Market Segmentation

Procedures for effectively segmenting markets...

Routes to Segmenting Markets

A Priori Post Hoc

MarketerDriven

CustomerDriven

Post Hoc Segmentation

Let customers tell you how the market is segmented

Identify Segmentation Variables

Focus Groups Judgment Past Research

Collect Data

Survey Hierarchical Cluster Analysis & K-Means Cluster Analysis

Create Segments

Profile Segments

Cross Tabs Discriminant Analysis CHAID

The Questionnaire

Sections of The Questionnaire

Desired Facilities & Services Reasons for Using Health Clubs Attitudes Toward Self, Exercise, Nutrition Problems Encountered in Health Clubs Facility Usage Patterns Frequency & Duration of Exercising Demographics

Facilities & Services

Availability of professional trainers Full range of free weights Full range of nautilus type exercise machines Indoor track Racquet ball facilities Day care facilities available during all hours of operation Wet area including sauna, steam rooms, whirlpool Tanning faciliites Low Price Full range of aerobic equipment, including treadmills, stairstepping machines, bicycles, etc. Cleanliness of facilities Exercise classes such as aerobics, dance, etc.

Very Important 1 1 1 1 1 1 1 1 1 1 1

2 2 2 2 2 2 2 2 2 2 2

3 3 3 3 3 3 3 3 3 3 3

4 4 4 4 4 4 4 4 4 4 4

5 5 5 5 5 5 5 5 5 5 5

6 6 6 6 6 6 6 6 6 6 6

Un7 Important 7 7 7 7 7 7 7 7 7 7

1 1

2 2

3 3

4 4

5 5

6 6

7 7

Swimming pool Special sponsored events, such as 10K runs, league softball Organized children's events Separate men's & womens' wet area facilities Separate men's & womens' exercise facilities Health, nutrition counceling & programs available Extended operating hours, I.e. past 10:pm at night, prior to 6:00am Dress code for men & women identifying minimum standards for clothing in exercise aeas Staff personnel available on workout floor at all times for assistance. Structured workout programs with regular staff review of progress Tiered pricing scheme that provides discounts for family memberships Convenient location

Very Important 1 1 1 1 1 1 1 1 1

2 2 2 2 2 2 2 2 2

3 3 3 3 3 3 3 3 3

4 4 4 4 4 4 4 4 4

5 5 5 5 5 5 5 5 5

6 6 6 6 6 6 6 6 6

Un7 Important 7 7 7 7 7 7 7 7

1 1 1 1

2 2 2 2

3 3 3 3

4 4 4 4

5 5 5 5

6 6 6 6

7 7 7 7

Health Club Usage Patterns

Exercise Facility Usage

From the following list of equipment & facilities, If your club has the facility, please rate how often you use that facility. If not available at your club, indicate "not available." Free Weights (Olymbic bars, dumbells, cables, etc. Weight machinges (Universal, Body Master, Nautilus, etc.) Treadmills (power or manual) Indoor track In-place bicycles Stair-step machines Rowing machines (Traditional rowing machines, cardioglide, etc.) Racquet ball Swimming pools Other _______________________ I always use this item 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 3 3 3 3 3 3 3 3 3 3 4 4 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5 5 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 I never use this item

Services & Class Usage

From the following list of services and classes, If your club has the service or class, please rate how often you use that item. If not available at your club, indicate "not available." Personal trainers Nutrition counceling Aerobics classes Water aerobics Self defense classes Other _______________________ I always use this item 1 1 1 1 1 1 2 2 2 2 2 2 3 3 3 3 3 3 4 4 4 4 4 4 5 5 5 5 5 5 6 6 6 6 6 6 7 7 7 7 7 7 I never use this item

Support Facility Usage

From the following list of support facilities, if your club has the facility, please rate how often you use that item. If not available at your club, indicate "not available." Sauna Steam room Whirlpool Tanning Showers Locker area Health or snack bar Day care facilities Massage I always use this item 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 3 3 3 3 3 3 3 3 3 4 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 I never use this item

Motives for Working Out

I work out because I want to Gain muscle mass i.e. Body build Improve my level of cardiovascular fitness Lose weight Gain weight Improve my general level of fitness My doctor recommended it Improve physical appearance Improve body shape Improve muscle tone Relieve stress Strongly Agree 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 3 3 3 3 3 3 3 3 3 3 3 4 4 4 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5 5 5 6 6 6 6 6 6 6 6 6 6 6 Strongly 7 Disagree 7 7 7 7 7 7 7 7 7 7

Other usage patterns...

