Lecture 10- Market Segmentation and Product Decisions

By the end of the course, the student should be able to:

1.Undertake analysis of consumer and business needs to identify changing market segments.

2. Explain and evaluate strategic options for a firm given an understanding of a segmented
market context.

3. Undertake a competitor analysis within a segmented market context.

4. Identify suitable positioning characteristics and position a product within a market segment
context.

5. Work effectively as a team member.

Market segmentation seeks to identify targeted groups of consumers to tailor products and
branding in a way that is attractive to the group. Markets can be segmented in several ways such
as geographically, demographically, or behaviorally.

Choosing an Effective Segmentation Strategy

A segmentation strategy helps to limit business or product scope to the set of people who are
most likely to be able to serve, bringing focus to the needs that should be targeted in the
marketing communication. This can be particularly important for a startup business where the
value proposition must be validated before resources are exhausted and the business fails.

Segment strategies range from mass market (appeal to the whole market) to mass
customization (market size of one). Because it is difficult to learn from customers the exact
motivations for their purchase, a specific set of segmentation attributes are used that provide
correlation to likely purchase behavior. Customer traits (repetitive purchase) in a segment will
also suggest likelihood of achieving other business objectives, such as profitability and
sustainability.

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Decisions related to the choice of Segmentation Strategy

Market segmentation is most often used to clarify requirements for a target market/customer
decision. This decision is especially helpful in providing focus for a startup or turn-around
business where it is important to identify and prioritize the market opportunities with the highest
probability of success.

Business vision, mission, and identity decisions provide guidance for this decision. Choices for
company overall value proposition and core competencies are often developed and refined
together (in parallel) to the market segmentation strategy, helping to clarify possible product or
service fit to the market opportunities.

Types of market segmentation to consider

When marketing to consumers, a segmentation strategy will often target consumers using one or
more of the following attributes:

 Consumer behavior - This market segmentation strategy uses differences in

consumption behavior of different groups of consumers based on their life-styles, patterns
of buying and using, patterns of spending money or time, etc. Segment consumption
behavior is used to suggest possible needs or desires.
 Consumer benefits - Segmentation is based on specific differences in consumer benefits
that can be targeted by products, services and/or marketing from the business.
 Consumer demographics - Segments are determined based on differences in consumer
demographic factors. These factors normally align with specific needs and wants. Age is
a common demographic attribute.
 Consumer geographic - Physical location becomes the key aspect for this segmentation
strategy. Different geographic regions often have different product preferences. Knowing
where the company sells products and services enables focus of advertising to those
locations.

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  Consumer psychographic - Market segmentation is based on differences in social class,
lifestyle, or personality characteristics that can be targeted. Promotion often suggests how
products or services become expressions of the customer's lifestyle or personality.

Strategies for segmentation, when targeting businesses, consider the needs within an enterprise.
Marketing is directed at a smaller number of people, typically responsible for larger purchase
decisions. Common segmenting approaches include:

 Enterprise for Resale - This is a segmentation strategy that targets value added resellers
(VARs) that would resell products or services with no change.
 Enterprise for internal use - Segments target enterprises that would use delivered
products or services for improving internal productivity, or for use as part of their service
delivery.
 Enterprise Firmographic (industry grouping) - Specific attributes within companies or
industries (e.g. industry, role, region...) are used as a way to target needs in business to
business (e.g. healthcare) and government markets. This is similar to demographic
segmentation used in consumer businesses.
 Key accounts - Big companies or organizations can provide opportunities large enough
to justify dedicated marketing to those key accounts.

Additional strategies and hybrids are possible, but alternatives may have less data available,
making it more difficult to determine the sizes of segment populations.

Evaluating alternatives for the market segmentation strategy

he following criteria, when prioritized, can be used to identify the segmenting approach best
suited to the company situation and market environment.

 Accessible & actionable - Capabilities for marketing, products/services and distribution

should allow serving the proposed segments. The segments must be reachable through
communication and expected distribution channels.

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 Profitability - Selected segments should have enough profit potential to justify
developing and maintaining a marketing mix. (Population multiplied by spending
authority)
 Measurable - The differentiating attributes of the segments should enable identification
and measurement of customers in the segments. Source data should be available to
estimate the size of the segment population.
 Segment stability - The segments should be stable enough to enable success within
likely product or service development lifecycles. Greater stability can contribute to
sustainability of the business.
 Incremental cost to reach multiple segments - Minimizing incremental development
and marketing costs to reach additional segments can prevent failure if marketing does
not attract the most likely customers.
 Homogeneity - Segments within the strategy should identify customers with similar
needs for the products or services that will respond to the marketing mix.
 Intensity of competition - The segmentation strategy should provide opportunities for
likely products or services to compete effectively. If the intensity of competition is
destructive (destroying value for all players) then you want to avoid this strategy.
 Heterogeneity / Unique needs - Customers in different segments should have unique
needs to justify separate offerings of products, marketing, or both.

