CHAPTER THREE:

STRATEGIC MARKET
SEGMENTATION

Norhasimah Hamim 2013838972

Nurul Farah Izzah Zailani 2013875064
Alfian Thomas 2013834132
Nurain Mohd Jais 2013269312
Norfadila Hamim 2013682628
Learning Objectives

 Levels of market segmentation

 Market –driven strategy and segmentation
 Activities and decisions in market segmentation
 Defining the market to be segmented
 Identifying market segments
 Forming market segments
 Finer segmentation strategies
 Selecting the segmentation strategy
Introduction

 Segmenting markets is a foundation for superior performance by

understanding buyer‟s needs and wants.
 Market segmentation is the process of identifying and analyzing sub groups
of buyers in a product-market with similar response characteristics (eg:
budget, activities, time consideration & etc).
 Companies should grab opportunities to provide wide ranging products.
 For example: Airlines options to Dhaka, from Malindo Air, Biman
Bangladesh, Regent Airways and MAS. Most of the carriers, offers
different types of fares level and checked – in luggage.
Levels and Types of Market Segmentation (Exhibit 3.1)
 Link to management vision & strategic intent
of corporate strategy & emphasize products
benefits that different types of buyers seek.
 Example: Ticketing Department:
i) Corporate Clients
ii) Walk In/Phone Call Clients

 Concerned with allocating resources

around segment targets, including
them in marketing plans & aligning
organizational processes around
them.
 Example: Wholesaler Agent‟s
conducting FAM trip.
 Concerned with the marketing program changes
needed to reach segment targets with advertising
& promotions and with distribution systems.
Example: Promoting MATTA Fair through
various of channel distribution.
Market-Driven Strategy and Segmentation

 Market segmentation should be considered early in development of market

–driven strategy.

 Exhibit .2: Segmentation in the Market –Driven Strategy Process.

Market Segmentation, Value Opportunities & New Market Space

 Market segmentation is the process of placing the buyers in a product-

market into subgroups which can be indicated by the amount and
frequency of purchase, loyalty to particular brand and other measures of
responsiveness.
 The opportunity for segmentation occurs when differences in buyers‟
demand (response) functions allow market demand to be divided into
segments, each with different demand function.
 Example: Redang Beach Resort offers 3 types of room categories, which
are superior room, standard room and club deluxe room.
Market Segmentation, Value Opportunities & New Market Space

 Market segment also can be refer as market niche which represents a small
portion of the buyers in the total market.
 Segmentation helps company to provide varieties of products or services as
well as able to meet customer satisfaction by providing a value offering that
matches the value proposition.
 Company also may get opportunities to tap into new areas of value and
create a unique space in market. It can be described in the Innovation
Application.
 Example:
 Marriot is partnering with Ian Schroder to create the Edition boutique hotels
aimed at younger, wealthier and more fashionable travelers.
 Starwood has won recognitions for its W chain and is expanding its new Aloft
concept.
 Market Targeting and Strategic Positioning

 Market targeting consists of evaluating and selecting one or more segments

whose value requirements provide a good match with the organizational
capabilities.
 Positioning strategy is the combination of the actions management takes to
meet the needs and wants of each market target.
 The strategy consists of products and supporting services, distribution,
pricing and promotion components.
 Market segmentation lays the groundwork for market targeting and
positioning strategies which skills and insight used in segmenting the market,
will give a company competitive advantages by identifying buyer groups that
will respond favorably to the firm‟s marketing efforts.
Activities & Decision in Market Segmentation

Defining the
market to be
segmented

Selecting the Identifying

segmentation market
strategy segments

Finer Forming
segmentation market
strategies segments
Defining the Market to Be Segmented

• Basic approaches in strategic marketing that can be adopted by any firms in

any industry to improve competitive performance
Generic • A broad group of product/services that satisfy in general, yet similar need
Level

• Product category that offer specific set of benefit intended to satisfy a

usto er’s eed & wa t i a spe ifi way
Product • Segmentation is shown by the differences in price, quality and features of
Type the items/services

