Segmentation helps marketers rule out inappropriate markets, identify specific segments for more study and better understand customers in those

Transcription

1 Segmentation helps marketers rule out inappropriate markets, identify specific segments for more study and better understand customers in those segments so the organization can more easily respond to their needs by providing value. Evaluating segments enables the organization to decide which to target and in what order. The process also provides a basis for creating a meaningful and competitively distinctive position in the minds of each target segment's customers. 1

2 Marketers can segment consumer markets by userbased characteristics (demographic, geographic, socio-economic and lifestyle/personality) and product-related behavioural variables (user types, consumption patterns and usage frequency, brand loyalty, price sensitivity, perceived benefits and more). Business markets can be segmented using customer characteristics (industry type, geographic, industry position, company size and more) and product-related behavioural variables (consumption patterns/usage frequency, end use application, perceived benefits and more]. 2

3 Target-market coverage strategies include undifferentiated,differentiated, concentrated and individualized (customized) marketing. 3

4 Effective positioning and repositioning must be competitively distinctive, relevant and credible as well as feasible, able to be communicated and sustainable. 4

5 'Market segmentation' is a technique based on the recognition that every market consists of potential buyers with different needs, and different buying behaviour. These different attitudes may be grouped into segments and a different marketing approach may be taken by an organisation for each market segment. 5

6 Market segmentation may therefore involve subdividing a market into distinct sub-groups of customers, where any subgroup can be selected as a target market to be met with a distinct marketing mix. The important point is that although within the total market widely different groups of consumers may exist, each group consists of people (or organisations) with common needs and preferences, who perhaps react to a market mix in a similar way. For example, the market for hats might be segmented according to the gender as women and men prefer hats of different styles. 6

7 The men's market might be further subdivided into age or occupation (e.g. professional classes, commuters, golfers). Each sub-division of the market (or sub-segment of a market segment) will show increasingly common traits (e.g. golfers buy baseball caps). Any market segment can become a target market for a firm, requiring a unique marketing mix if the firm is to exploit it successfully. Recognition of segmentation will enable a company to adopt a more refined approach to selling to a given group of potential customers. 7

8 Exercise When might market segmentation prove difficult or inappropriate? 8

9 Solution If the total market is so small as to make segmentation unprofitable. Sometimes consumer differences may exist, but it may be difficult to analyse them into segments. A total market may occasionally be homogeneous but this is likely to occur only rarely. 9

10 Typical segments within a market Basis Geographical area End use Age Gender Family size or family life cycle Income Occupation Education Religion or religious sect Nationality, race, and culture Lifestyle Social class Example A regional newspaper Some types of paper are specially made for drawing offices Market for classical or pop music Clothes The market for housing The market for luxury goods The market for briefcases The marketing of magazines Marketing by mail-order by religious booksellers The market for food A general category based on differences in personality, peer social class, groups, etc. Magazines 10

11 Kotler and Lane Keller (2006) suggest that since the purpose of segmentation is to identify target markets, segments must be: measurable (segmentation by personality' for example, might be difficult to measure) accessible (the market must be easily reached by the organisation) substantial (the costs of reaching the target market must be weighed against potential demand for the uniquely-marketed product). 11

12 Segmentation may to some extent be a matter of subjective analysis, and may be quite complex. There are many different bases on which segments can be analysed; one basis will not be appropriate in every market, and sometimes two or more bases might be valid at the same time. One basis or 'segmentation variable' might be 'superior' to another in the hierarchy of variables; for example, market segments may exist on the basis of gender sub-segments may then be age group within gender, and sub-sub-segments may be geographical region within age group within gender. On the other hand, if a market can be segmented both by marital status (unmarried, married) and by religion (say, Protestant and Catholic) then the market might be divisible into two at times; with separate segments (married Protestants, unmarried Protestants, married Catholics and unmarried Catholics, etc.). The following extract from an article illustrates the increasing significance of a market segmented on the basis of age within the UK and the way in which products might be promoted to appeal to a mature age group: She's back. Isabella Rossellini, the actress and model who was allegedly dropped as the face of cosmetics brand Lancome because she was too old at the age of 40, is making a new foray into the world of celebrity endorsements. Now 52, the elegant Italian will act as brand ambassador for Silversea Cruises and is to feature in print ads and brochures for the company as well as making appearances aboard the line's ships 'to create a photographic journal of her travels'. Silversea says Rossellini was hired for her 'timeless beauty' and ability to represent the brand's Italian heritage. But a spokesman admits that her mature years will strike a chord with people aged over 50 who make up the bulk of the market for cruises The issue of how to promote brands to the.burgeoning mature market is set to become a major concern for marketers over the next 20 years. Cruises, coach tours, financial products and medicaments are age-specific and can be directly targeted at the senior market. But the bigger question is how best to pro-mote products such as packaged groceries, new media, cars and clothes, which are bought by people across the age spectrum, when declining childbirth and increased longevity mean there are fewer consumers under 35 and more over 50. The population is rapidly ageing. In 2020, there will be 5.2 million more people in the 45-to-74 age-group than there are today. By 2041, the over-75 s will outnumber those aged between 55 and 7A. The Government is being forced to grapple with the demographic time-bomb as it addresses the pensions crisis and the realisation that many people will be heading into retirement with insufficient provision for their old age. One important question 12

