The Concepts of Market Segmentation and Target Marketing - Essay Example

THE CONCEPTS OF MARKET SEGMENTATION AND TARGET MARKETING By of School and Introduction to Market segmentation Market segmentation, ideally, refers to the subdivision of the market on the basis of certain commonality, kinship or similarity. In this case, the market segment members share a certain important aspect in common. Segmentation is thus meant to concentrate the marketing force and energy on the created market subdivisions with the aim of gaining a competitive advantage in the respective segments. Many analysts, including Choi, Koh and Lee (2008), believe in concentration of the marketing energy as being essential in all the marketing strategy, and that segmentation of the market serves as a conceptual tool to facilitate achievement of focus. Market segmentation has over time been regarded as one of the fundamental concepts in modern marketing. The segments formed are thus constituted by consumer groups who have similar requirements, as well as groups of services and goods that exhibit similar attributes. Ideally, market segmentation concept has been largely associated with Wendell R. Smith, in the paper he first he first published in the year 1956 (Kim, Park, Lee & Lee, 2006). According to him, "Segmentation is based upon developments on the demand side of the market and represents a rational and more precise adjustment of product and marketing effort to consumer or user requirements” (Flint, Woodruff, and Gardial, 2002). In this respect, therefore, segmentation is viewed as being disaggregative in regard to its trends and effects in bringing about recognition of various demand schedules where only one was initially recognized. The concept of market segmentation is dependent on the recognition of differentiated product demands, whereas its application as a tool for marketing is dependent on the effectiveness in identifying the most befitting variables which can be used to divide total demand into segments that are economically viable (Freytag and Clarke, 2001). The segments that are economically viable could be seen as having the sufficient size that enables the marketers to attain sufficient level of profit through catering to certain needs of the members therein. According to Yankelovich and Meer (2006), "the idea that all markets can profitably be segmented has now received almost as widespread acceptance as the marketing concept itself". This notion is shared by Kim, Lee and Koh (2004), who note that market segmentation relies on the idea that there is need for the company to divide or segment the market in a manner that enables the achievement of certain sets of buyers. The sets of buyers, or the resultant market sub-segments, would eventually become the targets for the marketing plans of the company (Yankelovich and Meer, 2006). Geographical Segmentation Among the segmentation types in marketing is the geographical segmentation, which is considered as the most common of its kind, in which organizations segment markets through attraction of a certain restricted geographical area. For instance, a business organization could move to market its products within a certain country and not the others (Freytag and Clarke, 2001). On the other hand, a brand could only be sold on a certain market, region, or state in a certain country. This form of segmentation is particularly prominent in the restaurant chain businesses where a great focus is put on a limited area of geography as a way of achieving force concentration. The existence of regional preferences among consumers cannot be overlooked and quite often, this offers the basis upon which geographical specialization occurs. An ideal case for this is when a company chooses to redeye gravy within the southern US (Thorpe and Morgan, 2007). Similarly, there could be the concentration of advertisement and distribution of picante sauce in the southwest. Geographical segmentation could be of any form, which include north versus west, rural versus urban, cold areas versus warm areas, and dry areas versus high-humidity areas among other variables. Distribution Segmentation Different markets can be accessed through different distributing channels. For instance, a company could opt for the segmentation of the market for “tick and flea collar” through selling of products to supermarkets using one brand name, to other mass merchandisers by use of a different brand name, to the pest dealers under a different brand name, as well as to veterinarians using a different brand name (Freytag and Clarke, 2001). This form of distributional segmentation has grown in popularity, particularly in small organization which grants every channel a different brand in order to acquire distribution in the given channel. Media Segmentation Whereas this form of segmentation is not very common, media segmentation could be applied in real business practice. It has its basis on the fact that varied media seek to attain different audiences. In case a brand uses its entire budget into a single media, there are chances that it will be dominant in the particular market segment that listens to the specific media of choice, which could be a magazine or a radio station (Yankelovich and Meer, 2006). Media segmentation is a common practice among organizations that have certain control over the media, meaning they can use this in discouraging the competitors from using the same media. Price Segmentation This is widely practiced and common form of segmentation, and is largely influenced by the variable household incomes among customers. For instance, supposing the income of an individual varies from high to low, and then the organization is obliged to provide expensive products, medium-priced products, as well as the cheap ones (Yankelovich and Meer, 2006). This form of price segmentation is a common phenomenon within the