Strategic Marketing: Types Of Market Segmentation - Essay Example

Strategic Marketing: Types Of Market Segmentation Introduction Strategic marketing is used by businesses to attract, maintain the existing and the new customers in target market (Aaker, 2005, 20). On the other hand, market segmentation strategy can be successful, if the company diverts its resources to understand and access the customer’s needs. According to Abraham Maslow theory of hierarchy needs, customer-purchasing decision relies on the unfulfilled needs; in fact, consumer needs keep on changing depending on the level on hierarchy of need (Gordon, 2004, 27). The company should mainly consider the consumer behaviour which is unpredictable in while segmenting the market. In addition, entering a given market segment with a new product is likely to perform well in the market if it has been developed to meet consumers' need; in fact a company should ensure it uses all means to maintain this (Hawkins, Best, and Coney, 2004, 30). This paper will focus on discussing principles of segmentation that are fundamental to marketing, while implying the way unique groups of customers should be approached. The paper will also present relevant examples from renowned organizations through a critical evaluation of the way they use segmentation approach to create value to themselves and their customers. Market Segmentation This refers to a process of segregating a market into distinctive groups of buyers with different needs, attributes, or behaviours that require separate marketing mixes (McDonald & Dunbar, 2004, 56). In fact, different factors contributes to the consumers’ mindset, thus this numerous differing segments occurs within the market. Marketers segment the market in order to identify the segments that are appearing in terms of opportunities, development of suitable positioning and communication strategies (Bhat, 1998, 32). This enables them to allocate resources to various marketing activities, though they also seek to conduct a segmentation research at regular intervals in order to cope with the changes in the business environment. There are different forms of market segmentation approaches; thus, this is a strategy through which a big market is segregated into smaller proponents that are referred to as homogenous segments (Hunt and Arnett, 2004, 25). However, this process involves a segregated market program to be established in a particular market segment. The market is segmented on the basis of the element in the marketing mix; thus, good marketers focus on their effort to position themselves in a given segment (Bhat, 1998, 32). Apparently, the effort to segment a market is aimed at achieving a position that an organization will be able to defend any form of competition (Hooley and Saunders, 1993, 54). On the other hand, market segmentation is approached through a set of immediate and potential capabilities within an organization. Nevertheless, these potential is considered a reputation of an existing product or other set of valuable skills in an organization. Assessment of organization capabilities requires an organization to recognize the need sets that are reflected to their products as they seek to satisfy their needs. Types of Market segmentation Market segmentation process is attributed to customer grouping characterization, whereby they are classified on the basis of their socio economic status, geographic differences, demography and psychographic behaviours (Drummond and Ensor, 2005, 54­). However, these attributed are classified through the information technology using computers. Segmentation based on Geography. Market segmentation based on geographic location is the initiation stage of the segmentation process; thus, the marketer begins with dividing the market into different locations. This segmentation process applies the theory that residents of a given geographic location share their wants and needs; in fact, they differ from those living in other locations. For instance, there are marketers, who segregate a market into urban market and rural market, and there can also be another one referred to as metro and non-metro market. Geographical market segmentation applies the principles that consumers have identical preference and traits in terms of these segments (Bearden, Ingram and LaForge, 2004, 30). On the other hand, these marketers argue that in geographic segmentation approach, customers within a given location can be targeted using the same offer. Nevertheless, this market does not serve as a way of defining marketing proposition; though it defines the product and service that is required or the marketing position that should be acquired. Acquiring a marketing position assists the marketers in identification of the way customers can be targeted and reached in a given market segment (Kotler and Keller, 2012, 56). In this case, this calls for application of geo-cluster approach, which integrates the demographic information and the geographic data, thereby establishing an accurate profile of certain customers. For example, areas that are susceptible to rain can become a good target market segment for products such as raincoats, umbrellas and gumboots. Segmentation based on Demography This is segmentation process involves describing a target market in terms of size, structure and distribution. In this case, size refers to the number of people in the society, and the structure focuses on factors such as age, income, education and occupation. In addition, the distribution involves physical location of the market. On the other hand, the marketers have a conviction that the sizes of families has a significant influence on the consumption of given products. For instance, the market can be segmented on the basis of age, whereby there should be infants market, child market, and youth or middle age market. Therefore, these products should be designed in a way that meets their particular needs as consumers. Demographic approach of market segmentation involves an assumption that customers may differ based on the procedure that is taken by a given company. It is evident that demographic has a significant role in segmentation and defining these segments. Demographic segmentation assists in recognition of segment profile among typical; customers, which reside in these segments. Variables of demographic segmentations form a basis of segmenting customer groups since they are substantially associated. Segmentation based on Psychology Psychographic segmentation is based on the lifestyle analysis of target customer in order to provide a basis of segmentation. Apparently, psychographic segmentation focuses on factors such as the personality, buying motives, interests, attitudes, convictions and values