Market Segmentation

What Is Market Segmentation?

Market segmentation is a way of aggregating prospective buyers into groups or segments,
based on demographics, geography, behavior, or psychographic factors, in order to better
understand and market to them.
Understanding Market Segmentation
Companies can generally use three criteria to identify different market segments:
 Homogeneity, or common needs within a segment
 Distinction, or being unique from other groups
 Reaction, or a similar response to the market
An athletic footwear company, for example, might have market segments for basketball
players and long-distance runners. As distinct groups, basketball players and long-distance
runners respond to very different advertisements. Understanding these different market
segments enables the athletic footwear company to market its branding appropriately.
Market segmentation is an extension of market research that seeks to identify targeted groups
of consumers to tailor products and branding in a way that is attractive to the group. The
objective of market segmentation is to minimize risk by determining which products have the
best chances of gaining a share of a target market and determining the best way to deliver the
products to the market. This allows the company to increase its overall efficiency by focusing
limited resources on efforts that produce
Types of Market Segmentation
There are four primary types of market segmentation. However, one type can usually be split
into an individual segment and an organization segment.
Demographic Segmentation
Demographic segmentation is one of the simple, common methods of market segmentation. It
involves breaking the market into customer demographics such as age, income, gender, race,
education, or occupation. This market segmentation strategy assumes that individuals with
similar demographics will have similar needs.
Example: The market segmentation strategy for a new video game console may reveal that
most users are young males with disposable income.
Firmographic Segmentation
Firmographic segmentation is the same concept as demographic segmentation. However,
instead of analyzing individuals, this strategy focuses on organizations and looks at a
company's number of employees, number of customers, number of offices, or annual
revenue.
Example: A corporate software provider may approach a multinational firm with a more
diverse, customizable suite while approaching smaller companies with a fixed-fee, more
simple product.
Geographic Segmentation
Geographic segmentation is technically a subset of demographic segmentation. This approach
groups customers by physical location, assuming that people within a given geographical area
may have similar needs. This strategy is more useful for larger companies seeking to expand
into different branches, offices, or locations.
Example: A clothing retailer may display more raingear in their Pacific Northwest locations
compared to their Southwest locations.
Behavioral Segmentation
Behavioral segmentation relies heavily on market data, consumer actions, and the decision-
making patterns of customers. This approach groups consumers based on how they have
previously interacted with markets and products. It assumes that consumers' prior spending
habits are an indicator of what they may buy in the future.
Example: Millennial consumers traditionally buy more craft beer, while older generations are
traditionally more likely to buy national brands
Psychographic Segmentation
Often the most difficult market segmentation approach, psychographic segmentation strives
to classify consumers based on their lifestyle, personality, opinions, and interests. This
approach may yield the strongest market segment results as it groups individuals based on
intrinsic motivators as opposed to external data points. However, it's also difficult to achieve,
primarily because the traits it focuses on can change easily and there may be a lack of readily
available objective data.
Example: A fitness apparel company may target individuals based on their interest in playing
or watching a variety of sports.
How to Determine Your Market Segment
There's no single universally accepted way to perform market segmentation. To determine
market segments, it's common for companies to ask themselves the following questions along
their market segmentation journey.
Phase I: Setting Expectations/Objectives
What is the purpose or goal of performing market segmentation?
What does the company hope to find out by performing marketing segmentation?
Does the company have any expectations on what market segments may exist?
Phase 2: Identify Customer Segments
What segments are the company's competitors selling to?
What publicly available information (i.e. U.S. Census Bureau data) is relevant and available
to our market?
What data do we want to collect, and how can we collect it?
How should we segment customers?
Phase 3: Evaluate Potential Segments
What risks are there that our data is not representative of the true market segments?
Why should we choose to cater to one type of customer over another?
What is the long-term repercussion of choosing one market segment over another?
What is the company's ideal customer profile, and which segments best overlap with this
"perfect customer"?
Phase 4: Develop Segment Strategy
How can the company test its assumptions on a sample test market?
What defines a successful marketing segment strategy?
How can the company measure whether the strategy is working?
Phase 5: Launch and Monitor
Who are the key stakeholders that can provide feedback after the market segmentation
strategy has been unveiled?
What barriers to execution exist, and how can they be overcome?
How should the launch of the marketing campaign be communicated internally?
Benefits of Market Segmentation
Marketing segmentation takes effort and resources to implement. However, successful
marketing segmentation campaigns can increase the long-term profitability and health of a
company. Several benefits of market segmentation include:
Increased resource efficiency: Marketing segmentation allows management to focus on
certain demographics or customers. Instead of trying to promote products to the entire
market, marketing segmentation allows a focused, precise approach that often costs less
compared to a broad reach approach.
Stronger brand image: Market segmentation forces management to consider how it wants to
be perceived by a specific group of people. Once the market segment is identified,
management must then consider what message to craft. Because this message is directed at a
target audience, the company's branding and messaging are more likely to be very intentional.
This may also have an indirect effect of causing better customer experiences with the
company.
Greater potential for brand loyalty: Marketing segmentation increases the opportunity for
consumers to build long-term relationships with a company. More direct, personal marketing
approaches may resonate with customers and foster a sense of inclusion, community, and a
sense of belonging. In addition, market segmentation increases the probability that the
company lands the right client, who fits its product line and demographic.
Stronger market differentiation: Market segmentation gives companies the opportunity to
pinpoint the exact message they want to convey to the market and competitors. This can also
help create product differentiation by communicating specifically how a company is different
from its competitors. Instead of a broad approach to marketing, management crafts a specific
image that is more likely to be memorable and specific.
Better targeted digital advertising: Marketing segmentation enables a company to perform
better targeted advertising strategies. This includes marketing plans that direct effort toward
specific ages, locations, or habits via social media.

