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Chapter 5
Market Segmentation
Key Terms
Marketing Segmentation, Post Hoc Segmentation, Priori
Segmentation, Benefit Segmentation, Psychographic
Segmentation, Vertical Dimension, Horizontal Dimension,
Geodemographic Segmentation, Positioning Map, Marketing Mix
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Understanding Market
Segmentation
 Based on the idea that a single product item can
seldom meet the needs and wants of all consumers
 Viable market – One that can be profitably served by
a firm
 Market segmentation can be defined as the
process of dividing a market into groups of similar
consumers and selecting the most appropriate
group(s) for the firm to serve
 Target market – Group or market segment that a
company selects to focus on
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Understanding Market
Segmentation
A Model of the Market Segmentation Process
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Understanding Market
Segmentation
 Delineate the firm’s current situation
 Intended to be a reminder of tasks to be performed
prior to marketing planning
 Determine consumer needs and wants
 Successful marketing strategies depend on meeting
consumer needs and wants
 Industry within which firm operates specifies
boundaries of firm’s need satisfaction activities
 At a strategic level, need and wants usually are
translated into more operational concepts
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Dimensions for Market Division
 Three important questions to be considered are
 Should the segmentation be a priori or a post hoc?
 How does one determine the relevant dimensions or
bases to use for segmentation?
 What are some bases for segmenting consumer and
organizational buyer markets?
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A Priori versus Post Hoc
Segmentation
 A priori segmentation – An approach where the
marketing manager has decided on the appropriate
basis for segmentation in advance of doing any
research on a market
 Post hoc segmentation – An approach in which
people are grouped into segments on the basis of
research findings
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Relevance of Segmentation
Dimensions
 At least some initial dimensions can be determined
from
 Previous research
 Purchase trends
 Managerial judgment
 Consideration and research of sought benefits are a
strongly recommended approach
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Bases for Segmentation
Useful Segmentation Bases for Consumer
Markets
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Bases for Segmentation
Useful Segmentation Bases for Consumer
Markets
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Bases for Segmentation
Useful Segmentation Bases for Organizational Buyer
Markets
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Bases for Segmentation
 Benefit segmentation – Focuses on benefits sought by
consumers
 Is a market-oriented approach
 Psychographic segmentation – Focuses on consumer
lifestyles
 Lifestyles are measured on the bases of activities,
interests and opinions (AIO) of consumers
 Best-known type of segmentation is VALSTM (“values
and lifestyles”)
 Product of SRI Consulting Business Intelligence
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Bases for Segmentation
VALS™ Framework and Segments
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Bases for Segmentation
Toothpaste Market Benefit Segments
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Bases for Segmentation
 Geodemographic Segmentation – Identifies specific
households in a market by focusing on local
neighborhood geography
 PRIZM NE – Potential Ranking Index by ZIP Markets
– New Evolution
 Assumes that consumers in particular neighborhoods
are similar in many respects and that the best prospects
are those who actually use a product
 Classifies every U.S. neighborhood into a total of 66
distinct segments
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Develop Product Positioning
 Positioning can be achieved through any one of these
strategies
 Superiority to competitive products on one or more
product attributes
 Positioned by use or application
 Positioned in terms of particular types of users
 Positioned relative to a product class
 Positioned directly against particular competitors
 Position mapping – Visual depiction of customer
perceptions of competitive products, brands, or
models
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Positioning Map for Automobiles
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Market Segmentation Strategies
 Firm may decide to do the following
 Not to enter the market
 To segment but to be a mass marketer
 Market is so small that it is not profitable to market to one
portion of it
 Heavy users comprise such a large proportion of sales that
they are the only relevant target
 Product is a dominant brand, and targeting to a few segments
is not beneficial
 To market to one segment
 To market to more than one segment and design a
separate marketing mix for each
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Market Segmentation Strategies
 Criteria to base a firm’s segmentation strategy
decisions are
 Measurable – Firm must be capable of measuring its size
and characteristics
 Meaningful – Large enough to deliver sufficient sales and
growth potential
 Marketable – Can be reached and served in an efficient
manner
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Market Segmentation Strategies
Selecting Target Markets: Some Questions Marketing Managers
Should Answer
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Market Segmentation Strategies
Selecting Target Markets: Some Questions Marketing Managers
Should Answer
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Design Marketing Mix Strategy
 Selection of target market and designing the market
should go hand in hand
 Marketing mix decisions should have already been
carefully considered
 Product positioning has many implications for
promotion and channel distribution
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