• Differences in product/services type may exist

Product • Segment within a category
Variant
 EXHIBIT 3.4 Market Segmentation in the Health & Beauty Supplies Market

Level of Product Definition Illustrative Need/Want

competition Competitior Satisfied
Generic Health and beauty Consumer Product Enhancement of
aids Companies health
Product Type Shaving Equipment Gillette, Remington, Shaving
Bic
Product Variant Electric Razors Braun, Norelco, Electronic Shaving
Remington,
Panasonic
 Example in Tourism Industry: Asian Trails (M) Sdn Bhd – DMC company

Level of Service Definition Illustrative Need/Want

competition Competitors Satisfied
Generic Inbound Market Inbound agents Malaysia
destination
Service Type Europe market Synergy Tour, Nature destination
Diethelm, Destino (beach, hill,
Tours highland,
mangrove, sea etc.)
Service Variant Italy Market Synergy Tours Beach Destination
Identifying Market Segments

1. Segmentation variables

2. Characteristic of People & Organization

3. Product Use Situation Segmentation

4. Buyers’ Need & Prefere es

5. Purchase Behaviour
1. Segmentation variables

• Use to divide the product market into

segment involved few variables as below:
– Demographic & Psychographic
– Use Situation
– Needs & preference
– Purchase Behaviour
 DEMOGRAPHIC & PSYCHOGRAPHIC

• Demographic • Psychographic
– Age – Social Class
– Gender – Lifestyle
– Family size or life cycle – Personality/Attitude
– Income
– Occupation
– Education
– Religion
– Race
– Generation
– Nationality
 USE SITUATION

• How buyer uses the product?

• Example; purchasing a meal away from home
for the purpose of entertainment
• Do i o’s
 NEEDS & PREFERENCE

• Include attitudes, brand awareness & brand

preference
• Example; people who practice healthy
lifestyle, love to have healthy food for
instance, sandwiches in their daily life
• Subway
 PURCHASE BEHAVIOUR

• This variables describe brand-use and

consumption (e.g: size and frequency of
purchase)
• Purchase decision making pattern that is a
complex concepts of needs & desires which
influenced societal role (parents, worker),
social & cultural environment, aspiration
• Example; McDonald
2. Characteristic of People & Organization

• Consumer Market
– Characteristic of people fall into 2 categories;
1) Geographic & demographic
* Geographic location, useful for segmenting
product-markets
* Demographic information helps to describe
group of buyers,
2) Psychographic (lifestyle & personality)
* To develop market profiles
2. Characteristic of People & Organization

• Organizational Market
– Characteristic that help in segmenting business
market; size of the company, stage of industry
development & stage of the value-added system
1)The extent of market concentration
* Number of customers & their relative buying
power
2) The degree of product customization
* Supplier must tailor the product or services to
each organizational buyer
Example; Boeing

• Boeing caters to the specific needs of air

carrier purchasing commercial aircraft,
adapting designs to meet customer priorities.
• Nonetheless, the cost for customization are
high and Boeing had to evaluate the
value/cost relationship of its attempt to satisfy
the needs of single airlines segments.
 Example; Asian Trails (M) Sdn Bhd – DMC company

Demographic,
Visit Malaysia Identify source
Field Study destination
geography,
of market
psychographic

Tourism
Analyze with
Malaysia – get Develop market
Market Profile tourist arrival
field study
profile
outcome
statistic

Invest on
Market Provide rep in
Attend personnel based
respective
Concentration tradeshow on targeted
country
source of market

Product Tailor-made Prepare itinerary Sales Support in

Customization packages in their language their language

Remark: Current practice in developing new market in Asian Trails (M) Sdn Bhd
3. Product Use Situation Segmentation

• Market can be segmented based on how the

product is used
• Needs & preferences vary according to
different use situations
• Travel Agent
– Outbound Agent: service domestic traveler who would like
to travel in international country
– Inbound Agent: service international traveler who would
like to visit domestic destination
– MICE Agent: service business traveler with the purpose of
meeting, incentive, convention & exposition
4. Buyers’ Need & Prefere es

