Market Segmentation Essay

Category: Market, Microeconomics
Last Updated: 04 Jul 2021
Pages: 14 Views: 151
Table of contents

The differentiating attributes of the segments must be measurable so that they can be identified.

  • Accessible: The segments must be reachable through communication and distribution channels.
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  • Sizeable: The segments should be sufficiently large to Justify the resources required to target them.
  • Very small segment may not serve commercial exploitation.
  • Profitable:

There is no use in locating segments that are sizeable but not profitable. Unique needs: To Justify separate offerings, the segments must respond differently to the different marketing mixes.

  • Durable:

The segments should be relatively stable to minimize the cost of frequent changes.

  • Measurable:

The potential of the segments as well as the effect of a specific marketing mix on them should be measurable.


Segments must be compatible with firm's resources and capabilities.

  1. Assess the difference between one customer group and others in terms of their needs and their likely responses to the product offered by the company.
  2. Find out what are the factors that influence in grouping certain customers into a particular segment.
  3. After studying the above aspects, group the customers into certain segments.
  4. Study and confirm that certain marketing programmer and marketing mixes can be formulated for different segments.
  5. Find out which segments would accept the product/services of the company and can be considered as natural targets of the company.
  6. Estimate the likely purchases of the products of the company by be suitable to the product/services offered by the company. Consumer market can be segmented on the following customer characteristics: 1 . Geographic Segmentation. 2. Demographic Segmentation 3. Cryptographic Segmentation. 4. Behaviorist's Segmentation.

Geographic Segmentation:

Potential customers are in a local, state, regional or national marketplace segment. If a firm selling a product such as farm equipment, geographic location will remain a major factor in segmenting your target markets since their customers are located in particular rural areas. While for retail store, geographic location of the store is one of the most important considerations, in this ease city areas are preferred.

Example: Titan has segmented its product according to different age group of person. B) Income (dominant factor):-segmentation is done on the basis of income level of a c) Purchasing power (dominant factor):- Segmentation had done on the basis of purchasing power of the customer. Example of different car segment based on purchasing power. D) e) f) Occupation. Gender (dominant factor):-product can be segmented for male and female. Family Size. H) Nationality. I) Religion. J) Education:-primary, High School, Secondary, College, Universities. H) Cryptographic Segmentation: - Cryptographic Segmentation groups customers according to their life-style and buying psychology. Many businesses offer products based on the attitudes, beliefs and emotions of their target market. The desire for status, enhanced appearance and more money are examples of cryptographic variables. They are the factors that influence your customers' purchasing decision. A seller of luxury items would appeal to an individual's desire for status symbols Cryptographic Segmentation includes variables such as:- a. Activities. B. Interests. Opinions. D. Attitudes. E. Values. Activities, Interests, and Opinions (AI) surveys are one tool of measuring lifestyle. ) Behaviorist's Segmentation: - Markets can be segmented on the basis of buyer behavior as well. Since all Segmentation is in a way related to buyer behavior, one might be tempted to ask why buyer behavior-based segmentation should be a separate method. It is because there is some distinction between buyer's characteristics that are reflected by their geographic, demographic and cryptographic profiles, and their buying behavior.

Advantages of market segmentation

Various advantages of market segmentation are:

  1. Helps distinguish one customer group from another within a given market.
  2. Facilitates proper choice of target market.
  3. Facilitates effective tapping of the market.
  4. Helps divide the markets and conquer them.
  5. Helps crystallize the needs of the target buyers and elicit more predictable responses from them ; helps develop marketing programmer on a more predictable base; helps develop market offer that are most suited to each group.
  6. Helps achieve the specialization required in product; distribution, promotion, and racing for matching the customer group and develop marketing offers and appeal that match the need of each group.
  7. Makes the marketing effort more efficient and economic.
  8. Helps concentrate efforts on the most productive and profitable segment, instead of frittering them over irrelevant, or unproductive, or unprofitable segment.
  9. Helps spot the less satisfied segments and succeed by satisfying such segments. 10. Brings benefits not only to the marketer but also to the customer as well.

When segmentation attains high sophistication, customers and companies can choose each other and stay together.Market Segmentation Market segmentation is a two-step process of: naming broad product markets, and segmenting those markets in order to select target markets. Most segmentation efforts fail because inexperienced marketers attempt to find one or two demographic characteristics to segment a mass market.

