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MDM: Lecture 3

Segmentation & Targeting

on 9 December 2015

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Transcript of MDM: Lecture 3

Learning by Doing
Workshop Preparation
Lecture Overview
1. Market segmentation
2. Segmentation benefits
3. Three step process
4. Demographics
5. Behaviour
6. Psychographics
7. Segmentation groupings
8. Evaluating target market
9. Ask Questions!
6 Key Benefits
More efficient marketing
New segment, new focus
Concentrated distribution
Precise, targeted branding
Increase in sales
Customer retention

MARK 1600
Segmentation & Targeting
iPhone 5C and 5S
Case Study
These products are remarkably similar, and yet they are marketed completely differently. The 5C is marketed to a young and lively (some critics would say poor) group of people, while the 5S is marketed to the more refined and mature (rich). Both products are marketed to two completely different segments of the market, yet they both serve the exact same purpose (more or less).
Stay in Touch!
Dr Nicola Thomas
Module Leader
Room 5.85
Surgery hours:
Tuesday 9.30 to 11.30
David Gordon
Module Tutor
Room 4.102
Surgery hours: Friday 9.30 to 11.30
Market Segmentation
Kotler et al. (1999, p.379) defined market segmentation as '
dividing a market into distinct groups of buyers with different needs, characteristics or behaviours, who might require separate products or marketing mixes
', and Dibb et al. (2001, p.206) defined it as '
a process of grouping customers in markets with some heterogeneity into smaller, more similar or homogeneous segments; the identification of target customer groups in which customers are aggregated into groups with similar requirements and buying needs
It is generally accepted that there are four
basic steps
to get from an undifferentiated mass market to a specific target market:

Step 1
: Develop an understanding of the consumers in the market.

Step 2
: Group the individuals in your population according to the requirements and characteristics of the segments.

Step 3
: Select the target market.

Step 4
: Positioning through marketing strategies (covered in next lecture)
A basic way of segmenting customers is by a standard set of variables that are called 'demographics'.

People of different age groups have different needs and desires. Children, teens, young adults, older adults, retirees, all may be assumed to have particularly characteristics.

Professional age groups have been divided into complete 'generations', including:

Baby Boomers: Born 1945-1965
Generation X: Born 1965-1980
Generation Y: Born 1980-1995
Generation Z: Born 1995-2010

An example of the differences that age creates is in the exposure to computers. Generation Y, for example, are now in the workforce and have used the computers and internet from very early in their lives.
Demographic Example
The Rise of Generation Y

Experiencers are motivated by self-expression. As young, enthusiastic, and impulsive consumers, Experiencers quickly become enthusiastic about new possibilities but are equally quick to cool. They seek variety and excitement, savouring the new, the offbeat, and the risky. Their energy finds an outlet in exercise, sports, outdoor recreation, and social activities.

Experiencers are avid consumers and spend a comparatively high proportion of their income on fashion, entertainment, and socializing. Their purchases reflect the emphasis they place on looking good and having "cool" stuff.

Step 1: Develop an understanding of the consumers in the market.

In the UK, the median age of the population is 40.2 years; 80 per cent of the population lives in an urban location; under the age of 65 there are slightly more males than females but over 65 there are more females; over 22 per cent of adults are classed as obese.

Simulation game tip
: You should gather a broad range of statistics (e.g. Market Information), to help you to consider the whole market. Also, the jeanswear market may differ from whole UK market, e.g. there could be more women than men.
: Men and women are different not just in appearance but also in what products they use and what messages appeal to them.
: The country where you were born can be a useful indicator of culture and attitudes.
: Ethnicity is similar to nationality in the broad cultural effect. Ethnic groups indicate broad evolutionary history, with people who have bred together for thousands of years.
: A key attribute of religions is that they can require a significant degree of control over their adherents lives. Beliefs and values are also shaped by the religion and may be significant for products that clash or support these rules.
Social class
: People may be classified by the social groups to which they belong. This tends to be significantly driven by income and is also affected by religion, ethnicity and other differences. Typical social classes include the NRS social grading system which classified people as A, B, C1, C2, D or E. The occupation indicated is fairly traditional and based on manufacturing industry.