of consumer in a given market. In this case, customers’ lifestyle can be defined on the basis of the way people spend their time undertaking various activities. Nevertheless, consumers concentrate significantly on the environment, their interests and others attitude towards them. However, psychographic market segmentation requires AIO analysis, which is considered to focus on the life style factors that are important to marketers on two categories. One these categories involves the general lifestyle pattern such as the alternation of male and female buying; in fact, this changes in terms of the habits, tastes and the buying behaviours. The second category focuses on applying a given product specific basis. Psychographic approach of market segmenting has been considered a significant tool in the effort of offering guidelines (Kotler, 2006, 34). In this case, these are considered promotional appeals in the process of applying advertising media, which is applied in reaching the target customers. Nevertheless, this approach is not utilized for defining products and services that are required for identification of internal influencers of decision makers. Segmenting Markets based on Ethnicity Market segmentation process based on ethnicity; in fact, this process is supported by the nature of consumer market, whereby they are ethnically homogenous. Consumers are very diverse in different parts of the world and this diversity is increasing with time. Apparently, this diversity is attributed to the increasing mix of people with different nationalities, cultural background, traditional and language preferences. In this case, ethnicity is a term referring to similar customs, values, and attitudes of people within a particular group, which are constrained by cultural identification (Solomon, 2010, 60). Therefore, as a basis of market segmentation, the marketers focus perceptions, likes and dislikes among consumers in different cultural background. In this case, there are particular ethnic group with the tendency of spending more compared to market with given types of goods and services. Effectiveness in Segmentation Approach It is essential for a marketer to understand in any particular market segment the product life cycle begins at the product development phase, whereby the company develops a new product idea. The second phase involves an introduction of the product, by launching it in a way that creates maximum impact on the sale. The third phase is the growth stage, which relates to the satisfaction of the product take off in the market place, and it requires appropriate timing in order to increase the market share. The fourth stage involves the growth of the market share at the expense of the competitors’ businesses, and in this period, there are high returns from the product. The final stage involves the decision of withdrawing the product from the market segment, which is a complicated task since there are many issues that are resolved before making the decision. In the process of planning and running the business, evaluation of the market segment is a vital component in the segmentation process, since it depicts the extent at which the business has achieved, and the things needed to improve performance. The evaluation of a market segment is based on the set objective; hence, the marketing managers try to determine how the organizational goals have been achieved, and resources needed to achieve these objectives (Hutt, 2004, 15). Therefore, evaluation assists the managers to identify the changes needed in the business in order to cope with the dynamism in the environment of a given market segment. In the market segment, marketers ought to consider the following demographic factors: gender, age, ethnicity, geographical location, and income. The targeted market segment should be strong based on buying power; for example, the market of Microsoft Company is structured in sectors incorporating different customer segments, which helps the company respond to changes in demand. These market sectors include large corporate, transaction customers, public sector mainly government and education. Microsoft Company segments its market into relationship, transaction and public or international clients. Advertisement as a promotional tool is essential in market segmentation approach. The advertisement information will create awareness of the product in a given market segment, and this will influence customers to purchase the products (Manning, Ahearne and Reece, 2012, 40). This method is paramount based on the notion that the new product in the market requires recognition and compete with other substitutes in the market segment. Methods of promotion like personal selling and public relations may not be suitable at this early launching stage of the product in a given market segment (Martin, 2013, 1). Personal selling is the most expensive tool based on its high costs related to labour, incentives, training, travel and the time spent (Hughes, 2011, 3). This is only characterized with one audience hence the coverage is limited. Channels of distribution in a particular market segment consist of set of interdependent organization such as retailers, sales persons, and wholesalers in providing goods to the customer; in fact, it involves the transition of goods from producers to the consumers. A good channel of distribution should ensure quick and save movement of goods with proper security (Hutt, 2004, 15). Channel of distribution should ensure that all parties involved benefit accordingly and the product reach the customer at a fair price. Intermediaries play a prominent role in distribution, channels though, should be minimized to ensure that the quantity and the price of the commodity do not divert largely from the producers price. Communication channels in a market segment serve the need to ensure that new product consolidates its customer and acquire market share (Moré, 2012, 1). This process involves the application of a suitable integrated marketing communication of the various promotional tools to ensure that the objective is achieved. Therefore, selection of a suitable integrated marketing communication tools are required (Spencera, Joinerb and Salmonc, 2009, 103). The channels of communication comprised in the integrated marketing communication are selected by assessing and evaluating the suitability in the context of promoting this brand (Knox, 2004, 12). Examples of Organizations Using a Segmentation Approach Examples of segmentation approach used for competitor targets involve assessment of strengths and weakness of current and the potential competitors. For instance, the main competitors for Microsoft Company Webcam device are Dell and Apple products. Rival companies have