Generally, customer needs and behaviors do not fit nicely into one or two demographic characteristics. This section of the report will outline Best Practices related to segmenting your various product markets. A market is a group of potential customers who have similar needs and are willing to arches goods or services to satisfy those needs. Good marketers focus on the customer and develop marketing mixes for very specific target markets. On the other hand, poor marketers focus on their products when defining markets, leading to missed opportunities and questionable customer satisfaction.

The point here is that a market is external to an organization; it doesn't make sense to segment potential markets based on the features contained in your products or services. When narrowing down the mass market, it is helpful to think of two basic types of markets: generic markets and product markets. A generic market is a market of customers with generally similar needs, which organizations satisfy in a variety of ways. An example of a generic market would be the transportation market for a city; buses, trains, cars, bicycles, and walking, are all methods of getting around town.

Contrastingly, a product market is a market of customers with very similar needs. An example of a product market would be for laptop computers, where customers have the choice between products from Microsoft, Dell, Apple, Fajitas, etc. When evaluating potential market opportunities, look for a definition that is broader than our firm's current product market, but not so broad that your firm could not handle the demand if it were generated. Work to establish a slightly broader definition for your current product markets.

When defining your product market, there are four important aspects: An example of a product market might be "marketing advisory services for mid-sized enterprises in North America with limited budgets. " Once you have defined your product markets, you are ready to continue the segmentation process to identify potential target markets. Understand Common Market Segment Dimensions There are common market segment dimensions for consumer and BIB markets. Following are two short lists containing sample dimensions that can be used to slice and dice your consumer or BIB product markets.

Be very careful when selecting your dimensions, as these parameters will form the basis for defining your target markets. Note: the following lists are meant to provide examples that will stimulate your thinking of applicable dimension. There are thousands of variables that could be used for this exercise, so be sure to carefully select the right dimensions for your market. Using a Customer Relationship Management (CRM) database system can assist with clustering customers with similar needs, buying patterns, or other relevant characteristics.

We also encourage you to conduct surveys and to aggregate your survey data using our Market Segmentation Tool. 3. Group Customers into Homogeneous Supermarkets In this stage of the segmentation process, your goal is the find customers who have similar needs that will respond to a marketing mix in a predictable manner. Following are 4 criteria that strong market segments have in common: A. Homogeneous - customers in a market segment should be very similar in both their segment dimensions and their likely response to a marketing mix. s possible with other segments.

Economic Upside

the segment needs to be large enough, or predicted to grow sufficiently, to be profitable.  Operational - the segment dimensions should be helpful for understanding; identifying customers and making decisions regarding the marketing mix. It is essential that market segments are operational. The whole point of segmenting is to assist with better targeting, positioning, and decision-making; be sure that your segment dimensions are extremely relevant. Once you have established distinct market segments based on various dimensions, you are ready to start targeting your potential customers.

Segmentation, Targeting, and Positioning Segmentation, targeting, and positioning together comprise a three stage process. We first determine which kinds of customers exist, then select which ones we are best off trying to serve and, finally, implement our segmentation by optimizing our products/services for that segment and communicating that we have made the choice to distinguish ourselves that way. Segmentation involves finding out what kinds of consumers with different needs exist. In the auto market, for example, some consumers demand speed and performance, while others are much more concerned about roominess and safety

Generically, there are three approaches to marketing. In the undifferentiated strategy, all consumers are treated as the same, with firms not making any specific efforts to satisfy particular groups. This may work when the product is a standard one where one competitor really can't offer much that another one can't. Usually, this is the case only for commodities. In the concentrated strategy, one firm chooses to focus on one of several segments that exist while leaving other segments to competitors.

For example, Southwest Airlines focuses on price sensitive consumers who will forego meals and assigned seating for low prices. In contrast, most airlines follow the differentiated strategy: They offer high priced tickets to those who are inflexible in that they cannot tell in advance when they need to fly and find it impractical to stay over a Saturday. These travelers?usually business travelers?pay high fares but can only fill the planes up partially. The same airlines then sell some of the remaining seats to more price sensitive customers who can buy two weeks in advance and stay over.

In the next step, we decide to target one or more segments. Our choice should generally depend on several factors. First, how well are existing segments served by other manufacturers? It will be more difficult to appeal too segment that is already well served than to one whose needs are not currently being served well. Secondly, how large is the segment, and how can we expect it to grow? (Note that a downside to a large, rapidly growing segment is that it tends to attract competition). Thirdly, do we have strengths as a company that will help us appeal particularly to one group of consumers?