automotive industry such is in General Motors, where the marketed brands have variable prices. For example, Pontiac, Chevrolet, Oldsmobile, Cadillac and Buick have historically exhibited variable prices dictated by a clear spectrum for the purpose of appealing to the higher income groups (Yankelovich and Meer, 2006). Demographic Segmentation In this form of segmentation, the factors of interest include age, gender, house type, income, and the level of education, all of which constitute the common variables of demographics. Certain brands have men as their prime targets while others are strictly for women (Thorpe and Morgan, 2007). For example, the music downloads are most often targets for the young people, whereas the hearing aid could better sell among the elderly population. Market segment is often defined by the education level. An ideal example is the primary elementary school which could define its target market as being the household that is highly educated and with women at the age of childbearing (Yankelovich and Meer, 2006). Demographic segmentation virtually always has a significant role in the strategy of segmentation. Time Segmentation This form of segmentation is not very common, but has demonstrated some effectiveness when used. Certain stores could choose to operate at odd hours while others are closed, particularly during the weekends and late in the night (Thorpe and Morgan, 2007). In another scenario, certain products are sold during particular periods of the year, for instance, the fireworks and Christmas cards. This means the stores only schedule the sale of these commodities based on the period within which their demands are high, making time dimension an interesting aspect in segmentation. Apart from foregoing, markets could be segmented based on political affiliations, hobbies, religion, team loyalties for sports, special interest groups, and the institutions attended among many other variables (Choi, Koh and Lee, 2008). Psychographic or Lifestyle Segmentation The psychographic segmentation, on the other, has its basis on multivariate analysis of the values, attitudes, emotions, behaviors, perceptions, interests and beliefs of the consumers. This form of segmentation is a legitimate mode of market segmenting the market, provided proper variables for segmentation are identified (Simkin, 2008). This stage finds the qualitative techniques of research very invaluable, since they offer an insight, the needed conceptual knowledge, and the exact language of the consumer needed in designing the questionnaire to be used in segmentation. Generally, the verbatim consumer comments are important in developing batteries for lifestyle or psychographic statements (Yankelovich and Meer, 2006). A large consumer representative sample are asked regarding the level at which they either agree or disagree with every statement. As far as the market segmentation premise is concerned, it is theorized that organizations or people can be approached with utmost effectiveness through reorganization of their efficiencies and accordingly adjusting to them. Emphasizing the segmentation approach leads to enhancement of the exchange process, considering that a company has more precision in matching the wants and needs of its customers (Thorpe and Morgan, 2007). Whereas the consumer segments can be identified with a lot of ease, most businesses lack the capacity as well as the need for effective marketing of the product to the all sets of segments identified. On the contrary, at least one or more market targets should be identified. Ideally, market segmentation can be considered as both an aggregation and disaggregation process (Yankelovich and Meer, 2006). Whereas there is an initial reduction of the market to the smallest components of homogeny, business practice demands that the marketers establish common dimensions which allow them to view the individuals as being larger and profitable segments. In this respect, therefore, market segmentation is considered a twofold process that includes identification and classification of people in homogenous groupings, which are in this case referred to as segments (Freytag and Clarke, 2001). In addition, it involves the determination of which of the segments constitute viable marketing targets. Essentially the marketing objectives within segmentation analysis are meant to foster reduction of risk in decision on when, where, whom, and how a service, product or brand ought to be marketed. On the other hand, the marketing objectives are also meant to enhance the efficiency of marketing through directing the efforts towards the identified segment in a particular consistent manner in line with the characteristics of the segment (Choi, Koh and Lee, 2008). Segmentation Strategies Segmentation strategies are classified into two major categories, all of which are followed by the marketing organizations. These include multisegment strategy and concentration strategy. An organization which opts for the concentration strategy decides to concentrate on its efforts in marketing strictly on a single segment of the market (Coburn, 2006). In this case, only a single mix is developed. For instance, a watch manufacturer would choose to focus on the luxury segment within the watch market. A business firm that adopts the concentration strategy acquires a certain advantage through its ability to analyze the specific wants and needs of a single segment, and eventually focusing all the efforts of marketing on the identified segment (Yankelovich and Meer, 2006). The use of this could enable the organization have the differential advantage over the competitors within the same market segment, but who fail to focus all their marketing efforts on this. The major advantage of the concentration strategy is related to the segment demand. As long as the product demand remains strong, the financial position of