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Transcript of Segmentation
What is segmentation?
Segmentation is dividing a market into groups of customers who share a similar set of needs and wants
Breaking down the customer base by geography
Divides the market into easy to measure variables that are highly associated with consumer wants and needs.
Marketers like demographic segmentation because it is highly data driven.
Psychographics are the science of using psychology and demographics to better understand consumers
Psychographic Segmentation: buyers are divided into different groups on the basis of psychological/personality traits, lifestyle or values
Marketers divide buyers into groups based on their knowledge of, attitudes toward, use of or response to a product
Where does positioning fit in?
How a company decides to position their product or service in the market is influenced by who their target market (segment) is
Divides the market into geographical units – nations, states, regions, countries, cities and even neighborhoods
Regional marketing has become more effective and is now seen as by zip-code
Companies use this to determine high concentrations of customers and then combine this data with demographic data to create a more complete view of who their customers are and where they are
Geographic Segmentation: What is it?
PRIZM is a tool used to identify and cluster customers
This tools classifies over ½ million US residential neighborhoods into 14 distinct groups and 66 distinct style segments into clusters
It reviews 139 factors that fall into 5 categories:
Education and affluence
Family life cycle
Race and ethnicity
The inhabitants in a cluster tend to lead similar lives, drive similar cars, have similar jobs and even read/view similar media
Geographic Segmentation: The PRIZM Approach
PRIZM at Work
Click here for full profile: http://www.claritas.com/MyBestSegments/Default.jsp?ID=37&id1=2611099&id2=51
Click here for the full profile: http://www.claritas.com/MyBestSegments/Default.jsp?ID=37&id1=1027&id2=03
You can look up your zip-code and find out what this system says about what you watch, drive, buy and read
Age and Life-Cycle Stage
A consumers age provides an indicator of income, interests, types of channels through which they consumer information and life cycle.
Marketers have to consider both the actual age of consumers and the psychological age. As a general rule once people reach their 30’s they begin to view themselves as 10+ years younger than they are...this means they will respond to ads that depict people and behaviors younger then they are.
We use life-cycle analysis to determine spending habits (as shown on the right), determine channels, and identify messaging.
Family Life Stage
An individuals life-stage is a key indicator to how they will spend money and on what. The original family life stage model was developed in the 1960s by Wells and Gruber.
**Information obtained from: http://smallbusiness.chron.com/stages-family-life-cycle-marketing-61214.html and
Young and Single
Full Nest 1
Full Nest 2
Full Nest 3
Empty Nest 1
Empty Nest 2
Young and Single
Discretionary income is high
Spend heavily on recreational activities
Purchase items required for their first living space away from home with a focus on value
Purchase items related to finding a partner - nice cars, hair salon, designer cloths etc.
Sometimes referred to as DINKS (double income, no kids)
Lots of disposable income that they may use for larger purchases (home, vacations)
Will spend money on high quality furniture or kitchen supplies
This is often the stage where people have the most disposable income
Full Nest 1
Children are mostly under 6 years old and those children have caused a reduction in disposable income
More likely to rely on credit to make purchases
More susceptible to new products or products geared toward health/safety/educational growth
Most likely to purchase products related to the home and the children
Full Nest 2
Children are over the age of 6
More discretionary income is available but purchases still tend to be centered around the needs of the home
Less influenced by traditional advertising
Slight shift away from the purchase of only necessities...begin seeing money spent on music lessons or activities for children
Full Nest 3
Children are older and perhaps working or in college
A large amount of disposable income is being spent on education related expenses
Families have more disposable income
Other purchases include vacations, higher end furniture and luxury cars
Empty Nest 1
Children are out of the home completely but parents are still working
Home ownership is very common
Discretionary income is spent on vacations and hobbies
Empty Nest 2
Reduction in income as one or both parents are retired
Significant money is spent on health care and prescriptions
Are focused again on their children and now grandchildren and spend extra disposable income on them
Men and women behave differently based on genetic make-up and socialization
Need to market in different ways and through different channels to reach them effectively
Click here to read the article:
Relate to products and services on a personal level
Act on instinct
Self-expressive and goal directed
Read product information
Companies have the greatest success marketing products to either high or low income brackets
Those in the middle migrate both up and down
These groups are influenced by the times in which they have grown up – music, movies, politics, and defining events of a period
They share the same cultural, political and economic experiences and have similar outlooks and values
Race and Culture
Multi-cultural marketing recognizes that different ethnic and cultural segments have different wants and needs
Impacts marketing messages, media and channels
The VALS Framework
There are many frameworks that can be used to conduct psychographic segmentation, one is Strategic Business Insights VALS Framework
This classifies adults in the US into 8 primary groups based on responses to a questionnaire with 4 demographic and 35 attitudinal questions
By placing customers in one of the 6 categories we can use this information to understand what drives their purchasing decisions...we can then draw conclusions about where and how to market and message products
Needs and Benefits
Need-based or benefit-based segmentation's is a widely used approach because it identifies distinct market segments with clear marketing implications
Marketers realize that not everyone who buys a product has the same needs or wants the same benefit
People play 5 roles in a buying decision:
Initiator – person identifies the need/want
Influencer – person impacting the decision making process
Decider – person who ultimately picks the product
Buyer – person who makes the purchase
User – person who ultimately uses the product
User and Usage Related Variables
Variables related to various aspects of users or their usage...primary three are outlined below.
Buyer Readiness Stage
Why or why not is a consumer moving through this funnel?
What marketing activities are necessary to turn a casual customer into a loyal one?
Marketers break loyalty into four groups:
Hard Core Loyals: consumers who buy only one brand
Split Loyals: consumers who are loyal to 2-3 brands
Shifting Loyals: consumers who shift loyalty from one brand to another
Switchers: Consumer who show no loyalty to any brand
Attitudes consumers may have about products:
Selecting a Segmentation Strategy
Leads to a segment of one; or one to one marketing
Can be difficult to implement and raise the cost of goods
Full Market Coverage
Use both undifferentiated (mass market) and differentiated marketing
Reserved for the biggest companies
Multiple Market Specialization
Firm selects a subset of all the possible segments that share similar characteristics
Use by large and mid-sized businesses
Single Segment Concentration
Firms market to only one segment
If it can capture segment leadership the firm can earn a high ROI