MARKET SEGMENTATION
Segmentation basES The segmentation process Methods of segmentation
DIFFERENT SEGMENTS OF CONSUMERS
BASIC MARKETING QUESTIONS
M S
arket
egmentation
Market segmentation is the process of identifying key groups or segments within the general market that share specific characteristics and consumer habits. Once the market is broken into segments, companies can develop advertising programs for each segment, focus advertising on one or two segments or niches, or develop new products to appeal to one or more of the segments. Companies often favor this method of marketing to the one-size-fits-all mass marketing approach, because it allows them to target specific groups that might not be reached by mass marketing programs.
M M
i c ro
arketing
Market segmentation—also called micromarketing—simplifies
the marketing process, because it allows marketers to concentrate their advertising on groups of consumers who share significant characteristics. Marketers, therefore, can produce specific advertising geared towards specific segments; otherwise marketers have to create very general advertising and hope that it will appeal to a diverse audience. Market segmentation also can be more efficient than traditional marketing techniques such as product differentiation. Because marketers focus their advertising on specific segments, they can expect better results from each segment than they could expect from these consumer groups if treated as a whole.
W
hat products or services are you selling?
To identify segments, marketers examine consumers' interests,
tastes, preferences, and socioeconomic characteristics in order to determine their patterns of consumption and how they will respond to various marketing strategies. The primary information marketers seek is why consumers purchase specific products or services but not others. Catalog retailers and direct-marketing firms make up some of the key users of market segmentation, although many other kinds of companies and organizations use this technique.
An example :
Catalog clothing stores, for example, convincingly illustrate these advantages of market segmentation. If a catalog marketer provides both men's and women's clothes, it would have to produce a very large catalog to include all of its merchandise, which would cost a lot to produce and mail. By sending such a catalog to all potential customers, the company could fail to capture the attention of many potential customers simply by having a man on the cover and sending it to women or a woman on the cover and sending it to men. At one point catalog marketers relied on this approach. But contemporary catalog retailers produce numerous versions of their catalogs designed for specific market segments, such as men between 20 and 35, women between 20 and 35, men between 35 and 50, and women between 35 and 50.
T
o whom do you sell and
h
ow do you promote sales?
Market segmentation, however, works effectively only for certain kinds of products and services. First, to determine whether to segment a market, marketers must find out if the market can be identified and measured, which entails determining which consumers belong to specific market segments. Second, marketers must determine if the segments are large enough to be profitable. While marketers can easily divide the total market into smaller groups, these groups might be so small that they do not justify the expenses associated with market segmentation. Third, marketers must be able to reach the segments through their advertising. If the members of a particular segment do not share interest in a common magazine or television show, for example, then marketers have no way of reaching the segment and so the segment is superfluous. Fourth, marketers must gauge the responsiveness of the segments and find out if a proposed segment would likely respond to a marketing campaign. If it is not probable that a segment will react to a promotion, then the segment is not useful. Fifth, marketers must determine if the segments will change in the near future. Since it takes time to prepare a marketing strategy for specific segment and since it takes time for market segmentation to be profitable, creating segments where consumer needs and wants are likely to change would not be productive.
TERMINOLOGIES
Market
Actual or conceptual place in commercial world where forces of demand and supply operate, and where buyers and sellers interact (directly or through intermediaries) to trade goods, services, or contracts or instruments, for money or barter. Markets include mechanisms or means for --Determining price of the traded item, Communicating the price information, Facilitating deals and transactions, and Effecting distribution. Market for a particular item is made up of existing and potential customers who need it and have the ability and willingness to pay for it. All markets, ultimately, consist of people. Also called marketplace.
Potential Market
Aggregate of all individuals, firms, and organizations in a particular market that have some level of interest in a particular product.
Available Market
Prospects who are willing and capable (have sufficient resources) buyers, and have access to a particular market or service. These are those people in the POTENTIAL MARKET who have enough money to buy the product.
Qualified Available Market
These are those people in the qualified available market who legally are permitted to buy the product.
