Definition of 'Market Segmentation'

A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will respond similarly to a marketing action. Market segmentation enables companies to target different categories of consumers who perceive the full value of certain products and services differently from one another. For example, an athletic footwear company might have market segments for basketball players and long-distance runners. As distinct groups, basketball players and longdistance runners will respond to very different advertisements.

The process of defining and subdividing a large homogenous market into clearly identifiable segments having similar needs, wants, or demand characteristics. Its objective is to design a marketing mix that precisely matches the expectations of customers in the targeted segment. Few companies are big enough to supply the needs of an entire market; most must breakdown the total demand into segments and choose those that the company is best equipped to handle. Four basic factors that affect market segmentation are (1) Clear identification of the segment, (2) Measurability of its effective size, (3) Its accessibility through promotional efforts, and (4) Its appropriateness to the policies and resources of the company. The four basic market segmentation-strategies are based on (a) Behavioural (b) Demographic, (c) Psychographic, and (d) Geographical differences. Levels of market segmentation
The identification of potential customers based on common characteristics and needs, which distinguish them from other members of a population, is essential to the development of a strategic marketing plan. Accomplishing this goal enables marketers to segment potential customers by characteristics that influence buying decisions. It also enables companies to develop product-positioning strategies to create a positive impression in the minds of probable customers regarding the company and its brands. Different approaches are used to segment a large market into market segments, each of which is unique in terms of its response to a company's product and service offerings. In turn, a company develops different promotion, distribution and product positioning strategies that appeal to each segment.

Mass Marketing Strategy

A small business relies on a mass-marketing strategy to direct a single marketing message to all potential customers in a target market regardless of the buyer's specific needs or preferences, which might otherwise serve to segment the market. To use a mass-marketing strategy, a company designs a product to appeal to all members of the target market, rather than a subset of customers -- the market segment -- most likely to purchase the product. For example, a business purchases commercial time on a network to broadcast its advertisement to potential customers. In turn, the set of potential customers who receive the mass-marketing message is determined by the media markets to which a network broadcasts a program, rather than the company's intentional selection of particular customers for inclusion in a market segment.

Segment Marketing Strategy

A company might also increase sales by first identifying market segments within a broader target market, each of which consists of potential customers whose unique wants and needs can be satisfied by a particular product. In addition, the company develops a product differentiation strategy for each segment, which illustrates a product's unique features, to attract customers within a market segment. The company then creates a marketing campaign to appeal to each individual segment. Each segment and product differentiation strategy is unique in terms of customer needs or preferences. Common criteria used to segment potential customers include age, gender, location and income. For example, a company might produce one clothing line that satisfies the needs of female teens and another to appeal to senior women.

Niche Marketing Strategy

The needs and requirements of potential customers might not be completely met by the goods and services currently delivered to a market segment. In this case, a company might create a niche market and develop highly specialized products or services to meet the customers needs that aren't being met by other offerings. For example, a set of potential customers in a particular market segment may be unable to purchase highly specialized mountain bikes from the companies that market bikes in a particular geographical area. In turn, a company located in this geographical area may lack the resources to market all the mountain bikes, road and triathlon bikes and hybrid bikes to this market segment that are offered by other companies that sell to the market segment. However, the business might be very successful in creating a niche market by marketing only highly specialized mountain bikes to potential customers within the existing market segment whose needs aren't met by other companies.

Micro Marketing Strategy

A company employs micro marketing to create a narrowly defined subset of a niche market based on a customer attribute such as zip code or a location-specific lifestyle characteristic. In this case, products are specialized to meet a very specific need of potential customers and marketed primarily to that customer set. For example, a computer company might sell highly specialized and individualized computers to customers who configure the systems themselves. Another company might sell a customer custom-labeled bottled water with particular ingredients and that originates from a specific water source.

Why Segment a Market?

There are several important reasons why businesses should attempt to segment their markets carefully. These are summarised below Better matching of customer needs

Customer needs differ. Creating separate offers for each segment makes sense and provides customers with a better solution

Enhanced profits for business

Customers have different disposable income. They are, therefore, different in how sensitive they are to price. By segmenting markets, businesses can raise average prices and subsequently enhance profits

Better opportunities for growth

Market segmentation can build sales. For example, customers can be encouraged to "trade-up" after being introduced to a particular product with an introductory, lower-priced product

Retain more customers

Customer circumstances change, for example they grow older, form families, change jobs or get promoted, change their buying patterns. By marketing products that appeal to customers at different stages of their life ("life-cycle"), a business can retain customers who might otherwise switch to competing products and brands

Target marketing communications

Businesses need to deliver their marketing message to a relevant customer audience. If the target market is too broad, there is a strong risk that (1) the key customers are missed and (2) the cost of communicating to customers becomes too high / unprofitable. By segmenting markets, the target customer can be reached more often and at lower cost

Gain share of the market segment

Unless a business has a strong or leading share of a market, it is unlikely to be maximising its profitability. Minor brands suffer from lack of scale economies in production and marketing, pressures from distributors and limited space on the shelves. Through careful segmentation and targeting, businesses can often achieve competitive production and marketing costs and become the preferred choice of customers and distributors. In other words, segmentation offers the opportunity for smaller firms to compete with bigger ones.

