Chapter Fourteen

Introduction to – Market Segments

In this Chapter we discuss the concept of segmentation and targeting. This is a critical concept for marketing and an influential factor in brand positioning. The tool we will use is called the STP framework: segmentation, targeting and positioning.
Segmentation is the first step in developing the framework and allows us to identify variables that will help us divide the market into more manageable segments. There are several different tactics and approaches used in segmentation. The second step of the framework is targeting. You evaluate the attractiveness of each of the segments and choose a segment to target and pursue. The third piece is positioning. Your targets are segmented, you position your brand and your product to meet the needs of the chosen target segment. Marketing segmentation always comes before targeting, which helps a company be more selective about who they are marketing their products to.
For an interesting Ted's Talk on how we arrived at so much variety of Prego spaghetti sauce watch this presentation by Malcolm Gladwell here: Link.

 

To better understand the STP framework, view the chart which displays the importance bike customers place on cost, weight and comfort when looking to purchase a bicycle. The red company is targeting customers that care about the weight and comfort of their bike and are willing to pay more. The blue companies customers value a low price. They don't care that much about how about weight or ride comfort. If you did not segment this market, the optimal thing to do would be to give the average value to everything, however you would not be truly satisfying the customer.
Chart of bike values The average value here would not be a low enough price for the people who care about low price, not comfortable enough for those who value comfort, and not the optimal weight for those who care for a lightweight bike. If you choose not to segment the market you tend to reduce cost and provide the average value on other attributes, which does not satisfy customer needs. The concept of customer focus marketing means; if you want to give the customer exactly what they want, you need to segment the market.
What you will see is there is a heterogeneity or diversity in character of the customer in choosing bike content preferences. The seller of bikes needs to choose, or target, which one of these segments he or she want to deliver to, then fully pursue that segment.
For example, if you provided a superb ride comfort to the blue segment, they would be willing to pay a higher price. It could be very profitable, however if you did not cater to a specific segment, you might not sell to anyone. So segmentation means you divide the market up into market segments. More formally, market segmentation is the process of dividing up the market into distinct subsets, where any subset could conceivably be selected and then you pick one of those market segments to be your target. You reach or deliver to that market segment with a distinct marketing mix.
Remember the marketing mix is the four p's; product, place, promotion and price. Keep in mind, when looking at these different segments, they may want different products. It may make sense to use a different advertising scheme, or pricing strategy. At the same time, it may make sense to deliver at their place, or distribute to them differently. That's the definition of market segmentation, a very critical idea in marketing.
So the question is, how can I divide up the market? Marketing segmentation can be a lengthy process. It is important for the company to know exactly which segments represent the most potential sales for its business. After a company identifies all possible market segments, it can start targeting these customer segments using a well designed marketing mix.
There are countless, successful ways to segment a market. The most common segmentation strategy is to divide up the market based on characteristics of the customer. Let’s consider gender demographics. Typically, men and women have different preferences, so let's make a female bike and a male bike, something most cycling companies provide. Similarly, older and younger generations tend to have different interests, as well as different economic standing that results in different wants and needs. Older baby boomers regardless of gender might care more about comfort or the ability to get their leg up and over the seat when mounting their bike.
As more people use organic and natural personal care products, the companies behind these goods are becoming more aggressive about courting them. According to Jim Geikie, the general manager of Burt’s Bees in an interview with Jane Leveree writing for the New York Times, the company’s target market is “healthy living advocates, ” who he said are American women who are “really interested in a holistic lifestyle conducive to health and wellness.” “They look for products that are more natural and less processed,” he said, adding that they cut “across all ages” and tend to be better educated. What is common to all of Burt’s Bees’ messaging, Mr. Geikie said, is a “combination of efficacy with authenticity.” The company, he continued, tries to “help people connect with the wisdom, power and beauty of nature.”
Another segmentation strategy states that people tend to focus on different benefits in a product. For example, running shoes embody several valuable characteristics for running such as comfort, aesthetics, and durability. Not all of which may be important to every customer, one component may be much more essential. Some people value the level of technology, and so it might make sense to divide up the market or segment the market on benefits those customers seek.
Another way to approach the segmentation is by means of purchase. Some consumers prefer to purchase online, some people like to go to physical stores, others might even choose to shop on their smart phone. Some people only purchase once a year. Some people don’t have a favorite purchasing type and others may be loyal to their means of purchasing. All of these are different characteristics that you can use to segment the market.