Grade Social class Traditional occupation
A Upper middle class Upper manager or professional
B Middle class Middle manager or professional
C1 Lower middle class Line manager, administrator, junior professional
C2 Skilled working class Skilled manual worker
D Working class Unskilled manual worker
E Subsistence Casual worker or unemployed

: Where a person lives can say a lot about them. General geographic region may be important and related to nationality. Within towns and cities, the street where a person lives can also say a great deal and may be a useful indicator of their income.

(A Classification of Residential Neighbourhoods) is a UK system that identifies residents as one of the following (plus further sub-categories):

Wealthy Achievers
Urban Prosperity
Comfortably Off
Moderate Means
Hard Pressed

Marital status
: Whether a person is married or not used to be a simple test. These days, when many are divorced, how recently and how often a person is divorced can be useful. Also, when people are living together, whether married or not, the stability of their relationship will affect their buying patterns.

Family life cycle
:Dividing a market into different groups based on which stage in the life-cycle, presented in the table below, reflects the fact that people change the goods and services they want and need over their lifetime.

Bachelor Stage young, single people not living at home
Newly Married Couples young, no children
Full Nest I youngest child under six
Full Nest II youngest child six or over
Full Nest III older married couples with dependent children
Empty Nest I older married couples, no children living with them
Empty Nest II older married couples, retired, no children living at home
Solitary Survivor I in labour force
Solitary Survivor II retired

: May well affect their choices of products and the marketing approach that will work best. This includes the language and images to use as well as the overall message.
: A person's occupation also says a lot about them and may well give an indicator about their income and education levels if these are not otherwise available.
What people will pay for products depends not only on what they earn but their attitudes and how they approach money overall. Useful variables include Income, Savings and Borrowing levels.
Women in the UK are known to spend more than twice as much as men per year on clothing. Typically the younger age group tend to spend a lot more on clothing also meaning marketers are most likely to target these types of consumers, young and female (1). This is very much shown in today’s market as the leading clothing stores are marketed towards young females for example, Topshop and H&M. However there is a new emerging market for the older generations interested in fashion. Only recently the market for the elderly has been recognized as an important sector of the consumer market as research showed that 30% of over 65’s said they were fashion conscious and fashion innovators. Although this is not seen as a relatively high figure it does show that there is a demand for stylish clothing amongst the older generation (2).

2015 Predictions (3):
2/3rds of retail spending growth will come from shoppers aged 55 plus
Ageing population will transform not only the face, but the role the high street plays in society

With a rapidly ageing population and migration trends changing the ethnic makeup of our cities and towns, UK shopping habits too are beginning to evolve and reflect these wider demographic changes.
(1) GRECO, A. (1986). The Fashion-Conscious elderly: A viable, but neglected market segment. Journal of Consumer Marketing, Volume 3, Issue 4, Page 71.

(2) JACKSON, T & SHAW, D. (2009). Mastering Fashion Marketing. Palgrave Master Series. Place of Publication: Palgrave Macmillan.

(3) KPMG Report - see BlackBoard link in lecture folder.
The rising influence of so-called “Generation Y”, who are generally considered to be the under 30 to 35s is also having a major impact on retailers and their future strategy.

“This group is overtaking the baby boom generation in terms of their size”, says Vicky Redwood of Capital Economics. “Not only does this group desire different products from previous generations, but it has different ways of shopping and different attitudes to brands. Obviously the changes already underway – such as multichannel retailing – will particularly appeal to this generation.”

David McCorquodale of KPMG added: “The number of children aged 16 and under is projected to increase by 12% to 13 million by 2035 benefiting the infant and children’s sector.”

This means a difficult balancing act for retailers. Whilst tackling the demands of the baby boomers, retailers must look at the other end of the age spectrum and work out how to attract the interest, and spending power, of the younger generation.
Behavioural segmentation is based on actual consumer behaviour towards products, and can include:

Benefits sought;
Usage rate/status;
Brand loyalty.

Behavioural segmentation has the advantage of being closely related to the product.
This method of
behavioural segmentation involves classifying the consumers based on the frequency with which they acquire the company’s products
. It ranks users under heavy users, light users and non-users. So if a consumer prefers a Budweiser and grabs it every day after work to help them unwind, then they are classified as a heavy user.