Need for Market Segmentation (Why Market Segmentation?)

Not all individuals have similar needs. A male and a female would have varied interests and liking towards different products. A kid would not require something which an adult needs. A school kid would have a different requirement than an office goer. Market Segmentation helps the marketers to bring together individuals with similar choices and interests on a common platform.

Market Segmentation helps the marketers to devise appropriate marketing strategies and promotional schemes according to the tastes of the individuals of a particular market segment. A male model would look out of place in an advertisement promoting female products. The marketers must be able to relate their products to the target segments. Market segmentation helps the marketers to understand the needs of the target audience and adopt specific marketing plans accordingly. Organizations can adopt a more focussed approach as a result of market segmentation. Market segmentation also gives the customers a clear view of what to buy and what not to buy. A Rado or Omega watch would have no takers amongst the lower income group as they cater to the premium segment. College students seldom go to a Zodiac or Van Heusen store as the merchandise offered by these stores are meant mostly for the professionals. Individuals from the lower income group never use a Blackberry. In simpler words, the segmentation process goes a long way in influencing the buying decision of the consumers. An individual with low income would obviously prefer a Nano or Alto instead of Mercedes or BMW.

Market segmentation helps the organizations to target the right product to the right customers at the right time. Geographical segmentation classifies consumers according to their locations. A grocery store in colder states of the country would stock coffee all through the year as compared to places which have defined winter and summer seasons. Segmentation helps the organizations to know and understand their customers better. Organizations can now reach a wider audience and promote their products more effectively. It helps the organizations to concentrate their hard work on the target audience and get suitable results.

Targeted Marketing Services

BULLS-EYE
The ThomasARTS Targeted Marketing Services team draws on a wealth of marketing experience to develop and implement tactical targeted marketi ng strategies that reach our clients audiences and drive results. At the inception of a campaign, our team establishes project plans and creative/list-testing strategies. The creative executions are in concert with the campaign strategy to ensure quality and consistency and to verify that testing is valid. We then develop reporting measures to gauge campaign performance so that dollars can be adjusted to channels and tactics that are driving results. A key component of our services is understanding our clients customer databases and developing strategies to take full advan tage of them. Our client database services include demographic analysis, development of models and customer-retention marketing programs. ThomasARTS Targeted Marketing Services include:

Creating tactical project plans for direct mail, e-mail and other targeted mediums Developing testing strategies Providing list analysis and recommendations List ordering and segmenting Database segmentation Developing direct marketing models Post-lead communications strategies Campaign measurement and reporting Agency link for telemarketing and call centers List usage management Emerging targeted channels

5 patterns of target market selection?

Single-segment strategy - also known as a concentrated strategy. One market segment (not the entire market) is served with one marketing mix. A single-segment approach often is the strategy of choice for smaller companies with limited resources.

Selective specialization- this is a multiple-segment strategy, also known as a differentiated strategy. Different marketing mixes are offered to different segments. The product itself may or may not be different - in many cases only the promotional message or distribution channels vary.

Product specialization- the firm specializes in a particular product and tailors it to different market segments.

Market specialization- the firm specializes in serving a particular market segment and offers that segment an array of different products.

Full market coverage - the firm attempts to serve the entire market. This coverage can be achieved by means of either a mass market strategy in which a single undifferentiated marketing mix is offered to the entire market, or by a differentiated strategy in which a separate marketing mix is offered to each segment.

Market Segmentation Approach.

Individuals with diverse product needs have heterogeneous needs. Market segmentation is the process of dividing a total market into market groups consisting of people who have relatively similar product needs, there are clusters of needs. The purpose is to design a MM(s) that more precisely matches the needs of individuals in a selected market segment(s). A market segment consists of individuals, groups or organizations with one or more characteristics that cause them to have relatively similar product needs. There are two Market Segmentation Strategies. Return To Contents

Concentration Strategy.
A single market segment with one MM.
Market | |A Market Segment |------------------One MM------------------>A Market Segment |------------------|A Market Segment |

PROS include:

It allows a firm to specialize can focus all energies on satisfying one group's needs A firm with limited resources can compete with larger organizations.

CONS include:

Puts all eggs in one basket. Small shift in the population or consumer tastes can greatly effect the firm. May have trouble expanding into new markets (especially up-market). Haggar having problems finding someone to license their name for womens apparel, even though women purchase 70% Haggar clothes for men.