Limitations of Market Segmentation

Market segmentation also comes with some potential downsides. Here are some
disadvantages to consider when implementing market segmentation strategies.
Higher upfront marketing expenses: Marketing segmentation has the long-term goal of
being efficient. However, to capture this efficiency, companies must often spend resources
upfront to gain the insight, data, and research into their customer base and the broad markets.
Increased product line complexity: Marketing segmentation takes a large market and
attempts to break it into more specific, manageable pieces. This has the downside risk of
creating an overly complex, fractionalized product line that focuses too deeply on catering to
specific market segments. Instead of a company having a cohesive product line, a company's
marketing mix may become too confusing and inconsistently communicate its overall brand.
Greater risk of misassumptions: Market segmentation is rooted in the assumption that
similar demographics will share common needs. This may not always be the case. By
grouping a population together with the belief that they share common traits, a company may
risk misidentifying the needs, values, or motivations of individuals within a given population.
Higher reliance on reliable data: Market segmentation is only as strong as the underlying
data that support the claims that are made. This means being mindful of what sources are
used to pull in data. This also means being conscious of changing trends and when market
segments may have shifted from prior studies.
Examples of Market Segmentation
Market segmentation is evident in the products, marketing, and advertising that people use
every day.
Auto manufacturers thrive on their ability to identify market segments correctly and create
products and advertising campaigns that appeal to those segments. For example, different zip
codes can have drastically different average incomes, which impacts car buying budgets, and
terrain. People living in a big city tend to prefer smaller cars, while people living in the
country may prioritize greater fuel efficiency and perhaps even off-road capabilities.
Cereal producers market actively to three or four market segments at a time, pushing
traditional brands that appeal to older consumers and healthy brands to health-conscious
consumers, while building brand loyalty among the youngest consumers by tying their
products to, say, popular children's movie themes.

A sports shoe manufacturer might define several market segments that include elite athletes,
frequent gym-goers, fashion-conscious people, and individuals who have health issues or
who spend a lot of time on their feet. In all cases, the manufacturer's marketing intelligence
about each segment enables it to develop and advertise products with a high appeal more
efficiently than trying to appeal to the broader masses.

Targeting
Definition
Selecting the most attractive segment(s) to serve based on their potential profitability and
compatibility with the organization.
Targeting Strategies
1. Undifferentiated Marketing - Single offering for all segments.
2. Differentiated Marketing - Specific products for multiple segments.
3. Concentrated Marketing- Focusing on one niche market.
4. Micromarketing - Tailored marketing to individuals or small groups.
Key Factors to Consider
- Segment size and growth potential.
- Competition intensity.
- Company resources and capabilities.

