REQUIREMENTS FOR EFFECTIVE SEGMENTATION PDF

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Selection of target markets, evaluation of target markets, segment size and growth, structural attractiveness of the segment, company objectives and resources, choice of target market segments, undifferentiated marketing, bifurcated marketing, differentiated marketing, concentrated marketing, choice...

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REQUIREMENTS FOR EFFECTIVE SEGMENTATION

Obviously, there are many ways to segment a market, but not all targeting is effective. For example, restaurant customers could be divided between blond and brown customers. But obviously the color of the hair does not affect consumption. In addition, if all customers of a restaurant purchased the same number of meals every month, they would think that all restaurant meals are of equal quality and would like to pay the same price, the company could not benefit from segmenting this market. To be useful, market segments must be: •

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Measurable: the degree to which the size, purchasing power and profiles of the segments can be measured. Certain targeting variables are difficult to measure, such as the number of young people drinking beer primarily as a way to rebel against their parents. Accessible: the degree to which market segments can be reached and served. Despite discovering that 20% of a faculty's restaurant customers are regular customers, it is difficult to find common characteristics: whether they are teachers, work staff or students, or if there is no difference in restaurant use between part-time or full-time students. Although the market segment has been identified, there is no way to access this frequent user segment. Substantial: the degree to which market segments are large or sufficiently profitable to serve. A segment should be the largest possible homogeneous group worth attending to with a particularized marketing program. For example, in a large metropolitan area you can locate different restaurants of international food, while in a village these restaurants would not be viable. Actionable: the degree to which effective programs are designed to attract and serve segments. For example, although a small airline identified seven market segments, its workforce was too small to be able to develop different marketing programs for each of these segments.

Target market selection Segmentation of markets reveals opportunities for the company. These opportunities must now evaluate the various segments and decide how many you can better serve. Here's how companies evaluate and choose their target segments. Target market assessment When evaluating the different market segments, companies must address three factors: size and growth of the segments, structural attractiveness of the same and objectives and resources of the company.

Segment size and growth The company must first collect and analyze sales data to current segments, their growth rates, and the expected profitability of various segments. This way, you'll be interested in segments that have the right size and growth characteristics. However, proper size and growth are a relative issue. Some companies want to target the largest and fastest growing segments, the ones with the highest growth rate or the ones that offer the highest profit margins. However, the largest, the fastest growing, is not always the most attractive for all companies. Smaller companies may lack the skills and resources to serve large segments, or they may consider those segments to have too much competition. These companies can target smaller and less attractive segments, in an absolute sense, but for them they are potentially more profitable. Structural appeal of the segment A segment can have desirable size and growth, yet it does not offer attractive benefits. The company should analyze the main structural factors that affect the long-term attractiveness of segments For example, a segment is less attractive if it already has many strong and aggressive competitors. The existence of many substitute products, current or potential, can limit the prices and benefits that can be obtained in the segment. For example, supermarkets have entered the takeaway market. They have had a big impact on the fast food restaurant market. The relative power of buyers also affects the attractiveness of the segment. Buyers who have great bargaining power over sellers will try to reduce prices, demand more services and pit competitors against each other; all at the expense of the seller's profitability. Big buyers, like an airline that needs fifty rooms for fifty members of its crew, will negotiate a low price. Finally, a segment may be less attractive if it has powerful suppliers that can control prices or reduce the quality of goods and services ordered. Suppliers tend to be powerful when they are large and concentrated, when there are few substitutes, or when a product provided is an important input. In certain areas, restaurants specializing in fresh seafood are limited to a small number of suppliers. Company objectives and resources All companies should consider their own objectives and resources in relation to the segment. Some attractive segments can be rejected quickly because they don't fit the company's long-term goals. While these segments may be tempting in themselves, they can distract the company's attention and energies away from its main objective, which can be a bad choice from an environmental, political or social responsibility point of view. For example, in recent years some hotel chains have decided not to get involved in the gaming business: Disney has avoided this segment of the tourism sector. If a segment meets the company's objectives, the company must then decide whether it has the capabilities and resources to succeed in that segment. If your company lacks the capacity to successfully

