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Strategic Management

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Strategic Management ­ MGT603
VU
Lesson 36
MARKET SEGMENTATION
Learning objectives
The main objective of this chapter to enable to students about concern marketing issue such marketing
segmentation, marketing mix and product positioning relating to strategy implementation.
Market segmentation
Market segmentation is the process in marketing of grouping a market (i.e. customers) into smaller
subgroups. This is not something that is arbitrarily imposed on society: it is derived from the recognition
that the total market is often made up of submarkets (called 'segments'). These segments are homogeneous
within (i.e. people in the segment are similar to each other in their attitudes about certain variables).
Because of this intra-group similarity, they are likely to respond somewhat similarly to a given marketing
strategy. That is, they are likely to have similar feeling and ideas about a marketing mix comprised of a
given product or service, sold at a given price, distributed in a certain way, and promoted in a certain way.
The Need for Market Segmentation
The marketing concept calls for understanding customers and satisfying their needs better than the
competition. But different customers have different needs, and it rarely is possible to satisfy all customers
by treating them alike.
Mass marketing refers to treatment of the market as a homogenous group and offering the same
marketing mix to all customers. Mass marketing allows economies of scale to be realized through mass
production, mass distribution, and mass communication. The drawback of mass marketing is that
customer needs and preferences differ and the same offering is unlikely to be viewed as optimal by all
customers. If firms ignored the differing customer needs, another firm likely would enter the market with
a product that serves a specific group, and the incumbent firms would lose those customers.
Target marketing on the other hand recognizes the diversity of customers and does not try to please all
of them with the same offering. The first step in target marketing is to identify different market segments
and their needs.
The requirements for successful segmentation are:
 Homogeneity within the segment
 Heterogeneity between segments
 Segments are measurable and identifiable
 Segments are accessible and actionable
 Segment is large enough to be profitable.....
Currently a college student the marketing mix is now being introduced as the Four Ps of the Marketing
Mix; Product, Place, Promotion, Price. Product (service) is whatever it may be that is being sold/marketed.
Price refers to not only the actually price but also price elasticity. Place has evidently replaced distribution
simply by where or what area the marketing campaign is going to cover. Today the idea of place is not
limited to geographic profiling but also demographics and other categorizing variables. This has only
occurred over the last ten years with the expansion of internet use and its ability to target specific types of
people and not just people in a geographic area. Promotion simply refers to what media/medium vehicle
will deliver the message and what the overall marketing strategy(s) is offering as a benefit.
Bases for Segmentation in Consumer Markets
Consumer markets can be segmented on the following customer characteristics.
 Geographic
 Demographic
 Psychographic
 Behavioralistic
Geographic Segmentation
The following are some examples of geographic variables often used in segmentation.
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Strategic Management ­ MGT603
VU
 Region: by continent, country, state, or even neighborhood
 Size of metropolitan area: segmented according to size of population
 Population density: often classified as urban, suburban, or rural
 Climate: according to weather patterns common to certain geographic regions
Demographic Segmentation
Some demographic segmentation variables include:
 Age
 Gender
 Family size
 Family lifecycle
 Generation: baby-boomers, Generation X, etc.
 Income
 Occupation
 Education
 Ethnicity
 Nationality
 Religion
 Social class
Many of these variables have standard categories for their values. For example, family lifecycle often is
expressed as bachelor, married with no children (DINKS: Double Income, No Kids), full-nest, empty-
nest, or solitary survivor. Some of these categories have several stages, for example, full-nest I, II, or III
depending on the age of the children.
Psychographic Segmentation
Psychographic segmentation groups customers according to their lifestyle. Activities, interests, and
opinions (AIO) surveys are one tool for measuring lifestyle. Some psychographic variables include:
 Activities
 Interests
 Opinions
 Attitudes
 Values
Behavioralistic Segmentation
Behavioral segmentation is based on actual customer behavior toward products. Some behavioralistic
variables include:
 Benefits sought
 Usage rate
 Brand loyalty
 User status: potential, first-time, regular, etc.
 Readiness to buy
 Occasions: holidays and events that stimulate purchases
Behavioral segmentation has the advantage of using variables that are closely related to the product itself.
It is a fairly direct starting point for market segmentation.
When numerous variables are combined to give an in-depth understanding of a segment, this is referred to
as depth segmentation. When enough information is combined to create a clear picture of a typical
member of a segment, this is referred to as a buyer profile. When the profile is limited to demographic
variables it is called a demographic profile (typically shortened to "a demographic"). A statistical technique
commonly used in determining a profile is cluster analysis.
Market segmentation Link with strategy implementation
Market segmentation is widely used in implementing strategies, especially for small and specialized firms.
Market segmentation can be defined as the subdividing of a market into distinct subsets of customers
according to needs and buying habits.
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Strategic Management ­ MGT603
VU
Market segmentation is an important variable in strategy implementation for at least three major reasons.