Example from the 2015 U S Open

 

“Serena Williams' historic pursuit of the fifth-ever calendar-year Grand Slam in tennis, which would be the sport's first since 1988 has helped make the upcoming US Open a must-buy for advertisers looking to reach one of the most affluent audiences outside of golf. But the Serena Effect goes beyond mere eyeballs. As was the case with Tiger Woods v. 1.0 and the impact he had on PGA ratings, Ms. Williams's very presence in an Open final guarantees a significant number of minority viewers. For example, when she defeated Victoria Azarenka in the 2013 final, African-Americans accounted for 28% of CBS' overall deliveries. The following day, when Rafael Nadal topped Novak Djokovic in the men's final, African-Americans made up 13% of the audience.” Retrieved from adage – Ad Dollars Chase Serena Williams's Grand Slam Quest New Clients Pour in as ESPN Hosts Its First Exclusive US Open. By Anthony Crupi. Published on August 28, 2015.
Nike and Wilson which provide Serena with clothing and tennis racquets are trying to reach young, athletic, women that are college educated and whose annual income is greater that $125,000. One of the best options they have is for Ms Williams to be wearing their tennis gear and clothing prominently displaying their logo in the US Open finals.
Demographical segmentation is a popular technique, which is comparable to that of cohort analysis. Cohort analysis says, it's not really whether you're young or old, it's the life experiences that you've experienced as a cohort. In particular it's very important to understand what happens when you're coming of age, right around 14, 15, 16, 17, 18 years of age. Those things that hit you at that time of your life are critical, and they frame you as a generation. For example, the baby boomer generation is considered to be a cohort. There are two cohorts of baby boomers. There is the group of infants born about 1950 and those that are born in the 1960s. All come of age at a certain time, certain things happen when they came of age, and they react as a generation.
People who are now attending college, are known as Generation Y or Millennials. Marketers are very interested in the generation as they come of age, when they are in college or when they are of the age where they should be attending college. This is because of the belief that purchases made at this age will assure loyalty to those brands over time. As a result, marketers understand it's very important to target this generation's consideration sets at this time.
Generation Y is very different from all the other generations. First of all, it's a generation that was completely brought up on the computer. In their world, everything is wireless. Free content, social environment and social networking comes easily to Generation Y. They think about things being designed exactly for them as they are totally used to customization. This is an electronic generation that's quite different from their parents and from generations beforehand. In order to market to them, you really need to understand Generation Y or the Millennials. These cohorts don't like mass marketing or any kind of restricted access and they really don't prefer anything old fashioned. They like new, they like different, they like customized. Millennials are big shoppers, but many times they co-purchase with their parents. Some millennials still live with, and are supported by their parents. They seek information electronically as they are not readers of newspapers. They simply don't care about print. they are very comfortable with multi-tasking and co-creating with the product.
E-commerce companies are especially interested in tailoring their strategies to better suit millennials because this is a generation that grew up shopping online. While there's no one-size-fits-all solution for addressing any group with tens of millions of members, millennials do have some common traits that marketers should take into account when targeting them.
    Hernan Vicuna, Brand Manager, Zenni Optical offers three techniques for effectively marketing to millennials:
  • Deliver value in all customer interactions. Millennials are more likely to share personal data than prior generations as long as you make it worth their while by offering something of value in return.
  • Gain trust with quality products and service. Everyone wants to be treated with respect and to get value from their purchases, but millennials are unique in their eagerness to share their brand experience online. This presents an opportunity–and a challenge–to brands that serve millennial customers. If marketers do a great job, then they will likely benefit by having customers share their experiences on social media.
  • Be a company that millennials want to be associated with. Millennials have a reputation for being an idealistic, community-minded generation, but they are also generally cynical about companies and government institutions because they grew up in a period marked by social, political, and economic chaos. And unfortunately for marketers, this means that they are typically suspicious of marketing claims. However, appealing to their civic-minded nature and sense of community can be an effective marketing technique.
