The Process of Market Segmentation - Term Paper Example

Market Segmentation Introduction Market segmentation is a term used to define the division of a huge market into smaller market segments comprising of target customers, target customers are those individuals who have similar needs and wants and have closely related characteristics (BOSE, 2002, p.513). Market segmentation can prove to be quite fruitful in nature and the cost attached to this procedure is quite high because a lot of market research is involved. With the assistance of market segmentation, businesses can design and create goods and services that appeal to a small portion of an overall market. When organizations pay emphasis and use its resources towards a small part of the consumers, they are involved in the business of market niche and by serving this portion of the market; businesses can perform better and gain an added advantage over their competitors. The process of market segmentation lies between an organization’s marketing strategy that targets a huge market by producing goods and services that satisfy the needs and wants of a huge market or the overall market and a marketing strategy that is used to serve the needs and wants of individual consumers by producing goods and services that are unique and only appeal to a specific portion of the overall market. Those organizations and marketers who follow niche marketing strategy and work on their market segmentation practices are of the belief that one product does not has the ability to satisfy a huge market as consumers have different needs and wants. Secondly, they are even aware that an organization can never have enough resources to satisfy needs and wants of consumers on the individual level. This is why marketers are involved in the process of marketing segmentation and they divide a huge market into smaller segments and then the marketers create marketing strategy as well as products that satisfy the needs and wants of a particular segment. Market segments are created while giving importance to the characteristics of consumers, these characteristics are regarded as segmentation bases and can be utilized to create segments of a market, and the most commonly used segmentation bases include: consumer’s age, the place they live in, their income levels and the purchasing behaviors (STEVENS, 2012, p.32). Body There are several strategies of marketing that a marketer can use for his/her product, one such strategy is recognized as marketing at the mass level, and this is even recognized by the name of undifferentiated marketing (FERRELL, 2011, p.168). Such a marketing strategy cannot be utilized to serve several consumers available within a market; still several organizations are constantly utilizing this strategy. This kind of strategy is mostly used to sell homogenous products and products that are standardized in nature and are required on every day basis. These goods include: fuel, sugar and bread. Undifferentiated marketing strategy is employed when the goods and services are similar in nature and consumers are of the perception that the benefits of these goods and services are similar and these goods and services do not change from seller to seller. Mass marketing is even considered as advantageous to businesses as this kind of marketing strategy has a low cost of marketing associated with it and production cost is even quite low. Businesses that utilize this strategy produce goods and services at a huge level and only employ one marketing plan and thus are able to provide consumers with value for the amount of money they have spend to obtain the good or service. Certain organizations that produce goods and services on the mass level use a strategy of marketing recognized as product differentiation in order portray that their goods and services are different from their competitor’s goods and services, even when their goods and their competitor’s goods are similar in nature. For example: One milk seller may sell his milk while advertising that his/her organization’s milk is good for making tea, while the other one may claim that their milk is low in fat and is good for those who are on a strict diet. This differentiation may make consumers think that these goods are different and may be ready to pay higher prices for the good. For example: Those consumers who are weight conscious might pay higher prices to the seller who states that their milk is low in fat. This kind of marketing strategy may result in being several expensive for the organization as the organization will have to spend loads of finance on promoting their goods and services differently (BLYTHE, 2006, p.179). The strategy of differentiation of products may be of higher benefit to the organization when consumers are quite careful about what they purchase and the differences between the goods produced by the competitors may be easily identifiable. The main advantage associated with mass marketing is the decrease in cost achieved by the producer; still this concept of marketing has several associated disadvantages. One of the main drawback is that one single product can not result in the satisfaction of all the consumers in a market as different consumers have different needs. If consumer need is not satisfy, their needs will be identified by competitors and they will create goods and services to satisfy those needs and the organization loses its consumer. The point to be noted is that a new product is created by a manufacturer and then competitors seize the opportunity of satisfying the needs that are not completely met by the new product and create their own product with differentiated benefits (MOSCHIS, 1994, p.8). Keeping this in mind, the marketing strategy of market segmentation is a heavily effective way of marketing a product or service as a market may contain several consumers who have differentiated needs. With the assistance of segmentation, marketers can develop single products focusing on individual consumer needs and create a marketing strategy that appeals to their individual needs (WINSTON, 1984, p.116). This strategy of marketing be of tremendous benefit to the organization but is quite expensive to pursue. For example: marketing becomes quite expensive as a lot of research is required to identify different segments in a particular market and then the production cost even rises as smaller production levels are to be managed to meet the demands of smaller consumer base. Segmentation Bases An organization can successfully implement a marketing strategy based n market segmentation approach if it equips itself with techniques of research used to identify the common characteristics and needs shared by different consumers within a market. Consumer needs and wants are found in