MARKET SEGMENTATION

Perhaps the most important marketing decision a firm makes is the selection of one or more market segments on which to focus. A market segment is a portion of larger market whose needs differ somewhat from the larger market. Since a market segment has unique needs, a firm that develops a total product focused solely on the needs of that segment will be able to meet the segment’s desires better than a firm whose produce or service attempts to meet the needs of multiple segments.

To be viable, a segment must be large enough to be served profitably. To some extent, each individual or household has unique needs for most products. The smaller the segment, the closer the total product can be to that segment’s desires. Historically, the smaller the segment, the more it costs to serve the segment. Thus, a tailor-made suit costs more than a mass-produced suit. However, flexible manufacturing and customized media are making it increasingly cost effective to develop products and communications for small segments or even individual consumers.

Market Segmentation is the process of dividing a large and heterogeneous market into relatively homogenous segments that can be reached with a distinct marketing mix. For example, an aircraft firm may segment its market into commercial, military and private markets/customers. Mobile phone users are divided into low-end, middle and high-end users.

Segmentation offers:

• A better understanding of customers.
• A better understanding of competitors.
• More effective targeting of resources.

 

Market Aggregation is the opposite of market segmentation. Market aggregation is the strategy whereby an organization treats its total market as a whole. The firm then develops a single marketing mix to reach as many customers as possible in the aggregate market.

 

STEPS INVOLVED IN MARKET SEGMENTATION

Market segmentation involves four steps:

• Identifying product-related need sets.
• Grouping customers with similar need sets.
• Describing each group.
• Selecting an attractive segment(s) to serve.

 

1) PRODUCT-RELATED NEED SETS

Organizations approach market segmentation with a set of current and potential capabilities. These capabilities may be a reputation, an existing product, a technology, or some other skill set. The first task of the firm is to identify need sets that the organization is capable (or could become capable) of meeting.

The term need set is used to reflect the fact that most products in developed economies satisfy more than one need. Thus, an automobile can meet more needs than just basic transportation. Some customers purchase cars to meet transportation and status needs. Others purchase them to meet transportation and fun needs. Still others purchase automobile to meet status, fun, and transportation needs.

 

2) CUSTOMERS WITH SIMILAR NEED SETS

The next step is to group consumers with similar need sets. Consumers with similar need sets can be grouped into one segment as far as product features and perhaps even product image are concerned despite sharply difficult demographics. This step generally involves consumer research – including focus group interviews, surveys, and product concept tests, It could also involve an analysis of current consumption patterns and deductions based on an understanding of consumer behaviour.

 

3) DESCRIPTION OF EACH GROUP

Once consumers with similar need sets are identified, they should be described in terms of their demographics, lifestyles, and media usage. In order to design an effective marketing program, it is necessary to have a complete understanding of the potential customers. It is only with such a complete understanding that we can be sure we have correctly identified the need set. In addition, we cannot communicate effectively with our customers if we do not understand the context in which our product is purchased and consumed, how it is thought about by our customers, and the language they use to describe it.

 

4) ATTRACTIVE SEGMENT(S) TO SERVE

Once we are sure we have a thorough understanding of each segment, we must select our target market – that segment(s) of the larger market on which we will focus our marketing effort. This decision is based on our ability to provide the selected segment(s) with superior customer value at a profit. Thus, the size and growth of the segment, the intensity of the current and anticipated competition, the cost of providing the superior value, and so forth are important considerations.

 

BASES FOR SEGMENTING CONSUMER MARKETS

The four major segmentation variables in consumer markets include:

1) Geographic Segmentation

It is one of the earliest and still most commonly used methods of segmentation. It involves dividing markets into different geographical units such as countries, regions, states, cities or neighbourhoods. Few or all of these are chosen by the marketers as areas of operation. For instance, Japanese automobile makers produce different versions of auto for American and European markets.

“American spec” is different from “European spec”. Nokia is currently designing rugged and easy to navigate mobile phones for illiterate populations in rural India, working closely within the peculiarities of these rural communities.

 

2) Demographic Segmentation

The second major method of segmentation, and probably the one most frequently used, rests on the assumption that markets can be subdivided into groups on the basis of one or more demographic variables such as age, sex, income, education, occupation, religion, race and so on.

The following demographic variables can be used to segment markets.

a) Age: Consumer needs vary with age. For example: West African Milk Company, in addition to its premium powder and evaporated milk recently developed a more nutritional product branded 1-2-3 for babies between the age of 1 and 3 years; and 4-5-6 for children between the ages of 4 and 6 years.

b) Sex: Many products like clothes, shoes, wristwatches, jewelries, wine and coffee are either targeted at men or women. For instance, salons break their market into barbing salon and hair dressing salon.

c) Income: segmentation by is a long-standing practice in such product and service categories as automobiles, boats, clothing, cosmetics, travels, airlines and alcohol. Many airlines, for example break down their market into economy, business and first-class.

 

3) Psychographic Segmentation

Buyers are divided into different groups on the basis of lifestyle or personality and values. This is necessary because people within the same demographic group may exhibit different life-styles and value.

a) Lifestyle: The types of goods and services bought by consumers express their life-styles. Night crawlers patronize nightclubs, people who seek adventure buy tourism and sports lovers attend sport events.

b) Personality: Marketers endorse their products with brand personalities that correspond to consumer personalities. For instance, MTN has used high style personalities as people who achieve what they want to achieve. Sunny Ade, the popular Nigerian musician has been used to endorse Glomobile Premium.

c) Values: Some marketers segment by core values, the belief systems that underlie consumer attitudes and behaviours. For instance, Coca Cola promotes sharing value among families with its 1-litre Coke.

 

4) Behavioural Segmentation

Buyers are divided into groups on the basis of their knowledge, attitude and product usage. Variables under consideration include: occasions, benefits, user-status, usage rate, loyalty status and so on. Some of these are discussed below:

a) Occasions: Buyers can be isolated on the basis of the occasions they develop a need, purchase a product or use a product. Attendance at cinemas theatres, musical shows and other events in Nigeria, for example, usually takes place on Sundays, public holidays or festive periods.

b) Benefits: Buyers can be segmented according to the benefits they see. Glomobile, the high-flying Nigerian GSM provider touts itself as the pioneer of pay-by-the-second billing system. Also, buyers of toothpaste seek any of these benefits: economy, oral hygiene, peer acceptance and taste as benefits.

c) User Status: Markets can be segmented into non-users, ex-users, potential users; first-time users and regular users of a product. Blood banks, for example, must not rely only on regular donors to supply blood. They must recruit new first-time donors and contact ex-donors.

d) Usage Rate: Market can be segmented into light, medium, and heavy product users. Bournvita has three sizes: Big, medium and small sizes, with big size targeted at heavy users.

 

CONDITIONS FOR EFFECTIVE SEGMENTATION

To be effective, market segments must be:

1. Measurable: The size, purchasing power, attitude and characteristics of the segments can be measured.
2. Substantial: The segments are large and profitable enough to serve.
3. Accessible: The segments can be effectively reached and served with a distinct marketing mix.
4. Differentiable: The segments are conceptually distinguishable and respond differently to different marketing mix elements and programmes.
5. Actionable: Effective marketing programmes can be formulated to attract and serve the segments.