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9.2 How Are Market Segments Best Defined? | 9<span style="font-size: 18px; line-height: 27px;">.2.1 Demographic Descriptors | = | <span style="font-size: 20px; line-height: 30px;"> 9.2.2 Geographic Descriptors | 9.2.3 Geodemographic Descriptors | 9.2.4 Behavioural Descriptors | 9.2.4.1 Consumer Needs | 9.2.4.2 Product-Related Behavioural Descriptors | == | 9.2.4.3 General Behavioural Descriptors | 9.2.4.3.1 Lifestyle | |


References

  1. ^ three important objectives entailed in the market segmentation process
  2. ^ Identify a homogeneous segment that differs from other segments

  3. ^ Specify criteria that define the segment.

  4. ^ Determine segment size and potential

  5. ^ what kinds of segmentation criteria, or descriptors, are most useful?
  6. ^
    • demographic descriptors
    • geographic descriptors
    • behavioural descriptors
  7. ^
    • age
    • sex
    • income
    • marital status
    • occupation
    • race
  8. ^ Red Bull’s targeted approach wins across the globe
  9. ^ sex
  10. ^ income
  11. ^ occupation
  12. ^ education
  13. ^ race and ethnic conditions
  14. ^ the segmentation of industrial markets
  15. ^ characteristics of the buying organisation using such descriptors as:




    • age of firm,
    • firm size, and
    • industry affiliation (SIC code in the US).
    • The international counterpart of SIC is the trade-category code.
  16. ^
      • their sales potential,
      • growth rates,
      • customer needs,
      • cultures,
      • climates,
      • service needs, and
      • competitive structures, as well as
      • purchase rates for a variety of goods.
  17. ^ trade area
  18. ^ the power of highly specific behavioural descriptors in defining sharply focused market segments, based not on who the target consumers are or where they live, but based on what they do


  19. ^ Customer needs are expressed in benefits sought from a particular product or service__

    benefits sought from a particular product or service.
    Different customers have different needs and thus attach different degrees of importance to the benefits offered by different products.

    In the end, the product that provides the best bundle of benefits – given the customer’s particular needs – is most likely to be purchased.


    Since purchasing is a problem-solving process, consumers evaluate product or brand alternatives on the basis of desired characteristics and how valuable each characteristic is to the consumer –
    choice criteria.

    <ref>Marketers can define segments according to these different choice criteria
  20. ^ organisational markets, customers consider relevant benefits that include product performance in different use situations.
  21. ^
    there are more general product-related descriptors as well.

    They include :

    (1) product usage,


    (2) loyalty,


    (3) purchase predisposition, and


    (4) purchase influence, all of which can be used to segment both consumer and industrial markets.


  22. ^ Action-oriented consumers are guided by the need for social or physical activity, variety, and risk taking.
  23. ^ The Goodyear effort consists of six groups –

    1. the prestige buyer,
    2. the comfortable conservative,
    3. the value shopper,
    4. the pretender,
    5. the trusting patron, and
    6. the bargain hunter.
  24. ^ Stanford Research Institute (SRI) has created an improved US segmentation service (called VALS 2)
  25. ^ Self-orientation is based on how consumers pursue and acquire products and services that provide satisfaction and shape their identities.
  26. ^ Principle-oriented consumers are motivated by abstract and idealised criteria
  27. ^ status-oriented consumers shop for products that demonstrate the consumer’s success.
  28. ^ Action-oriented consumers are guided by the need for social or physical activity, variety, and risk taking.
  29. ^ Resources include all of the psychological, physical, demographic, and material means consumers have to draw on.
  30. ^ degree to which the purchasing activity is centralised.






9.2 How Are Market Segments Best Defined?



There are many ways of dividing a market into segments.

Virtually all the variables discussed inModule 6 and Module 7 can influence customers in their purchases of different goods and services, so all of them can plausibly serve as criteria for segmenting markets.

There are [1] three important objectives entailed in the market segmentation process:
  • Identify a homogeneous segment that differs from other segments. [2] The process should identify one or more relatively homogeneous groups of prospective buyers with regard to :
a)their wants and needs and/or
b) their likely responses to differences in the elements of the marketing mix – the 4 Ps (product, price, promotion, and place).

For Bowerman and Knight, high-performance distance runners was such a segment.
  • Specify criteria that define the segment. [3]
The segmentation criteria should measure or describe the segments clearly enough so that members can be readily identified and accessed, in order for the marketer to know whether a given prospective customer is or is not in the target market and in order to reach the prospective customer with advertising or other marketing communication messages.
Knight and Bowerman might have defined their initial target market as being comprised of members of running clubs or distance runners on collegiate track and cross-country teams.