Firms may already have an established family friendly food, it would be difficult to convince consumers that McDonald's now offers gourmet food. Thus, Mac's would probably be better off targeting families in search of consistent quality food in nice, clean restaurants. Positioning involves implementing our targeting. For example, Apple Computer has chosen to position itself as a maker of user-friendly computers. Thus, Apple has done a lot through its advertising to promote itself, through its intimidating icons, as a computer for "non-geeks. The Visual C software programming language, in contrast, is aimed a "techies. " Michael Treaty and Fred Wireman suggested in their 1993 book The Discipline of Market Leaders that most successful firms fall into one of three categories: Operationally excellent firms, which maintain a strong competitive advantage by maintaining exceptional efficiency, thus enabling the firm to provide reliable service to the customer at a significantly lower cost than those of less well organized and well run competitors.

The emphasis here is mostly on low cost, subject to reliable performance, and less value is put on customizing the offering for the specific customer. Wall-Mart is an example of this discipline. Elaborate logistical designs allow goods to be moved at the lowest cost, with extensive systems predicting when specific quantities of supplies will be needed. Customer intimate firms, which excel in serving the specific needs of the individual customer well. There is less emphasis on efficiency, which is sacrificed for providing more precisely what is wanted by the customer.

Reliability is also stressed. Nordstrom and IBM are examples of this discipline. Technologically excellent firms, which produce the most advanced products currently available with the latest technology, constantly maintaining leadership in innovation. These firms, because they work with costly technology that need constant refinement, cannot be as efficient as the operationally excellent firms ND often cannot adapt their products as well to the needs of the individual customer. Intel is an example of this discipline.

Repositioning involves an attempt to change consumer perceptions of a brand, usually because the existing position that the brand holds has become less attractive. Sears, for example, attempted to reposition itself from a place that offered great sales but unattractive prices the rest of the time to a store that consistently offered "everyday low prices" Repositioning in practice is very difficult to accomplish. A great deal of money is often needed for advertising and other promotional efforts, ND in many cases, the repositioning fails.

Target Marketing Following are 5 criteria that indicate whether you have selected a viable target market: size, expected growth, competitive position, cost to reach, and compatibility.

  • Size - How large is this target market? It is worth pursuing?
  • Expected Growth - even if the market is small, it may be profitable if there are indications that it will grow.
  • Competitive Position - low competition equals attractive market.
  • Cost to Reach - is this market accessible with our tactics
  • Compatibility - how aligned is this market to our goals?

There are three standard approaches to target marketing. The first approach is the Single Target Market effort to "own" that space. The second approach is the Multiple Target Market approach in which the firm selects two or more segments to go after, requiring a separate marketing mix for each. The final approach is the Combined Target Market approach and results from combining two or more supermarkets into one larger target market, which is managed with a single strategy. Most organizations prefer to adopt a segmentation approach such as the Single or Multiple Target Market strategies.

These firms adjust their marketing mix for each target market to ensure that each segment is very satisfied with their offerings. Generally, it is better to target specific segments with an appropriate solution, than to approach combined segments with an "off-the-shelf" solution. Positioning and Competitive Differentiation The final stage in developing a strategic marketing plan is to analyze the target market to identify where competitors are positioned, and which attributes are most important when customers are making a purchase.

Product positioning refers to the place an offering occupies in the customers mind on important attributes, relative to competitive offerings. To understand your current market position, conduct a simple market research project to identify which product-class attributes are most important, which brands are perceived to best deliver each attribute, and where product improvements need to be made to improve customer satisfaction. There are two basic strategies when it comes to positioning: head-to-head and differentiation.

Organizations that have a solid competitive advantage in areas deemed relevant by the target market typically go after a large portion of the total market share, and are not afraid to compete head-to-head with new market entrants or established competitors. Those firms who cannot compete head-on with industry giants are better off looking for a niche in the market that their offering is particularly suited to fulfill. Conducting a comprehensive competitive analysis in conjunction with annual market research is an effective method for understanding your role as a supplier within the industry.

As the environment changes, you will be in a position to capitalize on new market opportunities. Targeting through marketing mix The third stage of the market segmentation process is the creation of a specific market mix to fulfill the needs, as well as market conditions of each specific target segment (Willie, 1990; Gunter & Burnham, 1992; Kettle, 1994). Although many authors limit the market segmentation process to market identification rather on the key elements of the entire process, most companies fail to give due importance to other stages in market segmentation such as product positioning and mix development (Serbia, 1996).

Once the firm has chosen a market segment it must choose a generic competitive strategy. At this point it is also necessary to review the selected strategy across segments and explore general strategic approaches. In some cases it might become apparent that a counter-segmentation strategy is applicable. In other cases, the development of distinct mixes for each segment uncovers inconsistencies or lack of resources at the corporate level and so it is necessary to revert to the segment evaluation stage.