• Market can be segmented based on needs &

preference that are specific to products and
brands
• Consumer Needs
– Customer attempt to match their needs with the
product/services that satisfy their need
– Example: Asian Trails Travel - French Market
(Marco De Vasco) prefer to stay in boutique hotel
(limited unit, privacy & different concept from
common accommodation)
4. Buyers’ Need & Prefere es

• Attitudes
– Buyer’s attitude towards ra ds are i porta t
because experience and research findings indicate
that attitudes influence behavior
– Example: Asian Trails Travel - India Market (SOTC)
• Town area; Entertainment & shopping, cruise
• Normal package – 7 days trip
• KUL – Genting – Penang - SIN
4. Buyers’ Need & Prefere es

• Perception
– The process by which an individual selects,
organizes and interprets information inputs to
create a meaningful picture of the world
– Example: Asian Trails Travel - UK Market (Kuoni
UK)
• We have to carefully select/recommend our product to
this market particularly
• Do not oversell the product to avoid dissatisfaction
experience throughout the trip
5. Purchase Behaviour

• Consumption Variables useful in segmenting

consumer and business market
• Level of product use may not necessarily
identify the best value opportunities
• Elements in classifying buying decision;
– Their characteristic
– Products to which they apply
– Marketing Strategy implications of each type of
purchase behaviour
Forming Market Segments

 Developing new strategies segment

targets – for certain target market

 Developing new strategic segment

target. Targets for some of the biggest
brand.

 E.g : COLGATE
  Requirements for
Segmentation

 Forming
Groups Based Forming Market  Approaches to
on Response Segment
Differences
Segment Identification

 Customer Groups
Identification
 Requirements For Segmentation

Is it worthwhile to segment a product – market ?

E.g. Gillette – “one for all product” strategy in the razor market.
  Response Differences

 Identifiable Segments

 Actionable Segments
5 requirements to
evaluate potential
 Cost vs. Benefits of
segmentation strategy
Segmentation

 Stability Over Time

 a. Response Differences

How customer response towards the product?

E.g.
Variable (geographic, demographic, psychographic and behavioral) vs. pricing

Income
(affluent, high, response
medium & low)
 b. Identifiable Segments

 The differentiating attributes of the

segments must be measureable so that
they can be identified.

 Can create a custom marketing mix

for the specific group.

 More unique products could be

design to fulfill the distinguished
criteria of the segment compared to
segments with many similarities.
 c. Actionable Segment

 Must be able to do marketing program to promote and attract targeted

market segment and provide services.
 d. Cost vs. Benefits of Segmentation

 Important to evaluate the benefits of segmentation.

 Should generate more sales and higher margins.
 e. Stability Over Time

 Must show stability over time and must be consistent.

 Prefer to target consumer segments that are relatively stable in terms of

demographic and psychological factors and needs, and that are likely to grow
larger over time.
Product Differentiation Market Segment

 Offer something different from competitor.

 Increase sales by creating a unique selling proposition.
 E.g. Transportation
 Approaches to Segment Identification

 How to identified segment?

Characteristic

Eg : income, family size, demographic

Segment
Identification

Response Profile Differences

Eg : Frequent of purchase
What type of people purchase
this product?
 Customer Group Identification

 After the product-market of interest is defined, promising segments may be

identified by using management judgment in combination with analysis of
available information and/or marketing research studies.

 When using the customer group identification approach, it is necessary to

select one or more of the characteristics of people or organizations as the
basis of segmentation.

 Using these variables, segments are formed by:

 Management judgment and experience
 Supporting statistical analyses.