compete in a segment and can't get resources easily, you shouldn't enter the segment. The company should enter the segments only if it can offer superior value and gain competitive advantage over its competitors. Choosing the target segments of the market After evaluating different segments, the company must now decide which and how many segments to target. This is a target market selection problem. A target market consists of a set of buyers who share needs or characteristics that the company decides to offer. Undifferentiated marketing By using an undifferentiated marketing strategy (or mass marketing) the company might decide to ignore the differences between market segments and focus on the market as a whole with a single offering. This mass marketing strategy focuses on what is common to consumer needs than what is different. The company designs a product and marketing program that will appeal to the largest number of buyers. Undifferentiated strategy provides cost economies. The narrow product line keeps production costs, inventory, and transportation costs low. The undifferentiated advertising program keeps advertising costs low. The absence of segmentation also keeps the costs of market research and product development costs low. Sometimes public coffee shops believe they fit into this model, but looking at their client portfolios often show a disproportionate number of middle- and high-aged customers. Most current marketing executives have significant doubts about this strategy. The difficulties occur in the area of the development of a product or brand that can satisfy all consumers. When several companies target larger segments, the inevitable result is strong competition. Small businesses generally find it impossible to compete directly against giants and are forced to adopt highly selective market strategies. Larger segments may become less profitable due to high marketing costs, including the need to lower prices and the possibility of price wars. Bifurcated marketing In many undeveloped countries in Asia, Africa and Latin America, and in developing markets such as China, markets are forking. There is a group of luxury hotels, for international visitors and for high-income locals who use it as a place for social occasions, and another group of low-cost hotels, for local residents and adventure tourists. A forked market (market that is divided into two segments) like this retracts many hotel owners from investing in those markets. The absence or minimal presence of a middle class means that hotel chains in developed markets do not succeed in these markets. In these countries, marketing planning and strategy can be quite different from what we find in many market segments such as Western Europe, Japan, USA, Australia or New Zealand.

Differentiated marketing Using a differentiated marketing strategy (or segmented marketing), a company decides to focus on various market segments and design independent offerings for each. Accor Hotels, a French company, operates under twelve trade names and manages various brands and types of hotels. Included in these brands are luxury hotels (Sofitel), three-star hotels (Novotel), two-star hotels (Ibis), limited-service hotels (Formula One and Motel 6) and extended stay hotels aimed at the older ones (Hotelia). This segmentation has allowed Accor to become one of the most important hotel groups in the world. This type of strategy produces more total sales than the undifferentiated strategy. Accor gets a higher hotel room market share with three different brands in a city than if it only had one brand. Sofitel attracts the traveler for large-scale business reasons, Novotel attracts the average traveler, Formula One attracts families and the traveler on a limited budget. Accor offers a different marketing mix to each target market. You must have marketing plans, marketing research, forecasts, sales analysis, promotion, and advertising for each brand. Many hotel chains pursue this strategy of applying the trust you have in their brands in transient accommodations, in different products such as timeshare. One of the riskiest can be the entrance of Ritz-Carlton luxury hotels in RitzCarlton apartments and superbly decorated homes. The logic behind this movement is in a financial strategy not a marketing strategy. Given the cost of land and operational and construction costs, Ritz-Carlton knew that the four hundred euros per night would not provide him with the desired benefits. "To build a luxury hotel today you need to look at some components that help finance costs," said Crescent Real Estates Equities Vice President of Development. Concentrated marketing A third market coverage strategy, concentrated marketing (or niche marketing) is especially attractive when company resources are limited. Instead of focusing on a small part of a large market, the company focuses on a larger part of one or a few smaller segments or niches. There are many examples of concentrated marketing. The Four Seasons hotel and Rosewood hotels focus on the market for the highest priced rooms. Thanks to this strategy the tourist companies achieve a strong position in the market segments they serve, also due to the great knowledge of the needs of the same. The company also enjoys economies of scale. If the segment is well chosen, the company can gain high rates of return on its investment. At the same time, concentrated marketing involves higher than normal risks. The particular segment may go into decline. That's why many companies prefer to diversify into two or more. Choosing a target market selection strategy

