The Process of Market segmentation - Essay Example

Market Segmentation The market consists of different types of consumes that have a variety of needs and various types of products (Kotler, pp.44). The market further divides itself into different types of consumers, further divided into subgroups and segments. The needs of these different types of consumers may vary due to a variety of factors. The concept of market segmentation therefore refers to the process of targeting different types of consumers with different marketing programmes and products, suitable to their needs (Croft, pp. 1). Market segmentation appears to be a simple theory; however, it remains one of the most widely researched marketing topics (Wedel & Kamakura, pp. xix). The topic of market segmentation has been around in the world for nearly a decade. It has gained large importance these days, especially in the industrialized world. The needs of consumers are widely heterogenic; therefore, different products are made that target specific needs of consumers (Wedel & Kamakura, pp. 3). The theory of market segmentation, given by Smith (1956) has maintained its value, for he recognized the heterogeneity of the needs of the consumers, because of their differing preferences. The purpose of market segmentation covers maximizing sales and profits. In the modern world of today, the theory of market segmentation has undergone various changes and has gotten more complex. The paper attempts to explain the process of market segmentation. It also describes the reason for carrying out market segmentation. Furthermore, it talks about the concept of ‘targeting’, which remains extremely important in the theory of market segmentation. The paper also answers the question of the need of market segmentation, discussing the potential benefits. It remains extremely important for a marketer to have a detailed analysis of the needs and preferences of different types of consumers. Mass marketing does not take in to account all these different types of preferences. Therefore, the approach of market segmentation proves to be extremely beneficial. The marketing theory takes into account the different segments of the market. It also does not remain feasible to target the needs of each consumer. Consumer groups are divided according to their similar requirements and buying characteristics. The process of market segmentation begins this way. The factors that determine these segments include ‘geographic, demographic, psychographic, and behavioral’ factors (Kotler, pp. 44). The process of establishing segments consists of lengthy surveys and heavy paperwork. The second step involves market mapping. Market mapping consists of establishing different types of costs such as logistics cost, retail and selling costs. The third step involves the consumers. The suggestions of the consumer are largely viewed and implemented in many cases. The fourth step involves the creation of segments. Consumers with a similar mindset and economic situations are placed in one group (Buzzle, n.p). After the creation of different segments within a market, the organization can target these segments for its sales and marketing programmes. The particular marketing programmes also take in to account the different competing organizations that target the same segment (Dibb & Simkin, pp.10). Marketing involves catering to the needs of different consumers and satisfying different user needs. One homogenous product for all means that the consumer satisfaction is not guaranteed. Therefore, a perfect market involves wastage of resources. Therefore, it remains extremely necessary for a firm to target specific segments of the market. This ensures that the needs of the consumers are wholly satisfied. Market Segmentation particularly works in firms of imperfect competition. Another reason for deeming market segmentation important and necessary involves giving the organization a competitive edge. Market segmentation ensures that the company builds on its competitive edge and specialist knowledge, which strengthens the business. The organization does not remain vulnerable to different price attacks (Croft, pp. 2). The process of marketing involves ‘matching organizational resources to user groupings’. Market segmentation proves to be extremely beneficial in this case. In addition, if an organization provides one single product, it means that the organization targets one specific area of the market. The other groups in the market search for other better options. Moreover, the other groups will not pay the highest price possible. Consumer surplus therefore remains minimal in the case of a single homogeneous product. Maximizing consumer surplus ensures more sales, and hence more profits. Therefore, market segmentation remains imperative for the reasons described above. Even though market segmentation has undergone a variety of changes in the past thirty years, the essence of market segmentation remains the same. Breaking the market into groups ensure that the job of the marketer becomes easier and more precise. This is because the task becomes comparatively easier by making small changes to a particular marketing mix. Therefore, the nature of market segmentation remains largely the same and aims to maximize consumer surplus. In addition, profit maximization remains the ultimate goal of market segmentation (Croft, pp. 29-43). After the process of segmentation is completed, then it enters the company enters the segment, which it thinks is the most attractive. One particular company cannot possibly cater to the needs and preferences of all the consumers, therefore, it is important to choose one or two segments. However, giant multinational corporations such as Unilever and Proctor and Gamble can target almost the entire consumer base. They have different products for each segment of the population, and they employ different marketing strategies. In addition, the Pakistani company, Bareeze