13 Identifying the significant bases for segmentation in any particular market is a matter of judgment. A new company entering a market may be able to identify a potentially profit-able target market segment that existing firms may have 'missed'. 13

14 If the company wants a market leadership position, but is unable to achieve it in an entire market, it can attempt to gain leadership in a single segment or in several segments. In addition to measurability, accessibility and being substantial the market segments selected for a leadership position would ideally: have potential for future growth show a distinctive customer need for 'exploitation' be without a direct competitor of similar size. Taking the last of these, it would be unusual to enter a market segment where there is no direct competitor. This being the case a firm will probably need to make its product 'different' by creating some form of differentiated feature (real or imagined) as part of the marketing mix. 14

15 This competitive positioning requires a firm to understand of what kind of offer it will make to the target market in relation to what the competitors are offering. The alternative strategies are: Undifferentiated positioning involves a targeting of the entire market with a single marketing mix. The undifferentiated policy is based on the hope that as many customers as possible to buy it. (In essence this approach ignores segmentation possibilities entirely). 'Mass' marketing may be 'sufficient' if the market is largely homogeneous (e.g. the market for safety matches). Differentiated targeting involves targeting certain market segments and then applying distinct marketing mix to each. Undifferentiated positioning Consider the increasingly fragmented market for salt. Industry giants Cargill (owner of the Diamond Crystal brand) and Morton (owned by Rohm & Haas) have segmented what was once assumed to be a homogeneous market according to type of customer (consumers, restaurants and institutional customers and specific cooking uses and occasions. Now products such as sea salt, coarse crystal salt, natural mineral rock salt and other variations are marketed differently to different segments. Meanwhile, brands such as La Baleine and small, family-owned businesses such as Quoddy Mist are marketing gourmet salts for smaller niches. Any marketer in this industry would avoid undifferentiated marketing because the mass market for salt no longer exists. 15

16 This can be complex and time consuming but should be ultimately rewarding. The company may attempt to introduce several product versions, each aimed at a different group of potential customers (e.g. the manufacture of different styles of the some article of clothing adapted to different world climates and national cultural tastes). The major disadvantage of a differentiated marketing strategy is the additional costs of marketing and production (more product design and development costs, the loss of economies of scale in production and storage, additional promotion costs and administrative costs, etc.). 16

17 When the costs of further differentiation of the market exceed the benefits, a firm is said to have 'lower differentiated'. Some firms have tried to overcome this problem by selling the same product to two market segments. (For example, Johnson's baby powder and Heinz baby apple food is sold to many adults for their own use). The company's resources must not be overextended by differentiated marketing. Small firms may succeed better by concentrating on one segment only. 17

18 Concentrated positioning involves a targeting of a single market segment with an ideal product for that one segment of the market (e.g. Rolls-Royce cars). This would possibly be the best approach for a small player within the market place. The major disadvantage of concentrated marketing is the business risk of relying on a single segment of a single market. On the other hand, specialisation in a particular market segment can give a firm a profitable, although perhaps temporary, competitive edge over rival firms. Concentrated positioning Based in Dublin, Ryanair targets one big segment: price-sensitive customers who respond to low, low fares. 'You want luxury? Go somewhere else', states CEO Michael O'Leary. Ryanair saves money by using smaller airports, getting planes on the ground and into the air very quickly, flying limited schedules to selected European destinations and selling 98 per cent of all tickets online. Customers pay for every extra, from checked baggage to bottled water - even seat assignments carry a price tag. Ryanair's targeting is paying off with a healthy net profit margin of 18 per cent. Here are three examples of effective positioning based on desirable differentiation criteria: Mercedes-Benz: we 11-engineered, well-appointed luxury vehicles (product differentiation) Ryanair: low-cost, no-frills air travel (value differentiation) Vision Express: spectacles ready in one hour (service differentiation). 18

19 Decisions are generally made on: the relative attractiveness of segments the capability of the organisation itself the positioning of competitors the product must be sufficiently advanced in its 'life cycle' to have attracted a substantial total market. Without such a substantial market, segmentation and target marketing is unlikely to be profitable. Individualized marketing You may be able to tailor marketing offers to individuals within certain target segments, a coverage approach known as individualized (or customized) market Airbus, for example, can identify all the potential buyers for passenger jets and cargo planes, get to know their needs and specifications, then develop a separate marketing mix for each. The markets for passenger jets and cargo planes are not so Large that this is impractical, and the potential profit from each order is so great that individualized marketing makes sense for Airbus, especially in its competitive battle with arch-rival Boeing. If you have the right technology, you can opt for mass customisation and create products and/or communications tailored to individual customers' needs on a larger scale. New Zealand, Canada and the United States are doing this with personalized postage stamps. Other products being marketed to individual customers through mass customisation are personalized candies (such as M&Ms chocolates) and condiments in personalized bottles (such as Heinz catsup). 19