Market Segmentation Concept - Coursework Example

Assignment 1 A) Market Segmentation Introduction Market segments are significant because they enable any company to take a high share of the niche or segment and thus boost their sales and competitive advantage. This paper discusses the meaning and importance of market segmentation and notes that marketers would be misplaced if they failed to segment their markets. Meaning of market segmentation Market segmentation refers to the process of splitting customers or potential customers in a market into various meaningful, relatively similar and identifiable groups or segments (McDonald 2012, p. 9). During the segmentation process, the market will focus on the needs and wants of particular subgroups to ensure that the product offering and marketing method meets their needs or wants. Methods of market segmentation Demographic segmentation According to Rix (2010, p. 124), demographic segmentation is probably the method that is most widely used for segmenting consumer markets. This type of segmentation involves dividing the market on the basis of factors such as age, income, gender, stage in the family cycle, ethic or cultural background, occupation, family size, and nationality (Rix 2001, p. 124; Lee & Johnson 2005, p. 92). There are two main reasons why demographic segmentation is commonly used. First is that the wants of consumers and the products that consumers use are often linked to one or more of the demographic factors. The second point is that most demographic factors can be measured, they are accessible and they are large enough. The demographic factors can thus serve as a basis for functional market segments because they fulfil the conditions necessary for effective segmentation (Rix, 2010, p. 124-125). For example, it is easy for players in the clothing industry to segment their products by age. Behavioural segmentation In this type of segmentation, marketers use actual consumer behaviour or product usage to make distinctions among market segments (Ferrell & Hartline 2010, p. 176). Since these distinctions are based on the reasons that make customers buy or use products, behavioural segmentation, unlike other methods of segmentation, is the most closely related with consumer needs. A common application of behavioural segmentation is to group consumers according to their level of product usage – that is, heavy, medium and light users (Ferrell & Hartline 2010, p. 176). Psychographic segmentation The term ‘psychographics’ refers to customers’ inner feelings and tendencies to behave in certain ways (McDonald 2012, p. 13). Psychographic segmentation revolves around state-of-mind issues like attitudes, motives, lifestyles, values, personality and interests (Ferrell & Hartline 2010, p. 177). These factors are used because of the realisation that while demographic variables are used to segment markets because they are related to behaviours, they are not the causes of behaviour. That is, demographic variables often correlate with behaviour but they do not explain why people behave differently (Rix 2010, p. 127). For instance, some people buy bicycles not because they do not have cars, but because they want to use them for evening cycling exercises. Others may buy bicycles because they do not own cars and would like to use bicycles to travel to work. Psychographic segmentation therefore goes beyond demographic variables by examining how people think, how they feel and how they behave. By employing lifestyle and value as segmenting variables, psychographics help marketers to create detailed and more inclusive descriptions of segments (Rix 2010, p. 127). Examples of psychographic segmentation are seen in Michelin’s focus on customer concerns such as safety and security, and automakers like Kia, Subaru and Hyundai, which appeal to consumers whose opinions and values about car use focus more on economy than status. Why segmentation is part of modern marketing practice Segmentation helps marketers to define customer wants and needs more accurately. Since market segments are different in terms of size and potential, segmentation helps those responsible for making decisions to precisely define marketing aims and allocate the resources that are available more efficiently. For instance, by identifying the most rewarding segments, a firm will be able to appropriately allocate its budgets, placing significant emphasis on activities designed to serve most profitable and responsive market segments (Blythe & Zimmerman 2005, p. 85). Consequently, performance can be better assessed when aims are more specific. Segmentation can target single, multiple and niche based markets. Single market segment An organisation can choose to direct its marketing efforts toward one market segment using one marketing mix. This approach is also referred to as a concentrated targeting strategy. For example, Porsche concentrates on the luxury sports car segment and thus directs its marketing efforts toward individuals whose incomes are high and who want to own high-performance sports cars (Pride & Ferrell 2011, p. 162). By employing the concentrated targeting strategy, a firm is able to specialise since it analyses the characteristics and wants of a distinct consumer group and then pays attention to satiating this group’s needs (Pride & Ferrell 2011, p. 162). However, the downside of specialisation is that by specialising, the company puts all its eggs in one basket, which can be disastrous (Pride & Ferrell 2011, p. 162). Multiple segment strategy Under a multiple segment approach, a firm can select two or more market segments as its target segment. The firm develops a separate marketing mix for each segment. For instance, Hyundai targets three market segments by offering its car models: Sonata, Accent and Santro at different prices (Vashisht 2005, p. 96). A firm can also be traditionally targeting one segment but later