  • Determine segment size and potential [4] . Finally, the segmentation process should determine the size and market potential of each segment for use in prioritising which segments to pursue, a topic we address in more detail later in this module.
Knight and Bowerman could easily ascertain how many such runners there were in Oregon or the western United States, and they probably knew how many pairs of shoes per year the typical distance runner bought, at what average price.


Given these objectives,[5] what kinds of segmentation criteria, or descriptors, are most useful?

Marketers divide segmentation descriptors into three major categories for both consumer and organisational markets: [6]
  • demographic descriptors (which reflect who the target customers are),
  • geographic descriptors (where they are), and
  • behavioural descriptors of various kinds (how they behave with regard to their use and/or purchases of a given category of goods or services). We examine each of these categories below.


9.2.1 Demographic Descriptors


While firm demographics (age of firm, size of firm, industry, etc.) are useful in segmenting organisational markets, we usually think of demographics in terms of attributes of individual consumers, as shown in Exhibit 9.2.

Some examples of demographic descriptors used to segment consumer markets are as follows:


Exhibit 9.2 Some of the more commonly used demographic descriptors
Demographic descriptors
Examples of categories
Age[7]
Under 2, 2–5, 6–11, 12–17, 18–24, 25–34, 35–49, 50–64, 65 and over
Sex
Male, female
Income
Under $15 000, $15 000–$24 999; $25 000–$74 999, etc.
Occupation
Professional, manager, clerical, sales, supervisor, blue collar, homemaker, student, unemployed
Education
Some high school, graduated from high school, some college, graduated from college
Geography
Regions, countries, cities, metropolitan areas, counties, zip codes and blocks
Race and ethnic
origin
Anglo-Saxon, African-American, Italian, Jewish, Scandinavian, Hispanic, Asian



Others include marital status, home ownership, and presence and age of children.

Age: Since mobile phone penetration has reached almost saturation levels in Europe and the UK, mobile service providers are focusing on the 55–65 and 65+ segment to improve usage and penetration respectively. Their high disposable incomes and their ability to spend devote time to new habits is seen as a lucrative market opportunity.[4]

At the other end of the demographic scale, Red Bull has built a following among youth worldwide (see Exhibit 9.3).

Exhibit 9.3 [8] Red Bull’s targeted approach wins across the globe
Austria-based Red Bull is a company with one product, an energy drink containing the amino-acid Taurine.

While working for Unilever, Dietrich Mateschitz traveled often to Asia, where he tried syrups that Asian businessmen drank to revitalize them.

His experience there led him to spot a market opportunity, and after modifying the drink to appeal to western palates, he launched Red Bull in 1987.

Its signature, a slim, silver-coloured, 8.3 ounce can, has been an enormous hit with its target youth segment across the globe.

For the year 2001, Red Bull had sales of $51 million in the United States alone and captured 70 per cent of the energy drink market worldwide.

From Stanford University on California’s west coast, to the beaches of Australia and Thailand, Red Bull has managed to maintain its hip, cool image, with virtually no mass-market advertising.

It has instead opted for a grass roots campaign, ‘In terms of attracting new customers and enhancing consumer loyalty, Red Bull has a more effective branding campaign than Coke or Pepsi,’ said Nancy F. Koehn, professor of business administration at Harvard Business School and author of Brand New: How Entrepreneurs Earned Consumers’ Trust from Wedgwood to Dell.[7] Red Bull used Collegiate Brand Managers to promote the drink via free samples handed out at student parties. The company also organised extreme sports events, for example, cliff diving in Hawaii or skateboarding in San Francisco, reinforcing the brand’s extreme, on-the-edge image.

The beverage industry giants were taking note – Coke ran a stealth marketing campaign, where Coke was packaged in a slim can, reminiscent of Red Bull’s packaging, and offered to customers in hip, trendy bars and clubs in Manhattan and New York City.

