Market Segmentation as an Effective Marketing Strategy - Essay Example

Market Segmentation Introduction Market segmentation is taken to be a marketing and economic concept that is characterized by a set of market made up of different people who have certain characteristics that make them demand similar services and/or products (Weinstein 2004). In simpler terms, market segmentation may be defined as the process of dividing an entire market into groups of markets that are made up of people who have similar needs for products or services (Dibb 1996). Market segmentation is a strategy whose beginnings date back to 1956, when it was first introduced theoretically by Smith. Its history therefore lies with industrial development that saw various economic sectors formulate mass production and marketing strategies (Mazanec 2000). This meant that businesses began to recognize and take into consideration the uniqueness and heterogeneity of consumers needs. In industrial countries, market segmentation has become one of the most important marketing elements. Ever since it was introduced by Smith (1956), the concept has been used both theoretically and practically in marketing. The history of market segmentation can therefore be well explained using industrial development. With industrial development, the processes of production became more flexible (Gitman 2009). Firms began identifying the unique and specific needs of their customers gained competitive advantage over the rest by developing the right offers for their sub-markets. What inspired Smith into introducing market segmentation was his realization that heterogeneity existed in the demand of services and goods. His idea was based on the notion that market segmentation involved taking a heterogeneous market as many smaller homogenous markets. This was brought about by the differing preferences as a result of the differing desires of consumers. Producers had to be more sensitive and precise in satisfying these varying wants of the consumers. According to the founder of market segmentation, Smith, segments arise as a result of heterogeneity of the wants of consumers. Market segmentation was able to move ahead of mass marketing during the late 1960s and it became the more popular marketing strategy (Wedel 2003). There are two general marketing approaches that are used by businesses. These are mass marketing and marketing segmentation. In the mass marketing approach, the market is viewed as a whole and the consumers are all thought to be the same. Is this marketing approach more effective than market segmentation? I believe that marketing segmentation is much more effective of the two marketing strategies. This is because market segmentation views the entire market as being made up of different smaller segments that are unique from each other. Unlike mass marketing, market segmentation allows businesses to identify one or more unique differences in their customers and therefore target their products and services to satisfy these unique needs (Wedel 2003). A recent study (Cahill 2006) highlighted that an example of mass marketing would involve a company that produces similar products and markets them to all the consumers regardless of their unique needs. In mass marketing, the company does not take into consideration the uniqueness of the needs of customers. Businesses assume that customers are the same and that they will all be satisfied by the same products. The businesses do not bother to manufacture products that will suit the needs of different types of clients. I believe that market segmentation is much more effective than this to a greater extent. This is because with market segmentation, there are multiple steps taken to define the markets in terms of the consumers and their unique needs. Market segmentation also involves dividing the market into groups, basing them on their characteristics and buying behaviors. Some of the characteristics that are considered in this division are the geographical locations of the consumers, their psychographic characteristics, the perceived benefits of the product and the demographic factors among others. This therefore means that market segmentation is more likely to be effective than mass marketing. There have been many arguments about this and even though market segmentation may have a few disadvantages, the advantages are more. These advantages outweigh the advantages of mass marketing (Croft 1994). McDonald (2005) notes that there are various environmental factors that have helped to spark the interest in market segmentation by organizations. Research shows that environmental factors can affect an industry positively or negatively. The potential of market growth of products and services is also affected by environmental factors, and these effects can either be positive or negative. Environmental factor that are to be considered before segmenting markets include government actions. These have been known to either encourage or discourage market segmentation. These actions include those that touch on safety, subsidies, efficacy, licensing requirements, price controls, material access restrictions and operational regulations (Meredith 2002). If all these environmental factors are favorable, then businesses are encouraged to segment their markets. Another environmental factor is demographic changes (Dibb 1996). Factors such as the education of people from a certain environment, their geographical location, income and age also encourage businesses to venture into market segmentation. These factors determine whether a business will have reliable markets for its products and services. Emerging technologies are also considered to be part of environmental factors that encourage businesses to segment their markets. If these factors are favorable in a particular environment, they may encourage business to venture into market segmentation. Another environmental factor that has helped to spark the interest in market segmentation by businesses is the cultural trends. These cultural trends such as lifestyle trends and fashion trends of the