Steps in Market Targeting:

1. Evaluate Market Segments:

Consider factors like segment size, growth potential, competition, and alignment with
company objectives.
2. Select Target Market(s):
Choose one of the following approaches:
o Undifferentiated Marketing: Treat the entire market as a single segment.
o Differentiated Marketing: Target multiple segments with tailored strategies
for each.
o Concentrated Marketing: Focus on one or a few specific segments.
o Micromarketing: Target specific individuals or localized groups.
 3. Position the Product/Service:
Develop a unique value proposition to appeal to the selected target market.

Importance of Market Segmentation and Targeting

1. Enhances marketing efficiency and effectiveness.

2. Reduces marketing costs by focusing on the most relevant segments.
3. Helps identify gaps in the market for potential opportunities.
4. Strengthens competitive positioning.
5. Builds better relationships with customers through personalized strategies.

Positioning

Definition:
Positioning is the process of establishing a unique and favorable image of a product, service,
or brand in the minds of the target market. It highlights the distinctive qualities that set it
apart from competitors.

Purpose of Positioning:

1. Create a strong brand identity.

2. Differentiate the product/service from competitors.
3. Build customer loyalty and trust.
4. Enhance customer perception and brand value.

Positioning Process:

1. Identify Target Audience:

Understand the demographics, psychographics, and preferences of the target market.
2. Analyze Competitors:
Study competitor offerings, positioning strategies, and market perception.
3. Highlight Unique Selling Proposition (USP):
Focus on attributes, benefits, or features that distinguish the product.
4. Develop a Positioning Statement:
Create a clear and concise statement summarizing the product's value to the target
audience.
5. Communicate the Positioning:
Use advertising, packaging, pricing, and promotional strategies to reinforce the
brand’s image.

Types of Positioning Strategies:

1. Product-Based Positioning:
Focus on the features, quality, or performance of the product.
Example: BMW positions itself as a luxury and high-performance car brand.
 2. Price-Based Positioning:
Emphasize affordability or premium pricing.
Example: Walmart positions itself as a retailer offering "Everyday Low Prices."
3. Benefit-Based Positioning:
Highlight the benefits or solutions provided by the product.
Example: Sensodyne positions itself as a toothpaste for sensitive teeth.
4. Use/Application-Based Positioning:
Focus on specific uses or applications of the product.
Example: Gatorade is positioned as a sports drink for hydration and energy.
5. User-Based Positioning:
Target specific user groups or lifestyles.
Example: Harley-Davidson appeals to adventure-seeking individuals and bikers.
6. Competitor-Based Positioning:
Differentiate the brand directly from competitors.
Example: Pepsi positions itself as a youthful and trendy alternative to Coca-Cola.

Repositioning

Definition:
Repositioning is the process of changing the existing position of a product, service, or brand
in the minds of the target market. It is done to adapt to market changes, customer preferences,
or competitive pressures.

Reasons for Repositioning:

1. Decline in sales or market share.

2. Changes in consumer preferences or trends.
3. Entry of new competitors.
4. Outdated brand image.
5. Expanding to new markets or customer segments.
6. Negative perceptions or reputational issues.

Repositioning Strategies:

1. Product Repositioning:
Modify the product’s features, quality, or packaging to meet new market demands.
Example: Domino’s Pizza improved its recipe and advertised “better taste.”
2. Price Repositioning:
Adjust the pricing strategy to target a different market segment.
Example: Tata Nano repositioned from a “cheap car” to an “affordable and reliable
option.”
3. Market Repositioning:
Target a new or broader customer base.
Example: Old Spice repositioned itself from an older demographic to appeal to
younger men.
4. Brand Image Repositioning:
Change the overall image or perception of the brand through advertising and
communication.
 Example: Marlboro repositioned as a rugged and masculine brand using the
“Marlboro Man.”
5. Usage Repositioning:
Promote the product for a new or additional use.
Example: Baking soda was repositioned from a baking ingredient to a household
cleaner.

