Organizations that sell to consumer or business markets recognize they cannot appeal to all buyers in those markets or at least not to all buyers in the same way. Market segmentation is the process of classifying customers into groups with different needs, characteristics or behaviour.
Why Market Segmentation?
Buyers are too numerous, too widely scattered & too varied in their needs and buying practices.
Rather than trying to compete in an entire market, sometimes against superior competitors, many companies try to identify parts of the market that they can serve best. They try to satisfy the needs and wants of specific segments of the market better than other players can… this strategy is expected to lead to customer loyalty.
Companies have not always practiced market segmentation. Marketing has evolved through the following three stages:
Mass marketing: one product for all buyers, with no significant variations in the offering.
Product Variety Marketing – two or more products (different styling, design, size, etc) to offer variety rather than to appeal to different segments
Target Marketing: developing product(s) for targeted segment(s) to meet specific needs
Market Segmentation
Many companies are moving away from conventional market segmentation
They are aiming at “micro segmentation” and “a market of one”
Target marketing can better help them find marketing opportunities
Technology (especially IT) is an important factor in facilitating this process
Flexible market offerings
Naked solution: Product and service elements that all segments value
Discretionary options: Elements valued by some segments – options usually have additional charges
Market preference patterns
Homogenous: no natural segments; all users want the same features, hence all brands tend to cluster around the middle of the market
Diffused: no distinct patterns, great variation in customer preferences; first player usually in the middle of the market, later players adopt different strategies and positions
Clustered: natural segments; first player might focus on largest segment or be in the middle while later entrants follow their own strategies
Target Marketing
Target marketing can be done at four levels – by market segments, aimed at niche markets, marketing by local areas and targeted at individuals.
Steps in Segmentation, Targeting and Positioning
Market segmentation would entail identification of bases (criteria) for segmentation, followed by development of profiles of these target segments.
Market targeting would have to start with developing measures of attractiveness for the segments, application of these metrics to the identified segments that would permit selection of segments.
Market positioning starts with preparing the positioning statement for each of the selected segments, followed by developing the marketing mix strategy for each segment.
Effective Targeting
Identification and profiling of distinct groups of buyers who differ in their needs and preferences
Selection of one or more market segments to target (enter)
Establishing and communicating the distinctive benefits of the market offering to the selected target segment(s)
Market Segmentation Parameters
Criteria / Parameters for consumer markets:
Demographic – easy to measure variables such as age, sex, monthly household income, education, occupation, family size etc
Psychographic – psychological variables like values, lifestyles, attitudes, opinions etc
Geographic – based on geographic units such as country, region, urban / rural
Behavioural – based on knowledge of, attitudes towards, usage rate of category etc
Demographic criteria / parameters
Age
Sex
Education
Household income
Occupation
Socio-economic class
Family size
Family life cycle stage
Marital status
Religion
Nationality
Ethnic origin / race
Psychographic criteria / parameters
Values
Attitudes
Interests
Lifestyles
Opinions
Preferences
Personality
Geographic criteria / parameters
Continent – Region – Country – Town / town class – Urban versus rural
Behavioural criteria / parameters
User status: non-user, ex-user, potential, regular…
Attitudes: enthusiastic, positive, indifferent, negative, hostile
Buyer readiness: unaware, aware, informed, interested, desirous, intending…
Purchase occasions: regular, special, occasional
Usage rates: light, medium, heavy
Loyalty status: hard core, split, shifting, switcher
Benefits sought: tangible/intangible (emotional)
Decision role: buyer, user, influencer, decider, initiator
Criteria / Parameters for organizational markets:
Some of the same variables may be used – demographic, geographic, usage rates, buyer readiness status, buyer loyalty status etc. There are several other factors in addition:
Demographic: industry, company size, location, growth rates
Operating variables: technology, user/non-user
Purchasing approaches: centralized/decentralized, structure (engineering/finance dominated), relationships, policies (leasing/bidding etc), quality/price etc
Situational: urgency, size, application orientation
Buyers’ personal characteristics: values, risk attitudes, loyalty /relationship
To be effective, market segments must be:
Measurable in terms of size and purchasing power
Differentiable so that they respond differently to marketing stimuli
Substantial regarding size (large) and profitability
Accessible so that they can be reached (physically) and served
Actionable in terms of the degree to which effective marketing programmes can be devised and implemented
Market Targeting
After the market has been segmented, it is necessary to evaluate the segments prior to selecting the segments to be targeted using three sets of factors:
Size and potential for growth
Structural attractiveness
Company objectives & resources
Selecting Market Segments
Single segment concentration leads to strong knowledge of segment needs, helps achieve operating economies… but the segment may have limited growth prospects or may collapse.
Example: Polaroid due to digital photography
Selective specialization helps to diversify risk by focusing on (unrelated) segments that are individually attractive.
Product specialization focuses on a single product (or variations thereof) to sell to various segments but new technology can supplant the product. Example: mechanical typewriters, word processors
Market specialization leads to serving many needs of a specific segment, but the segment may shrink, leading to loss of volumes and revenues
Full market coverage is an attempt to serve all customer segments – suitable only for very large organizations
Full market coverage
Large organizations adopt one of two ways:
Undifferentiated marketing – making one offer (that appeal to the entire market and ignoring differences among segments. This has the advantage of lower costs and might lead to lower prices.
Differentiated marketing – designing different products and offers for each selected segment.
This approach increases costs of product modification, manufacturing, inventory, marketing communications & administration.
Market Coverage Strategy: factors
Company resources
Competitors’ activities / strategies
Stage of Product Life Cycle
Market variability
Positioning
Positioning may be viewed as the core perceptions about the brand in terms of tangibles and intangibles relative to perceptions about competing brands in the minds (perceptual space) of consumers and prospects.
Bases for Brand Positioning
Brand parentage (corporate, parent brand)
Product category
Brand attributes (USP)
Brand benefits
Customer segments
Usage occasions
Price-value relationship
Competitor orientation
Implementing Positioning
Three steps are involved:
Identifying alternative / possible sets of competitive advantages
Selecting the right advantage
Communicating the advantage
A technique known as ‘perceptual mapping’ is often used to analyse consumer perceptions prior to brand positioning / re-positioning.
A difference is worth promoting if it is:
Important to the target segments
Distinctive and different from competitors
Superior or better by way of benefits
Affordable by selected target segments
Pre-emptive
Communicable
Profitable for the organization
