SEGMENTATION

1
SEGMENTATION

• I. Segmentation vs. Aggregation Strategy
• Should we segment ?

• II. In-Class Exercise Part I
• III. Bases of Segmentation
• How should we segment?
• IV. Defining Market Structure
• V. Translating Segmentation into Strategy
• VI. In-Class Exercise Part II
• VII. Video Researching the teen segment

2
Segmentation vs. Aggregation Strategy

• When should a firm pursue a segmentation versus
  aggregation strategy?

• Consumer Preference Heterogeneity
• Majority Fallacy
• Cost-Benefit Analysis

3
Consumer Preference Heterogeneity
How much Variability Exists in Consumer
Preferences?
4
Consumer Preference Heterogeneity
Preferences for food
5
Majority FallacySpaghetti Sauce Ex.
Preferences
Ragu Prego Classico Etc.
Hunts Prima Salsa
6
Majority FallacyTea
Preferences
Cold
Hot
Luke Warm
Temperature
7
Cost-Benefit Analysis
Sales
Costs
1
100
1
100
Number of different products
Number of different products
8
Bases Of Segmentation

• PERSON
• Geographic (Regional/cultural differences)
• Demographic (age/income/gender)
• Psychographic
• Values
• Personality
• Lifestyle

• PRODUCT (brand attributes)
• USAGE SITUATION (football game vs. dinner)

9
Defining Market Structure
F (customer characteristics, product attributes,
usage situation)

• Requires a match between
• Customer (defined by person characteristics)
• Usage Situation (benefits sought for specific
  usage situation)
• Product Attributes (benefits provided)

Ex. A consumer may use instant coffee brands when
in a hurry and ground coffee brands when
entertaining.
10
Analytical Framework for Determining Market
Structure

• Stage 1 Generation of Usage-Situational
• Taxonomy

Ask consumers to suggest as many usage situations
for a target product as they can. For each usage
situation, list as many other products that can
be used for the situation. Situations are
reduced in number by clustering them situations
are clustered together if they have a similar
pattern of products considered suitable.
11
Analytical Framework for Determining Market
Structure

• Stage 1 Generation of Usage-Situational
• Taxonomy

Ex. Coffee
Three Major Situational Dimensions

• Event (Daily living/Entertaining)
• Time of Day (morning/afternoon/evening)
• Location (home/work/restaurant)

12
Analytical Framework for Determining Market
Structure

• Stage 2 Generation of Customer x
• Product x Usage Situation
  Matrix

Develop scenarios to represent taxonomic cells of
the usage-situational taxonomy
(2x3x3 18 possible combinations)
Ex. Daily living/afternoon/restaurant
It is a typical day and you are at your usual
restaurant for lunch. The waiter asks what you
would like to drink.
Have consumers rate suitability of each product
listed in Stage 1 for each of the scenarios
including target product
13

• Stage 3 Assess relative importance of
• main and interaction effects

• Suitability F (customer, product, situation)

Customer Product Usage Situation Customer x
Product Customer x Usage Situation Product x
Usage Situation Customer x Product x Usage
Situation
Main Effects
Interaction Effects
14
MAIN EFFECTS
Customer -
Usage rates are highly variable across customers
Product -
Some products are deemed more useful than others
Usage Situation -
The product has specific uses
15
INTERACTION EFFECTS
Interaction The effect of one factor depends on
another
Customer x Product -
Different groups of customers prefer different
product types across all usage situations
Ex. Young prefer caffeinated and old prefer
decaffeinated coffee
16
INTERACTION EFFECTS
Customer x Usage Situation -
A large group of customers use the product in one
situation and another large group of customers
use the product in another situation.
Ex. One group of consumers uses coffee in the
morning and another group uses it at night.
17
INTERACTION EFFECTS
Product x Usage Situation -
Consumers use one type of product in one
situation and another type of product in a
different situation.
Ex. Consumers use caffeinated coffee in the
morning and decaffeinated at night.
18
Product x Usage Situation for Financial Services
19
INTERACTION EFFECTS
Customer x Product x Usage Situation -
Different groups prefer different product types
for different usage situations
Ex. One group of consumers uses instant coffee
for daily living and ground coffee for
entertaining. Another group uses instant
coffee for all occasions and yet a third
group uses ground coffee for all occasions.
20
Translating Segmentation into Strategy

• Position product to segments via

• Product
• Price
• Promotion
• Place (distribution)
• ALL MUST WORK TOGETHER!!