Steps in Repositioning:

1. Conduct Market Research:

Understand the reasons for repositioning and gather insights on market trends.
2. Redefine the Target Market:
Identify the new customer segment or market to focus on.
3. Adapt the Marketing Mix:
Adjust product features, pricing, promotion, and distribution strategies.
4. Communicate the Change:
Use consistent branding and advertising to inform customers of the new position.
5. Monitor and Evaluate:
Assess the impact of repositioning on sales, brand perception, and market share.

Positioning vs. Repositioning

Aspect Positioning Repositioning

Objective Establish a new image in the market. Modify an existing image to adapt to changes.

First-time market entry or new Adapting to market shifts or competitive

Focus
product launch. pressure.

Customer
Targets a defined audience. May target a new or expanded audience.
Base

McDonald's repositioned to include healthier

Examples Apple positions itself as innovative.
menu options.

Importance of Positioning and Repositioning

1. Enhances Competitive Advantage:

Clear positioning differentiates a brand from competitors.
2. Builds Brand Loyalty:
A strong position fosters trust and customer retention.
3. Keeps the Brand Relevant:
Repositioning ensures the brand adapts to market trends and remains appealing.
4. Improves Market Performance:
Well-positioned products attract the right customers, boosting sales and market share.
Case Studies

1. Nike:
o Positioning: "Just Do It" – Focuses on empowerment, athletic performance, and
lifestyle.
o Repositioning: Expanded beyond athletes to target casual users and fashion
enthusiasts.

2. Dove:
o Positioning: A beauty brand focused on moisturizing soap.
o Repositioning: Shifted to a campaign on "Real Beauty," celebrating diversity and
natural beauty.

What is the consumer decision-making process?

The consumer decision-making process involves the following:

 Figuring out what they need.

 Gathering information.
 Weighing their options.
 Deciding what to buy

Consumer behavior can be affected by economic and psychological factors and

environmental factors like social and cultural values.

Consumer decision-making is a complicated process that involves everything

from recognizing a problem to doing things after buying something. Every
consumer has different needs in their daily lives, and these needs cause them to
make other decisions.

Depending on what a consumer feels about a specific product, making decisions

can be challenging because It involves comparing, evaluating, choosing, and
buying from a wide range of products.

Marketers need to understand and realize the basic problem of how consumers
make decisions to make their products and services stand out from others in the
market.

5 important stages of the consumer decision-making process

We will look at the five stages of a consumer’s decision. There are many
changes have happened, but the five steps are surprisingly the same. Let’s take a
look:
Stage 1: Need recognition

The first stage in the consumer decision-making process for a consumer is to

figure out what they need. The most important thing that leads someone to buy
a product or service is their need for it. All buying decisions are based on what
people need.

Finding out what the customer needs is the first move to evaluating the
Consumer Decision Making Process. Finding out what needs and wants the
target market has can help with many marketing decisions.

Stage 2: Searching and gathering information

People are usually skeptical when they have to choose between options. So they
need all the facts before they spend their money. After figuring out their need,
the potential consumer moves on to the second stage: searching for and
gathering information.

The buyer considers all the benefits and drawbacks of the purchase at this stage
of their decision-making process. Because of changing styles and online
shopping sites, consumers know much more about what they want to buy and
can make better choices.

Consumers can get information from many different places, like books,
magazines, the Internet, and reviews of products by other people. It’s important
to make a purchase decision, so the consumer shouldn’t be in a hurry when
learning about the products and brands on the market.

Here are some places where you can find information:

 Commercial Information Sources: Important types include digital

media, newsletters, TV ads, salespeople, and public displays.
 Previous Purchase Experiences: It is consumers’ past experiences with
using a product.
 Personal Contacts: This is a very reliable source of information and
impacts the consumer’s mind the most. Consumers usually talk to their
friends, family, coworkers, and acquaintances about their needs and
interests in different products and then use their advice to decide what to
buy.

Stage 3: Considering the alternatives

The third stage in the consumer decision-making process is to carefully look at
all the alternatives and substitutes on the market. Once consumers know what
they need and where to get it, they will start looking for the best deals or
options.

At this stage, the consumer compares options based on price, product quality,
quantity, value-added features, or other essential factors. Before choosing the
product that best meets your needs, look at customer reviews and compare
prices for the alternatives.