Similarly, firms are interested in non-users in order to find out how they can easily persuade them to buy the products or service.In the case of usage, the marketer assumes that non-purchasers of a brand or product who have the same characteristics as purchasers hold greater potential for adoption than non-users with different characteristics.
Marketers can also classify consumers based on the level of their loyalty to the product or service. Most companies tend to target customers with “high” loyalty and allocate more marketing resources towards them in order to retain them. There are four classifications referred to as:

hardcore loyals
(stick to one brand)


(will sometimes buy other brands)

shifting loyals
(moving from one brand to another)

(are not loyal to any specific brand)
This behavioural segmentation approach describes the attributes of the product that pull the consumers to buy the product.

Benefit segmentation is effective as it describes
why consumers purchase
certain goods, or patronise certain service providers or suppliers.
1. Personality
2. Values
3. Attitudes
4. Lifestyles
Psychographic segmentation is a method of dividing markets on the bases of the psychology and lifestyle habits of customers.

This approach largely involves 4 different groups of variables:
Personality. . . . . . is defined as “
the distinctive patterns of behavior, including thoughts, and emotions, that characterize each individual’s adaptation to the situations of his or her life

The goal is to identify personality traits, e.g. compulsive buying, coupon proneness, that distinguish large groups of people from each other.

Individual difference variables describe how one person varies from another in his or her distinctive patterns of behavior: including personality, self- concept, psychographic, and even demographic variables.
Sense of belonging
Being well-respected
Fun and enjoyment
Warm relationships with others
Sense of accomplishment
According to Rokeach (1), a human value can be defined as ‘
an enduring belief that a specific mode of conduct or end-state of existence is personally or socially preferable to an opposite or converse mode of conduct or end-state of existence
’. The following attributes, among others, give them a homeostatic character.

Values are learned from the society that we are part of, or are transferred from one society to the other.
A value-system is manifested by a set of norms governing behaviours.
Values are both stable and dynamic and stay with you (for a long time).

Kahle (2) proposed a
List Of Values (LOV) framework
that includes 9 types of values.
(1) Rokeach, M. (1973) The Nature of Human Values. New York: Free Press.
(2) Kahle, L.R., Sharon, E.B., and Pamela, M.H. (1986). Alternative Measurement Approaches to Consumer Values: The List of Values (LOV) and Values and Lifestyle Segmentation (VALS). Journal of Consumer Research, 13: 203–223
Learning Outcome
Apply segmentation and targeting understanding to simulated Jeanswear market during workshops
Attitude is a predisposition consumers have toward a product or service. For example, consumers might be sceptical about the value of a new type of technology. Or they might hold a negative opinion about a particular brand due to past experiences. Attitudes can be general, meaning they are present in all consumer groups, or they might vary among different groups.
VALS Framework ("Values, Attitudes And Lifestyles") is a proprietary research methodology used for psychographic market segmentation.
Innovators are successful, sophisticated, take-charge people with high self-esteem. Because they have such abundant resources, they exhibit all three primary motivations in varying degrees. They are change leaders and are the most receptive to new ideas and technologies. Innovators are very active consumers, and their purchases reflect cultivated tastes for upscale, niche products and services.

Image is important to Innovators, not as evidence of status or power but as an expression of their taste, independence, and personality. Innovators are among the established and emerging leaders in business and government, yet they continue to seek challenges. Their lives are characterized by variety. Their possessions and recreation reflect a cultivated taste for the finer things in life.

Motivated by the desire for achievement, Achievers have goal-oriented lifestyles and a deep commitment to career and family. Their social lives reflect this focus and are structured around family, their place of worship, and work. Achievers live conventional lives, are politically conservative, and respect authority and the status quo. They value consensus, predictability, and stability over risk, intimacy, and self-discovery.

With many wants and needs, Achievers are active in the consumer marketplace. Image is important to Achievers; they favour established, prestige products and services that demonstrate success to their peers. Because of their busy lives, they are often interested in a variety of time-saving devices.
Thinkers are motivated by ideals. They are mature, satisfied, comfortable , and reflective people who value order, knowledge, and responsibility. They tend to be well educated and actively seek out information in the decision-making process. They are well-informed about world and national events and are alert to opportunities to broaden their knowledge.