Cultivating a brand image that expresses millennial values is also important. Companies that engage in charitable giving and brands that champion sustainability can gain millennials' respect and affinity. By using these techniques, you can put your brand on the path to success with the largest generational cohort in history—and supercharge e-commerce sales. from: dmnews.com
What they don't like is mass marketing or any kind of restricted access. They also don't want anything that has been done before. They are very connected, and the millennials tend to be socially responsible. So if you're segmenting the market by cohorts and you decide to target the millennials, you would have to design a targeted product or position your brand in a specific way to meet the needs of the millennials.
Another way that markets tend to be segmented are by geography. Geographical segmentation can be approached by several different angles. “Nielsen PRIZM is a set of geo-demographic segments for the United States, developed by Claritas Inc. It was a widely used customer segmentation system for marketing in the United States in the 1990s and continues to be used today. The segments were developed, in part, via the analysis of US census data. PRIZM NE (New Evolution) is an update to the original PRIZM model that featured 62 segments. The PRIZM system categorizes US consumers into 14 distinct groups and 66 demographically and behaviorally distinct types, or 'segments,' to help marketers discern those consumers’ likes, dislikes, lifestyles and purchase behaviors. PRIZM provides a seamless transition between household-level coding and geographic-level coding by providing the same segment schema at both levels. It allows a ‘downshift’ from geo-demographic to the household-level.” from: wikipedia
 This concept defines the entire country based on geographic clusters. they are not defined necessarily about where they live, but rather a cluster of different areas that possess similar characteristics. So you could have a geographic cluster with some characteristic sets in California, but a certain population in New York may also be included in that cluster. People who live in say Beverly Hills, California may be similar to people who live in Scotia, New York. And those two may be in the same cluster, even though they are separated by 3000 miles. This kind of notion of geographic segmentation is true around the world. People who are similar in age, education, income, and the number of children they have tend to live in neighborhoods that are similar.
Geographical segmentation helps group clusters of customers with similar needs, allowing for a more effective marketing scheme. Where you live physically also affects your online purchasing behavior. For example, New York City for can be divided into a block by block segmentation scheme. These maps embody diverse consumer behavior that differ by blocks in New York City. That's how tight geographic segmentation can be. Once you define your segmentation variables, you need to select a target segment. When making your selection, you must consider the potential profitability of that segment partnered with your capability to deliver the needs of the segment. You need to constantly monitor your targeted buyers to ensure their purchasing patterns align with the behavior you predicted. Therefore, begin with determining the attractiveness of the segment. How big is it? Growth potential? Is it stable? Can you afford to target the segment? Also consider if your product will meet the needs of your target audience. What's your current position with respect to that segment? Will you be able to adapt to changes in that segment?
You must also consider the competition. Are there others pursuing the same segment? What's the strength of the competitors? Is there a threat of entry by other competitors? Consider choosing a segment in which you offer a differential advantage over the competition. The best segment to target would be the most attractive segment where you are strongest relative to the competition. You may not ultimately pursue the most optimal segment, but in marketing there is also risk involved. If you are educated on the potential segments and your competition, you can make the best decision for your company.
Beats headphones
Photo from Beats studio press kit
“While its free white earbuds have become a staple for smartphone users, Apple's leveraged differentiation in the Beats by Dre marketing strategy to infiltrate the market with fancy, high-end headphones that practically double as accessories for many millennials.” Retrieved from Hubspot The promotion for fall 2015 back to school from Apple “Save up to $200 on an eligible Mac with education pricing and receive a pair of Beats Solo2 On-Ear Headphones.”