Market Segmentation

Chapter 2
Market
segmentation
Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk:

Consumer Behaviour 4e © 2007 Pearson Education Australia
Chapter Objectives
 To define market segmentation
 To review the uses of segmentation
 To outline the nine main bases of segmentation
 To understand the main segmentation approaches
 To outline the criteria for effective market

segments
 To distinguish between concentrated and
differentiated marketing
Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk: Consumer Behaviour 4e © 2007 Pearson Education Australia
2
What is market segmentation?
Market Segmentation is defined as:
“The process of dividing a market into

distinct subsets of consumers with
common needs and selecting one or more
segments to target with a distinct
marketing strategy”
3
Progression of
market segmentation
4
Who uses segmentation?
Cars David Jones Charities Equipment

Shoes Big W Theatre Machinery
Shampoo Kmart Sports Tools
Watches Target
5
Uses of segmentation
6
Nine main bases for
segmentation
7
Geographic segmentation
 Where the market is divided by location
 Assumes that people who live in the same area

share some similar needs and wants
 Geographic markets can be easily reached by

local media
 Some firms use geographic segmentation to

adopt a ‘localised’ strategy, however other
firms adopt a ‘global’ strategy
8
Possible geographic
segmentation bases
Region Housing density

•High
•Capital cities
•Medium
•Towns
•Low
•Rural
State
Location Climate
•NSW
•Inner-city •Hot
•Victoria
•Suburban •Cold
•Queensland
•Outer-urban •Wet
9
Demographic segmentation
 Demography refers to the identifiable and

measureable characteristics of a population
 Includes characteristics such as: age, income,

marital status, education
 Demographic information is very accessible

and cost-effective to obtain
 Demographic segmentation is one of the most

popular ways to segment customer groups
10
Possible demographic
segmentation bases
Age Marital Status

•12-17 •Single
•18-34 •Married
•And so on •De facto, etc.
Income Education
Occupation
•$20,001-$30,000 •Secondary
•Professional
•$30,001-$40,000 •TAFE
•White-collar
•And so on •Bachelors, etc.
•Blue-collar
11
Age
 Age is often a strong determinant of product choice
 Health club/gym example...
Aged 55 and
Aged 18-34 Aged 35-54 over
Goal is to To help ‘deal For ‘medical-
‘look good’ with stress’ physical
therapy’
12
Age cohorts
 Age cohorts are born during the same period

and travel through life together
- Examples include, ‘baby boomers’, Generation X and
Generation Y
 Therefore, they ‘share’ similar events and
general changes in lifestyle
- May include war, depression, the “1960’s”, and so on
 Age cohorts will generally hold the same
interests through life
- An example is they will probably enjoy the same style
of music as they get older
13
Segmenting age cohorts
 This is an example of segmenting the Baby
Boomers age cohort...
“Looking for balance” “Confident and living well”
•27% of cohort •23% of cohort
•Active, busy •Big incomes, trendy
•Want more time to enjoy •Like travel and luxuries
great experiences
“Overwhelmed”
“At ease” •19% of cohort
•31% of cohort •Low incomes, worried about the
•Home/family-based future and finances
•Enjoy traditional life •Looking for security and health
14
Sex/Gender
 Many products have been traditionally

targeted at males or females only
 Examples include:
- Cosmetics, shavers, tools, magazines
 However, traditional male/female roles in the

household are not as clearly defined as in
the past
15
An example of
changing sex roles
More women Fathers take

enter (or more child-
remain in) the care related
workforce activities
Traditional
A large Families household
increase in become sex roles
dual income time-poor need to
families change
16
Marital status
 Many decisions are made on the behalf of a

households
 Therefore, marital status is an important

indicator of how household purchases are made
 In recent years, single one-person households

have become an attractive segment
17
Income, education,
occupation
 These three demographics variables tend to be

highly interrelated
The opportunity
A high level of Is likely to
for a better job,
education generate a
which..
provides… higher income
Note: These three variables are often combined in a composite

index to measure social class of the consumer
18
Income, education,
occupation
 Income is important because it provides an

indication of the consumer’s ability to
purchase the product
 By combining income with education and

occupation (a social class measure), an
understanding of the consumer’s lifestyle can
be determined
 Sometimes the occupation variable is used as

a proxy measure of social class
19
Possible psychological
segmentation bases
Needs- Risk perception

motivation •Low
•Self-worth •Moderate
•Affection •High risk
•Safety
Personality Involvement Attitudes

•Extrovert •Low •Positive
•Feeling •High involvement •Negative
•Intuitive •Neutral
20
Psychographic
segmentation
 Psychographic research is also referred to as
‘lifestyle analysis’
 Often considers consumers’ AIO’s
- AIO = activities, interests, opinions
 Used to help structure appropriate marketing
messages
Activities Interests Opinions

•Work •Home •Politics
•Internet •Fashion •Social events
•Sport •Food •The future
21
The profile of the
‘techno-road-warrior’
 On the internet 6+ times per week
 Sends/receives more than 15 emails per week
 Regularly visits websites to gather information
 Often buys personal items over the internet
 May buy shares or book travel over the internet
 Earns $100,000+ per year
 Belongs to several reward programs
22
Figure 2.6
23
Possible sociocultural
segmentation bases
Culture Religion
•Australian •Jewish
•Italian •Catholic
•Vietnamese, etc. •Muslim, etc.
Subculture Social Class Family life cycle

•Asian •Empty nest
•Lower
•Indigenous •Young married
•Middle
Australian, etc. •Single, etc.
•Upper
24
Family life cycle
 Based on the premise that families go through

similar phases and will have similar needs
during those phases
 As a simple example...
Singles Full Nest

