The Premises Behind Market Segmentation

Why Split up the Market in the first place?

Many optimistic entrepreneurs assume that if they make their product
good enough, it can attract anybody and everybody, - regardless of age,
gender, income and a whole lot of other factors. Sometimes it does work.
But universally successful product such as coke are few and far
between. More often, the typical new product launches into a market that is
already saturated with competitions and with each business fighting to get a
share of the available market.
If you a e planning to launch a product into an already competitive
industry, then focusing on a specific market segment may prove to be more
effective than simply appealing to all taste and preferences.
Eg.
In the US Market, Pepsi had been struggling to compete with coke since the
1930s but barely gained any traction. For the longest time, it tried to wrestle
market share from the leading beverage by being much cheaper at one
point even promising to be twice the size of a battle of coke for half the
price! It was not until 1960s when Pepsi finally decided to just focus on the
youth with a campaign that called them The Pepsi Generation. Sale finally
took off then.

Stages of market maturity

In Stage 1, where supply is far less than demand, there really is not
any pressing need to segment the market just yet. New producers can
enter the market and this would not bother existing players so much
because there is more than enough of a market to spare for everyone.
While demand is greater than supply, the tendency would be to offer a
generic product that will appeal as wide market as possible.

As competition grows, however (which is at stage 2 and up), rivalry

begins to heat up. In order to differentiate, a strategic move would be
to differentiate your product by increasing the product quality.
Over time, competitors will eventually manage to match your
level. When this happens, the market may once again be at a
stalemate. Competition will now have to evolve into further
specialization towards the needs of particular sub-groups. The question

becomes that of identifying what sub-groups (i.e. market segments) to

focus on.

Market were segmented according to the following variables:

Demographic. This refers to quantifiable and factual statistics of the

population, such as age, sex, income, occupation, and basically any
piece of information gathered by National Statistical Office. Firms that
would seek to demographic segmentation would typically look up
statistics about their selected demographic criteria to get an idea on
how big segment might be.

Psychographic. This refers to how consumer see and feel about

themselves hence psycho or of the mind. It includes elements such
as social class lifestyle and personality. If you are segmenting the
market by whether or not they are adventurous, idealistic, how they
feel about a particular issue, or who they aspire to be, then these are
all the factors that reside primarily in the peoples mind.

Behavioral. It refers to how we behave when buying a product,

whether these actions may be conscious or unconscious in nature. This
includes issues such as when do we typically buy a product, what we
look for when buying a product, how loyal we tend to be to a brand,
how often and how much do we buy, what price are we comfortable
with, and to whom we typically buy the product for. To determine how
many people behave in a particular way, surveys must still be the best
tool.

Geographic. The physical location of a market, including the general

characteristic of the location. These includes factors such as climate,
traffic conditions, cultural characteristics, livelihood opportunities, and
population density.

Systematic segmentation
This is where a statistically-based method of segmenting the market
can be utilized, something that large organization use.
STEP 1. Conduct a wide survey. Using a survey methodology, have
a larger group of respondents (in thousand) identify the different product
attributes and their importance ratings for a selected industry.
STEP 2. Process the Data. Using the statistical tool of cluster
analysis, where respondents are grouped together based on the similarities

of their answers, the respondents are grouped into a given number of

clusters. This is the easy part.
STEP 3. Profiling. This is the hard part. By scanning the list of
respondents who were placed under a particular cluster and b scanning their
answers, the researcher can make qualitative conclusions as to what the
commonalities are among the respondents in this cluster and then gives it a
name. The cluster, as profiled, officially become a market segment.

Targeting
Some tips that come into play are:

Always consider a firm size and growth objectives when selecting a

market for it to target.

Asses the structural attractiveness of the potential market.

Identify the firms objective and resources.

When planning for a long-term growth, immediately asses the

segments potential for economic scope.

By the same token, there is also the issue of segment-to-segment

invasion. Certain segment movement are acceptable , while others are
not