PART 3: ASSESSING MARKET OPPORTUNITIES

CHAPTER 5: SEGMENTING THE BUSINESS MARKET AND ESTIMATING SEGMENT

DEMAND

BUSINESS MARKET SEGMENTATION REQUIREMENTS AND BENEFITS

Yoram Wind and Richard N. Cardozo define a market segment as “a group of
present or potential customers with some common characteristic which is relevant in
explaining (and predicting) their response to a supplier’s marketing stimuli.” Effective
segmentation of markets is the first step in crafting a marketing strategy because the
characteristics and needs of each segment will define what elements must be included in
how the firm approaches each of the segments in which they choose to do business.
Segmentation that is done well provides the necessary information for understanding what
elements of the marketing mix are going to be critical in satisfying the target customers in
those segments.

Requirements
A business marketer has four criteria for evaluating the desirability of potential market
segments:
Measurability. The degree to which the segment’s size and purchasing power can be
measured.
Accessibility. The degree to which segments can be accessed and served.
Substantiality. The degree to which segments are large or profitable enough to serve as
markets.
Actionability. The degree to which effective programs can be designed for attracting and
serving segments.
In summary, the art of market segmentation involves identifying groups of customers that
are large and unique enough to justify a separate marketing strategy. The ultimate goal is to
have the greatest amount of difference between groups (segments) and high similarities
within them.

Benefits
 First, the mere attempt to segment the business market forces the marketer to
become more attuned to the unique needs of customer segments.
 Second, knowing the needs of particular market segments helps the business
marketer focus product development efforts, develop profitable pricing strategies,
select appropriate channels of distribution, develop and target advertising messages,
and train and deploy the sales force. Thus, market segmentation provides the
foundation for efficient and effective business marketing strategies.
 Third, market segmentation provides the business marketer with valuable guidelines
for allocating marketing resources. Business-to-business firms often serve multiple
market segments and must continually monitor their relative attractiveness and
performance.

THE SEGMENTATION PROCESS

Market Segmentation is the words itself that explain it is the segmentation or the
segregation of market-based on different types, either type of customers or the type of
products and many other factors.
Market Segmentation helps in identifying different types of potential customer based
on factors like homogeneity, distinctiveness, location or geography, trade or profession they
are in, their social strata or status, etc. and allows the marketing team to plan their marketing
strategies based on the type of customers and their choices and tastes. Market
segmentation allows the marketers to manage and plan their marketing campaigns in a
customized or personalized way as per the needs of the customer and their demands.
Macrosegmentation centers on characteristics of buying organizations (for example,
size), product application (for example, end market served), and the purchasing situation (for
example, stage in the purchase decision process). Microsegmentation concentrates on
characteristics of organizational decision-making units—for instance, choice criteria
assigned the most importance in the purchase decision.