similar products to Webcom, and they have unique features that give them a competitive advantage in the market. The company is using various strategies to gain competitive advantage for its products; these strategies will also give the new product a competitive advantage. This is because the company has other well-established products that have enabled the company to build brand loyalty (Knox, 2004, 12). The competitor companies are also trying to maintain their market share by decreasing the price of their products. The first example of segmentation approach that has created value to an organization involves Gain laundry detergent, which include; geographical segmentation that relates to dividing the market into geographical units like regions, countries, cities, and nations, thus the company can pay attention to geographical differences in needs and wants. Demographic segmentation by Procter & Gamble segregates the market into groups based on the variables like gender, age, income, occupation, race, religion, and education, since people have different psychological makeup, while behavioural segmentation segregates the buyer into groups based on their knowledge, attitudes, or responses to a product, thus in this case behaviours are the best variables as standpoints of building the market segment (Hunt & Arnett, 2004, 25). Market targeting relates to the evaluation of the attractiveness by each segments and making a decision on which to enter, hence each segment is addressed individually with a targeted marketing mix (Dibb, Simpkin, Pride & Ferrell, 2001, 25). Moreover, the significance of the marketing segmentation depends on the fact that the buyers have individual needs, preferences, resources, and behaviours. In fact, each buyer has individual needs, and this creates virtual impossibility to cater for the customers individual characteristics. Therefore, the marketer groups the customers to the market segments on the basis of the variables that they have in common, hence allowing the standardized marketing mix for the target customers in this segment. In this case, Gain laundry detergent has managed to sell as a North American brand, hence becoming company’s eight largest brands in dollar sales in U.S.A, thus becoming highly profitable (Target Market News, 2012, 1). The strongest competitors of Gain laundry detergent are like Omo, Surf, and Persil from Uniliver, and it offers emergence of detergent brands as effects of product innovation and consumer behaviours dynamics. The other competitor is the Purex Laundry Detergent from the Dial Corporation that has offers natural elements product line that has a hundred percent natural cleaning ingredients, hence Gain laundry detergent and P&G has to concentrate on their marketing strategy for eventual market domination (Target Market News, 2012, 1). The second example of segmentation approach that has created value for customers is Kudler Fine Foods, which focused on targeting young wine drinkers who are highly predisposed to factors cultures based on music, sports, fashion and language (Hughes, 2012, 5). Therefore, the company focused on marketing implications based on their advertisement, which portrayed the variety of diversity focusing on race and gender (Thach and Olsen, 2006, 322). The company considered concentrating on universal values based on a focus on cultural values; in fact, this involved targeting certain ethno-centric segment of millennial populace. The company targeted the group of customers due to their nature of being optimistic and practical; in fact, they were attracted to being associated with companies with idealistic, with an impact on the world. The third example involves the Bayerische Motoren Werke (BMW) Company, which deals with manufacture of automobile, motorcycle and engine manufacturing. According to Mettler (2005, 23), the company has been engaged in transactions that are profitable with no comparison to most mass-market producers. The company’s worldwide manufacturing plants are in Germany, Australia, the USA, the UK, and South Africa; besides, there are other assembly plants in Malaysia, Indonesia, Thailand, Russia, and Egypt. The company has divisions of market with distinct groups with different needs and preferences; in fact, it focuses on offering products that satisfy customers with characteristics or behaviour that require separate products or marketing mixes. The company segregates a target market into segments in which the marketing efforts are applied in one or few segments; thus, this strategy of market segmentation makes the pricing, distribution and promotion of the products easier and more cost effective. The segmentation is based on age and income in these demographic segments (Schiffman and Kanuk, 2007, 80). For instance, convertible cars are produced for young and wealthy population. Conclusion In conclusion, this paper has discussed principles of segmentation that are fundamental to marketing, while implying the way unique groups of customers should be approached. The paper has also presented relevant examples from renowned organizations through a critical evaluation of the way they use segmentation approach to create value to themselves and their customers. Table of Contents Introduction 3 Market Segmentation 3 Types of Market segmentation 4 Segmentation based on Geography 4 Segmentation based on Demography 5 Segmentation based on Psychology 6 Segmenting Markets based on Ethnicity 6 Effectiveness in Segmentation Approach 7 Examples of Organizations Using a Segmentation Approach 9 Conclusion 12 References 13 References Aaker, D. A., 2005, Strategic Marketing Management, New York, The Free Press Bhat, S., 1998, “Symbolic and functional positioning of brands”, Journal of Consumer Marketing, No 1, p. 32-43 Bearden, W., Ingram, T. and LaForge, R., 2004, Marketing: Principle and Perspectives, Boston, MA, McGraw-Hill/Irwin Dibb, S., Simpkin, L., Pride, W. M., and Ferrell, D. C., 2001, Marketing Concepts and Strategies, Cambndye, Mass, Houghton Mifflin Drummond, G. and Ensor, J. 2005, Introduction to Marketing Concept, Amsterdam, Elsevier/Butterworth Heinemann Gordon, R., 2004, “Beyond Maslows hierarchy of needs: What do people strive for performance improvement”, Performance journal, 43(10), 27-31. Hawkins, D., Best, R., and Coney, K., 2004, Consumer behaviour: building marketing strategy, Boston, MA, McGraw-Hill/Irwin Hutt, M.D., 2004, Business marketing management, (8th ed.), New York, Prentice Hall Hunt, S. D., and Arnett, D. B., 2004, “Market segmentation strategy, competitive advantage and public policy: grounding segmentation strategy in resource-advantage theory”, Australasian Marketing Journal, 12, 1, 7–25. 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