Market Segmentation and Modern Profiling Model - Assignment Example

Management and Marketing The purpose of this paper is to provide answers to the assignment brief. The format that this paper will utilize is to first provide a description to the process of market segmentation and explain how this activity can contribute to the profitable development of a business. Secondly this paper will seek to explain in what ways prospects and customers can be profiled by providing relevant examples as well as providing an evaluation of a modern profiling model. Lastly this paper will provide an analysis of how supermarkets have been effectively segmented insofar as this paper will provide an analysis of ways that it has been segmented in a relevant way and offering insight as to what general implications this might have for the future management of relationships with their customers. Q1) When describing the process of market segmentation one must first make consideration for what mark segmentation is. According to Gupta (2005) one can consider market segmentation to mean establishing a sub market which in essence shares some of the characteristics with a core product but has been targeted to meet specific demands of customers. In essence one could consider a market segment to be any relatively homogeneous group of customers and market segmentation to be the separation of prospective buyers into the said markets with the intent to direct special marketing efforts towards these potential customers. In describing the process of market segmentation one places into consideration the Berkowitz et al. (2000) process which postulates that all market segmentation starts with first linking needs to actions insofar as marketers must first identify that a need for the grouping of customers based on the similarity of their needs must exist. It is upon this foundation that one establishes that the market should be segmented , so the next step is to determine what market segmentation strategy should be employed depending on the nature of the business. It can be that given the nature of the company one might have to determine whether or not to segment a single product (Or service) into multiple segments or if one should segment multiple products into multiple segments. In order to begin the process Day (1980) proposed a top down approach in which a firm would start with their total population of customers and then segment that market (Conversely a bottom up approach could be utilized in which a firm would build their case from a single customer). Now that it has been determined what steps a firm might go through in order to establish a market segmentation one should question how this activity can contribute to the profitable development of a business. There is little question that by targeting certain consumers, a business might be better equipped to meet the said consumers need and as such provide extra value. For example there is the case of the Pareto Principle (1971) in which it has been postulated that 80% of goods are purchased by 20% of consumers who consume said goods, or for example 80% of beer is consumed by 20% of beer drinkers. As such by specifically targeting these ‘Heavy consumers’ organizations can effectively develop brand loyalty with these key customers and in effect guarantee a long term revenue stream. Secondly by utilizing a geographic segmentation strategy one could find new revenue streams in markets. For example, upon a quick examination of Chinatopsuppier.com (2010), Manischewitz (Jewish, kosher, sweet wine) has found new markets in East Asia because sweeter wines are considered more desirable. By recognizing this market opportunity the company can still effectively market the Kosher aspect to its Jewish clients and market the sweetness aspect to East Asian clients. This allows for higher returns from its consumer base because in the end the company can save money on blanket marketing programs. Q2) Now that the process and effect of market segmentation has been determined one can question how and in what ways can prospects and customers be profiled? To answer this query for the purpose of this paper, illustrations with relevant examples will be provided. There are many specific ways in which a market can be broken down into profiles. Firstly one could conduct a geographic segmentation in which a marketer will base segments on where consumers live. An example of this would be the effective segmentation of suntan lotion consumers and how this market can be broken down into potential consumers in Florida their potential customers in an arctic region such as Norway. A second market segmentation strategy would be to determine if a demographic segmentation would be appropriate for a product or service. In this circumstance the segmentation could be based on race, age, occupation, social status, gender. This strategy may be effective in some circumstance to simply target products directly to those who would be the most likely clients of a product. An example of this would be the Kimberly Clark (2010) branded product Kotex tampons which in all likelihood would be targeted towards females, or a Russell Athletic (2010) branded jock strap would most likely be a product targeted towards men. Next there is the circumstance where it is determined that a psychographic segmentation strategy could be employed in which markets are segmented according to lifestyle. This can e based on certain psychological traits such as impulsive, extroverted, friendly, personable or angry personalities. The reasoning behind why this might be an effective segmentation strategy is because in many circumstances a product can be attached to a certain lifestyle or attitude. It is the case that people with a structured lifestyle would probably fid more value in a daily planner than a person with a very unstructured lifestyle. As such companies can better target the customers they want keeping into consideration the lifestyle of its consumers. Lastly there is the case that in some circumstances a behavioral segmentation strategy could be employed in which it might be beneficial for a company that wishes to place their users into categories such as light users vs. moderate or heavy users. It may also be the case that companies would like to segment their customers based on loyalty or user status. The first example of this that comes to mind is the classification that McDonalds uses according to the Alexander (2004). In this circumstance McDonalds classifies their three classification of customers the first of which are ‘light’ users who rarely eat at the restaurant, ‘heavy’ users who eat at the restaurant weekly and ‘super heavy users’ who are customers who eat at the restaurant several times a week. When utilizing this segmentation strategy it can be the case that marketing campaigns can be adjusted to meet the demands of customers based on their frequency of purchases, for example if customers buy ten cups of coffee they get the eleventh free or conversely a buy-one-get-one-free campaign ca be used to better entice light users. Now that it has been determined on what grounds a customer or prospective customer can be profiled one must question upon what profiling method this segmentation can be based. One of the models that is used quite often is a cluster analysis model in which potential customers are placed together along two axis in order to exhibit natural clusters (See Example in Appendix #1). According to Arabie et al. (1996) in order to achieve this grouping the first step is to determine what is the problem to