Bases for segmenting a market

There is no single way to segment a market. A marketer has to try different
segmentation variables, alone and in combination, hoping to find the best way to view the
market structure.
 Geographic segmentation calls for dividing the market into different geographic units,
such as nations, states, regions, counties, cities, or neighborhoods.
 Demographic segmentation consists of dividing the market into groups based on
demographic variables such as age, gender, family life cycle, income, occupation,
education, religion, race, and nationality.
 Age and Life-Cycle Stage- Consumer preferences change with age. Some
companies offer different products or marketing strategies to penetrate
various age and life-cycle segments. Other companies focus on the specific
age of life-stage groups.
 Gender- Gender marketing is by no means simplistic. A “typical” male or
female does not exist, yet droves of companies have erred in trying to
develop and market a product or service for such an individual. It is natural for
each of us to think of typical as someone in our respective age, income, and
lifestyle. This is always wrong. Gender marketing is most effective when
combined with lifestyle and demographic information.
 Income Segmentation- Income segmentation has long been used by
marketers of products and services. The lodging industry is particularly
effective in using income segmentation. Upper income guests and
corporations serve as targets for country clubs, boxes at sports stadiums, and
upscale hotels and resorts.
 Psychographic segmentation divides buyers into different groups based on social
class, lifestyle, and personality characteristics.
 Social Class
 Lifestyle
 Personality
 Behavioral segmentation divides buyers into groups based on their knowledge,
attitude, use, or response to a product.
 Occasion Segmentation- Buyers can be grouped according to occasions
when they make a purchase or use a product. Occasion segmentation helps
firms build product use. Occasion segmentation can help firms build product
use.
 Benefits Sought- Buyers can also be grouped according to the product
benefits they seek. Knowing the benefits sought by customers is useful in two
ways. First, managers can develop products with features that provide the
benefits their customers are seeking. Second, managers communicate more
effectively with their customers if they know what benefits customers seek.
Thus, a benefit is a positive outcome received from a product feature. Those
product features that create positive outcomes for guests create value.
Features that do not offer positive outcomes for the guest will have no value.
 User Status- Many markets can be segmented into nonusers, former users,
potential users, firsttime users, and regular users of a product. High-market-
share companies such as major airlines are particularly interested in keeping
 regular users and attracting potential users. Potential users and regular users
often require different marketing appeals.
 Usage Rate- Markets can also be segmented into light, medium, and heavy
product users. Heavy users are often a small percentage of the market but
account for a high percentage of total consumption.
 Loyalty Status- A market can also be segmented on the basis of consumer
loyalty. A major reason for increasing customer loyalty is that “loyal customers
are price insensitive compared to brand-shifting patrons.”22 In the hospitality
and travel industries, marketers attempt to build brand loyalty through
relationship marketing. Although manufacturing companies often lack direct
contact with their customers, most hospitality and travel marketers do have
direct contact. They can develop a guest history database and use this
information to customize offers and customer communications.

MARKET TARGETING
Evaluating Market Segments
When evaluating different market segments, a firm must look at three factors:
segment size and growth, segment structured attractiveness, and company objectives and
resources.
 Segment size and growth. Companies analyze the segment size and growth and
choose the segment that provides the best opportunity.
 Segment structural attractiveness. A company must examine major structural factors
that affect long-run segment attractiveness.
 Company objectives and resources. The company must consider its own objectives
and resources in relation to a market segment.

Selecting Market Segments

Segmentation reveals market opportunities available to a firm. The company then
selects the most attractive segment or segments to serve as targets for marketing strategies
to achieve desired objectives.

Market-coverage alternatives
 Undifferentiated marketing strategy. An undifferentiated marketing strategy ignores
market segmentation differences and goes after the whole market with one market
offer.
 Differentiated marketing strategy. The firm targets several market segments and
designs separate offers for each.
 Concentrated marketing strategy. A concentrated marketing strategy is especially
appealing to companies with limited resources. Instead of going for a small share of a
large market, the firm pursues a large share of one or more small markets.
 Micromarketing—Local Marketing and SoloMo- Differentiated and concentrated
marketers tailor their offers and marketing programs to meet the needs of various
market segments and niches. At the same time, however, they do not customize their
offers to each individual customer. Micromarketing is the practice of tailoring products
and marketing programs to suit the tastes of specific individuals and locations.
Rather than seeing a customer in every individual, micro marketers see the individual
in every customer. One form of micromarketing is local marketing. Increasingly,
location-based marketing is going mobile, reaching on-the-go consumers as they
come and go in key local market areas. It’s called SoLoMo (social+local+mobile).

Choosing a market-coverage strategy.

Companies need to consider several factors in choosing a market-coverage strategy.
 Company resources. When the company’s resources are limited, concentrated
marketing makes the most sense.
  Degree of product homogeneity. Undifferentiated marketing is more suited for
homogeneous products. Products that can vary in design, such as restaurants and
hotels, are more suited to differentiation or concentration.
 Market homogeneity. If buyers have the same tastes, buy a product in the same
amounts, and react the same way to marketing efforts, undifferentiated marketing is
appropriate.
 Competitors’ strategies. When competitors use segmentation, undifferentiated
marketing can be suicidal.
Conversely, when competitors use undifferentiated marketing, a firm can gain an
advantage by using differentiated or concentrated marketing.

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