Health club visits per week Work out duration Types of outside exercise Preferred club

Creating the Segments

The statistical procedure to use is cluster analysis...

The Idea.
Importance of Indoor Track

6 5 4 3 2 1 1 2 3 4 5 6 7 Importance of Free Weights

0 0 1 2 3 4 5 6 7 8

Importance of Weight Machines

How to do the analysis...

SPSS makes it very easy!

The data from the questionnaire.

Select K Means cluster analysis -- the most popular tool for this application!

Enter variables that want to base clusters on -- importances

Tell SPSS to save cluster membership for later use in profilinga must!

Select ANOVA to get a summary of univariate Fs for determining statistical significance of each clustering variable...

How the solution is generated...

Current iteration is 7 Minimum distance between initial centers is 4.8040 Iteration 1 2 3 4 5 6 7 Change in Cluster Centers 1 2 3 .1834 .0767 .6135 .1639 .0286 .5144 .1647 .0286 .5027 .3036 .0245 .6448 .3916 .0241 .5189 .3383 .0250 .3502 .1019 .0268 .1147

4 .0718 .0000 .0000 .0000 .0000 .0000 .0000

The final cluster assignments...

Number of Cases in each Cluster. Cluster 1 2 3 4 Missing Valid cases unweighted cases 156.0 201.0 143.0 75.0 0 575.0 weighted cases 156.0 201.0 143.0 75.0

575.0

New variable that holds cluster membership

Analysis of Variance. Variable TRAINERS WEIGHTS MACHINES TRACK RBALL DAYCARE WETAREA TANNING_ PRICE AEROBIC CLEAN CLASSES POOL EVENTS CHILD SEPWET SEPEX COUNCEL HOURS DRESS STAFF PROGRAMS TIERPRIC LOCATION

Significance of each variable...

Cluster MS 46.5255 353.1055 10.5160 74.6566 80.3346 208.0311 98.4000 326.4709 8.2987 62.4064 55.3557 279.0349 .8872 5.1712 191.8856 256.8322 210.8816 40.2332 159.8774 225.6544 75.6334 345.2663 64.7893 34.2467 DF 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 Error MS .966 .856 .576 1.184 1.430 .923 .692 .677 1.404 .819 1.187 .765 1.562 .522 .786 1.055 .546 1.248 .738 .694 1.309 1.003 1.475 1.475 DF 571.0 571.0 571.0 571.0 571.0 571.0 571.0 571.0 571.0 571.0 571.0 571.0 571.0 571.0 571.0 571.0 571.0 571.0 571.0 571.0 571.0 571.0 571.0 571.0 F 48.1288 412.4877 18.2388 63.0428 56.1644 225.3721 142.1097 482.2300 5.9090 76.1927 46.6031 364.5776 .5679 9.9031 244.0231 243.4078 386.1357 32.2218 216.4185 324.8095 57.7527 344.0172 43.9161 23.2127 Prob .000 .000 .000 .000 .000 .000 .000 .000 .001 .000 .000 .000 .636 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000

Limitations...
Must tell program how many clusters to

generate How initial cluster centers are selected may bias final assignment of individual to clusters Limitations overcome by
Starting with hierarchical clustering
Determine how many clusters probably exist Determining initial cluster centers

Multiple K Means runs using 3 to 10 clusters

Hierarchical Cluster Analysis

Select Hierarchical Cluster in same menu as K Means...

The most important part of the analysis is the dendrogram

Stick with the default values on method unless you are very experienced with this type of analysis...

The dendrogram...
C A S E Label Num Case Case Case Case Case Case Case Case Case Case Case Case Case Case Case 11 50 81 4 67 84 89 99 90 135 110 117 72 131 51 11 50 81 4 67 84 89 99 90 135 110 117 72 131 51

Rescaled Dist

0 5 10 +---------+---------+

Additional cases are added to existing clusters based on how close they are Casesthat to are clustered based are clusterclusters on proximity to clusters combined measure that combinesway. in the same all identified clustering variables. These cases combined first..

Once dendrogram is analyzed and number of clusters is determined, can rerun the analysis specifying the number of clusters. Program will then save cluster membership information in data file.

Variable with cluster membership added to data file. Use this variable to compute cluster means on each clustering variable for seeding K Means analysis...

Seeds of K Means analysis...

Data file containing seed for K Means cluster runThese seeds are the means for each clustering variable in each cluster group from the Hierarchical cluster analysis...

