Market Segmentation - Essay Example

Market segmentation is increasingly considered very important in relation to marketing of goods and services in recent times. Accordingly, write conceptually on how a fast-food organization that wants to operate in the UK could segment its market and discuss what could be the benefits of doing this for the organization. Market Segmentation There are hundreds of different people out there in the market place, buying thousands of different goods and services. This is an important fact of marketing known by every marketer. The concept of marketing segmentation has sadly been limited only to promotions and commercial. The most many people would attribute to market segmentation is cartoon commercials on products developed for children. This however is a bad and narrow interpretation of marketing segmentation. The focus on only creating segments on the basis of demographics has severe consequences when it comes to market segmentation (Yankelovich & Meer, 2006). With the advent of this information age, sophisticated means on communication have engulfed older practices. Thus newer ways of doing things have been invented. This can better be understood by using concepts of First, Second and Third wave societies conceived by Alvin Toffler. According to Toffler the world was changing continuously from one wave to another. The focus here should be on the transition from first wave to a second wave society. The second wave was marked by industrial revolution. This era has its prime focus on producing more for less. The concepts of apartment buildings and assembly line etc were all conceived in this era. During this phase of societal development the focus of human society was primarily on developing mass production. There are many examples of this mentality in practices of this era. For example concepts of a nuclear family, a factory-type education system and corporation were all aimed at mass customization. The transition to third wave society which is also known as the information age has eliminated the concepts of mass production. This concept has been replaced by ‘mass customization’. Individuality is order of the day for customers. Thus new segments have been formed in the society because everyone wants something different. The practice of segmenting solely on age and gender is therefore totally out of the window. Non-demographic traits such as values, preferences and taste are more important in segmentation decision as compared to age and gender (Yankelovich & Meer, 2006). Discussion above has proved that segmentation has become more important because of mass customization and individuality. The competition in markets is another factor which emphasizes importance of market segmentation. The UK retail market is being dominated by Tesco and is being closely followed by three other retailers. There are a number of reasons which makes it impossible to compete with large players such as Microsoft and McDonalds in an open market place. These companies have more integration with suppliers and have recognized brands. The customer always feels comfortable in buying from a known brand. The new market entrants are therefore left with only one option i.e. segment and specialize. It is better to be a large fish in a small market rather than a small fish in a large market. Therefore in order to be successful in a very competitive environment companies must target segments of their total target market and specialize in needs of those segments. There are a number of advantages which are drive by segmentation. Customers are more loyal to a business which precisely fulfills their needs as compared to large business which approximately satisfy their demands. The level of customer specialization leads to a better level and quality of service. This also contributes to higher customer satisfaction. The high competition has two effects on ways of doing business. First of all sales are divided between many competitors leaving very small pieces for new entrants. The large service providers have advantages of economies of scale. For example Tesco and Microsoft both have multibillion quarterly sales. The administrative and Research & Development costs are automatically a small percentage of sales. They can further reduce their gross margins because it would only make their sales higher. Thus gross margins are very low in services industries. Market segmentation leads to higher customer satisfaction and brand loyalty as discussed above. Therefore it can be easily said that premium pricing can be charged because of segmentation. Thus enabling a business to reap high gross margins in a highly competition environment. UK Fast Food Industry The participants of UK fast food industry can be segmented into two major segments. The first segment is made up of small fast food joints owned by individuals offering different types and qualities of fast food. There are many different types of fast food options available in this segment. There are sushi bars offering Japanese fast food. The Indian-desi fast food joints offer different types of readymade greasy and spiced Indian foods. These include Pani-Puri, Dhai-Bhala and Chana-Chaat. The Italian fast food joints usually offer macaronis and lasagnas. The second segment of UK fast food market is dominated by large franchises such as Pizza Hut, Dominos, KFC, Burger King, McDonalds etc. These franchises primarily focus on Pizza and burger market. The main quality offering of these franchises is their customer experiences and standardization. The emphasis of low delivery times and quality service is dominant in their market strategies. The coffee industry is trying to look more and more like a fast food industry. Large players like Starbucks and Dunkin Doughnuts are offer many ready to eat fast food items. Fast Food Joint X As mentioned above the only option for a new entrant in this industry is to segment its products and services. This is because fast food is a mature market. Industries in this product life cycle are usually marked by vicious price wars and differentiation efforts. This induces even higher investments on marketing and promotion. The options available in terms of strategic positioning can be seen in the figure below. Figure 1 The position in this industry is still favorable. This favorable position is basically fueled by a low competitive intensity in this industry. The new business should find its niche in the first broader segment identified. As is being shown in Figure 1 in order to be successful the business must differentiate and find a niche for itself. This would be the only successful strategy. In the second segment there are now options of differentiating because service focus is on standardization and not customization. The five important factors must be considered about the target market selection. According to Kolter these are important variables for selecting an effective target market: Measurable: The target market should be visible statistically. This is more important for identification on basis of geographical and demographical variables. These results could be obtained from government census data or established brands can use their own databases to generate this info. Fast Food Joint X can obtain data on nationalities and ethnicities. As the business is targeting a specific segment of non-franchise fast food industry such as Indian-desi or Japanese-Sushi, it can easily obtain data on its primary consumer which would be customers of respective ethnicity. Relevant: The size of the market being target should be large enough for the business to be profitable. There are thousands of students traveling to UK every year. This has made UK an amalgam of many nationalities. Therefore an exotic fast food segment would be relevant. Feasible: The segment should be feasible for investment. This means that there must be marketing programs that are effective for the segment in question. The segment chosen for Fast Food Joint X can easily be targeted through university advertisements. Accessible: The ethic food industry is accessible as people of different ethnicities are settled throughout UK. Advantages The advantages of segmentation have already been discussed above. The business would however gain additional advantages because of a multi ethic population of UK. The competitive intensity is very low in this segment as there is lack of consolidation. The gross margins are high because premium pricing can be charged as people are sentimental towards their national foods. References Yankelovich,D. , Meer,D. (2006). Rediscovering Market Segmentation.HBR Stephen, K. , Woo, C. (2008). McDonalds: Is China Lovin It? HBR Read More