Objective is not to maximize sales, it is efficiency, attracting a large portion of one section while controlling costs. Examples include ROLEX, Anyone wear one. Who are their target market?? Over $100,000 Return To Contents

Multi-segment strategy
2 or more segments are sought with a MM for each segment, different marketing plan for each segment. This approach combines the best attributes of undifferentiated marketing and concentrated marketing.

Market MM--------------------->|A Market Segment |_______________________ MM--------------------->|A Market Segment |_______________________ MM--------------------->|A Market Segment |_______________________ MM--------------------->|A Market Segment | |

Example: Marriott International: Marriott Suites...Permanent vacationers 2. Fairfield Inn...Economy Lodging 3. Residence Inn...Extended Stay 4. Courtyard By Marriott...Business Travellers
1.

PROS include:

Shift excess production capacity. Can achieve same market coverage as with mass marketing. Price differentials among different brands can be maintained Contact Lens!! Consumers in each segment may be willing to pay a premium for the tailormade product. Less risk, not relying on one market.

CONS include:

Demands a greater number of production processes. Costs and resources and increased marketing costs through selling through different channels and promoting more brands, using different packaging etc. Must be careful to maintain the product distinctiveness in each consumer group and guard its overall image (Contact lenses)

Types of Market Segmentation

Psychographic segmentation The basis of such segmentation is the lifestyle of the individuals. The individuals attitude, interest, value help the marketers to classify them into small groups.

Behaviouralistic Segmentation The loyalties of the customers towards a particular brand help the marketers to classify them into smaller groups, each group comprising of individuals loyal towards a particular brand.

Geographic Segmentation Geographic segmentation refers to the classification of market into various geographical areas. A marketer cant have similar strategies for individuals living at different places. Nestle promotes Nescafe all through the year in cold states of the country as compared to places which have well defined summer and winter season. McDonalds in India does not sell beef products as it is strictly against the religious beliefs of the countrymen, whereas McDonalds in US freely sells and promotes beef products.

Positioning:
Positioning is the development of a service and a marketing mix to occupy a specific place in the minds of customers within target markets.
The 5 Ds of Positioning Documenting What benefits are the most important to your current and potential customers? Deciding What image do you want your current and potential customers to have of your organization?

 Differentiation Which competitors do you want to appear different from, and what are the factors that you will use to make your organization different from them? Designing How will you develop and communicate these differences? Delivering How will you make good on what youve promised, and how do you make sure that you have delivered? Reasons for Increased Importance of Positioning 1. Perceptual processes of customers They screen out most information 2. Greater competition More organizations competing for share of mind 3. Growing volume of commercial messages Advertising and promotion clutter

STRATEGIES DEALING WITH

Intangibility
Prior to purchase, much service promotion must rely on performance attributes which can only be measured after a purchase experience (tangible goods have search qualities). Also professional services have credence qualities. Need to use promotion to help customers perceive a service as highly tangibility.

develop tangible representation of the service, ie credit card serves as the physical product with own image and benefits. Make advertising easier. Airlines use an aircraft. Travellers umbrella. develop a brand image--seek out U Haul as opposed to a truck service cite 3rd party endorsements...need endorsements from those that have experienced the service. word of mouth very important due to intangibility.

offer discounts and free samples/service to customers who encourage friends to come. offer tangible benefits in sales promotions, must be consistent with customers needs/wants establish a clear product position, ie 24 hour outside service for repair of industrial equipment.

Intangibility also presents pricing problems. How should an auto mechanic charge for his/her services? Visibility of the service may be a problem. Although a problem may have been fixed, you don't understand why (CAR). Need to explain the time needed for repair, and functions that were performed if you want the repair to be more tangible. Psychological role of price is magnified since customers must rely on price as the sole indicator of service quality when other quality indicators are absent.

Inventory
Services cannot be stockpiled. Need to avoid excess unsatisfied demand and excess capacity leading to unproductive use of resources. Discusses the seasonal demand patterns of ski resorts, and what ski resorts are doing to develop demand for their service in the summer months. To resolve inventory issues:

market services to segments with different demand patterns market new services having counter cyclical demand patterns from existing services market new services to compliment existing services market service extras at non-peak times market new services not affected by existing capacity constraints train personnel to do multiple tasks hire PT employees during peak hours educate consumers to use service at non peak hours offer incentive, ie. reduce price at non peak times, this will not work in all instances, ie, travel at non peak hours.

Inconsistency
Lawn care service cannot mow a lawn precisely the same way each time, but need to make the service as efficient and consistent as possible. Remedy--use technology to help make the service provider more consistent...or replace workers with technology :)

Inseparability
Leads to direct (short) channels of distribution. In some cases it is possible to use intermediaries, travel agents, ATMs etc. Close provider-customer relationship--employee interpersonal skills very important. "relationship managers", quality of relationships determines the probability of continued interchange with those parties in the future. Customers may become loyal to a particular employee as opposed to the company, prevalent in the advertising industry. Therefore must make sure that multiple employees are capable of performing the same tasks.