different clusters and characteristics that are easy to identify. This means that if a graph of the characteristics and preferences of consumers is created, there will be a point where a cluster will be formed due to different characteristics and needs. Alexander Hiam states that the segments that are being formed by a marketer should be easy to identify and measure, should be quite huge in size to make profits, should be reached through a medium which is used by all members of a segment, should have history of responding to different marketing activities and their characteristics and needs should be stagnant and should not change on continuous basis (HILLSTROM, 2002, p.720). In order to market a product to a segment, the marketing activities should be conducted through those channels that are used by most of the members of that segment. It is the organization’s own decision of whether satisfying the needs of a single segment or pursuing the needs of several segments at the same time. The identification of how to create segments within a market is the most complex question experienced by a marketer. Market segmentation is considered to be successful if it leads to creation of products that become successful and market segmentation activity costs a lot of money and becomes successful if products produced by after segmentation end up being unsuccessful. A market can be segmented on the bases of behavior, benefits and description and these segments are further broken down into customer’s characteristics. Market segmentation becomes descriptive in nature when huge numbers of factors that define consumer’s demographic as well as physical location are identified. Descriptive bases of market segmentation is the most commonly used method of segmenting marketing as the descriptive bases are easy to quantify and helps in figuring out close preferences of consumers (COOGAN, 2000, p.53). Factors that are use to conduct descriptive market segmentation includes: consumer’s age, sex, culture, and location, size of the family, income level and religion. Other factors that might be associated with the location of consumers may include the nation, city, environment and number of people lining nearby. Market segmentation conducted on the bases of behavior is hard to quantify, but these bases provide a clear view of the consumer’s buying behavior. These bases include factors that assist marketers to motivate consumers to opt for a particular purchase decision (KASER, 2008, p.105). These factors may include: consumer’s personality, the economic class they belong to and their life style. When segmentation is conducted on the bases of behavior, factors that are linked with a consumer’s purchase of a particular good are even taken into consideration. This include: how close the consumer is towards a brand, the frequency of product usage and whether they would replace current products and their ability and willingness to make a purchase at any point in time. Market segmentation that is conducted on the bases of benefits is conducted when marketers focus upon the primary benefits that consumers want to obtain and needs they want to satisfy by purchasing a particular product. Once the benefits are identified, manufacturers produce goods to satisfy these needs. This kind of segmentation is conducted due to the belief that consumer purchase goods in order to obtain certain benefits. One of the major drawbacks associated with this kind of segmentation is that consumers are not aware of the benefits that they wish to attain by using a particular good. The Process According to Hiam there are six steps that an organization or a marketer needs to follow in order to conduct a segmentation of market (COPLEY, 2004, p.77). According to him, the first step is to identify the limit of the segment. To conduct this step, a business needs to create a plan for business which is formal in nature and create a broad based definition of the business and then they need to take into account offerings that are offered by close as well as indirect competitors in order to obtain information related to consumer needs of a particular market. Once the needs of different consumers of a market have been identified, the marketer needs to select a few of the needs that they are going to satisfy thorough their product. Several organization end up considering a lot of needs and then fail to find out the relevant ones. In the third step, marketers need to conduct an analysis of the collected data. To conduct an analysis, marketers need to employ several research tools utilized in the field of marketing. The main aim of conducting this procedure is to identify those needs that makes the segments homogenous internally and are still externally heterogeneous. In the fourth step, the marketers create a profile of the segments and this profile is detailed in nature. In developing a profile, a marketer has to select needs of consumers that are directly related to their purchasing pattern. In the fifth step, the marketers are involved in the process of deciding upon the segments that they are filling to satisfy through their products. While serving segments or one particular segment, the marketer needs to create products that are satisfying their needs and desires and are consistent with the current product line of the organization (HILL, 2012, p.119). In the last step, the marketer is involved in development of product that satisfies the needs of the consumers of a target market and they even develop a marketing program that will only appeal to that particular segment. Conclusion A firm can experience higher amount of benefits if it creates products that satisfy the needs and wants of a particular segment of an overall market. This strategy is vital in marketing strategy as there are several goods and services being produced by different organizations and are homogenous in nature. Due to homogeneity of the products, organizations fail to differentiate and compete against their competitors. Market segmentation is a good way through which consumers can differentiate and compete in the market against their competitors. References BLYTHE, J. (2006). Principles & practice of marketing. London, Thomson. BOSE, D. C. (2002). Principles of management and administration. New Delhi, Prentice-Hall of India. COOGAN, M. A. (2000). Improving public transportation access to large airports. Washington, D.C., National Academy Press. COPLEY, P. (2004). Marketing communications management: concepts and theories, cases and practices. Amsterdam, Elsevier Butterworth-Heinemann. FERRELL, O. C., & HARTLINE, M. D. (2011). Marketing strategy. Mason, OH, South-Western Cengage Learning. HILL, C. W. L., & JONES, G. R. (2012). 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