Source: Jill Bruss, ‘Alternatively speaking: alternative beverages keep the industry abuzz with new products. (Category Focus)’, Beverage Industry, 1 November 2002, ISSN: 0148-6187; Volume 93; Issue 11, p. 14; Anni Layne Rodgers, ‘It’s a (Red) Bull Market After All’, FastCompany, October 2001; ‘SLIM AND TRENDY – Camouflaged in a slim new can reminiscent of Red Bull,…’, Foodweek, 16 December 2002; Company websitewww.redbull.com

[9] Sex: In Australia, Toyota launched an online information service aimed at women, recognising that women make up 50 per cent of Toyota’s sales and directly influence 8 out of 10 vehicle purchase.[5]

[10] Income: Higher-income households purchase a disproportionate number of cellular phones, expensive cars, and theatre tickets. In 2000, Nokia started a wholly owned subsidiary Vertu, to create an ultra-exclusive mobile telephone and services built around the phone, targeting the same customers who buy luxury watches and custom-made cars.[6]

[11] Occupation: The sales of certain kinds of products (e.g., work shoes, automobiles, uniforms, and trade magazines) are tied closely to occupational type. The increase in the number of working women has created needs for specialised goods and services including financial services, business wardrobes, convenience foods, automobiles, and special-interest magazines.

[12] Education: There is a strong positive correlation between the level of education and the purchase of travel, books, magazines, insurance, theatre tickets, and photographic equipment.

[13] Race and ethnic origin: More and more companies are targeting these segments via specialised marketing programs. In the United States, car companies have found ways to cater to the needs of the multi-cultural segment, which is estimated to reach 32 per cent of the US population by 2010. A distinctive trend that had already emerged by 2002, was the Asian-American’s affinity for upscale cars – they accounted for 15 per cent of BMW and 9 per cent of Mercedes Benz sales.[8]



[14] Demographic descriptors are also important in the segmentation of industrial markets, which are segmented in two stages.

[15] The first, macrosegmentation, divides the market according to the characteristics of the buying organisation using such descriptors as:

  • age of firm,
  • firm size, and
  • industry affiliation (SIC code in the US).
  • The international counterpart of SIC is the trade-category code.


The second stage, microsegmentation, groups customers by the characteristics of the individuals who influence the purchasing decision – for instance, age, sex, and position within the organisation.

International markets are segmented in a similar hierarchical fashion, starting with countries, followed by groups of individuals or buying organisations
.
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=

9.2.2 Geographic Descriptors



Different locations vary in

  • [16]
        • **their sales potential,
          • growth rates,
          • customer needs,
          • cultures,
          • climates,
          • service needs, and
          • competitive structures, as well as
          • purchase rates for a variety of goods.
**
>
  • >
    • >

      • For example, more pickup trucks are sold in the southwest United States, more vans in the Northeast, and more high-priced imports in the West.

      • More and more advertisers are taking advantage of geographic media buys, and Uni-Marts, Inc., a convenience store operator of over 400 stores, focuses on small towns and rural areas, thereby avoiding big competitors. In its 23-year history, it has yet to record a loss.[9]

      • Geographic segmentation is used in both consumer and organisational markets and is particularly important in retailing and many services businesses, where customers are unwilling to travel very far to obtain the goods or services they require.

      • Thus, one way to segment retail markets is by distance or driving time from a particular location.

      • [17] The area included within such a geographically defined region is called a trade area.

      • ----

9.2.3 Geodemographic Descriptors

** Many segmentation schemes involve both demographic and geographic factors. Thus, retailers usually want to know something about the people who live within, say, a two-mile or five-mile radius of their proposed new store.

      • Neiman Marcus, the upscale department store, might target one demographic group within a given trade area, and Wal-Mart, a discounter, might target another.

      • National Demographic Systems and other sources offer low-cost reports based on census data that show the demographic profile of the population residing within any given radius of a particular street corner or shopping center location in the United States.

      • These reports are useful in assessing the size and market potential of a market segment defined by a particular trade area.

      • Geodemographics also attempts to predict consumer behaviour by making demographic, psychographic, and consumer information available at the block and Zip code levels.

      • Claritas’s PRIZM service classifies all US households into 62 demographically and behaviourally distinct clusters, each of which, in turn, is assigned to one of 15 social groups.[10] Claritas offers similar datasets for France and elsewhere.[11]

      • ----
**

9.2.4 Behavioural Descriptors

** There is no limit to the number of insightful ways successful marketers have segmented markets in behavioural terms.
  • **

      • * Knight and Bowerman originally targeted high-performance distance runners.

        • Specialised and Gary Fisher target bicyclists who wish to ride on single-track trails or back-country terrain.

        • Europe’s EasyJet airline targets leisure travelers.

        • Gatorade’s original target market consisted of athletes who needed to replenish water and salts lost through perspiration.

      • This simple segmentation scheme created a whole new category of ‘sports beverages,’ which now includes entries from Coke (Powerade) and Pepsi (All Sport), though Gatorade still dominates the category with an 80 per cent market share. This onetime niche market has grown into a $2.2 billion market in the United States alone.
      • ----
  • [18] These examples all demonstrate the power of highly specific behavioural descriptors in defining sharply focused market segments, based not on who the target consumers are or where they live, but based on what they do.
  • **

    • In virtually every consumer and organisational market there are probably segments like these just waiting to be identified and targeted by insightful marketers.

