Market Segmentation and Targeting: A Comprehensive Guide for Business Professionals, Study notes of Marketing

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Segmentation

and Targeting

Outline

▪ The segmentation-targeting-positioning

(STP) framework

▪ Segmentation

□ The concept of market segmentation

□ Managing the segmentation process

□ Deriving market segments and describing

the segments

▪ Step 1: Cluster analysis

▪ Step 2: Discriminant analysis

▪ Targeting

STP – Segmentation, Targeting, Positioning Product Price Communication Distribution All consumers in the market Target market segment(s)

Marketing mix

Marketing strategies

of competitors

Target marketing

and positioning

How STP creates value

▪ More focused marketing efforts can better meet

customer needs

▪ Customers develop preferences for offerings that

deliver greater value and satisfaction

▪ Customers become loyal to the brand and the firm if

the brand/firm provides value and satisfaction

▪ Loyalty leads to greater market share and insulates

the firm from competition

▪ Profitability increases

Market segmentation Partitioning a market that is characterized by heterogeneity in customers’ response to the marketing mix into more homo- geneous submarkets.

Differentiating segments based on differences in customer response marketing variable Response

Segment B

Segment A

A 1 A 2 B 1 B 2 x 1 x 2

Problems with many segmentations

▪ Markets can be segmented using many different

variables, but these variables may not capture

differences in response to the marketing mix;

▪ Product-specific segmentation bases are usually better

indicators of differences in customer response than

general segmentation bases;

▪ Particularly motivational variables (purchase motivations,

customer needs, benefits sought) are important for

segmentation;

▪ However, they are not directly observable, so they have

to be supplemented with managerially useful descriptors

that characterize the segments;

Identifying segment members marketing variable Response

Segment B

Segment A

A 1 A 2 B 1 B 2 x 1 x 2 Who’s this? Who’s this?

Recommendation

▪ Use product-specific segmentation bases (esp.

purchase motivations and product benefits sought)

to derive segments (segmentation variables):

difference in response is key

▪ Use general segmentation bases (esp. readily

observable customer characteristics) to profile the

segments (discriminant variables): identifiability is

key

Managing the segmentation process

▪ Define the segmentation problem

□ Objectives, resources, and constraints

▪ Identify data needs

□ Primary vs. secondary data □ Sample definition (category users, existing customers, heavy vs. light users, loyals vs. switchers) □ Segmentation and discriminant variables (based on available data and/or qualitative research)

▪ Conduct the segmentation study and analyze the data

□ Step 1: Derive the market segments (cluster analysis)

□ Step 2: Describe the market segments (discriminant

analysis)

▪ Implement the results

Observations / Segmentation Variables R1 10 10 R2 8 9 R3 5 6 R4 6 5 R5 3 3 R6 1 2

A simple segmentation example:

Preferences of 6 consumers for 2 attributes of beer

A simple segmentation example:

Preferences of 6 consumers for 2 attributes of beer

Actual segments in the beer market (based on Consumer Reports)

less bitter more

Craft ales Craft lagers Imported lagers N.A. beer Regular and ice beer Light beers

Segmentation in the real world

▪ In practice, we have

□ Many potential customers

□ Many segmentation variables

▪ What to do?

Custer analysis to the rescue!