people of a particular environment may encourage businesses to segment their markets so as to cater for the unique and varied needs of all the members of these groups of people (Michman 1991). There are very many advantages that come with market segmentation. Splitting customers into different groups within a market on the basis of their similar interests has been found to have numerous advantages. The first advantage of market segmentation is that it allows a business to get to know and understand its customers better. By dividing customers into small and manageable groups, it is easy to analyze their needs and understand what they look for in a particular product or service. This makes the business to focus more on satisfying the unique needs of their customers than just producing products for the general market (McDonald 2005). Another advantage of market segmentation is that it helps businesses to target and position their products in better ways. The products will only be targeted to meet the predetermined needs of the customers and all the efforts will therefore be directed towards this core function. With market segmentation, two-way communication is encouraged between the customers and the business. This happens when the businesses seek to find out the exact needs of the customers so that they can satisfy them through the products or services that they offer. The customers are given the chance to talk to the organization that sells products and services to them. By doing this, an effective relationship between the producer and customer can be established and maintained (Weinstein 2004). Market segmentation also attracts new customers and retains the old ones. When new customers see that a company is keen on satisfying their needs, they tend to trust the products and services offered to them and they will keep paying for them. This means that a business will be able to attract new customers by segmenting its markets. The old customers can also be maintained because they trust in the company has already been built. Market segmentation is also known to increase market share and reduce costs associated with marketing activities thus increasing profits for companies that practice it (Mazanec 2000). Market segmentation has very few disadvantages. The advantages outweigh the disadvantages. Some of the few disadvantages of market segmentation include the fact that having too many market segments or over-segmenting leads to an increase in marketing costs. This is because the products will have to be marketed to all these different segments using different techniques. This is a very expensive venture. Another major disadvantage of market segmentation is that a business might miss or ignore a major segment if the segmentation is not done properly. Conducting market surveys so as to find out the unique needs of the customers in order to be able to satisfy them can be a very expensive affair. It may require a lot of resources in terms of staff, funds and material resources. A lot of workers for example have to be deployed to where the customers are so as to find out their unique needs before the company can start satisfying them (Blattberg 2001). Examples of companies that have segmented their products include Beiersdorf, a German based skin care manufacturer famous for manufacturing the nivea skin care products such as lotions, deodorants and antiperspirants. Beiersdorf has segmented almost all of its products into those for men and those for women. The company has nivea deodorants and lotions for men and nivea deodorants and lotions specifically made to suit the needs of women. This segmentation helps both men and women to feel that their unique needs have been differentiated and taken care of. Another company that has segmented its products is the Energizer battery company. This company has designed batteries of all sizes, ranging from small batteries for general domestic purposes to bigger batteries that can also be used for industrial purposes. It has batteries that can be used in a variety of products ranging from flashlights, supplemental power supply, lighting products and other electronics. Both these companies have diversified products that are meant to take care of the unique needs of their customers (Kotler 2002). Conclusion In conclusion, market segmentation generally involves the division of general markets into smaller segments that are based on the uniqueness of the needs of these segments. Market segmentation has been used as an effective marketing strategy that has proven to rake in profits for companies that carefully implement it (Meredith 2002). References Blattberg, RC, Gary, G & Jacquelyn, ST, 2001, Customer equity, Harvard Business School Press, Boston. Cahill, DJ, 2006, Lifestyle market segmentation, Haworth Press, New York. Croft, MJ 1994, Market segmentation: A step-by-step guide to profitable new business, Routledge, London. Dibb, S & Simkin, L 1996, The market segmentation workbook: target marketing for marketing managers, Routledge, London. Gitman, LJ & McDaniel, C, 2009, The future of business: the essentials, Cengage Learning, USA. Kotler, P, Roger, B & Miniard, B, 2002, Marketing moves, Harvard Business School Press, Boston. Mazanec, JA & Strasser, H, 2000, A nonparametric approach to perceptions-based market segmentation: foundations, Springer-Verlag/Wein, Austria. McDonald, M & Dunbar, I, 2005, Market segmentation: how to do it, how to profit from it, Elsevier. Meredith, GE & Schewe, CD, 2002, Defining markets, defining moments, Hungry Minds, New York. Michman, RD 1991, Lifestyle market segmentation, Praeger, New York. Wedel, M & Kamakura, W 2003, Market segmentation: conceptual and methodological foundations, 2nd edn, Kluwer Educational Publishers, Netherlands. Weinstein, A 1994, Market segmentation: using demographics, psychographics, and other niche marketing techniques to predict model customer behavior, Probus Publishing, Chicago. Weinstein, A, 2004, Handbook of market segmentation: strategic targeting for business and technology firms, 3rd edn, Haworth Press, New York. Read More