    • Behavioural descriptors can take many forms, including those based on consumer needs;
      • on more general behavioural patterns,

        • including lifestyle or
        • social class; and, in organisational markets,
      • on the structure of firms’ purchasing activities and
      • the types of buying situations they encounter.

9.2.4.1 Consumer Needs

**

    • [19] Marketers can define segments according to these different choice criteria in terms of the presence or absence of certain characteristics and the importance attached to each.

Firms typically single out a limited number of benefit segments to target.


Thus, for example, different automobile manufacturers have emphasised different benefits over the years, such as safety (presence of side door airbags), reliability, or high mileage versus styling, quickness, or status.

In [20]
organisational markets, customers consider relevant benefits that include product performance in different use situations.__

For example, super computers are bought because they meet the high-speed computational requirements of a small group of customers such as governments, universities, and research labs.

Other considerations in the purchase of industrial products/services include on-time delivery, credit terms, economy, spare parts availability, and training.



9.2.4.2 Product-Related Behavioural Descriptors


[21]

In addition to highly specific behavioural descriptors such as those just discussed, there are more general product-related descriptors as well.

They include :
(1) product usage,


(2) loyalty,


(3) purchase predisposition, and


(4) purchase influence, all of which can be used to segment both consumer and industrial markets.


(1) Product usage is important because in many markets a small proportion of potential customers makes a high percentage of all purchases. In organisational markets, the customers are better known, and heavy users (often called key accounts) are easier to identify.

(2) Market segmentation based on sources of
purchase influence is relevant for both consumer and organisational markets.

Many products used by various family members are purchased by the wife, but joint husbandwife decisions are becoming more common.

Children’s products, prescription drugs, and gifts are clearly influenced by a variety of individuals.

In organisational markets, several individuals or units with varying degrees of influence participate in the buying centre.

====----

==

9.2.4.3 General Behavioural Descriptors


More general behavioural descriptors,
  • including lifestyle and
  • social class, are also commonly used in consumer markets. In organisational markets, prospective customers differ in how they structure their purchasing activities and in the nature of the buying situations they are engaged in.



9.2.4.3.1 Lifestyle


Segmentation by lifestyle, or psychographics, groups consumers on the basis of their activities, interest, and opinions.

From such information it is possible to infer what types of products and services appeal to a particular group, as well as how best to communicate with individuals in the group.

For example, [22] Goodyear Tire and Rubber and Ogilvy and Mather (an advertising agency), working separately, have developed several classifications for global lifestyle segments.

[23] The Goodyear effort consists of six groups –

  1. the prestige buyer,
  2. the comfortable conservative,
  3. the value shopper,
  4. the pretender,
  5. the trusting patron, and
  6. the bargain hunter.

Ogilvy and Mather proposes ten global segments based on lifestyle characteristics – basic needs, fairer deal, traditional family life, conventional family life, look-at-me, somebody better, real conservatism, young optimist, visible achiever, and socially aware.[13]

[24] Stanford Research Institute (SRI) has created an improved US segmentation service (called VALS 2) , which builds on the concept of self-orientation and resources for the individual.

[25] Self-orientation is based on how consumers pursue and acquire products and services that provide satisfaction and shape their identities.

In doing so, they are motivated by the orientations of principle, status, and action.

[26] Principle-oriented consumers are motivated by abstract and idealised criteria, [27] while status-oriented consumers shop for products that demonstrate the consumer’s success.

[28] Action-oriented consumers are guided by the need for social or physical activity, variety, and risk taking.


[29] Resources include all of the psychological, physical, demographic, and material means consumers have to draw on.

They include education, income, self-confidence, health, eagerness to buy, intelligence, and energy level – on a continuum from minimal to abundant.

Based on these two dimensions, VALS 2 defines eight segments that exhibit distinctive behaviour and decision making –

  1. actualisers,
  2. fulfillers,
  3. achievers,
  4. experiencers,
  5. believers,
  6. strivers,
  7. makers, and
  8. strugglers.

