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					  ADVANCED MARKETING

          Theme # 6
Strategic Market Segmentation




        Professore J.J. Lambin   1
                  STEPS IN
           STRATEGIC SEGMENTATION
• SEGMENTATION ANALYSIS
  To subdivide the market in homogeneous sub-groups.

• MARKET TARGETING
  To select one or several market segments to enter.

• MARKET POSITIONING
  To decide how the firms wants to be perceived in the buyers'
  mind.

• MARKETING PROGRAMMING
  To design a specific marketing programme for each target
  segment.

                         Professore J.J. Lambin                  2
          STEPS IN THE STRATEGIC SEGMENTATION


  Segmentation analysis                                      Market positioning

Identify customer needs                                  Evaluate competitive positions
Regroup by segment                                       Build differential advantage
Describe each segment profile                            Develop a value proposition



   Market targeting                                         Marketing programme

Assess segment attractiveness                        Develop a marketing programme
Evaluate our competitiveness                         Evaluate profitability per segment
Select target segment(s)                             Adapt the marketing organisation




                                Professore J.J. Lambin                                    3
                  UNDIFFERENTIATED MARKETING

Value for the customer




                                                  Single
                                                  Product




                                                     Customers
                         Professore J.J. Lambin             4
                   DIFFERENTIATED MARKETING

Value for the customer

                                                  Product C



                                                     Product B


                                                        Product A




                                                         Customers
                         Professore J.J. Lambin                  5
          WHY SEGMENT A MARKET?

• The « one size fits all » concept is obsolete in
  industrialised markets.

• To subdivide the reference market in more
  homogeneous sub-markets.

• To understand the needs and expectations of each
  segment.

• To avoid dispersion of the firm’s marketing efforts
  based on a undifferentiated vision of the reference
  market.
                      Professore J.J. Lambin            6
USEFULNESS OF MARKET SEGMENTATION


 To identify one or several priority target
 segments,

 …on which concentrate operational marketing
 efforts,

 … in order to obtain a sustainable competitive
 position.




                   Professore J.J. Lambin         7
       LEVELS OF MARKET SEGMENTATION

•   MACRO-SEGMENTATION
    To subdivide the reference market in "strategic business units" (SBU)
    using three criteria:
         solution(s), groups of customers, technologies


• MICRO-SEGMENTATION
  Within each SBU, to identify groups of customers having the
  same set of expectations, using four sets of criteria,
       • Socio-demographic
       • benefits sought
       • purchase behaviour
       • life-styles



                              Professore J.J. Lambin                        8
             MACRO-SEGMENTATION


                                  Solutions
                                  What are the solutions sought?




                                                   Groups of customers
                                                      Who are the buyers to satisfy?

           Technologies
How buyers needs are satisfied?



                       Professore J.J. Lambin                                  9
              MACRO-SEGMENTATION
  DEFINING THE REFERENCE MARKET IN TERMS OF SOLUTIONS


• What are the "solutions" sought in a given market ?

• Who are the different “groups of customers"
  searching for these solutions ?
   (Who" is being satisfied?)

• What are the alternative "technologies" available to
   produce these solutions ?
  (How buyers' needs are satisfied?)

                    Professore J.J. Lambin               10
     MARKET BOUNDARY DEFINITIONS

• PRODUCT-MARKET (or macro-segment)
   A specific group of customers seeking a specific
  solution based on a single technology.
• SOLUTION-MARKET
  A given solution for a specific group of customers, but
  including all the substitute technologies to perform
  this solution (a category).
• INDUSTRY
  A single technology, but covering several solutions
  and several groups of customers.


                     Professore J.J. Lambin                 11
               Market Boundaries Definition

           Needs                                             Needs
                     Product-market                                  Solution-market




                            Groups                                        Groups
                          of customers                                  of customers
Technologies                                  Technologies

                                     Needs
                                                 Industry




                                                      Groups
                                                    of customers
           Technologies




                                  Professore J.J. Lambin                               12
       EXAMPLE OF MACRO-SEGMENTATION
                           THE HEAVY TRUCK MARKET
                                 Needs: transports of goods


                         Local

                  Regional


               International


                  Road                Own accounts           Professionals      Rental            Customer Groups
                                                                               Agencies
           Rail

     Air
                                                                     Geographic coverage
                                   National International

Technologies
                                                                             Size of the fleet
                             Small      Medium       Large


                                                                                  Type of goods
               Weighty       Flammable            Frozen          Etc.
                                                   goods
                                        Professore J.J. Lambin                                               13
   EXAMPLE OF MACRO-SEGMENTATION
                 The fruit transformation market


