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 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 a 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.

What Marketing Is

What is Marketing 

Here we are going to discuss the following topics relating to marketing management.

• Marketing, markets and marketing strategies 
• Segmentation 
• Segmentation, targeting, and positioning ( STP ) 
• The marketing mix 
• Managing products and brands 
• Pricing strategies 
• Place: distribution channel management & Promotion strategies 

Marketing , markets and marketing strategies 

Companies sell their products or services in markets they have chosen for targeting. To sell their products and persuade customers to buy them, companies' s must undertake marketing activities.

Marketing strategies are plans developed by companies for selecting target markets and marketing their products or services to potential customers in the target market. 

Marketing creates value by creating interest in a product or service and persuading customers in the target market to buy it. 

Marketing 

It may be tempting to think of marketing as a combination of advertising, sales promotions, and selling, but it covers a wider range of activities. There have been many different definitions of marketing. 

• ( a ) The American Marketing Association ( AMA ) Board of Directors, which now reviews its definition of marketing every five years , has defined marketing most recently as : ' the activity , set of institutions , and processes for creating communicating , delivering , and exchanging offerings that have value for customers , clients , partners , and society at large ' ( 2012 )

• ( b ) A previous definition of marketing by the AMA was that marketing is: ' the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives ' ( 1985

• ( c ) Philip Kotler, a leading writer on marketing management, has defined marketing as:' the science and art of exploring, creating, and delivering value to satisfy the needs of a target market at a profit. Marketing identifies unfulfilled needs and desires. It defines, measures and quantifies the size of the identified market and the profit potential. It pinpoints which segments the company is capable of serving best, and its designs and promotes the appropriate products and services'.

Marketing: the science and art of exploring, creating, and delivering value to satisfy the needs of a target market at a profit. 

Marketing strategies are strategies/plans for marketing a product or service to a target market.

Markets 

Companies undertake marketing in selected markets. So what is a market? The definition of a market is that it is a group of consumers or organizations:

• That is interested in a product ( or service ) 
• That has the resources to buy a product or service. 
• That is permitted by law or regulation to buy a product ( or service ) 

Using this definition, we can make a distinction between the following markets : 

Potential market  

The total of the consumers or organizations that might be interested in buying the product (or service) 

Available market

The total of the consumers or organizations in the potential market who have the resources to buy the product. 

Qualified available market

The total of the consumers or organizations in the available market who are permitted by law to buy the product, or who are not prohibited by law from buying it.  

Target market 

The part of the market to which the business organization has decided to sell its products ( to serve )

Penetrated market

The part of the target market that the organization has succeeded in selling its products  

There are other ways of classifying markets.

Geographical markets 

Markets may be defined or classified according to the geographic area they cover: global market, regional market, national market, local market. 

Product markets 

Markets may be defined by the type of product that is sold in them, such as a market for oil, the energy market, a stock market, and so on. Within the product market, there are different variations of the product. Even in the market for something basic such as bottled water, there is still water, sparkling water, flavored water, water for water dispenser machines, and water bottles of differing sizes.

Customer markets

Markets may be defined by the intended customers, such as a consumer market, an industrial market, a retail market, and so on.  

In marketing, a market is often defined in terms of its buyers or potential buyers. 

• Consumer markets ( for example, markets for food, cookers, television sets, clothing ) 
• Industrial markets ( also known as a business - to - business, for example, selling machines to a factory ) 
• Government markets ( markets for products that governments purchase, such as armaments and, where there is state-run medical services and schools, medical equipment, medicines, and school equipment )
• Reseller markets ( markets, where the sellers are manufacturers of goods and the buyers, are retailers or other organizations that resell the goods they buy, such as wholesalers ) 
• Export markets ( selling goods to customers in other countries ) 

Consumer goods markets 

Consumer goods are goods that can be used by consumers without the need for any further commercial processing. Consumer goods may be further classified according to the method by which they are purchased : 

• Convenience goods. Goods that consumers buy from a convenient location, such as a local store or supermarket. These are goods that are often purchased regularly and are low - priced. They usually have close substitutes, which may be sold under different brand names. 

• Shopping goods. Goods that consumers may buy after having looked at different products from different manufacturers or retailers before deciding which product to buy. They usually have a higher unit value than convenience goods and are bought less frequently, often from a specialist retailer,  

• Specialty goods. Goods where the consumer wants to buy a specific product because of its unique features. These are generally high - priced goods that are available only from a limited number of sellers. Consumers will take time and trouble to find somewhere they can buy the product. 

Industrial markets or business - to - business ( B2B ) markets 

In industrial markets, the customer is another firm, such as for the sale of machine tools or consultancy advice. In an industrial market, more than a consumer market, customers are motivated by financial and commercial considerations such as :

• Product quality 
• Price 
• Credit terms 
• Delivery dates 
• After-sales service 
.

Industrial goods are purchased by companies in the middle of a supply chain. The purchased goods are used to make other industrial goods or to make consumer goods. The demand for industrial goods depends on the demand for consumer goods that are sold at the end of the supply chain.

Marketing strategies and value creation 

Marketing activities by a company create value by : 

Making potential customers in a target market aware of the company ' s product ( or products or brand name ) and getting them interested in it 

Making interested customers want to buy the product 
Getting them to buy it and depending on the nature of the product, getting them to buy the product repeatedly), many times over 

Value is created in marketing by selling more products and through a combination of sales volume and sales price. 

Competitive advantage may be created by success in taking target customer ' s want to buy the company ' s products rather than the products of a competitor. 

Marketing strategies are concerned with: 
Selecting target markets 
Deciding on the appropriate methods for marketing to the selected target market 

Companies may select several different target markets. However, there is no single standard product that is sold to a universal global audience. 
Every market is a variation of a geographical market, product markets, and customer markets.

We will discuss the following topics in the coming post series. Got touch with us. 

• Segmentation 
• Segmentation, targeting, and positioning ( STP ) 
• The marketing mix 
• Managing products and brands 
• Pricing strategies 
• Place: distribution channel management & Promotion strategies 

To be continued...