable – user status. The next step would be to collect and analyze attitudinal data for light and moderate users. Typical analysis includes simple cross-tabulations, frequency distributions and occasionally logistic regression or one of a number of proprietary methods. [76]

The main disadvantage of a priori segmentation is that it does not explore other opportunities to identify market segments that could be more meaningful.

Post-hoc segmentation

In contrast, post-hoc segmentation makes no assumptions about the optimal theoretical framework. Instead, the analyst’s role is to determine which segments are most relevant to a given marketing problem or situation. In this approach, the empirical data drives the segmentation selection. Typically employs some types of clustering analysis or structural equation modeling to identify segments within the data. The figure may be formed using clustering, but it is important to note that this diagram only uses two variables, while in practice clustering employs a large number of variables. [77] Post-hoc segmentation on access to rich data sets, usually with a large number of cases and uses sophisticated algorithms to identify segments. [78]

Statistical techniques used in segmentation

Marketers often engage in commercial research firms or consultancies to carry out segmentation analysis, especially if they lack the statistical skills to undertake the analysis. Some segmentation, especially post-hoc analysis, links to sophisticated statistical analysis.

Visualization of market segments formed using clustering methods

Common statistical approaches and techniques used in segmentation analysis include:

  • Clustering algorithms [79] – overlapping, non-overlapping and fuzzy methods; eg K-means or other Cluster analysis
  • Spouse analysis [80]
  • Together approaches – such as random forests [81]
  • Chi-square automatic interaction detection – a type of decision-tree [82]
  • Factor analysis or principal components analysis [83]
  • Latent Class Analysis – a generic term for a class of methods that attempts to detect underlying clusters based on observed patterns of association [84]
  • Logistic regression [85]
  • Multidimensional scaling and canonical analysis [86]
  • Mixture models – eg, EM estimation algorithm, finite-mixture models [87]
  • Model based segmentation using simultaneous and structural equation modeling [88] eg LISREL
  • Other algorithms such as artificial neural networks . [89]

Data sources used for segmentation

Marketers use a variety of data sources for segmentation studies and market profiling. Typical sources of information include: [90] [91]

Internal sources

  • Customer transaction records
  • Patron membership records eg active members, lapsed members, length of membership
  • Customer relationship management (CRM) databases
  • In-house surveys
  • Customer self-completed questionnaires or feedback forms

External sources

  • Proprietary surveys or tracking studies
  • Proprietary databases / software [92]
  • Omnibus surveys
  • Government agencies and departments
  • Government statistics
  • Professional / Industry associations / Employer associations
  • Census data
  • Observed purchase behaviors
  • Data mining techniques
  • Commissioned research

Companies (proprietary segmentation databases)

  • Acorn
  • Claritas Prizm
  • Experian
  • Mosaic
  • Roy Morgan Research
  • VALS
  • Values ​​Modes

See also

Attitudinal targeting
Behavioral targeting
Demographic targeting
Demographic profile
Geodemographic segmentation
Geo-targeting
Segmenting and positioning
Market segmentation (section)
Market segmentation (section)
Mass marketing
microsegment
Niche market
Positioning (marketing)
Precision marketing
Product differentiation
psychographics
Serviceable available market
Targeted advertising
Target audience
Total addressable market
Persona
Precision marketing
Sagacity segmentation

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