Target Market
The segment of the qualified available market that the firm has decided to serve its product to. It is also known as served market.
Penetrated Market
Penetrated market refers to those people in the target market who have bought the product
DIAGRAMATIC REPRESENTATION OF MARKET SEGMENT
Market Demand
Aggregate of the demands of all potential customers (market participants) for a specific product over a specific period in a specific market.
Market segment
Identifiable group of individuals, families, firms, or organizations, sharing one or more characteristics or needs in an otherwise homogenous market. Market segments generally respond in a predictable manner to a marketing or promotion offer. Set of potential customers Who have similar needs Who reference each other when buying Are alike in the way they: o Perceive value o View products and services o Purchase products and services
Why define a market segment?
Easier to understand customer needs Focus “whole solution” to a narrower set of customer needs Easier to become a leader in a smaller market (Big fish in small pond) More effective use of marketing dollars Generally more profitable
Segmentation Bases
The market can be divided into segments by using four "segmentation bases": Psychographic, behavioristic, geographic, and demographic bases. The basic criteria for segmenting a market is are customer needs. To find the needs of the customers in the market it is important to undergo a market research. Psychographic and behavioristic bases are used to determine preferences and demand for a product and advertising content, while geographic and demographic criteria are used to determine product design and regional focus.
Different market variables
Geographical segmentation
Geographic bases focus on preferences contingent on regional factors, such as region (e.g., North or South), county, population density, urban or rural location, and climate. Collecting and analyzing information according to the physical location of the customer or other data source. Geographic segmentation is often used in marketing, since companies selling products and services would like to know where their products are being sold in order to increase advertising and sales efforts there.
Demographic Segmentation
Market segmentation based on differences in demographic factors (which normally match consumer wants and needs) of different groups of consumers. It is one of the five common segmentation strategies, and aims to define specific niches that require custom-tailored promotion. Demographics include personal characteristics such as gender, age, marital status, social attributes (such as ethnicity and religion), and income level.
Psychographic Segmentation
The division of a heterogeneous market into relatively homogeneous groups on the basis of their attitudes, beliefs, opinions, personalities and lifestyles; sometimes called "State-of-Mind" Segmentation. Personality the distinctive character of an individual; used as a basis for the psychographic segmentation of a market in which individuals of relatively similar personality, with similar needs or wants, are grouped into one segment.
Behavior Segmentation
Market segmentation based on differences in the consumption behavior of different groups of consumers— their life-styles, patterns of buying and using, patterns of spending money and time, etc. One of the five common segmentation strategies, its objective is to define specific niches that require custom tailored promotion.
Usage Segmentation
There are two ways of carrying out usage segmentation; firstly customers are split according to their weight of use. heavy users/buyers being more important targets than light users.
This segmentation can be carried out directly on customer databases and can be extremely powerful in focusing activity based on the value to the business, not just the number of contacts
THE SEGMENTATION PROCESS
Once a company has gathered information from these segmentation bases, it must decide how to divide the market, bearing in mind that market segmentation seeks to minimize the differences within a segment and maximize the differences among segments. Consequently, depending on the product or service to be marketed, simple divisions along age, gender, or geographic lines alone may yield segments that are too vague to be of use. Instead, marketers may have to consider several characteristics or clusters of characteristics in order to divide the market into useful segments. For example, when considering beer consumption, marketers must look at both age and gender: the majority of beer drinkers are both young and male. To begin segmenting the market, marketing managers must select the segmentation bases they will use to develop the segments, depending on the products or services to be marketed. Marketers may select a few segmentation bases they believe are the most relevant at the outset and develop market segments using them. On the other hand, they may compile a large array of information using all the segmentation bases and use this information to group consumers in various segments. Next, marketers conduct any primary market analysis they may need, by preparing questionnaires and samples and by assessing the response to them. Using this information, marketers try to determine the most fruitful segments—the ones with greatest similarities within them. Because this process can be labor-intensive and require advanced knowledge of statistics, companies often rely on outside firms or artificial intelligence technology to produce meaningful market segments.
