Market Segmentation

Differentiation, Segmentation, and Target Marketing

Differentiation in its simplest form means distinguishing your product or service from those of other firms for the entire potential market.

Differentiation is Effective When: • Not easily duplicated • Appeals to particular need/want • Has a favorable image • Meaningful – Example: The WaldorfAstoria’s history is impossible to duplicate

Differentiation of Intangibles • Product is tangible & easy to differentiate • Service is largely intangible, so in today’s market we have to “Tangiblize the Intangible”

Differentiation as a Marketing Tool: • • • • •

Creates awareness and trial by consumers Can be perceived or real Can be product-specific or brand specific Separates product classes Within same product class, separates the competition

Differentiation vs. Segmentation Strategy • Differentiation assumes that customers’ needs and wants are quite alike but that some aspect of the product offered separates it from other product offerings • Segmentation assumes that the market is made up of customers whose needs are different.

A Differentiation Strategy is Appropriate When: • Market is demographically, geographically, and psychologically similar • Market is sensitive to differences between establishments • Establishment is relatively new • Establishment is distinctive • There are few competing establishments • Most competitors employ a differentiation strategy

A Segmentation Strategy is Appropriate When: • Market is demographically, geographically, and psychologically different • Market is not sensitive to differences between establishments • Establishment has been in operation for several years • Establishment is not distinctive • There are several competing establishments • Most competitors employ a segmentation strategy

Segmentation Comes First

There is a need to find customers’ needs and wants before we differentiate

The Process of Market Segmentation We want to break the market down into smaller homogeneous segments • Needs and wants of the marketplace • Projecting wants and needs into potential markets • Matching the market and capabilities

Process of Market Segmentation • Segmenting the market • Selecting target markets from identified segments • Tailoring the product to the wants and needs of the target market

Steps in Segmentation Process 1. Needs-Based Segmentation

Group customers into segments based on similar needs and benefits sought by customer in solving a particular consumption problem.

2. Segment Identification For each needs-based segment, determine which demographics, lifestyles, and usage behaviors make the segment distinct and identifiable (actionable).

3. Segment Attractiveness

Using predetermined segment attractiveness criteria (such as market growth, competitive intensity, and market access), determine the overall attractiveness of each segment.

4. Segment Profitability

Determine segment

profitability. 5. Segment Positioning For each segment, create a “value proposition” and product-price positioning strategy based on that segment’s unique customer needs and characteristics.

Variables to Segment the Market • • • • • •

Geographic Demographic Psychographic Usage Benefits sought Price

Geographic Segmentation • Probably the original segmentation variable • Helps to reach market • Does not help determine needs/wants

Geographic Segment by: – – – – –

Zip / Pin Code SMSAs (standard metropolitan statistical areas) DMA (designated market area) ADI (areas of dominant influence) Census Bureau

Demographic Segmentation • Easily measured and classified – It is widely used for this reason

• Almost a moot point in the hospitality industry – Professors, truck drivers, and accountants don’t often have the same likes but they could each fall in a demographic category on money

Demographic Segments by: – Income – Race – Age – Nationality

– Religion – Gender – Education

Psychographic Segmentation • Based on attitudes, interests, and opinions • used highly in the hospitality industry • VALS (Values And Lifestyles) – Principle Oriented- principles or beliefs rather than feelings, events, or desire for approval – Status Oriented- status or other people’s actions, approval, or opinions – Action Oriented- action prompted by a desire for social or physical activity, variety, and risk taking

Psychographic Segments by: • Customers’ – personality traits – self-concepts – lifestyle behaviors

Behavioral Segmentation Occasion Benefit Sought User Status Usage rate Loyalty

Behavioral /Usage Segmentation • • • • •

Purpose Frequency Purchase size Timing Nature of purchase

• Where they go • Purchase occasion • Heavy, medium, and light users – (light-half/heavyhalf)

Benefit Segmentation • Needs and wants • Based on benefits people seek • Total satisfaction from a service rather than individual benefits – Based on the benefits that people seek when buying a product – i.e. “A place for gamblers to indulge without apology.” – Jack Binion, Horseshoe Casino,

Price Segmentation • Hospitality industry today segments on price • Actually a form of benefit segmentation only it is more visible and tangible – When someone is going out to dinner McDonalds and local restaurant will not come in the same breathe for choices of where to go

International Segmentation • This is a very different segment for the industry because the potential market is so diverse

Segmentation Strategies • No segments exist in isolation • Foundation of any segmentation strategy is behavioral differences • Intense competition makes it a necessity to segment in the hospitality industry • Segmenting is stable and enduring because it goes to the heart of customer satisfaction

Segmenting Business Markets Bases For Business Markets Demographic Industry: Which industries should we serve? Company size: What size companies should we serve? Location: What geographical areas should we serve? Operating Variables Technology: What customer technologies should we focus on? User or nonuser status: Should we serve heavy users, medium users, light users, or nonusers?

Customer capabilities: Should we serve customers needing many or few services? Purchasing Approaches Purchasing-function organization: Should we serve companies with highly centralized or decentralized purchasing organizations? Power structure: Should we serve companies that are engineering dominated, financially dominated, and so on?

Target Marketing Once we segment and examine the market we must select those markets we can best serve by designing our products and services to satisfy the selected markets.

Strategies for selecting target markets: • Undifferentiated • Concentrated • Multi-segment

Undifferentiated targeting • Assumes customers have similar needs • One type of product or service is offered

Concentrated Targeting • Firm selects one target segment and pursues it aggressively • Example: Youth Hostels targeting backpackers;

Multi-Segment Targeting • Very common in the hospitality industry • Very effective in hotels

• Marriott – – – – – – –

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