     Needs / Functions



                                               "Filling"


                          Garnir repas


 Fruit transformation
                                                             Customer
                                                              groups


          Households         -          -
                                 Pastries  Food Industries
                   Organizations  bakeries


Technologies


                         Professore J.J. Lambin                         14
      REFERENCE MARKET COVERAGE
              STRATEGIES

•   Focused strategy
•   Functional specialist
•   Customer specialist
•   Full coverage
•   Mixed strategy



                  Professore J.J. Lambin   15
                    Winterhalter’s Focused Strategy
            Providing a “total solution” to customers’ problems
                                        Winterhalter



  Dishwashers for   Dishwashers for    Dishwashers for     Dishwashers for   Dishwashers for
     Hospitals         Schools        Hotels / Restaurants   Companies        Organizations    Breadth




                                        Dishwashers


                                          Water
                                        Conditioners           Depth



                                         Detergents



                                          Service




Source: Simon, (1996, p.55)

                                        Professore J.J. Lambin                                      16
             FINDING NEW SEGMENTS

• Are there other technologies to perform the required solution ?
• Could additional functions be performed by an enhanced
  product ?
• Could the needs of some buyers be better served by reducing
  the number of functions and lowering the price ?
• Are there other groups of buyers requiring the same solution ?
• Are there new channels of distribution that could be used ?
• Are there different bundles of products and services that could
  be sold as a package ?




                         Professore J.J. Lambin                     17
     METHODS OF MICRO-SEGMENTATION


• SOCIO-DEMOGRAPHIC SEGMENTATION
  Based on socio-demographic profile of the customer.

• BENEFIT SEGMENTATION
  Based on the customer's value system vis-à-vis a given product.

•   BEHAVIORAL SEGMENTATION
    Based on the actual purchasing behaviour of customers.

• LIFE STYLE SEGMENTATION
  Based on socio-cultural profile of the customer.


                         Professore J.J. Lambin                     18
     SOCIO-DEMOGRAPHIC (or descriptive)
             SEGMENTATION
• The assumption is that people having different socio-
  demographic profile (sex, age, income, ….) have
  different needs.

• The merits of descriptive segmentation are its low cost
  and ease of application.

• In affluent societies, this method has a declining
  predictive value, as different people can adopt the same
  purchase behaviour.




                       Professore J.J. Lambin               19
            EXAMPLES OF
   NEW SOCIO-DEMOGAPHIC SEGMENTS

• The senior citizen (over 65) segments for banking services,
  recreational activities, Medicare, an so on.

• The segment of single-adult households, that is the
  unmarried, divorced, widowed or single parent families.

• The dual-income households, having high discretionary
  income (the DINKS).

• The segment of working women for all time-saving goods.



                        Professore J.J. Lambin                  20
       B2B SEGMENTATION CRITERIA

                        SEGMENTATION
                          CRITERIA




Firmographics                Business                     Usage
    forces                    culture                   behaviours

- Industry sector           - Business sophistication   - Application
- Number of employees       - Growth orientation        - Quantity
- Sales volume               - Innovativeness           - Time of purchase
- Geographic location       - Technology                - Frequency of purchase
- Financial situation       - Decision-making           - Users non-users,
- /…/                       - /…/                       - /…/



                        Professore J.J. Lambin                        21
                    Example of descriptive segmentation
                       The Corporate Banking sector.


Funds                more than £ 1 000 000
available     £ 10 001 to £ 1 000 000
                 £ 101 to £ 10 000
                £ 100 and less

Decision          One person
Centre
            Finance Committee


            Board of directors

                                 Industrial          -
                                               Services   Charity     Social

                                              Types of organisation
                                 Professore J.J. Lambin                        22
           BENEFIT SEGMENTATION
                  Rationale

• Customers having the same demographic profile, can
  have very different value systems.

• For a customer, a product is a bundle of benefits and
  some benefits can be more important than others.

• Benefit segmentation tries to identify the sub-groups
  of customers having the same values and
  expectations.



                    Professore J.J. Lambin                23
             BENEFIT SEGMENTATION
               Required information

• The list of attributes or benefits associated with a
  product category.

• An evaluation of the relative importance attached to
  each benefit.

• A regrouping procedure of customers with similar
  rating patterns.