Profiling the Clusters

Characterizing market segments via cross tabs

Clustering Variables

Clusters Defined by KMEANS Cluster Variables Psuedo Body Social Builders Exercisers Fitness Purists Middleaged Must Do's

Group Total

TRAINERS Mean StdDev Count WEIGHTS Mean StdDev Count MACHINES Mean StdDev Count TRACK Mean StdDev Count RBALL Mean StdDev Count DAYCARE Mean

4.08 .88 157

2.95 .84 201

3.28 1.25 142

2.76 .80 75

3.32 1.08 575

1.69 .49 157

4.00 1.22 201

2.51 .72 142

5.73 .56 75

3.23 1.60 575

2.08 .43 157

2.60 .80 201

2.46 .71 142

3.65 1.08 157

4.09 1.22 201

2.56 .83 142

3.85 1.28 157

4.11 1.24 201

3.39 1.18 142

How the segments differ on the 4.11 3.59 1.17 1.25 variables used to 75 575 create the clusters4.05 5.53
.61 75 1.33 575

2.67 .86 75

2.43 .74 575

5.64

4.73

5.60

2.47

4.90

Demographic profiling...
Count Row Pct Pseudo B Social E Fitness Middle-A ody Buil xerciser Fanatics ges Must Row 1 2 3 4 Total SEX 1 Male 2 Female Column Total 138 56.8 18 5.4 156 27.1 11 4.5 190 57.2 201 35.0 94 38.7 49 14.8 143 24.9 75 22.6 75 13.0 243 42.3 332 57.7 575 100.0

Simple cross tabs showing gender differences by segment

Demographic profiling...
Row Pct Pseudo B Social E Fitness Middle-A ody Buil xerciser Fanatics ges Must Row 1 2 3 4 Total MARRIED 1 Currently marrie 2 Never married 3 Divorced Column Total 22 13.8 122 42.8 12 9.2 156 27.1 19 11.9 115 40.4 67 51.1 201 35.0 71 44.7 42 14.7 30 22.9 143 24.9 47 29.6 6 2.1 22 16.8 75 13.0 159 27.7 285 49.6 131 22.8 575 100.0

Marital status by segment

Count Row Pct Pseudo B Social E Fitness Middle-A ody Buil xerciser Fanatics ges Must Row 1 2 3 4 Total INCOME 1 6 54.5 2 1.6 49 24.1 38 46.9 26 51.0 27 45.0 11 26.2 3 60.0 156 27.1 201 35.0 73 59.8 99 48.8 22 27.2 1 2.0 2 18.2 21 17.2 19 9.4 11 13.6 24 47.1 33 55.0 31 73.8 2 40.0 143 24.9 75 13.0 3 27.3 26 21.3 36 17.7 10 12.3 11 1.9 122 21.2 203 35.3 81 14.1 51 8.9 60 10.4 42 7.3 5 .9 575 100.0

Income by segment

0-10,000 2 10,000-20,000 3 20,000-30,000 4 30,000-40,000 5 40,000-50,000 6 50,000-60,000 7 60,000-70,000 8 >70,000 Column Total

KMEANS Segments Pseudo Body Social Builders Exercisers Count OVEREAT Mean StdDev Count 156 201 Fitness Fanatics 143 Middle-Ages Must Do's 75

3.54 .80 156

3.51 1.21 201

4.03 1.36 143

2.32 .57 75

Attitudes about health & fitness by segment

Intersting Mean StdDev Count BYSELF Mean StdDev Count WEIGHT Mean StdDev Count FAT Mean StdDev Count EATRITE Mean StdDev

3.97 1.16 156

2.62 .85 201

4.03 1.31 143

4.07 1.28 75

4.18 1.35 156

5.31 .92 201

3.81 1.23 143

5.11 .81 75

4.40 1.27 156

4.00 1.23 201

3.64 1.31 143

2.77 .83 75

4.16 1.27 156

4.12 1.19 201

3.69 1.25 143

2.36 .59 75

3.93 1.27

3.99 1.18

3.32 1.41

3.03 .69

Profiling segments with discriminant analysis

Determining which variables are most important for differentiating between segments...

Action Step Entered Removed 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 TANNING_ WEIGHTS SEPEX PROGRAMS DAYCARE WETAREA SEPWET CLASSES DRESS HOURS TRACK STAFF CLEAN COUNCEL RBALL TIERPRIC AEROBIC TRAINERS CHILD

Vars in 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

Wilks' Lambda .28300 .10332 .05584 .03266 .02352 .01802 .01427 .01152 .00980 .00839 .00745 .00694 .00651 .00614 .00579 .00550 .00527 .00507 .00494

Sig. .0000 .0000 .0000 .0000 .0000 .0000 .0000 .0000 .0000 .0000 .0000 .0000 .0000 .0000 .0000 .0000 .0000 .0000 .0000

Labe

Tann

Variables are listed in order of importance for predicting segment membership...

