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Market Segmentation: Understanding Customer Needs and Wants

Market segmentation is the process of dividing a market into groups of customers with similar characteristics, and selecting the most appropriate group(s) to serve. This chapter explores various methods of market segmentation, including segmentation by use, price and quality, consumer characteristics, and product benefit. It also discusses the importance of understanding customer needs and wants through marketing research, and the role of branding and positioning in market segmentation strategies.

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Market Segmentation: Understanding Customer Needs and Wants

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  1. CHAPTER 5 MARKET SEGMENTATION

  2. Market Segmentation • Market is where the product sold and profit is generated, and consists of all the potential group of customers sharing needs and wants. • To understand the market, marketers must understand the customers, and marketing research is an effective tool in this process. • Channels play important role in segmentation decision.

  3. Market Boundaries Market can be defined by the following factors: • Product and service category:actual product • Geography: location of seller • Physical customer groupings: suppliers in industrial market • Intangibles: price as a differentiation factor

  4. Market Boundaries (Cont.) • Customers: Current buyers as well as those who have switched. • Users: End users rather than purchasers • Prospects: potential customers. • Penetration: percentage of users. • Brand share: sales of a brand in a particular market • The pareto, 80:20 effect

  5. Market Segmentation • By use: 1. occasional, 2. benefits, 3.loyalty 4.frequency • By price and quality • By consumer characteristics: 1. geographic, 2.demographic, 3.socio-economic(income, social class), 4. life styles(culture). • By product benefit

  6. Market Segmentation (Cont.) • Segmentation across national boundaries- set of socio-economic, political and cultural criteria. • Market segmentation is dividing market into groups of similar characteristics, and selecting the most appropriate group(s) to serve

  7. A Model of Market Segmentation Process • Delineate firm’s current situation • opportunities, resources, objectives and constraints • Determine customers needs and wants • Marketing research is used for this purpose • Divide market on relevant dimensions • A prior or post hoc segmentation • segmentation decision before and after market research • Relevance of segmentation Dimensions • managers’ expertise and experience play an important role • All variables should be included in segmentation

  8. A Model of Market Segmentation Process (cont.) • Basis for segmentation • Benefit sought • attempts to measure consumers’ value system. It is a market-oriented approach that seeks to identify consumer needs and wants to develop product and satisfy the desired benefits. • Psychographic segmentation • VALS2 model: values and life styles. Vertical dimensions represent resources such as income, education, health and intelligence, the horizontal dimensions are self-orientations such as principle, action and self orientations. They represent 9 to 17 percent of the US adult population.

  9. Basis for segmentation (cont.) • Psychographic segmentation (cont.) • VALS2: (1)Principle oriented consumer-guided by their views of how the world is, or should be (2)Status oriented consumers-guided by the action and opinion of others (3)Action oriented consumers-guided by a desire for social or physical activity, variety and risk taking

  10. VALS2 Model

  11. A Model of Market Segmentation (cont.) • Develop product positioning • Decide segmentation strategy • Measurable • Meaningful-large enough • Marketable-reachable • Design marketing mix strategy

  12. Segmentation Methods • Background investigation: hypotheses about which segments are viable • Qualitative research: focus group • Quantitative research: • Analysis: discriminant analysis, factor analysis, cluster analysis • Segmentation/positioning: positioning map.

  13. Product/Service Positioning • Homogeneous • Diffuse • Clustered • Positioning/Perceptual maps • graphic indication of firm’s product against to competitors. • It shows: • competitors which are closer to your product • positioning gap • a sound base for re-positioning.

  14. Positioning Process • Market segmentation • Target marketing • Product positioning positioning segmentation targeting

  15. Possible Approaches to Segmentation • Single segment • concentration and specialization(niche market) • Multiple segment • one or more product, two or more segments. • Cross segment • same product for different segment • Full coverage • undifferentiated(coca cola) • differentiated(IBM).

  16. Branding and Policies • Product differentiation • Effect consumers’ perception • Brand monopoly • trademarks, registration • Branding policies • company name • family branding • individual branding

  17. Branding and Policies (Cont.) • Brand extension • a strong brand name can be used for a new product(Diet Coke) • Multibrand • one company, several brands. • Co-branding • two different brands from two different companies may be team up. • Private and generic brand

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