Market Segmentation

Segmentation 

Marketing strategies for a company's product are based on the concepts of segmentation, selecting a target market, and positioning the product within the target market. All markets can be analyzed and divided into segments. A market segment is a group of customers or potential customers within a total market who have similar needs and interests, and who can, therefore, be targeted by the same marketing activities ( a marketing mix ) 

Market segments 

Market segmentation has been defined as:' the subdividing of a market into . . . Subsets of customers, where any subset can be selected as a target market and reached with a distinct marketing mix. 

The purpose of segmentation is to identify one or more target markets for a product or service. As stated previously, a market is not a mass, homogeneous group of customers, each wanting to buy an identical product. Every market consists of potential buyers with different needs and different buying behavior in different geographical locations. These different customers may be grouped into segments.

A market segment is simply a group of potential customers that have been identified for a product, who appears to have similar needs and interests. Market segmentation is a way of the subdividing of a market into distinct and increasingly homogeneous subgroups of customers, where any subgroup can conceivably be selected as a target market to be met with a distinct marketing mix ' ( Kotler). 

There are two essential elements in this definition of market segmentation, 

( a ) Although the total market consists of widely different groups of consumers, each group consists of people ( or organizations) with common needs and preferences, who perhaps react to various forms of marketing in much the same way. 

( b ) Each market segment can become a target market for a firm and would require a unique marketing mix if the firm is to exploit it successfully. 

It must understand that there is no ' correct ' way to segment a market Companies may segment a market in different ways, and potential group customers in different ways. 

Identifying market segments for consumer goods 

An important task in marketing is to identify how the market may be segmented. Segmentation applies more obviously to the consumer market, but it can also be applied to an industrial market. There are different ways in which a market may be segmented.

Geographical 

Geographical segmentation is straightforward, but useful, especially in business-to-business marketing, which relies heavily on personal selling, A geographic consumer market can be subdivided into socio-demographic such - segments ( see below). 

Lifestyle segmentation

Lifestyle segmentation is based on how people see themselves, and their attitudes towards a particular product or service, or towards their life in general. A market may be segmented according to the interests, activities, personality, and opinions of individuals. This is very useful for many consumer goods since they can be designed and promoted to appeal based on these factors. For example, a company that makes soft drinks may identify a segment in the market of individuals who are concerned about their weight ( and so may want to buy low-calorie drinks ) or individuals who like to have soft drinks when playing a sport and thus may want to buy high - energy drinks). 

Socio-demographic segmentation

A market may be segmented according to the age of potential customers, their position in society, and their social or religious background Markets may be segmented according to Age, Religion, Gender, Ethnicity / national origin, Incom,e Social class, Occupation, Family size, Education 

Behavioral segmentation

A market may be segmented according to the way that different segmentation customers respond to, know about, or use a product. A market may be divided into behavioral segments based on : 
( a ) Occasion - when customers buy or use the product. For example, manufacturers of food products may segment the market according to the time of day that customers eat the product. 
( b ) The volume of usage - heavy, medium, or light / occasional usage. 
( c ) Loyalty - a market may be divided between customers who are loyal to a product or product provider and those who are not. 
( d ) The benefits the customers are seeking - what benefits do customers look for in a product? As an example, a manufacturer of toothpaste may seek to appeal to customers based on price ( economic benefits), medicinal quality, the taste of the toothpaste, or cosmetic benefits ( effect on the user's appearance). 

Identifying market segments for industrial goods 

Industrial goods are goods for which the customers are businesses that will use the purchased items in their own business operations. Business customers are generally assumed to be more rational in the buying decisions they make than many consumers. Several approaches to the segmentation of an industrial market have been suggested.

A two-stage approach to industrial market segmentation 

A two-stage approach to the segmentation of industrial markets is based on analyzing the market in two stages : 
( 1 ) Macro-segmentation of the market 
( 2 ) Micro-segmentation of the macro-segments 
Macro-segmentation segments the market according to a broad factor such as : 
( a ) Size of company/customer organization 
( b ) The geographical location of customers 
( c ) Industry in which customers operate 
( d ) The general benefits that customers want from the product. For example, manufacturers of automated physical access systems ( systems controlling the access of people to a location ) may want to buy the product for security reasons to control access to a secure location, such as a bank's inner offices ) or for facilitating automatic entry and reducing manual ticket handling requirements, such as entry to a sports stadium. 

Macro-segmentation is used to define broad market segments in different ways. Micro-segmentation identifies more specific segments within a broad market segment. ' Micro - segments are homogenous groups of buyers within the macro segments ' (Webster, 2003).
Dividing a macro - segment into micro-segments may be based on: 

( a ) Criteria that customers consider most important when making a buying decision, such as product quality, delivery, technical support, price, or supply continuity. A manufacturer may divide the market based on supplier profiles that appear to be preferred by decision-makers, such as high quality, prompt delivery, but the premium price, or standard quality, lower price, but less prompt delivery. 

 ( b ) Purchasing strategy. Some industrial customers only buy from suppliers on their approved supplier list. A manufacturer may, therefore, segment a market according to the purchasing strategy of potential customers, and target customers with an approved supplier list only if they are already an approved supplier or if they are prepared to spend the time and money needed to get on to approved supplier lists. 

Nested approach to industrial market segmentation 

The nested approach to industrial market segmentation developed from the two-stage approach. Markets can be segmented in a multi-stage approach that includes the following five stages. 
( 1 ) Demographics: the industry, company size, and/or customer location 
( 2 ) Operating variables, such as the technology used by customers company technology and their strategic capabilities 
( 3 ) Purchasing factors, such as the role of the purchasing function, buyer-seller relationships, purchasing policies, and purchasing criteria ( benefits sought ) 
( 4 ) Situational factors: the urgency of the order, size of order 
( 5 ) Buyers ' personal characteristics 
Segmentation begins at stage 1 and can be refined gradually by working down through stages 2, 3, 4 and 5

Bottom-up approach 

Kotler suggested a ' build-up ' approach to the segmentation of industrial markets. In this approach, a manufacturer collects and analyses large amounts of data about customers and their buying decisions and habits. Through this detailed analysis, the manufacturer can identify groups of customers ( market segments ) with similar attitudes and approaches to buying. 

Reasons for segmenting markets 

Reason Better satisfaction of customer needs 

Comment The same product will not satisfy all customers. A company should identify the segment of customers who may buy its products, or it must develop products that appeal to a specific segment of the market. 

Growth in revenue and profits 

Comment Some customers will pay more for certain features of a product. By targeting a product at a specific segment of the market, a company can hope to sell more successfully than competitors and make more profit. 

Targeted communications

Segmentation means that communications with targeted customers ( advertising and sales promotions ) can seek to appeal to their particular needs and values. 

Innovation 

By identifying the unmet needs of an identified market segment, companies can innovate and develop variations of a product to satisfy them. 
Segmenting a market also helps marketing managers to think about the reasons why customers in each segment of the market may have different reasons for buying a product. Having identified the reasons why people might want a product, companies can plan how to design and market their products to meet those specific needs. 

Lowest price 

In most markets, there will be one or more segments of the market in which customers want to buy a basic product for the lowest price possible. The design features of the product may be relatively unimportant. Provided that the product performs the function for which it is bought, customers will purchase the cheapest among the competing products available from different producers. This means that in every market, there will be customers whose main concern is with price. A company that can make and sell the product at the lowest price will have a competitive advantage over its rivals and should be able to dominate this section of the market. In many markets, particularly consumer markets, there will be some companies seeking to be the least-cost and lowest price suppliers to the market.