Tier

---------------- Variables not in the Analysis after Step 19 Minimum Tolerance .7346654 .7348780 .7379141 .7420389 .7418773

Variable MACHINES PRICE POOL EVENTS LOCATION

Tolerance .9341766 .9578358 .9638854 .9611853 .9654727

F to Enter 2.8795581 .3783368 .6952304 1.6797645 1.2001232

Wilks' Lambda .0048653 .0049313 .0049229 .0048968 .0049094

These variables are not very important for predicting segment membership. Either not important to any group (e.g. events), or equally important (e.g. machines).

Territorial Map * indicates a group centroid (Assuming all functions but the first two are zero) Canonical Discriminant Function 1 -4.0 .0 4.0 8.0 21 21 21 21 21 21 21 21 21 21 21 21 21 21 * 21 221 2 223331 4222222 2233 31 444444222222 2233 31 * 444444222222 233 * 31 44444422222223 31 4444433 31 443 31 43 31 43 31 43 31 * 433 31 443 31 43 31 43 31 43 31 433 31 443 31 43 31 4331 431 431 -8.0 -4.0 .0 4.0 8.0 12.0

-12.0 C a n o n i c a l D i s c r i m i n a n t F u n c t i o n 2 12.0

-8.0

12.0

8.0

A territorial map showing the relative locations of segment centers as predicted from the important variable set.

4.0

.0

-4.0

-8.0

-12.0

-12.0

Predicted & actual group membership...

Actual Group -------------------Group 1 No. of Cases -----156 Predicted Group Membership 1 2 3 ---------------------155 99.4% 0 .0% 0 .0% 0 .0% 0 .0% 201 100.0% 0 .0% 0 .0% 99.83% 1 .6% 0 .0% 143 100.0% 0 .0% 4 -------0 .0% 0 .0% 0 .0% 75 100.0%

Group

201

Group

143

Group

75

Percent of "grouped" cases correctly classified:

Using demographics.
No. of Cases -----156 Predicted Group Membership 1 2 3 ---------------------121 77.6% 11 5.5% 12 8.4% 0 .0% 15 9.6% 189 94.0% 26 18.2% 0 .0% 20 12.8% 1 .5% 105 73.4% 0 .0%

Actual Group -------------------Group 1

4 -------0 .0% 0 .0% 0 .0% 75 100.0%

Group

201

Group

143

Group

75

Importance of demographics...
Action Step Entered Removed 1 2 3 4 5 6 7 8 AGE INCOME EDUCATIO SEX RESTYPE MARRIED OCCUPATI FAMSIZE Vars in 1 2 3 4 5 6 7 8 Wilks' Lambda .40727 .10853 .06476 .03816 .03635 .03511 .03412 .03338 Sig. .0000 .0000 .0000 .0000 .0000 .0000 .0000 .0000 Label Age of respondent Income Category Educational Attainment Gender Residence Type Marital Status Occupation Household Size

Attitudinal variables.
Actual Group -------------------Group 1 No. of Cases -----156 Predicted Group Membership 1 2 3 ---------------------148 94.9% 0 .0% 4 2.8% 0 .0% 0 .0% 200 99.5% 0 .0% 0 .0% 97.74% 8 5.1% 1 .5% 139 97.2% 0 .0% 4 -------0 .0% 0 .0% 0 .0% 75 100.0%

Group

201

Group

143

Group

75

Percent of "grouped" cases correctly classified:

Important attitudes are...

Action Step Entered Removed 1 2 3 4 5 6 7 8 9 10 11 12 13 SHY QUIET CONFIDE VITAMINS TALK APPEAR OTHERS GUILTY LIFE OVEREAT PROBLEMS TIME SIT Vars in 1 2 3 4 5 6 7 8 9 10 11 12 13 Wilks' Lambda .28029 .11801 .08239 .05787 .04330 .03364 .02734 .02283 .01945 .01708 .01523 .01385 .01271 Sig. .0000 .0000 .0000 .0000 .0000 .0000 .0000 .0000 .0000 .0000 .0000 .0000 .0000 Label

A Priori Segmentation
Select Segmentation Base(s) Focus Groups Judgment Past Research

Collect Data Cross Tabs Discriminant Analysis

Create Segments

Profile Segments