Market segmentation (finance) - Essay Example

03 July 2009 Market Segmentation Market segmentation is one of the main concepts used by marketing companies to divide the market between particular target groups and meet needs and wants of target customers. Divergent product policies adjust product lines to individual market segments -- they implement market segmentation. By assuming that demand is heterogeneous, market segmentation obtains a better match with distinguishable market segments. Product differentiation gives marketers a share of a broad, horizontal market, whereas market segmentation tends to result in cultivation of a market position in depth.

Given the analogy of a layer cake, product differentiation seeks to secure a layer of the cake, whereas segmentation seeks a wedge. Successful product development requires the utilization of both product differentiation and market segmentation. The former strategy adjusts or bends demand conditions to meet the sellers conditions. The latter represents a more precise adjustment of products and production to market conditions (Weinstein 32). Market segmentation often results from substantial growth.

After markets are developed on some general basis, they reach the point where additional effort tends to yield diminishing returns, and attention is given to specific market segments that become large enough to be attractive. By cultivating specific market segments, companies seek to make use of a greater opportunity to maximize customer satisfactions. This maximization, in turn, results in the development of a more secure market position and posture. As products are designed to serve the needs of individual customers, they assume a special character and increase their distinctiveness.

The closer the product is to the point of customer purchase, the more differentiated it becomes, and less flexibility is available to the manufacturer. For some products, the demand of an individual customer may be unique, and the product takes on rigidity (Weinstein 76). For instance, Adidas segments its market for sport professionals and non-professionals, women, men and children. Where possible, manufacturers would like to reduce risks by postponing differentiation as long as possible, and only incurring changes in form and product identity at the latest possible point in the flow of marketing.

Because of this, particular attention is given to a discussion of new products, their adoption and diffusion processes, the product life cycle, and new-product failures. There are other significant demographic factors that affect consumption patterns. For example, if populations are segmented by such factors as race, religion, color, country of origin, etc. valuable marketing data can be gathered. City Group uses income segmentation, demographic segmentation, and segmentation by occupation. By differentiating products they try to bend demand to meet their supply and so insure a niche in the marketplace.

Each of the phases of the product-development process (conceptualization, exploration, development, market preparation, commercialization, and review), is considered (Weinstein 121). Product development is seen as one of the core foundations of corporate planning. Its success or failure shapes corporate destiny. While each of these breakdowns can add valuable information for market segmentation, and complements the discussions of segmentation by age and life cycle, space limitations preclude a meaningful discussion of such factors.

Students are directed to a consideration of the available literature to gain a better understanding of demographics and marketing. Good projections are available to guide executives in making decisions based on geographic shifts in population, as well as shifts among age and income. Works CitedWeinstein, A. Market Segmentation. Probus Pub Co; Rev Sub edition, 2002.