Summary Marketing:concepts & Strategies (12Th Ed.)\" - Market Segmentation PDF

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Market Segmentation...

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To understand market segmentation and its advantages, we would do well to first define what a “market” is. A market is defined as a group of people who, as consumers or as part of organizations, need and have the ability, willingness and authority to purchase products in a product class. There are two types of markets; consumer market consists of purchasers and/or those in their households who intend to consume or benefit from the purchased products and who do not buy products for the main purpose of making a profit. A business market consists of people and groups who purchase a product for resale, direct use in producing other products i.e. raw materials or for general day-to-day operations. Since products are classified according to use, the same product may be classified as both a consumer product and an industrial product. Now that we’ve defined markets and classified products, we can explore why market segmentation is at the heart of marketing strategy. There are several reasons why the decisions about which opportunities to pursue and which market segments to target are at the heart of marketing strategy. . Firstly, a firm’s resources are never unlimited and therefore have to be channelized to the activities that will best meet its objectives. Secondly, the varying characteristics, needs, wants and interests of customers mean that there are few markets, if any, where a single product or service is satisfactory for all. Therefore, it is almost a given that a firm will have to “target” its products and services to market segments which are the most likely to help it achieve its objectives. Having said that, how does a firm go about creating an effective market segmentation strategy? Markets made up of individuals with different needs are called heterogeneous markets. The market segmentation approach divides the total market into smaller groups of customers who have similar product needs and buying characteristics. A market segment is a group of individuals, groups or organizations sharing one or more similar characteristics that cause them to have relatively similar product needs. Reasons for using market segmentation: Segmentation and the customer understanding underlying it can make it easier for companies to identify and exploit different market opportunities. The approach offers businesses a number of advantages at the customer level (customer analysis), in relation to the competition (competitor analysis) or in terms of the effectiveness of resource allocation and strategic planning. There are three stages to carrying out market segmentation: segmentation, targeting and positioning. Segmentation uses one or more base variables to group similar customers into segments. Targeting involves decisions about which and how many customer groups – segments – to target. Positioning involves deciding precisely how and where within the targeted segments to aim a product or products, brand or brands.

Segmentation variables or bases are the dimensions or characteristics of individuals, groups or businesses that are used for dividing a total market into segments. The segmentation variable should be related to customers' needs for, uses of or behaviour towards the product. Selecting the appropriate variables depends on a company’s resources and capabilities. One-to-one marketing involves developing long-term relationships with individual customers in order to understand and satisfy their needs. Although advanced technology makes it easier for companies to achieve this goal, this approach involves considerable investment. Marketers must decide how many segmentation variables to use. Single variable segmentation involves only one variable, but in multivariable segmentation, more than one characteristic is used to divide a total market. The latter is often more meaningful. Consumer segmentation variables can be grouped into four categories: 1. Demographics: Demographers study aggregate population characteristics such as (age, gender, race, ethnicity, income, education, occupation, family size, family life cycle, religion and social class), Manufacturers of tea bags, such as PG and Twinings, offer their products in packages of different sizes to satisfy the needs of consumers ranging from singles to large families. Children profoundly influence certain purchasing decisions made by their parents.For example, in households with only one parent or in which both parents work, children often take on additional responsibilities such as cooking, cleaning and food shopping, and thus influence the products and brands that are purchased. Marketers have also found that children are great influencers in the purchase decision and can often influence even large ticket purchases such as cars and houses. Gender is another demographic variable commonly used to segment markets, including the markets for clothing, alcoholic drinks, books, magazines, non-prescription drugs and even cigarettes. The occupations of the members of the household are known to have an impact on the types of products and services that are purchased. The type of housing individuals and families own or rent, is strongly linked to this variable. It is obvious, for example, that sales of products for refurbishment and decoration, such as paints, fabrics and wallpapers, will occur predominantly among those professions that have owner-occupier status. Occupation is also known to affect the types of sporting and leisure activities people prefer. For example, professionals may be active with walking, swimming, cycling and jogging, but not so involved with darts or football. Intermediate managers enjoy walking, swimming and keep fit/yoga. Unskilled manual workers are not particularly active in sports and physical activities. Other socio-economic variables that may be used to segment markets include education level and social class 2. Geographic:The needs of consumers in different geographic locations may be affected by (population, market density, climate). Markets may be divided into regions because one or more geographic variables may cause customers' needs to differ from one region to another. A company that sells products throughout the EU will, for example, need to take the different languages spoken into account when labelling its goods. City size can be an important segmentation variable. For example, one franchised restaurant organization will not locate in cities of fewer than 100,000 people because experience shows that a smaller population base