be subjected to the clustering technique (In our circumstance it would be the segmentation of a market). Next a system of metrics must be determined to provide specific valuations to groupings. After this point one can ‘map’ the customers for determining in which segments customers can be categorized. For example along the horizontal axis can be given a metric of light to heavy consumers in terms of volume, then along the vertical axis one can classify frequency of consumer visits. After collecting data on the buying procedures of clients a randomized sample of customers can be places on the cluster map to determine how customers can be segmented. If one finds that most consumers buy a small volume of product very frequently, a segmentation strategy can be employed for these customers that has the to better meet their needs. Q3) Now that it has been demonstrated how why business may segment their markets and how they may choose to segment their markets an example of a segmented operation will be presented. As mentioned in the introduction an example of a supermarket will be given. A one would probably guess, it is most likely the case that a typical supermarket is set up to accommodate people from all walks of life such as single and married people, young people and old people, rich and poor people etc. all of whom probably have very different tastes. It is upon this foundation that the modern supermarket has created a business model to accommodate the tastes of many different groups. It should be noted that the supermarket environment has also been segmented insofar as in the past decade some upscale supermarkets such as Waitrose (2010) in the United Kingdom or the organic/natural food supermarket Wholefoods (2010) in the United States. As any person that has ever been into a supermarket can testify there are often several different varieties of very similar products. One can find a plethora of different carbonated beverages to accommodate many different tastes such as, caffeine free, sugar free, high caffeine (Energy drinks), all natural ingredients, large bottles, small bottles, cane etc. in both a branded and ‘no-name’ product format. In no way is this consumer choice restricted only to carbonated beverages but rather it permeates the entire product offering of most supermarkets. Assuming that the supermarket in question is catering to a community with a diverse demographic it is likely that some sort of segmented in a meaningful way. The first such example is a demographic segmentation in which a supermarket could offer a no name branded product along side a modestly priced product and a premium product. One could argue that there is not much difference in product quality between these three product but what this offers is the possibility for customers with lower income to purchase a product that would satisfy their need to be budget conscious, as well as offering people wit more discerning tastes to purchase a product that meets their need for quality. What this has accomplished is the effective segmentation of products across demographic lines in terms of income. A second segmentation that occurs in a supermarket environment is to offering of specialty foods such as Halal or Kosher certified products. What this does is offer food products from specific communities and provides a demographic segmentation for people of the Jewish and Muslim faiths. Building on this concept is the offering of regional cuisine products such as Chinese or Mexican foodstuffs. What this accomplishes is the offering of products that would be desired by certain communities however it should be noted that the consumption would probably not be restricted to people from exclusively from these demographics as many people who are not ethnically Chinese may enjoy Chinese cuisine. Another way I which a supermarket can be effectively segmented is across psychographic segmentation lines. As anybody has been in a checkout line has noticed that there are usually candy snacks and cooking magazines. As it is the case that candy is sometimes purchased in an impulsive manner one could argue that by having the candy at the point of sale the organization has segmented impulse purchase items at the time when customers are handling money and as such they have effectively segmented the impulsive shopper. Secondly people who are purchasing food may also hold an interest in cooking and as such the psychographic segmentation can be along lifestyle lines. As a final example there is the case of some behavioral segmentation in a supermarket in terms of frequency of purchases. In many supermarkets there are special checkout lines for people with ten or less items, which would typically encourage people who only need to make a small amount of purchases. As such, the supermarket has effectively segmented their business model across usage rates and by accommodating shoppers who make frequent purchases of small amount as well as infrequent shoppers who make massive purchases. Furthermore the organization has also effectively segmented their shoppers across benefits sought insofar as the some customers are looking for a ‘get-in-get-out’ experience and some are looking for a longer purchasing session. As there have been many ways in which a supermarket can segment their customers one can ask what sort of impact this has with their customers in terms of a meaningful relationship. One could argue that the overall effect that this has on the customer supplier relationship is that the supermarket is trying to accommodate as many different types of customers as possible and effectively be all things to all people. As every person needs to eat, and they will purchase their food somewhere one could argue that it is in the best interest of a supermarket to segment their market as this will provide some sort of value to all different types of customers. References Arabie, P., Hubert, L., De Soete, G. (1996) Clustering and Classification. World Scientific Publishing Co. Singapore Alexander, D. (March, 2004) Will They Buy it: McDonalds plan to eliminate supersize portions could anger its most loyal and biggest-spending customers. Chicago Tribune [online] Available at http://www.chicagotribune.com/business/chi-0403040339mar04,0,7078753.story Accessed on February 10th 2010. Berkowitz, E., Crane, F., Kerin, R., Hartley, S., Rudelius, W. & Andrus, D. (2000) Marketing. McGraw-Hill Ryerson. 4th ed. Toronto, Canada. Chinatopsupplier.com (2010) Manischewitz. [online] Available at http://www.chinatopsupplier.com/buy-manischewitz_wine/ Accessed on February 10th 2010. Day, G. (1980) Strategic Market Analysis: Top-down and bottom-up approaches. Marketing Science Institute. Cambridge Massachusetts USA. Gupta, S. (2005). Managing Customers as Investments. Wharton School Publishing. Kimberly Clark (2010) Homepage [online] Available at http://www.kimberly-clark.com/ accessed on February 10th 2010. Pareto, V., and Page, A. (1971), Translation of Manuale Di Economia Politica (Manual of political economy). A.M. Kelley. Russell Athletic (2010) Homepage. [online] Available at http://www.russellathletic.com/portal/site/russellathletic/home/ Accessed on February 10th 2010. Waitrose (2010) Home Page [online] Available at http://www.waitrose.com/ Accessed on February 10th 2010. Whole Foods (2010) Home Page [online] Available at http://www.wholefoodsmarket.com/ Accessed on February 10th 2010. Appendices Appendix #1 Source: Ecology and Society [online] Available at http://www.ecologyandsociety.org/vol13/iss1/art8/figure3.png Accessed on February 10th 2010. Read More