 The objective is to find differences in responsiveness among the customer

groups.
Management Insight &
Available Information

Product Market
Segmentation
Dimension for Hotel
Lodging Services
 Cross Classification Analysis

R
Classification Quality-Quantity Matrix
10,000
according to more than
one attribute at the
same time. HIGH VOLUME HIGH VOLUME HIGH VOLUME
LOW PROFIT MEDIUM PROFIT HIGH PROFIT
Revenue (RM)

MEDIUM VOLUME MEDIUM VOLUME MEDIUM VOLUME

LOW PROFIT MEDIUM PROFIT HIGH PROFIT

LOW VOLUME LOW VOLUME LOW VOLUME

LOW PROFIT MEDIUM PROFIT HIGH PROFIT

Profit Percentage 30
 Data Mining for Segmentation

 The process of extracting previous unknown and actionable information

from large and complex database.

 There are two ways of doing this:

 Based on the characteristics of the segments in advance.
 Analyze the data and identify naturally occurring cluster of behavior by
using a software.
 Data Mining for Segmentation

 Use of Data Mining in Tourism

Forecasting
Tourist
Expenditure

Analyzing
Profiles of
Tourists

Forecasting
Number of
Tourists
Arrivals
 Segmentation Illustrations

Illustrative Example: Gasoline Buyers

Higher-income, middle-aged men, drive

Road 25,000-50,000 miles a year, buy premium with 16% of
Warriors a credit card, purchase sandwiches and drinks buyers
from the convenience store, will sometimes use
carwash.

Men and women with moderate to high

True incomes, loyal to a brand and sometimes a 16% of
Blues particular station, frequently buy premium, pay buyers
in cash.
 Segmentation Illustrations

Illustrative Example: Gasoline Buyers

Generation Upwardly mobile men and women, half under

27% of
F3 (Fuel, 25 years of age, constantly on the go, drive a lot buyers
Food & Fast) snack heavily from the convenience store.

Usually housewives who shuttle children around 21% of

Homebodies during the day and use whatever gas station is buyers
based on town or on route of travel.
Price Not loyal to brand or station and rarely buy 20% of
Shoppers premium, frequently on tight budgets. buyers
Segmentation
Illustrations
 Forming Group Based on Response Differences

 The alternative to selecting customer groups based on descriptive

characteristics is to identify groups of buyers by using response differences
to form the segments.

 An analysis of the customer base identified the following segments:

programmed buyers (limited service needs), relationship buyers,
transaction buyers, and bargain hunters (low price, high service).

 Response difference approaches draw more extensively from buyer

behavior information than the customer group identification methods.
 Cluster Analysis

 To define a group of people (consumers)

according to the similarity of their answer
to questions about products.

 To identify groupings in which the

similarity within group is high.
Cluster Analysis

Consumer Industrial/
Markets Organizational Markets
Characteristics Age, gender, income, Type of industry, size,
of people/ family size, lifecycle geographic location,
organizations stage, geographic corporate culture, stage of
location, development, producer/
lifestyle intermediary
Use situation Occasion, importance of Application, purchasing
purchase, prior Procedure (new task,
experience with product, modified rebuy, straight
user status rebuy
Buyers’ needs/ Brand loyalty status, brand Performance requirements,
preferences preference, benefits sought, brand preferences, desired
quality, proneness to make features, service
a deal requirements
Purchase Size of purchase, Volume, frequency
behavior frequency of purchase of purchase
Perceptual Map
Select the
product-
market area
Interpret the
results to Decide which
market-target brands compete in
the product-market

Evaluate Collect buyers‟

solution perception

Plot consumers ideal Analyze

preferences data
Prepare a
map of
attributes
Illustrative Consumer Perception Map

Expensive

• Brand A
GROUP
• Brand E II

• Brand B
GROUP
Low V High
Quality GROUP Quality
I
• Brand C
GROUP
III
• Brand D
GROUP
IV
Inexpensive
Illustrative Consumer Perception Map
 Uses of a Perceptual Map

 Assessing strengths and weaknesses relative to competing brands along

certain criteria important to the customer.

 Identification of competitive advantage for the brand.

 Identifying market opportunities.

 See how ideal points are moving.

Finer Segmentation Strategies

 A company able to utilize finer

segmentation strategies because of
a combination of factors.