First, strategies such as market development, product development, market penetration, and diversification
require increased sales through new markets and products. To implement these strategies successfully, new
or improved market-segmentation approaches are required. Second, market segmentation allows a firm to
operate with limited resources because mass production, mass distribution, and mass advertising are not
required. Market segmentation can enable a small firm to compete successfully with a large firm by
maximizing per-unit profits and per-segment sales. Finally, market segmentation decisions directly affect
marketing mix variables: product, place, promotion, and price
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Table of Contents:
  1. NATURE OF STRATEGIC MANAGEMENT:Interpretation, Strategy evaluation
  2. KEY TERMS IN STRATEGIC MANAGEMENT:Adapting to change, Mission Statements
  3. INTERNAL FACTORS & LONG TERM GOALS:Strategies, Annual Objectives
  4. BENEFITS OF STRATEGIC MANAGEMENT:Non- financial Benefits, Nature of global competition
  5. COMPREHENSIVE STRATEGIC MODEL:Mission statement, Narrow Mission:
  6. CHARACTERISTICS OF A MISSION STATEMENT:A Declaration of Attitude
  7. EXTERNAL ASSESSMENT:The Nature of an External Audit, Economic Forces
  8. KEY EXTERNAL FACTORS:Economic Forces, Trends for the 2000ís USA
  9. EXTERNAL ASSESSMENT (KEY EXTERNAL FACTORS):Political, Governmental, and Legal Forces
  10. TECHNOLOGICAL FORCES:Technology-based issues
  11. INDUSTRY ANALYSIS:Global challenge, The Competitive Profile Matrix (CPM)
  12. IFE MATRIX:The Internal Factor Evaluation (IFE) Matrix, Internal Audit
  13. FUNCTIONS OF MANAGEMENT:Planning, Organizing, Motivating, Staffing
  14. FUNCTIONS OF MANAGEMENT:Customer Analysis, Product and Service Planning, Pricing
  15. INTERNAL ASSESSMENT (FINANCE/ACCOUNTING):Basic Types of Financial Ratios
  16. ANALYTICAL TOOLS:Research and Development, The functional support role
  17. THE INTERNAL FACTOR EVALUATION (IFE) MATRIX:Explanation
  18. TYPES OF STRATEGIES:The Nature of Long-Term Objectives, Integration Strategies
  19. TYPES OF STRATEGIES:Horizontal Integration, Michael Porterís Generic Strategies
  20. TYPES OF STRATEGIES:Intensive Strategies, Market Development, Product Development
  21. TYPES OF STRATEGIES:Diversification Strategies, Conglomerate Diversification
  22. TYPES OF STRATEGIES:Guidelines for Divestiture, Guidelines for Liquidation
  23. STRATEGY-FORMULATION FRAMEWORK:A Comprehensive Strategy-Formulation Framework
  24. THREATS-OPPORTUNITIES-WEAKNESSES-STRENGTHS (TOWS) MATRIX:WT Strategies
  25. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  26. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  27. BOSTON CONSULTING GROUP (BCG) MATRIX:Cash cows, Question marks
  28. BOSTON CONSULTING GROUP (BCG) MATRIX:Steps for the development of IE matrix
  29. GRAND STRATEGY MATRIX:RAPID MARKET GROWTH, SLOW MARKET GROWTH
  30. GRAND STRATEGY MATRIX:Preparation of matrix, Key External Factors
  31. THE NATURE OF STRATEGY IMPLEMENTATION:Management Perspectives, The SMART criteria
  32. RESOURCE ALLOCATION
  33. ORGANIZATIONAL STRUCTURE:Divisional Structure, The Matrix Structure
  34. RESTRUCTURING:Characteristics, Results, Reengineering
  35. PRODUCTION/OPERATIONS CONCERNS WHEN IMPLEMENTING STRATEGIES:Philosophy
  36. MARKET SEGMENTATION:Demographic Segmentation, Behavioralistic Segmentation
  37. MARKET SEGMENTATION:Product Decisions, Distribution (Place) Decisions, Product Positioning
  38. FINANCE/ACCOUNTING ISSUES:DEBIT, USES OF PRO FORMA STATEMENTS
  39. RESEARCH AND DEVELOPMENT ISSUES
  40. STRATEGY REVIEW, EVALUATION AND CONTROL:Evaluation, The threat of new entrants
  41. PORTER SUPPLY CHAIN MODEL:The activities of the Value Chain, Support activities
  42. STRATEGY EVALUATION:Consistency, The process of evaluating Strategies
  43. REVIEWING BASES OF STRATEGY:Measuring Organizational Performance
  44. MEASURING ORGANIZATIONAL PERFORMANCE
  45. CHARACTERISTICS OF AN EFFECTIVE EVALUATION SYSTEM:Contingency Planning