Marketing Strategy Strategic Segmentation

Marketing Strategy
Strategic Segmentation
Session 5
Fall 2006
Segmentation Strategy
1. Problem
2. Target marketing, segmentation criteria
3. Segmentation variables
4. Price Discrimination
5. Conclusion

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Segmentation Problem
Suppose that you are managing the product line of a
cellular telephone company. You are considering
revising your product offerings. You requested a market
research study which uncovered the following two
market segments:
Heavy-users: Use the cellular phone very intensely. For the
first 100 minutes of usage they are willing to pay about
$100, and they can use up to 1000 minutes. This
segment is about 10% of the market.
Emergency-users: Use the telephone only for crucial calls.
For the first 40 minutes they are willing to pay about $40,
and they can use up to 500 minutes. This segment is
about 90% of the market.
What would be your segmentation strategy?
Target Marketing
Segmentation Strategy
Target marketing means Segmentation strategy
Basic principle:
1. A target market will have its own marketing program
2. Which enhances sales enough
3. To justify extra cost
If the number of segments is:
one: a part of the market: Concentrated marketing
multiple: Differentiated marketing

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Segmentation Criteria
1. High response to the marketing program.
Does the segment identity stimulate ideas for marketing
programs?
2. Cost of reaching the segment
Accessible with respect to advertising, distribution?
Segment substantial enough?
What types of people/organizations would like this
product/service?
To reach that segment what is the best
l Product (modification)
l Price
l Promotion
l Place (distribution)

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Segmentation Variables
Only true one: preferences
correlated with:
1. Geographic
2. Demographic
3. Occasions
4. Usage
5. Benefits
6. Lifestyle
Geographic segmentation
supermarkets

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Geographic segmentation
•
Advertising to primary consumers for 100% of the events and less
for secondary consumers.
•
Intensities of direct advertising from direct competitors negatively
correlated.
More Examples
Geographic segmentation: Maxwell House sells nationally but flavors
regionally (flavored stronger in the West than in the East)
Demographic segmentation: Gerber offering a “graduates” line for the one-
to three year old; automobiles?
Occasions segmentation: air travel for business, vacation or family
Usage segmentation: Heavy-users (vs light-users) use much more of the
product. Paper towels 75%, Cola (83%), Bourbon (95%).
Benefits: Toothpaste market (4 benefit segments): economy (low price,
brand on sale), medicinal (decay-prevention, Crest), cosmetic (bright
teeth, Ultra Brite), and taste (good tasting, Colgate)
Lifestyle: Outdoors: “health-conscious sociables ”, “get-away actives”,
“excitement-seeking competitives ”, “fitness-driven”, “unstressed and
unmotivated”; Psychographics

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Price Discrimination
two units of the same product sold at different prices
Examples:
Objective: get more of the value consumers obtain from
consuming the product/service
Problem: ARBITRAGE
Examples: l gray markets
l false student card to get student's
discount
Types of Price Discrimination
1. Price Discrimination with Direct Signals
2. Price Discrimination by Self-Selection –
Product line design for segmentation

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Price Discrimination with Direct Signals
Use of some exogenous signal: age, sex, occupation,
location, first time vs. second time buyer, etc.
Examples:
Types of Price Discrimination
1. Price Discrimination with Direct Signals
2. Price Discrimination by Self-Selection –
Product line design for segmentation

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Price Discrimination by Self-Selection
Offer menu of bundles price-quantity or price-quality.
Consumer self-selects by choosing the bundle they prefer.
Segmentation Problem
Suppose that you are managing the product line of a
cellular telephone company. You are considering
revising your product offerings. You requested a market
research study which uncovered the following two
market segments:
Heavy-users: Use the cellular phone very intensely. For the
first 100 minutes of usage they are willing to pay about
$100, and they can use up to 1000 minutes. This
segment is about 10% of the market.
Emergency-users: Use the telephone only for crucial calls.
For the first 40 minutes they are willing to pay about $40,
and they can use up to 500 minutes. This segment is
about 90% of the market.
What would be your segmentation strategy?

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Product Line Design for Segmentation
Results
1. Be aware of self-selection constraints.
2. Segment that likes quantity more (heavy-users)
gets surplus.
3. Problem is with making sure that segment that likes
quantity more (heavy-users) does not buy the bundle
directed to other segment (light-users).
4. Reduce quantity to segment that likes quantity less
(light-users) in order to give less surplus to other
segment (heavy-users).
5. In some cases it may be better to target only one
segment (heavy users).
6. Quantity discounts (in some cases).
(7. In some cases offer same bundle to both segments.)
Railroad Tariffs for Passengers, Dupuit (1849)
“It is not because of the few thousand francs which
would have to be spent to put a roof over the
third-class carriages or to uphoslter the third-
class seats that some company or other has
open carriages with wooden benches… What
the company is trying to do is prevent the
passengers who can pay the second-class fare
from traveling third-class; it hits the poor, not
because it wants to hurt them, but to frighten the
rich.”

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Examples
• airlines
• time spent in shopping or price dispersion
• coupons
• season-tickets versus game tickets (tie-in)
• restaurant: menu or separate orders (tie-in)
• insurance policies
• credit markets
Conclusion
• Targeting involves segmentation strategy
• Segmentation strategy to offer more value and
extract more value
• Segmentation variables (preferences):
geographic, demographics, occasions, usage,
benefits, lifestyle (psychographics)
• Price discrimination: direct signals, self -selection
• Self-selection constraints (lower quality/quantity
of low quality products).

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