Once relevant, stable, reachable, profitable market segments are established, marketers can target the segments they believe will offer the best opportunities for growth given their products and resources and the ones they believe that correspond to the products being marketed the best. Finally, marketers can develop and launch advertising campaigns that appeal to the various segments. Companies tend to choose the largest segments, although the segments with the most consumers are not always the most profitable and usually have the most competition. Consequently, marketers might benefit from considering targeting smaller segments or segments ignored by competitors, such as low-income consumers, which is frequently referred to as "niche marketing."
METHOD OF SEGMENTATION
A company also may opt to target just one segment of the market, employing the market segmentation method of concentration. After considering various segmentation bases and conducting research, a company might find that its competitors are not reaching specific segments and decide to target this segment or niche exclusively. A computer maker, for instance, could concentrate solely on the home-user segment of the market and ignore the needs of the other segments. To do so, the computer maker would have to offer products that meet home-user needs at prices these consumers could afford. Since concentrated marketing costs less than differentiated marketing, it may appeal to small businesses in particular. After choosing a method of market segmentation, marketers must integrate the method into an overall marketing strategy. The marketing strategy will try to make the target product or service appeal to the target segment through an advertising campaign developed based on segmentation information such as age, gender, or location. Marketers also consider what a company's strategic position in a market is—e.g., if it is a computer supplier to home users or businesses—and creates a marketing program that will help a company achieves or maintain this position. If the segment is properly defined for a specific product or service, then developing promotional strategies and reaching the target segment should be relatively easy. The information used to help create the market segments should help marketers choose among promotional techniques (e.g., direct marketing, advertising, publicity, and sales promotion), pricing strategies, and distribution strategies. This information also should help marketers choose among various advertising media. After collecting a large amount of information about their customers, marketers can plan promotions and products that will appeal to various segments over a long time by determining what products a segment wants in the future and offering them at the appropriate time
Target Costing
Is a disciplined process that uses data and information in a logical series of steps to determine and achieve a target cost for the product. In addition, the price and cost are for specified product functionality, which is determined from understanding the needs of the customer and the willingness of the customer to pay for each function.
The Basic Process
D efine th e P ro d u ct
: The figure below shows at a high level the
basic stages in the Target-Costing process:
S et th e T a rg et
A ch ieve th e T a rg et
“ D e fin e ” “S e t” “A c h ie v e ”
M a in ta in C o m p etitive C o st
The stages are market-driven: Define the Product answers the fundamental questions of “What are you selling?” “To whom?” “What do they want it to do?” Set the Target addresses the issue of “What will they pay for it?” “What should it cost to produce?” Achieve the Target is concerned with “How can we get there?” “Are we getting there?” Maintain Competitive Cost deals with “How can we stay ahead?”
E
ntrepreneurial
S
trategy:
Define market segment small enough to allow you to capture 25% to 30% share Be a “Big fish in small pond” Ideal: Be the only supplier in a very narrowly defined market.
Conclusion:
Criteria needed for segmentation
Don’t enter a new market segments unless you can capture 25 -30% market share in a few years. Segments must have enough profit potential to justify developing and maintaining a marketing mix. Consumer must have heterogeneous (different) needs for the product. Segmented consumer needs must be homogeneous (similar) Company must be able to reach a segment with a MM Must be able to measure characteristics & needs of consumers to establish groups.
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IBLIOGRAPH
Y
Principles of marketing By: KOTLER http://www.referenceforbusiness.com/encyclopedia/ManMix/MarketSegmentation.html#THE_SEGMENTATION_PROCESS/ http://www.netmba.com/marketing/market/definition/ http://www.businessdictionary.com/definition/demand/html http://www.businessdictionary.com/definition/marketdemand.html http://www.businessdictionary.com/definition/marketsegment / http://en.mimi.hu/marketingweb/psychographic_segmentation. html http://tutor2u.net/business/marketing/segmentation_bases_int roduction.asp http://wwwrohan.sdsu.edu/~renglish/370/notes/chapt09/index.htm Market segmentation book