 Highly sophisticated databases for

accessing buyers can be used, and
buyers‟ escalating preferences for
unique products encourage
considerations of increasingly
smaller segments.
 Customized Offerings
Feasible because of extensive information flow, and
comprehensive databases, computerized manufacturing
systems, integrated value chains.
Example: In Bubu Long Beach Resort, the services and
products are customized for their market (international).

Diverse Customer Base

The requirements of an increasingly diverse customer base
Logic of for many products are apparent.
Finer Example: Bubu Villa Long Beach in Perhentian Island built
Segments to cater higher-end international market that focus to a more
personalized service.

Close Customer Relationships

By identifying customer value opportunities and developing
cost-effective customized offerings, relationships can be
profitable and effective in creating competitive barriers.
Example: Personalized service during arrival at Shangri-La
Rasa Ria, from checking in until room transfer.
Finer Segmentation Strategies

Microsegmentation
• Seeks to identify narrowly defined segments using one or more of the
segmentation variables.
• Example: Pink Coach for Ladies by KTM (Komuter) which emerge for
the women travellers and users.

Mass Customization
• Providing customized products at prices not much higher than mass-
produced items is feasible using mass customization concepts and
methods.
• Example: Malindo Air offering in-flight entertainment for its passengers
with a selection of movies, games and music.

Variety-Seeking Strategy
• Intended to offer buyers opportunities to vary their choices in contrast to
making unique choices – with alternatives, buyers may increase their total
purchases of a brand.
• Example: Accor Group of Hotels which offer varying level of
accommodation such Ibis Style and Ibis Budget.
Finer Segmentation Issues:

 How much variety should be offered to buyers?

 Will too much variety have negative effects on buyers?
 Is it possible to increase buyers‟ desire for variety, creating a
competitive advantage?
 What processes should be used to learn about customer
preferences?
Selecting the Segmentation Strategy

Deciding how to segment:

 The choice of a segmentation method depends on:

 The maturity of market
 The competitive structure
 The organization‟s experience in the market

 It is important to maximize the available knowledge about the

product-market.

 An essential step is analyzing the existing customer base to identify

group of buyers with different response behavior.
 Strategic Analysis of Market

 Each market segment of interest needs to be studied to determine its

potential attractiveness as a market target
 Major areas of analysis are:

Customer Analysis

Competitor Analysis

Positioning Analysis

Estimating Segment Attractiveness

 Strategic Analysis of Market

Customer Analysis Competitor Analysis

• The objective is to find descriptive • Considers the set of key competitors
characteristics that are highly correlated to currently active in the market in which
the variables used to form the segment the segment is located plus any potential
• Example; Kuoni UK, has been requesting segment entrants
their clients/ potential clients to fill up a • Example; During Matta Fair, some
survey/ feedback form to gather up company do have a representative that
information on them. will explore and enquire on the other
company products and services. In YSL
Travel and Tour, they do enquiries calls
 Strategic Analysis of Market

Estimating Segment
Positioning Analysis
Attractiveness
• Involves some preliminary choices about • The financial and market attractiveness
positioning strategy of each segment needs to be evaluated
• Should meet the needs and requirements • As information availability growth, the
of the targeted buyers at a cost that yields evaluation also has the potential of
a profitable margin for the organization identifying unattractive market segments
• Example; In YSL Travel and Tour, they
always ask their clients to give feedback
on the packages that they purchased.
  One important aspect of evaluating
Segment „Fit‟
and segment attractiveness are:
Implementation  How well the segments match
company capabilities,

 Ability to implement marketing

strategies around those segments

 Building effective marketing strategy

around market segmentation mandates
an emphasis on actionability as well as
technique and analysis.
Summary

 Because buyers differ in their preferences for

products, finding out what these preferences
are and grouping buyers with similar needs is
an essential part of business and marketing
strategy development.

 Segment analysis and evaluation consider the

strengths and limitations of each segments as a
potential market target for the organization.
Q&A and Discussion Session