differentiate to include other segments. For instance, Nivea traditionally targeted women and children for its skincare products but later diversified to include men using its ‘Nivea for Men’. The multiple segment strategy is also referred to as a differentiated marketing strategy (Pride & Ferrell 2011, p. 162). Niche based segment In this case, an organisation is a specialist within one narrow or a few narrow market segments. A good example is that of Air Foyle, a specialist air charter firm that was based at Luton airport in London, UK as presented by Leadley and Forsyth (2004, pp. 246-247). Conclusion Market segmentation can be based on demographics, behaviour, psychographics or geographic location. Marketers are able to identify the factors that need to be targeted and this enables them to them to focus on segments that are more profitable and responsive to their marketing strategies. Without such segmentation, firms would be lost as they would market their products/services blindly and thus fail to recognise the most profitable areas or those that perform poorly. References Blythe, J & Zimmerman, A S 2005, Business-to-business marketing management: A global perspective, Cengage Learning EMEA, Stamford. Ferrell, O C & Hartline, M D 2010, Marketing strategy, 5th ed., Cengage Learning, Stamford. Leadley, P J & Forsyth, P 2004, Marketing: Essential principles, new realities, Kogan Page Publishers, London. Lee, M & Johnson, C (eds) 2005, Principles of advertising: A global perspective, 2nd ed., Routledge, London. McDonald, M 2012, Market segmentation: How to do it and how to profit from it, John Wiley & Sons, Chichester. Pride, W M & Ferrell, O C 2011, Pride & Ferrell marketing, 16th ed., Cengage Learning, Stamford. Rix, P 2010, Marketing: A practical approach, 7th ed., McGraw-Hill Australia. Vashisht, K 2005, Practical approach to marketing management, Atlantic Publishers & Distributors, New Delhi. B) Perceptual map A perceptual map is graphic representation of how consumers in market perceive a competing set of services or products relative to each other (Reid & Bojanic, p. 148). This can be used to illustrate how customers perceive the services and prices offered by various hotels as shown below. The implication of the map above is that different hotels are perceived to offer different qualities of services at different prices. The horizontal line shows increasing level of quality of service from left to right. The vertical line on the other hand shows increasing price of services offered from the bottom to the top. Thus, there are four quadrants of high quality/high price, high quality/low price, low quality/low price and low quality/high price. The hotels are arranged in different positions in the quadrants based on how the quality of services they offer and their prices are perceived. For instance, Four Season is perceived to offer the highest quality of service at the highest price, whereas Motel 6 is perceived to offer the lowest quality of service but its price is also the lowest. Similarly, Hampton Inn offers services whose quality and price are higher than those offered by Days Inn, even though both hotels fall in the high quality and low price quadrant. Repositioning Repositioning is done when a product or service experiences declining sales or market share, which is a signal that customers have lost faith in the service or product’s ability to satisfy their needs. In such instances, a new position may be the best response, since strengthening the current position may only serve to accelerate the downturn in performance (Ferrell & Hartline 2010, p. 214). One supplier that has undergone a reposition is Unilever with its brand of soap called Lifebuoy. Lifebuoy soap was launched in 1895, and since then, the brand became synonymous with health and low price. The soap was mainly marketed as brick red bar and had a characteristic perfume that made it unique. However, over the years, with the entry of many soap manufacturers into the market, competition became stiff and the soap was viewed to be becoming progressively irrelevant. For this reason, Unilever had to reposition the Lifebuoy brand (Majumdar 2009, p. 258). Between 2002 and 2004, Lifebuoy experimented with a number of new formulations as well as repositioning exercises to make it more relevant to the new generation of consumers. Today, the soap is marketed with a new fragrance and a modern new shape. According to Majumdar (2009, p. 258), the new formulation provides significantly superior bathing experience as well as softer feeling on the skin. The new generation of the Lifebuoy soap is targeted at today’s perceptive housewife with a more inclusive family protection for the whole family. The soap is marketed under the tag of a soap that offers “family health protection for my family and me” (Majumdar 2009, p. 258). Thus, Lifebuoy has made a deliberate move from the male, victorious notion of health to a warmer and more versatile soap that offers protection from bacteria and other germs for the whole family. Also, unlike the situation in the past, Lifebuoy is now available in a variety of brands such as Lifebuoy Gold, Lifebuoy Plus, Lifebuoy Herbal and many others. According to Majumdar (2009, p. 258), Lifebuoy Gold helps protect the body against germs that cause skin blemishes, while Lifebuoy offers protection against germs that cause body odour. The aim of this strategy is to offer a wide variety of product choices to consumers, and to segment the market into different categories so that consumers in different segments buy different brands of the Lifebuoy soap. References Ferrell, O C & Hartline, M D 2010, Marketing strategy, 5th ed., Cengage Learning, New York. Majumdar, R 2009, Product management in India, 3rd ed., PHI Learning Pvt. Ltd., New Delhi. Reid, R D & Bojanic, D C 2009, Hospitality marketing management, 5th ed., John Wiley and Sons, New York. Read More