The segments are approximately the same size so as to represent viable market targets. Claritas and similar commercial organisations identify each of the respondents as to their VALS type, thereby permitting a cross-classification of VALS type with the product usage and personal information collected by such companies. Thus, users can determine what each VALS segment bought, what their media habits are, and similar data. The VALS system has been further developed in Europe and Asia.[14] Those interested in the VALS segmentation scheme can complete a short survey on the VALS website (log ontohttp://future.sri.com/VALS/VALSindex.shtml) and discover the VALS segment to which they belong.
Social Class

Every society has its status groupings based largely on similarities in income, education, and occupation.[15] Because researchers have long documented the values of the various classes, it is possible to infer certain behaviour concerning a given product. For example, the middle classes tend to place more value on education, family activities, cleanliness, and being up-to-date than do lower-class families. In the international field, one has to be careful in using social class as a segmentation variable since the differences among classes can become blurred, as they do in the Scandinavian countries.[16] In America many of the criteria used to define class status seem to some to be no longer applicable as the nation becomes increasingly fragmented into dozens of distinct subcultures, each with its own unique tastes and ambitions. As noted earlier, Claritas, Inc., has identified 62 distinct classes in the United States, each with its own set of beliefs and aspirations.[17]



9.2.4.4 Organisational or Firm Behavioural Descriptors


Purchasing structure and buying situation segmentation descriptors are unique to organisational markets.
  • Purchasing structure is the [30] degree to which the purchasing activity is centralised.
  • In such a structure the buyer is likely to consider all transactions with a given supplier on a global basis, to emphasise cost savings, and to minimise risk.
  • In a decentralised situation, the buyer is apt to be more sensitive to the user’s need, to emphasise product quality and fast delivery, and to be less cost-conscious.
  • The buying situation descriptor includes three distinct types of situations:
    • straight rebuy, a recurring situation handled on a routine basis;
    • modified rebuy, which occurs when some element, such as price or delivery schedules, has changed in a clientsupplier relationship; and a
    • new buying situation, which may require the gathering of considerable information and an evaluation of alternative suppliers.

9.2.5 Innovative Segmentation: A Key to Marketing Breakthroughs


At the beginning of this section, we identified three objectives of the market segmentation process:
  • Identify a homogeneous segment that differs from others
  • Specify criteria that define the segment
  • Determine segment size and potential


Effective marketers, such as the creators of Nike athletic shoes and Red Bull energy drinks, know that meeting these objectives through insightful and innovative market segmentation is often the key to marketing breakthroughs.
Often, combinations of different descriptors are used to more precisely target an attractive segment: perhaps some behavioural dimension together with a carefully defined demographic profile within some geographic region.
Generally, it is useful to know the demographic profile of the target market to be pursued, even if the driving force behind the segmentation scheme is geographical and/or behavioural in nature. Understanding the demographic profile of a target market enables the marketer to better choose targeted advertising media or other marketing communication vehicles, as we shall see in Module 14.
As is the case for many kinds of marketing decision making, various computer-based decision support systems have been developed to aid marketers as they wrestle with market segmentation decisions. Some of the more widely used systems are identified in Exhibit 9.4.

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Exhibit 9.4 Software tools for market segmentation

Two broad kinds of software applications are used in segmenting markets. Data mining applications enable the marketer to examine a customer database to identify patterns of variables that predict which customers buy or don’t buy, as well as how much they buy. CART® and MARS™ from Salford Systems, Inc. (www.salford-systems.com) are two such applications. Various tools for analysing the demographic makeup of a proposed target market are also available. National Decision Systems (www.ends.com) is one such supplier. Various analytical procedures in SPSS MR or other statistical software packages are also useful for market segmentation purposes.
Source: ‘Directory of Marketing Technology: Software & Internet Services,’ Marketing News, July 17, 2000.
As several examples in this section have shown, at the foundation of many a marketing breakthrough one often finds an insightful segmentation scheme that is sharply focused in a behavioural way. Marketers with superior market knowledge are probably more likely to generate the insights necessary to define market segments in these innovative and meaningful ways. Knight and Bowerman, as runners themselves, had the necessary market knowledge to see how distance runners, as a market segment, were underserved. Their insight, together with the development of innovative products and the creation of effective marketing programs, led the growth of the athletic footwear market, as consumers purchased different shoes for their different athletic pursuits, and ultimately revolutionised the athletic footwear industry.



Tags
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  12. logistical alliance
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  14. market segmentation
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  18. mass market
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  20. michelin; us west;
  21. micro segmentation
  22. middleman
  23. modified rebuy
  24. multi-functional sales teams
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  28. mutual trust
  29. narrow market segment
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  52. potential market; penetrated market
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  55. prestige buyer
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  74. social construction
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  76. stock availability
  77. straight rebuy
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  98. vertical integration
  99. visceral thing that cannot be trained
  100. wild guess