• An evaluation of the size and profile of each
  identified segment.
                     Professore J.J. Lambin              24
         THE TOOTHPASTE MARKET
        The package of benefits sought

•   WHITENESS
•   FRESHNESS
•   GOOD TASTING
•   PRODUCT APPEARANCE
•   DECAY PREVENTION
•   GUMS PROTECTION
•   TEETH SENSITIVITY
•   ECONOMY




                   Professore J.J. Lambin   25
          BENEFIT SEGMENTATION OF THE TOOTHPASTE MARKET


   Benefits                                                Benefits Segments
   sought
                            Cosmetic                Therapeutic                Sensory          Economy
White & Freshness         Colgate, White Glo,
    Whitening                   Signal,
 Nighttime breath         Arm&Hammer P.M.
Cavity, tartar and                                  Crest, Parogencyl,
 gum protection                                        Parodontax,
  Sensitive teeth                                     Sensodyne,...
  Taste, Flavor,                                                              Colgate Barbie,
   Colour, Fun                                                                 Crest Kids,…

   Core function                                                                                Private labels
     Low price
     All-in-one
Reprentative brands only. Toothpaste companies have a multisegment strategy




                                              Professore J.J. Lambin                                         26
         BEHAVIOURAL SEGMENTATION

• PRODUCT-USER SEGMENTATION
  users, non-users, first users, ex-users, occasional versus regular
  users, consumption situations, ...

• VOLUME SEGMENTATION
  heavy or light users.

• LOYALTY SEGMENTATION
  hard-core loyals, soft-core loyals, switchers, mercenaries,…

• SENSITIVITY TO ONE MARKETING VARIABLE
  price, promotion, innovation, ...



                          Professore J.J. Lambin                       27
     REQUIREMENTS FOR EFFECTIVE
           SEGMENTATION

• DIFFERENTIAL RESPONSE

• ADEQUATE SIZE

• MEASURABILITY

• ACCESSIBILITY

• ACTIONABILITY


                  Professore J.J. Lambin   28
        REQUIREMENTS FOR EFFECTIVE
              SEGMENTATION
• DIFFERENTIAL RESPONSE
  The segments must be different in terms of sensitivity to
  marketing variables.
• ADEQUATE SIZE
  The market potential must be large enough to justify a tailor-
  made programme.
• MEASURABILITY
  The size and the behavioural characteristics of each segment
  should be easily observable.
• ACCESSIBILITY
  The degree to which segments can be easily reached and
  served.
• ACTIONABILITY

                         Professore J.J. Lambin                    29
            MARKET COVERAGE STRATEGIES
 Mass       Large     Adjacent     Multi        Single      Niche         Mass
Market     Segment    Segment     Segment      Segment     Segment    Customization
Strategy   Strategy   Strategy    Strategy     Strategy    Strategy     Strategy

                                                                         Segt A1

                                                                         Segt A2
           Segment    Segment      Segment
              A          A            A
                                                                         Segt A3

                                                                         Segt A4

                                                                         Segt A5

                      Segment      Segment                               Segt B1
                         B            B
                                                                         Segt B2

                                                                         Segt C1
                                   Segment       Segment
                                      C             C                    Segt C2

                                                            Segt C3      Segt C3

                             Professore J.J. Lambin                                30
         NET MARKETING CONTRIBUTION (NMC)

   Strategies to   Strategies to              Strategies to
   grow segment      increase                increase value
      demand       market share                 for clients



         Segment Market            Price    - Variable          - Marketing
NMC =           x share x          per unit    cost                expenses
         demand
                                              per unit


  Strategies to
                                     Strategies to               Strategies to
  enter or exit
                                    lower unit cost           increase marketing
   segment(s)
                                       per client                  efficiency



                           Professore J.J. Lambin                            31
                        Typical Segmentation Grid

                                          SEGMENT A               SEGMENT B            SEGMENT C             SEGMENT D


                                      * Buyers very price    * Price sensitive      * Buyers not price   * Prices often
                                        sensitive              buyers                 sensitive            secondary
SEGMENT
PROFILE                               * Standard motors      * Modified motors      * Modified motors    * Customized
                                      * Large volume         * Large quantities     * Moderate volume      motors
                                                                                                         * Small volume
                                      * Large companies      * Large customers      * Medium size
                                                                                                         * Small firms
                                                                  IMPORTANCE (see scale below)



                        Price                 4                        3                         2               1
  KEY SUCCESS FACTORS




                        Adapted               1                        2                         3               4
                        quality
                        Delivery              3                        2                         2               2

                        Services              1                        1                         2               2

                        Tech/mark
                        support               1                        2                         4               4
                        Sales
                        coverage              2                        2                         3               4



                                        $99 million              $126 million          $77 million          $74 million
  MARKET




                        Size
                        Segment share 11%                            29%                     28%               22%

                        Competition        strong                   strong               weak                   none


                                                      Weak                          Strong
        Importance
        scale of
        purchase criteria                      1             2                  3            4




                                                      Professore J.J. Lambin                                              32