could make the operation unprofitable. The same company may add a second, or even a third, restaurant once the city reaches a certain size. In Europe, climate can be used as a geographic segmentation variable. Companies entering new markets in Europe increasingly need to consider the impact of climate on their customer base. For example, washing machines sold in Italy do not require such fast spin speeds as those sold in Germany because the Italian climate is much sunnier. Other markets affected by climate include air conditioning and heating equipment, clothing, gardening equipment, recreational products and building materials. Geodemographic segmentation, which combines geographic and demographic factors, involves clustering people according to postcode areas. Variables for segmenting business markets include demographic factors, operating variables, purchasing approach, situational factors and the personal characteristics of buyers 3. Psychographic: Marketers sometimes use psychographic variables such as (personality traits, motives, lifestyles).Personality characteristics are useful when a product is similar to many competing products and when consumers' needs are not significantly affected by other segmentation variables. For example, it has been shown that personality sometimes influences the clothes, make-up and hairstyles that individuals adopt. When motives are used to segment a market, it is divided on the basis of consumers' reasons for making a purchase. Product durability, value for money, concern for the environment, convenience and status are all motives affecting the types of product purchased and the choice of stores in which they are bought. For example, one consumer may be motivated to purchase recycled kitchen paper out of concern for the environment.The use of lifestyle as a segmentation variable is problematic, because it is so difficult to measure accurately compared with other types of segmentation variables. In addition, the relationships between psychographic variables and consumers' needs are sometimes obscure and unproven, and the segments that result from psychographic segmentation may not be reachable.For example, a marketer may determine that highly compulsive individuals want a certain type of clothing. One of the most well-known psychographic models is that devised by SRI (Morton 1999). The information provided below provides an excellent overview of the VALs methodology. The basic tenet of VALS is that people express their personalities through their behaviours. VALS specifically defines consumer segments on the basis of those personality traits that affect behaviour in the marketplace. Rather than looking at what people do and segregating people with like activities, VALS uses psychology to segment people according to their distinct personality traits. The personality traits are the motivation––the cause. Buying behaviours becomes the effect–– the observable, external behaviours prompted by an internal driver.

4. Behaviouristic: Marketers can also segment markets on the basis of an aspect of consumers' behaviour towards the product (volume usage, end use, expected benefits, brand loyalty, price sensitivity). Purchase behaviour can be a useful way of

distinguishing between groups of customers, giving marketers insight into the most appropriate marketing mix. For example, brand-loyal customers may require a different kind of treatment from those who switch between brands. The occasion on which customers buy a particular product may impact upon product choice because in different sets of circumstances different product selection criteria may be applied. For instance, a customer who replaces a car tyre in an emergency will probably be less concerned about price than one who is routinely maintaining his or her car Benefit segmentation is the division of a market according to the benefits consumers want from the product. The effectiveness of benefit segmentation depends on several conditions. First, the benefits people seek must be identifiable. Second, using these benefits, marketers must be able to divide people into recognizable segments. Finally, one or more of the resulting segments must be accessible to the companies' marketing efforts Segmentation effectiveness: Certain conditions must exist for market segmentation to be effective. First, consumers' needs for the product should be heterogeneous. Customers with dissimilar needs and buying behaviour must not be grouped together in the same market segment. Second, the segments of the market should be measurable so that the segments can be compared with respect to estimated sales potential, costs and profits. Third, at least one segment must be substantial enough to have the profit potential to justify developing and maintaining a special marketing mix for that segment. Fourth, the company must be able to access the chosen segment with a particular marketing mix. Fifth, the segment should be reasonably stable over time. Sixth, the resulting segmentation scheme must be managerially useful.. However, with the increasing use of Telemetry, Augmented Reality, Big Data Analysis and advances in technology, marketers are getting more and more confident that they can use multiple segmentation variables effectively and without the associated high costs normally associated with thin segmentation. Marketers predict that technology will drive customization to be a standard offering across most product categories. For example 3D Printers have ushered in the era of personal manufacturing, allowing consumers to manufacture a host of products in their homes. In a few years, this technology will become more and more cost effective making its mainstream adoption a certainty. Profiling segments using descriptor variables can help the marketer build up a fuller picture and design a marketing mix (or mixes) that more precisely matches the needs of people in a selected market segment (or segments). Once a company has determined its target markets, it should strive to exploit relationships with its customers in these segments. Customer relationship management (CRM) is the term used to describe the processes for managing such relationships, with the aim of maintaining the ongoing interest and support of the most worthwhile and valuable customers.

Example: BMW has designed specific models for different income and age groups. In fact, it sells models for segments with varied combinations of age and income: for instance, the short wheelbase 3 for

young urban drivers. Hilton markets to a variety of segments - business travellers, families and others with packages adapted to their varying needs. Benefits: Segment marketing offers several benefits over mass marketing. The company can market more efficiently, targeting its products or services, channels and communications programmes towards only consumers that it can serve best. The company can also market more effectively by fine-tuning its products, prices and programmes to the needs of carefully defined segments. And the company may face fewer competitors if fewer competitors are focusing on this market segment. In conclusion, we can see that market segmentation not only has tremendous advantages in effective marketing strategy but is actually indispensable to it. A firm’s lack of or poor segmentation would leave it “shooting in the dark” and be prone to wasting precious resources. Going forward, globalisation, increasing deployment of technology in marketing and new methods in understanding consumer behaviour will change how marketers approach market segmentation and determine the successful products of the future....