After finding helpful information, the consumer chooses the best product on the
market based on their taste, style, income, or preference.

Stage 4: Buying the product or service

After going through the above stages, the customer decides what to buy and
where to buy it. The consumer makes a smart choice to buy a product based on
his needs and wants after he has looked at all the facts.

Needs and wants are often sparked by marketing campaigns, recommendations

from friends and family, or sometimes by both.

Stage 5: Post-purchase evaluation

In the last stage of the consumer decision-making process, the consumer

evaluates or analyzes the product they bought. They look at how helpful the
product is, how satisfied they are with it, and how much it is worth to meet their
needs.

If consumers know that the product they bought was worth what they paid for
and met their expectations, they will stick with that product.

Conclusion

Understanding this process from beginning to end is vital if you want to attract
more potential consumers and turn them into buyers. By breaking down the
consumer decision-making process into the stages above, you will understand
how to get the most out of your marketing efforts.

Post-Purchase Behaviour
Definition:
Post-purchase behavior involves the consumer’s reactions and actions after buying and using
the product.

Outcomes of Post-Purchase Behaviour:

1. Satisfaction:
o When the product meets or exceeds expectations.
o Leads to repeat purchases and positive word of mouth.

2. Dissatisfaction:
o Occurs when the product fails to meet expectations.
o May result in complaints, product returns, or negative reviews.

3. Cognitive Dissonance:
o Also known as buyer's remorse. Consumers question whether they made the right
decision.
o Example: Regretting an expensive purchase.

How Marketers Address Post-Purchase Behaviour:

 Provide excellent customer service and warranties.

 Follow-up communication, such as thank-you emails or satisfaction surveys.
 Offer after-sales support to reduce cognitive dissonance.

Freud's Theory of Motivation in Marketing

1. Introduction to Freud's Theory: Sigmund Freud’s theory is based on the concept of the
unconscious mind and the interplay of three components of personality:

 Id (instinctual drives and desires)

 Ego (rational self balancing desires with reality)
 Superego (moral conscience and societal norms)

In marketing, Freud’s ideas are applied to understand consumer behavior and the hidden
motivations behind purchasing decisions.

2. Key Concepts for Marketing:

 Unconscious Desires:
Consumers often make decisions driven by unconscious desires rather than rational
thought. For instance, luxury brands appeal to the subconscious need for status and
recognition.
  Pleasure Principle:
The Id seeks immediate gratification of desires. Marketing strategies often tap into
this by emphasizing pleasure, comfort, or indulgence (e.g., “Treat yourself!”
campaigns).
 Symbolism in Advertising:
Products are often marketed as symbols of deeper psychological needs, such as love,
power, or security.
Example: A sports car might symbolize success and masculinity.
 Ego Balancing:
The Ego helps consumers make realistic decisions. Marketing aimed at the Ego
balances desire with practicality, e.g., promoting the functionality of a luxury product.
 Superego and Ethics:
The Superego aligns with societal values and morals. Eco-friendly products or fair-
trade campaigns appeal to this aspect.

3. Applications in Marketing:

 Emotional Branding:
Brands create ads that evoke emotions like love, fear, pride, or nostalgia, often
targeting unconscious desires.
Example: Coca-Cola's “Open Happiness” campaign.
 Lifestyle Marketing:
Products are presented as tools for achieving an ideal lifestyle, appealing to deep-
seated aspirations.
Example: Fitness brands promoting a healthy and successful life.
 Consumer Psychology:
By understanding Freud's ideas, marketers design campaigns that resonate with the
psychological makeup of their target audience.

4. Practical Examples:

 Luxury Items: Often linked with Freud's notion of fulfilling unconscious desires for
power, success, or belonging.
 Cosmetics Industry: Appeals to the Id’s desire for beauty and attraction.
 Insurance Products: Targets the Superego by emphasizing protection, responsibility,
and security for loved ones.

Freud’s theory emphasizes the power of the unconscious mind in shaping behavior. By
appealing to emotions, desires, and subconscious motives, marketers can create powerful
campaigns that drive consumer engagement and loyalty.