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Chapter 3

BUS 343 Chapter Notes - Chapter 3: Market Segmentation, Psychographic, Target Market

Business Administration
Course Code
BUS 343
Jason Ho

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Chapter 3: Market Segmentation and
The Concept of Segmentation
Market fragmentation creation of many consumer groups due to a diversity of distinct
needs and wants in modern society
oSame product or service will not appeal to everyone
Target marketing strategy dividing the total market into different segments based on
customer characteristics, selecting one or more segments, and developing products to
meet the needs of those specific segments
Five step process
oSelect Markets
Define your market
Understand customers: needs and wants, benefits, features, and
attributes sought, and purchase and consumption behaviour
oMarket Segmentation
Identify groups: geographic, behavioural, psychographic and
demographic segmentation
Describe (profile) the groups: who, what, when, where, why
oMarket Targeting
Evaluate segment attractiveness: size, growth, strategic fit, competitive or
comparative advantage, level of competition, defendability
Decide which ones to target
oMarket Positioning
Decide how you want to compete be differentiated and be known for value
creation in the minds of consumers
oCreate and Execute Marketing Mix Programs
Segmentation the process of dividing a larger market into smaller pieces, based on
one or more meaningful, shared characteristics
Marketers usually identify the key groups in a market, then choose a group to focus on,
and decide how they want their brand to compete and be known by these consumers
(positioning) and design marketing programs (make marketing mix decisions)
Selecting and Segmenting a Market
Implications for market segment
oSegmentation decisions should be made based on experience, understanding of
the consumer, competitive, and technological environments, and understanding
of the mission, strategic directions, and competencies of organization

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Criteria for Identifying Market Segments
Viable segmentation scheme should satisfy these requirements
Similar Enough within the group
oSimilar in product needs and wants
Different enough between the groups
oConsumers in each segment should be different in factors such as different
product, pricing, distribution and/or communication strategies to create a product
offer that appeals to each segment
Large enough
oIs the market large enough to provide the amount of sales
Measurable Market
oPeople in the segment have purchasing power: the authority, willingness, and
ability to make a purchase decisions
oMust be able to identify consumers in the segment and communicate the product
offer to them in a cost effective manner way
The Process of Segmentation
Segmentation variables bases for dividing the total market into fairly homogenous
groups, each with different needs and preferences
Consumers can be divided into segmentations by geographic, demographic, or
psychological, and behavioural differences
Behavioural Segmentation
Behavioural segmentation technique that divides consumers into segments on the
basis of how they act toward, fell about, or use a product or service
Benefit segmentation a segmentation approach that groups consumers or customers
based on the benefits or value they seek in buying and using products
oAdvantage is that the resulting groups are usually seeking very different product
solutions, which makes the segmentation scheme very actionable in terms of
designing appropriate marketing programs
Product usage segmentation a segmentation approach that groups consumers or
business customers based on the amount of a product purchased or how the product is
80/20 rule 20% of purchasers account for 80% of the products sales
Long tail a new approach to segmentation based on the idea that companies can
make money by selling small amounts of items that only a few people want, provided
they sell enough different items
Usage occasion indicator used in one type of market segmentation based on when
consumers use a product most
oSales can be almost guaranteed at that time

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Segmentation by Psychographics
Psychographic segmentation a segmentation approach that groups people based on
their attitudes, beliefs, values, lifestyle or other psychological orientations
oMarketers not only seek to understand how consumers behave but also how they
think and feel about products, what motivates them, how they learn, and how
they make purchase decisions
Most well known system is VALS
Segmenting by Demographics
Demographics variables that describe objective characteristics of a population or
Extremely useful in the development of profiles or descriptions of market segments
because demographics variables make people reachable
Demographics variable such as age, sex, income, family structure, social class etc.
doesnt provide a good starting because they usually dont meet the criterion that the
people within each group are similar enough
Demographics are extremely useful for describing market segments and for directing
communication messages, but are generally limited as the primary basis for
Makes sense to segment the clothing, fashion, footwear or fragrance industries by sex
Physiological and socialization differences between men and women can result in
different needs, wants, and preferences
However, division between sex is primary, requires more segmentation afterward
Consumers in different age groups have very different needs and wants with respect to
product categories
Baby boomers (1947-1966)
Baby bust (generation X; 1967 1979)
Baby Boom echo (generation Y; 1980-1995)
Millennium Busters (1996-2010)
Family Structure
Classify family structure in different life cycle segments
oTeens, young adults, married with children, empty nesters
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