 Increasing clarity of customer needs and wants

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Choosing a segmentation strategy is a scoping decision that helps focus early efforts of a
business on the customer opportunities most likely to generate success. An effective
segmentation will:

 Provide a source of advantage against larger competitors

 Direct early product, service and marketing development on specific customer needs and
wants where success is more likely
 Improve sales, branding, distribution and advertising
 Limit expenses during early stages of business development
 Enhance and accelerate downstream decisions by limiting scope

The focus created with a segmentation strategy enables continuing business as initial segments
are served successfully.

PRODUCT SEMENTATION

What is Product Segmentation?

Product segmentation is an essential component of any effective marketing plan. It entails a

market segmentation into smaller groups of customers that have similar needs or criteria to
develop customized products or marketing campaigns for these segments.

Customer demands and preferences vary with personality. Product segmentation can satisfy all
niche market preferences. Companies that identify and target these segments can grow sales and
gain a competitive advantage by focusing on the specialized demands of certain clients to
improve customer satisfaction.

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Importance of Product Segmentation

Product segmentation is essential to any marketing plan since it enables businesses to identify
and target particular customer demographics with customized goods and advertising campaigns.
Product segmentation is important for the following reasons:

 Cost-effective: Businesses can develop products that are more cost-effective by focusing
on specific segments rather than the entire market.
 Better product development: By comprehending the particular requirements of various
sectors, businesses can produce products more likely to succeed in the market.
 Product pricing: Businesses can eliminate one-size-fits-all pricing by abandoning a
single product offering. Companies can use a price strategy that works for each target
markets because the product is segmented.
 Higher customer satisfaction: Businesses can build products and marketing strategies
that are more likely to meet the needs of their customers by understanding the individual
requirements of various segments. This will increase customer satisfaction.
 Better customer insights: Product segmentation enables businesses to understand better
the needs, preferences, and behavior of their customers, which can guide future product
development, pricing, and marketing tactics.
 Individual product performance: Monitoring individual product performance allows
you to assess consumer segment performance. By monitoring the product most closely
related to each customer group, you may learn how they react to your product.

Understanding and targeting specific categories of customers is more important than ever in
today’s competitive business market. Product segmentation enables businesses to do so
effectively, leading to improved sales, higher customer satisfaction, and a competitive advantage
in the market.

How to Conduct Product Segmentation?

Product segmentation is a crucial marketing strategy that divides your target market into groups
based on shared characteristics, needs, or preferences. This segmentation helps you tailor your

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products, marketing efforts, and messaging to meet the specific demands of each group better.
Here are the steps to conduct product segmentation:

1. Conduct product usage and market research.

Begin with the people who already know you. The best way to determine how to divide your
goods into various markets is to ask your current clientele.

Observe the product in action with your current clientele to improve it. Think about how you can
grow your services to more of these sectors by analyzing the industries they operate in and the
features each of their consumer segments uses most.

Gather data about consumers’ wants, desires, and buying habits through research. There are
various methods for doing this, such as surveys, interviews, and focus groups with customers.

2. Identify segmentation variables

Determine factors that can be utilized to divide the market into more manageable categories,
including:

 Demographics: It includes factors such as age, gender, income, education level, and
occupation. This data will help determine which customer segment a specific product will
appeal to.
 Geographic: It can also be segmented by regional, urban, or rural location. You may
learn a lot about how to market to a region by watching how customers from that region
use your product.
 Behavioral: This is about evaluating how customers react when interacting with products
and your company. Customer behavior can be segmented using purchasing patterns,
brand loyalty, and usage rates.

 Psychographic: Depending on customer attitudes and lifestyle, this can be segmented

based on personality, values, interests, and way of life.

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  Benefit: Some things, such as a car for a family or a fashion watch, are bought for the
specific advantages they offer.
 Use Case: Some items are utilized in particular contexts or scenarios, such as a vacuum
cleaner for a home or a water bottle for outdoor activities.

3. Develop a pricing segmentation model.

After using your data to develop and identify solutions for several types of products, you’ll need
to select a pricing strategy. Even though it’s tempting to charge the same amount for all your
products, you’ll probably leave money on the table if you do.

4. Develop a positioning strategy.

Develop a positioning plan for each target customers group based on their particular
requirements and traits. Create and implement a marketing mix that will appeal to each potential
customers market category, including product design, pricing, promotion, and distribution.

With the data and customer personas you’ve collected, you can now sell each part of your
product line independently. It will take a lot of work, but the reward will be significant in terms
of increased sales and less customer turnover.