Thinkers have a moderate respect for the status quo institutions of authority and social decorum, but are open to consider new ideas. Although their incomes allow them many choices, Thinkers are conservative, practical consumers; they look for durability, functionality, and value in the products they buy.
Like Thinkers, Believers are motivated by ideals. They are conservative, conventional people with concrete beliefs based on traditional, established codes: family, religion, community, and the nation. Many Believers express moral codes that are deeply rooted and literally interpreted. They follow established routines, organized in large part around home, family, community, and social or religious organizations to which they belong.

As consumers, Believers are predictable; they choose familiar products and established brands. They favour domestic products and are generally loyal customers.
Strivers are trendy and fun loving. Because they are motivated by achievement, Strivers are concerned about the opinions and approval of others. Money defines success for Strivers, who don't have enough of it to meet their desires. They favour stylish products that emulate the purchases of people with greater material wealth. Many see themselves as having a job rather than a career, and a lack of skills and focus often prevents them from moving ahead.

Strivers are active consumers because shopping is both a social activity and an opportunity to demonstrate to peers their ability to buy. As consumers, they are as impulsive as their financial circumstance will allow.
Like Experiencers, Makers are motivated by self-expression. They express themselves and experience the world by working on it-building a house, raising children, fixing a car, or canning vegetables-and have enough skill and energy to carry out their projects successfully. Makers are practical people who have constructive skills and value self-sufficiency. They live within a traditional context of family, practical work, and physical recreation and have little interest in what lies outside that context.

Makers are suspicious of new ideas and large institutions such as big business. They are respectful of government authority and organized labour, but resentful of government intrusion on individual rights. They are unimpressed by material possessions other than those with a practical or functional purpose. Because they prefer value to luxury, they buy basic products.

Survivors live narrowly focused lives. With few resources with which to cope, they often believe that the world is changing too quickly. They are comfortable with the familiar and are primarily concerned with safety and security. Because they must focus on meeting needs rather than fulfilling desires, Survivors do not show a strong primary motivation.

Survivors are cautious consumers. They represent a very modest market for most products and services. They are loyal to favourite brands, especially if they can purchase them at a discount.
(1) measurability
– degree to which size, purchasing power and, importantly, profits of a
market segment can be measured

(2) accessibility
– degree to which a market segment can be reached and served

(3) substantiality
– degree to which a market segment is sufficiently large or profitable

(4) actionability
– degree to which effective programmes can be designed for attracting
and serving the given market segment.
Market segmentation is highly beneficial as it divides and targets groups of people who have similar characteristics and marketing needs.

Segmentation can be conducted using demographics, psychographics (e.g. Values, Attitudes and Lifestyles) and behavioural (e.g. usage rates, benefits sought) characteristics.

Evaluating which target market you should select should be based on whether your ideal segment is measurable, accessible, substantial and actionable.
Make sure you have bought your MMX license.

Familiarise yourself with the game's navigation, information, strategic decisions and tactical actions

Refresh your learning by going over Lectures 2 and 3

Make sure you attend workshops - it's critical as your game score depends on your active participation!

Please come and see us if you're having any problems - we'd love to get to know you individually!

Bring a smile to workshops - it's great fun!
The marketing plan is one of the most important outputs of the marketing process

An effective marketing plan defines how and why the company is in business, what markets are good targets for its products, how customers should be pursued,and measures how effectively corporate goals have been met.

A marketing audit, or situation analysis, is the first step in the planning process, to measure 'where are we now?'

A mission statement and SMART objectives guide 'where do we want to be?'
In Brief....
Market segmentation is dividing a market into distinct groups that (1) have common needs and (2) will respond similarly to a marketing action.
MillerCoors offer a variety of beers to appeal to different market segments
Case Study
Phase Test Question
Which VALS segment are practical people who have constructive skills and value self-sufficiency
A Innovators
B Strivers
C Experiencers
D Makers
E Thinkers
Full transcript