According to Kettle (1994, p. 293) the only sustainable generic strategy in a segmented market is differentiation. He explains that the only other generic competitive strategy alternative (low cost) is not sustainable in a segmented market. In addition, a strategy successful at differentiating must generate customer At this point in the process the company selects those ways in which it will extinguish itself from its competitors. In most cases the differentiation involves multiple elements.

In fact, "most successful differentiation strategies involve the total Segmentation - Targeting - Positioning Eureka Facts, the Smart Marketing Information. Page 8 organization, its structure, systems, people, and culture. " (Asker, 1996). One way to differentiate is through brand equity building. A strategy based on brand is likely to be sustainable because it creates competitive barriers. A brand strategy permits the strategist to work with complex concepts and not limit the differentiation strategy to just a few competitive differences.

This approach is consistent and reinforces the Step approach. A successful brand strategy builds barriers to protect the selected position by creating associations of the positioning variables with the brand name in the prospect's mind. Positioning Gunter and Burnham (1992) prescribe that after selecting target markets the strategist should develop positioning objectives to then develop them into a detailed marketing mix. However, Asker (1996) recommends developing the positioning objective only after the brand identity and value proposition have been developed.

In exploring the latter, it is useful to understand Shaker's definition of positioning is "the part of the brand identity and value proposition that is to be actively communicated to the target audience and that demonstrates an advantage over competing brands. " Kettle (1994) refers to it as the unique selling proposition. Explained in other words, the positioning statement is the point where the bundle of attributes Join to form one concept which aims at capturing the essence of that which the target audience seeks in the product category. The benefit of following Shaker's recommendation lies in the expanded range of position alternatives.

Three places are suggested in looking for brand position elements: the core identity (central, timeless essence of a brand), points of leverage within the identity structure (an attribute, sub-brand, special feature, or service), and the value proposition (benefits that drive relationships with target audiences). According to Broadband (1994), the positioning strategy should include three components: customer targets, which are the product of the segmentation study; competitor targets, which are a product of the analysis of external environment; and competitive advantage, which is also a product of the environmental analysis.

In developing the positioning objective, Rises (1996) is concise and clear: "positioning is not what you do to the product, but what you do to the mind. " Understanding how the mind receives, stores or rejects information will improve the chances of making the positioning objective coincide with actual positioning in the target PRICE - The price is the amount a customer pays for the product. It is determined by a number of factors including market share, competition, material costs, product identity and the customer's perceived value of the product.

Pricing is one of the four As of the marketing mix. It is the value or consideration which the consumer pays for the commodity and the organization will receive in exchange for its product. Price according to the perspective of the consumer should give value for money I. E. The good or the service bought should provide its equivalent benefits and for the earn profits as well. In the marketing mix price is the only element which brings in revenue of the organization, the other 3 As (product, place and promotion) are all costs.

It communicates the value positioning of the product in the market. Hence product needs to priced carefully and taking into account the following: Fixed and arable costs. Competition Company objectives Proposed positioning strategies Target group and willingness to pay PRICE=COST+PROFIT: The price which the company will charge for the product will consist of the fixed and the variable cost which was incurred for its designing (according to the needs and wants of the market), manufacturing, distribution and promotion.

Pricing Strategy:

To develop price of a particular product the following steps are followed:

  1. Develop market strategy
  2. Make marketing mix decisions
  3. Estimate the demand curve
  4. Calculate cost
  5. Understand environmental factors
  6. Set pricing objectives
  7. Determine pricing

Pricing policy

The pricing policy of any organization looks into the following elements of pricing:

Pricing objectives: In the infancy stage of pricing, the organization has to first determine its prime objective for pricing a commodity. Some of the important pricing objectives are as follow:

Market Penetration: This objective is an attempt to secure a large share of the market by deliberately setting the low prices.

Marketing skimming: Here suitable goods are provided according to the needs of the buyer and they are charged a higher price. The organization can reap the benefits of high sales, increased profits and low unit costs.

Target Rate of Return: This is measured in relation to investment and sales.

Price Stabilization: Frequent changes in the prices of product will harm the long-term interests of the companies. Hence, they aim at stabilization of prices

Market Share: A company may either have the objective of maintaining the present market share or increase its share depending upon its current financial status.

Profit minimization: While adopting this pricing objective, the marketers should attempt to reject their image in the market through sales promotion techniques.

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Market Segmentation Essay. (2018, Jun 15). Retrieved from

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