the organization maintains its strength. On the other hand, a decline in demand means a decline in the financial position of the organization. When the organization adopts the multisegment strategy, on the other hand, the organization characteristically focuses the marketing efforts on at least two different segments of marketing. The organization implements this through development of a unique mix of marketing for every segment (Thorpe and Morgan, 2007). In addition, there is the development of the marketing program which is coiled around each of the identified segments. The organizations that adopt the multisegment strategy often have increased total sales with the increase in more programs of marketing, which are more focused on customers. However, there is higher likelihood that the organization will incur higher costs due to the need for many programs of marketing (Yankelovich and Meer, 2006). Bases of Segmentation There are variable ways through which an organization could segment its market, with the preferred process varying with the different products involved. The process of segmentation is continuous, considering the dynamicity of the, markets as well as the ever changing products, all of which must be reflected in segmentation with time. Benefits of Segmenting and Targeting Markets The marketing practices within the General Motors bring into focus an important point that targeting and segmenting markets does not essentially mean skinning down the customer number. In fact, this is a method that enlarges the customer base through providing information that could be used for successful adjustment of certain components on offer, which include pricing, and the mode of service and marketing (Yankelovich and Meer, 2006). As observed in many firms, market segmentation and market targets are important in avoiding direct competition by a firm with other players in the field through capturing the same customers in different ways. On the other hand, this practice is important in developing new offerings and expanding the profitable products and brand lines. As observed by Dibb and Simkin (2001), segmenting and targeting markets enable firms to remarket less profitable older brands and products, as well as facilitating identification of early adopters. Another notable importance is the ease with which the firm can redistribute its sales effort and money towards the most profitable customers, as well as retaining the at-risk customers who are in possible danger of defecting to other competitors’ products (Yankelovich and Meer, 2006). In order to effectively discover the realities of the customers, the firm would need to carry out intensive detective work through market research. Several tools together with other research techniques could be used in segmentation of the market (Choi, Koh and Lee, 2008). Government agencies are among the institutions through which collection and reporting of the bulk amount of information regarding the population can be done, together with the economic data that reveals the changes in trends of product consumption in the population. Information gathering about the firm’s potential customers has also been made easier with the advancing technology especially in small entrepreneurs and companies. An ideal example of these is the GamePUMA.com, an online game company that originally thought its market target was the customers in the US (Freytag and Clarke, 2001). However, upon having a closer look at the exact people downloading the games from the website, the company noticed that people downloaded the games from the entire globe. Segmenting and Targeting a Firm’s Current Customers Identification and attracting of new customers is generally a more difficult thing compared to retaining of the current customers. In many firms, finding customers, understanding them critically, together with figuring out the exact desires of the group is a difficult process, which is often characterized by trial and error practices (Thorpe and Morgan, 2007). This highlights the importance if knowing and establishing close relationships between a business and its customers. The broader goal of a given business is maximizing the business activities with the customers, and all efforts put in marketing are solely meant to enhance this. References Choi, J.Y., Koh, D. and Lee, J., 2008. Ex-ante simulation of mobile TV market based on consumers’ preference data. Technological Forecasting and Social Change, 75, pp. 1043-1053. Coburn, P., 2006. The Change Function: Why Some Technologies Take Off and Others Crash and Burn. New York, NY: Penguin Portfolio Dibb, S. and Simkin, L., 2001. Market Segmentation: Diagnosing and Overcoming the Segmentation Barriers. Industrial Marketing Management, 30(8), pp. 609-625. Flint, D. J., Woodruff, R. B. and Gardial, S. F., 2002. Exploring the Phenomenon of Customers’ Desired Value Change in a Business-to-Business Context. Journal of Marketing, 66(4), pp. 102-117 Freytag, P. V. and Clarke, A. H., 2001. Business-to-Business Market Segmentation. Industrial Marketing Management, 30(6), pp. 473-486 Kim, Y., Lee, J.D. and Koh, D., 2004. Effects of consumer preference on the convergence of mobile telecommunications devices. Applied Economics, 37(7), pp. 817–826. Kim, Y., Park, Y., Lee, J.D. and Lee, J., 2006. Using stated-preference data to measure the inconvenience cost of spam among Korean e-mail users. Applied Economics Letter, 13(12), pp. 795–800 Simkin, L., 2008. Achieving Market Segmentation From B2B Sectorisation. Journal of Industrial and Business Marketing, 23(7), pp. 464-474. Thorpe, E. R. and Morgan, R. E., 2007. In Pursuit of the ‘Ideal’ Approach to Successful Marketing Strategy Implementation. European Journal of Marketing, 41(5/6), pp. 659-677. Yankelovich, D. and Meer, D., 2006. Rediscovering Market Segmentation. Harvard Business Review, 84(6), pp. 141-145. Read More