Product segmentation examples

Product segmentation is the process of dividing a market into distinct groups of consumers based
on specific characteristics or needs, to tailor products or marketing strategies to meet the specific
requirements of each group better. There are several standard methods of product segmentation,
and I’ll explain a few examples of each:

Demographic Segmentation

 Age: Products and marketing can be tailored for different age groups. For example, toys
for children, gadgets for young adults, and retirement services for the elderly.

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  Gender: Some products are marketed specifically to men or women, such as cosmetics
and grooming products or men’s and women’s apparel.
 Income: Luxury brands target high-income individuals, while budget brands cater to
lower-income ones.

Geographic Segmentation

 Region: Products can be adapted to the preferences and needs of people in different
geographic areas. For example, winter clothing is in colder regions, and summer clothing
is in warmer areas.
 Country: Companies may offer variations of products to suit cultural or regulatory
differences in various countries.

Psychographic Segmentation

 Lifestyle: Products can be designed for different lifestyles—for example, outdoor gear
for adventure enthusiasts or luxury products for individuals with a lavish lifestyle.
 Personality: Some products target specific personality traits. For instance, adventurous
and risk-taking individuals might be more interested in extreme sports equipment.

Behavioral Segmentation

 Usage Rate: Products can be customized for light, moderate, or heavy users. For
example, mobile phone plans offer different data packages for light and heavy users.
 Brand Loyalty: Marketing strategies may vary for customers who are loyal to a brand
and those who are open to switching brands.

Occasion Segmentation

 Special Occasions: Products can be designed for specific events or holidays—for

example, seasonal decorations for Christmas or Valentine’s Day.
 Regular vs. Irregular Purchase: Products can be tailored for everyday use or
infrequent, special occasions. For instance, everyday laundry detergent versus a stain-
removing product for occasional use.

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Benefit Segmentation

 Product Features: Tailoring products to specific benefits that customers seek. For
instance, toothpaste offers teeth whitening, cavity protection, or sensitivity relief.
 Customer Needs: Some customers may want a product for convenience, while others
may prioritize cost-effectiveness or environmental friendliness.

Technographic Segmentation

 Technology Adoption: Products can be segmented based on the level of technology

adoption by customers. For example, offering basic and advanced versions of software or
gadgets.

Generation Segmentation

 Generation-Specific Products: Some products cater to the preferences and needs of

specific generations, like Generation Z, Millennials, or Baby Boomers.

Cultural Segmentation

 Ethnic or Cultural Background: Products can be tailored to the cultural values,

customs, and preferences of different ethnic or cultural groups.

Purchasing Power Segmentation

 High-End vs. Budget Products: Companies may offer premium and budget versions of
their products to cater to customers with varying purchasing power.

Difference between market segmentation and product segmentation?

Market segmentation and product segmentation are two different concepts used in marketing to
better target and cater to the needs of specific groups of customers. Here are the key differences
between the two:

1. Focus:

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Market Segmentation: The market segmentation strategy involves dividing a larger,
heterogeneous market into smaller, more homogeneous segments based on various
characteristics, such as demographics (age, gender, income, education), psychographics
(lifestyles, values, attitudes), behavior (buying habits, product usage), or geographic location.
The goal is to identify distinct customer groups with everyday needs and preferences.

Product Segmentation: Product segmentation, on the other hand, involves categorizing and
tailoring products or services to meet the specific needs and preferences of different customer
segments. It is about customizing the product itself or its marketing and distribution strategies to
suit the preferences of particular groups of customers.

2. Purpose:

Market Segmentation: The primary purpose of market segments is to identify and understand
the diverse characteristics and behaviors of different customer groups, which helps businesses
tailor their overall marketing and communication strategies to reach and serve these segments.

Product Segmentation: Product segmentation aims to optimize product offerings or features to

align with the unique demands of specific customer segments. It helps businesses create different
product variations or adapt existing ones to meet the requirements of distinct customer groups.

3. Approach:

Market Segmentation: Market segmentation is about understanding the consumer and

developing marketing strategies that speak to the needs and wants of different segments. It
guides decisions related to advertising, pricing, and distribution channels.

Product Segmentation: Product segmentation is more product-centric. It involves modifying

the product itself, its design, features, or packaging to cater to the specific preferences of
different customer segmentation. This can result in different product versions or variations.

4. Examples:

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Market Segmentation: An example of a market segment would be a clothing retailer
identifying that one segment of its customer base prefers high-end, designer fashion. In contrast,
another prefers budget-friendly, casual clothing. The retailer would then create separate
marketing campaigns and promotions for each segment.

Product Segmentation: An example of product segmentation would be a smartphone

manufacturer offering different models of phones with varying features, prices, and designs to
target different customer segments. For instance, they have a high-end model for tech enthusiasts
and a budget model for price-conscious consumers.

Product segmentation is a method of providing products to your customers while maintaining

quality and maximizing sales opportunities. It requires data analysis, customer and market
segmentation, pricing segmentation methods, and marketing strategy for each part.

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