does not only cater to women, but also the children segment of the population, with its sister company, Minnie Minors. However, generally the segment that generates the highest profit and maximizes customer satisfaction should be targeted. Some companies that have limited resources cater to only a few or even one segment of the market. These segments are also widely known as ‘niches’. These companies target those groups of buyers that other companies tend to overlook or ignore. The example of these companies includes Ferrari that sells only a certain amount of cars per year. The marketing strategy employed by these companies usually focuses on the ultimate catch phrase ‘the more expensive it is the better’. This is because the target group consists mainly of the ‘snob’ class. It also remains important to mention that the study of economics also play a very significant role in principles of marketing. Initially, the company enters one segment of the market, and after that proves profitable, it moves on to targets other segments as well (Kotler, pp. 45). Narrowly, targeting involves mass-marketing strategy, single segment strategy and multi segment strategy. In mass marketing strategy, pursued by companies such as Suzuki, which provides cars catering to almost all consumers, usually achieve economies of scale. Single segment strategy has been talked about above (Dibb & Simkin, pp.76). Multi segment strategy is pursued by companies, such as Unilever and General Motors. General Motors makes a car ‘for every person, purse, and personality.’ Such companies provide different products to meet specific needs of every segment (Kotler, pp. 45). Market segmentation proves to be an extremely beneficial marketing strategy. Market segmentation explains the division of a market into homogenous groups (Kotler, pp. 45), which means that these groups can be targeted by a different marketing mix. Market segmentation ensures that the consumers pay for the products that they really want. Therefore, it helps to keep the prices at a level that consumers are willing to pay. Hence, it is the perfect way of ensuring maximum consumer satisfaction. In addition, market segmentation allows a particular firm to explore a market, which otherwise would not have been found. Companies can therefore enjoy the label of being the ‘first’ one to enter the market. The ‘first’ one usually gets more recognition even when new firms enter the market. Market segmentation also prevents the wastage of resources. In fact, it leads to a proper allocation of marketing resources. Usually, some companies face loss leaders when they have divided their consumer base into different segments. A profit in one of the marketing segments can offset a loss in another segment of the company. It can also lead to abandonment of those segments that give a loss. In this way, the company does not shut down totally (Cant, Strydom & Jooste, pp. 106). All these benefits prove that it is extremely important to concentrate marketing efforts on certain sections of the market. The ultimate goal of market segmentation remains profit maximization. It also remains extremely important to mention that the development of different marketing models becomes quite expensive. A single, standardized marketing strategy proves to be cheaper. In addition, too much extreme market segmentation can lead to proliferation of models and variations. Cannibalization can also occur, which means that one product takes away the market share of another product of the same organization. This can particularly happen to large multinationals such as Unilever that provides soap, shampoos, and other products for different consumer segments. However, it does not mean that the problems of market segmentation outweigh the benefits of market segmentation (Cant, Strydom & Jooste, pp. 106). Market segmentation, a concept started by Smith in 1950s has undergone a variety of changes and developments. However, it exists until this day. Different companies employ various techniques of market segmentation. The task of the marketer has become extremely simple because of market segmentation. Economically as well, market segmentation has proved to be beneficial. Optimal use of resources is carried out in this way. Market segmentation also positions a particular brand in the market properly. The paper has attempted to explain the concept of ‘market segmentation’ in the simplest and easiest way possible. For many marketers, however the task does not qualify to be as simple. Length surveys and procedures are involved in the process of market segmentation. It is very important that effective segmentation is conducted. This leads to easier identification. Different marketers explain the process and steps of market segmentation quite differently. However, the essential nature remains the same. Market segmentation aims to maximize satisfaction for consumers and profits for shareholders. In the modern world of today, market segmentation has become an absolute necessity, and as Donald Norman puts it, ‘Market Segmentation is a natural result of the vast differences among people’ (Brainy Quote, n.p). Works Cited Brainy Quote. "Market segmentation s a natural... at BrainyQuote." Famous Quotes at BrainyQuote. N.p., n.d. Web. Retrieved on June 24, 2011: http://www.brainyquote.com/quotes/quotes/d/donaldnorm261296.html Cant, M. C., Strydom, J. W., and Jooste, C. J. Marketing Management. Juta & Company, 2009. Croft, Michael J. Market segmentation. Routledge, 1994. Dibb, Sally, and Simkin, Lyndon. The Market Segmentation Workbook. Cengage Learning, 1996. K, Scholasticus. "Market Segmentation Process." Buzzle Web Portal: Intelligent Life on the Web. N.p., n.d. Web. Retrieved on June 24, 2011: http://www.buzzle.com/articles/market-segmentation-process.html Kotler, Philip. Principles Of Marketing. Pearson Education, 2010. Wedel, Michel, and Kamakura, Wagner Antonio. Market Segmentation. Springer, 2000. Read More