Young Married
Need first car, Baby needs,
First home,
basic child-care, 2nd
household goods,
furniture, car
finance needs
travel
25
Culture and sub-culture
 Cultures share common values, beliefs and

customs
 Very important for success in international
marketing
 Important sub-cultures in Australia include...
- Greek-Australians
- Italian-Australians
- Asian-Australians
- The elderly
26
Possible use-related
segmentation bases
Usage Rate Awareness Status

•Heavy •Enthusiastic
•Medium •Interested
•Light users •Unaware
Brand Loyalty
•Strong
•Some
•None
27
Rate of usage
 Non-users  Light  Medium  Heavy users
 In the beer market, the group of heavy users

account for around 30% of consumers, but
over 70% of consumption
 Therefore, heavy users are an attractive (but
competitive) target market
 Also need to consider whether non-users are a

viable segment
- Should we attract new consumers (non-users) , or try
to win heavy users from competition?
28
Possible use-situation
segmentation bases
Time Location
•Morning/night •In-store
•Leisure •At work
•Work •At home, etc.
Person
Objective
•By self
•Personal
•With friends
•Gift
•With family, etc.
•Fun, etc.
29
User-situation segmentation
 Consumers will often make different decisions

in different situations (or occasions)
 Consider...
- Wine for self, or as a gift
- Food when in a hurry, or when have 1-2 hours free
 Occasions are a key marketing opportunity

- Mother’s Day
- St Valentine’s Day
- Easter
30
Benefit segmentation
 Benefit (or needs-based) segmentation is

based on providing/communicating the major
benefits that consumers are seeking
 A good example is the toothpaste market...
Close-up Aim
Colgate Tartar
Social appeal Nice taste, so Control
of bright teeth kids will brush
•Healthy, plague-
their teeth
free teeth
31
Hybrid segmentation
Demographics Psychographics
Possible
hybrid
Possible
hybrid
Hybrid segmentation uses

multiple bases to generate
Geographic
far more insightful and
powerful information about
target markets
32
TM
Figure 2.12: VALS SRIC-BI
segments
•Most Resources
•ACTUALISERS
•Principle Oriented •Status Oriented •Action Oriented
•FULFILLEDS •ACHIEVERS •EXPERIENCERS
•BELIEVERS •STRIVERS •MAKERS
•Low Resources
•STRUGGLERS
Reprinted with permission of SRI Consulting-Business Intelligence
33
Criteria for market
segments
Stability
Identification Segment is stable in
Able to identify terms of needs,
and measure the demographics and
characteristic psychological factors
Accessibility
Sufficiency
Able to access
Sufficient size and reach the
and profitability segment in an
of segment economical way
34
Implementing
segmentation strategies
 Target one or more segments?
Differentiated marketing
Concentrated marketing •Two or more segments, with a
•One segment only different marketing mix
•Good for small firms •For stronger, more established,
•Good for firms new to the firms
industry •Used to defend the traditional
markets of the firm
35
Countersegmentation
 When target markets become less viable, or the

firm’s resources are too stretched
 Countersegmentation is when a firm combines

two or more segments together
 These combined segments still need a

common underlying need or similarity
36
Summary
 The definition of market segmentation
 The uses of segmentation
 The nine main bases of segmentation
 An outline of the main segmentation approaches
 The criteria for market segments
 The difference between concentrated and

differentiated marketing
37

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Chapter 2

Schiffman, Bednall, O’Cass, Paladino, Ward & Kanuk:

 To define market segmentation

 To review the uses of segmentation

 To outline the nine main bases of segmentation

 To understand the main segmentation approaches

 To outline the criteria for effective market

Market Segmentation is defined as:

“The process of dividing a market into

Cars David Jones Charities Equipment

 Where the market is divided by location

 Assumes that people who live in the same area

 Geographic markets can be easily reached by

 Some firms use geographic segmentation to

Region Housing density

 Demography refers to the identifiable and

 Includes characteristics such as: age, income,

 Demographic information is very accessible

 Demographic segmentation is one of the most

Age Marital Status

 Age is often a strong determinant of product choice

 Health club/gym example...

 Age cohorts are born during the same period

 Many products have been traditionally

 However, traditional male/female roles in the

More women Fathers take

 Many decisions are made on the behalf of a

 Therefore, marital status is an important

 In recent years, single one-person households

 These three demographics variables tend to be

Note: These three variables are often combined in a composite

 Income is important because it provides an

 By combining income with education and

 Sometimes the occupation variable is used as

Needs- Risk perception

Personality Involvement Attitudes

•Feeling •High involvement •Negative

Activities Interests Opinions

 On the internet 6+ times per week

 Sends/receives more than 15 emails per week

 Regularly visits websites to gather information

 Often buys personal items over the internet

 May buy shares or book travel over the internet

 Earns $100,000+ per year

 Belongs to several reward programs

Subculture Social Class Family life cycle

 Based on the premise that families go through

Singles Full Nest

 Cultures share common values, beliefs and

Usage Rate Awareness Status

 Non-users  Light  Medium  Heavy users

 In the beer market, the group of heavy users

 Also need to consider whether non-users are a

•Leisure •At work

•Work •At home, etc.

 Consumers will often make different decisions

 Occasions are a key marketing opportunity

 Benefit (or needs-based) segmentation is

 A good example is the toothpaste market...

Hybrid segmentation uses

•Principle Oriented •Status Oriented •Action Oriented

•FULFILLEDS •ACHIEVERS •EXPERIENCERS

•BELIEVERS •STRIVERS •MAKERS

Reprinted with permission of SRI Consulting-Business Intelligence