Companies must consider many factors when choosing an objective market selection strategy. Determining what the best strategy will be will depend on the company's resources. When the company's resources are limited, it makes more sense to resort to concentrated marketing. The best strategy also depends on the degree of variability of the product. Undifferentiated marketing is more suited to uniform products, such as grapes or steel. Products that may vary in design, such as restaurants and hotels, are best suited for differentiation or concentration. It is also necessary to take into account the stage of the product lifecycle. When a company pulls out a new product, it can be practical to release only one version and it may make more sense to resort to concentrated or undifferentiated marketing. For example, McDonald's had a limited selection compared to its current menu. However, at the maturity stage of the product lifecycle, differentiated marketing is beginning to make more sense. Another factor is market variability. If most buyers have the same tastes, buy the same quantities and react in the same way to marketing efforts, it is right to resort to the market without differentiating. Finally, competitors' marketing strategies are important. When competitors use differentiated or concentrated marketing, undifferentiated marketing could be suicide. Similarly, when competitors use undifferentiated marketing, a company can gain a competitive advantage using differentiated or concentrated marketing. Market positioning Beyond deciding which market segments it will target, the company must decide which positioning it wants in those segments. Positioning a product is how consumers define it with respect to important attributes: the place of the product in the minds of consumers with respect to the products with which it competes. Consumers are saturated with information about products and services. They cannot re-evaluate the products each time they make a purchase decision. To simplify the purchasing process, consumers organize products, services and companies into categories and position them in their minds. Marketers don't want to let the positioning of their products be determined by chance. These executives must plan which positioning will give their products the greatest advantage in the target markets chosen and must design a marketing plan to achieve this. Wendy's, a fast food company, announces that its meat has never been frozen, Burger King is known for its grilled food. The positioning of a hotel brand can be seen from two perspectives: that of the marketing management and that of the guests. The marketing management must have a company concept of the position intended by the hotel, and its promotional effects must articulate not only what the brand offers, but also how its offers are different from those of other brands. In the final stage of the analysis the position of the brand is determined by its customers. Positioning strategies

In marketing there are several positioning strategies. Products can be positioned based on product-specific characteristics, although this can be dangerous. For decades, airlines assumed that passengers recognized the difference between first class and economy, and that there was a segment of a sufficient size that would buy first class. Since 2000 many companies have realized that on many occasions the first class is mainly occupied by passengers who have been upgraded using their accumulated points In 2004 American Airlines announced a 50 to 70% reduction in their first-class seats. This reduction would have been unthinkable sooner. Consumer preferences change and competitors make efforts to highlight product-specific attributes. In 2004 Carnival Corp's Cunard Line launched the Queen Mary II. Tall as a twentythree-story skyscraper and the size of four football fields, it was designed to be floating elegance. Cunard decided that despite the terrorist threat and the 27% increase in the capacity of the industry, this ship could be positioned in two of its product attributes: elegance and luxury. Time will judge this strategy. Finally, products can be positioned against another product class. Cruise ships have positioned themselves in front of other vacation options, such as resort destinations. Conference centres have solidly positioned their product in front of hotels with conference facilities. Traditional hotels with banquet halls, seminar and conference rooms, full-service restaurants, a bar, gym and other service offerings are experiencing the onslaught of niche competitors, such as suite-only and extended-stay hotels. In the Asian market, such as Hong Kong or Singapore, luxury, five-star hotels with all the services, have proliferated with global competitors: Peninsula, Mandarin, Shangri-La, Regent, Hilton International and Hyatt hotels. Although there were less expensive hotels, they were primarily aimed at nearby markets or the GTI segment. As un discounted rates increased in these markets, and as customers' familiarity with these destinations increased, niche hotels began to appear. YMCA is a surprising niche competitor in Hong Kong. It has a very good location, close to the port, and has been remodeled to meet the needs of its American, European and Australian customers. Occupancy rates and satisfaction levels are high, threatening customers at traditional five-star hotels who accept other accommodation alternatives. When two or more companies pursue the same positioning, each must seek differentiation, such as "a business hotel for a lower price" or "a business hotel with a splendid situation". Each company must design a unique set of competitive advantages that attracts a substantial group within the segment. This subposition is usually called niche market marketing. Many cruise companies offer a multi-day experience with stops at multiple ports. Other niche cruise lines have found it cost-effective to offer a portless day cruise. By contrast, Queen Mary II has successfully developed a niche market, and has emerged as the Rolls-Royce of cruise ships.

Choosing and implementing a positioning strategy Positioning consists of three stages: 1. Identification of a set of possible differences that provide value for the consumer and provide competitive advantages over which to create positioning. 2. Choosing the right competitive advantages. 3. Efficient communication and delivery of positioning that has been chosen for the selected segments. A company can differentiate itself from its competitors by offering a set of competitive advantages. You gain a competitive advantage by offering consumers lower prices than competitors of similar products or by providing more advantages that justify higher prices. Thus, a company must compare its prices and products with those of competitors and continuously look for possible improvements. When you do better than your competitors you will have reached a competitive advantage and managed to differentiate yourself. Club Med uses a package strategy that offers all services except in-store shopping to a young market that is not familiar with tips, ordering with a menu, selecting a wine and going to a concierge to reserve a tennis court. Club Med packages all these products/services and eliminates the use of money at its resorts. Instead of euros, dollars or pesos, Club Med international customers can purchase a round of drinks with the trinkets they get at check-in....