Principles of Marketing - The Market Segmentation Process
This article gives an overview of the segmentation process marketers go through when segmenting an entire market, selecting a target market, and positioning the product in that market.
Outline of the Segmentation Process.
1. Identify bases for segmenting the market
2. Develop profiles of resulting segments
3. Develop measures of segment attractiveness
4. Select the target segments
5. Develop product positioning for each target segment.
6. Develop marketing mix for each target segment.
Market segmentation is the act of subdividing the market into a group or groups of people who have similar needs within the group, but dissimilar needs across the groups. An example would be people wanting cars, but different types of cars. The different types of cars may be luxury, sports , or SUV's.
There are three ways in which a marketer can segment the market. He may use one, two, or all of these. This will depend on the product and industry. These three types of segmentation include:
Benefit Segmentation - Benefit segmentation is the subdivision of the market based on benefits the consumer hopes to derive from using the product. Products that were launched based on these variables include the "100 Calorie Twinkie" and many lifestyle drugs like diet pills and hair growth products.
Usage Segmentation - This is the subdivision of the market based on how often a consumer uses the product. They will be categorized into those who do not use the product, those who use it a little, and those who are considered heavy users.
Behavioral Segmentation - This is the segmentation of users based on on various personality and behavioral traits. There are a number of different categories marketers may place consumers in when using this type of segmentation in the U.S. These include:
- Actualizers - Successful, sophisticated, take charge people whose purchases often reflect cultivated tastes for relatively upscale products.
- Fulfilleds - These are mature, satisfied, comfortable, and reflective individuals. They favor durability, functionality and value in products.
- Achievers - Successful, career and work oriented people, achievers favor established prestige products that demonstrate success to their peers.
- Experiencers - These are young, vital, enthusiastic, impulsive, and rebellious individuals. They spend much of their income on things such as clothing, fast food, music, movies, and audio/video equipment.
- Believers - Believers are conservative, conventional, and traditional. They favor familiar products and established brands.
- Strivers - Uncertain, insecure, approval seeking, and resource constrained, these people favor stylish products that emulate the purchases of those with greater material wealth.
- Makers - These are practical, self sufficient, traditional, family oriented individuals. They favor only products with a practical or functional purpose such as tools, utility vehicles, and fishing equipment.
- Strugglers - These may be elderly, passive, resigned, concerned, and resource oriented people. They are cautious consumers who are loyal to favorite brands.
These are what are often called psychographic variables in segmentation. Note that while these actual terms may be used, different companies and certain marketing professionals often have there own terms that may relate to their specific market or industry.
Market targeting involves assessing or evaluating the goodness or badness, or soundness or unsoundness of the segments, and then selecting the the target market you wish to pursue.
Marketers will often use one of three strategies in selecting a target market. In doings so, they are answering the question "How many markets are we going to serve?"
- Undifferentiated Strategy - Rather than subdividing segments, a marketer using this approach will aim for the entire market. He will essentially be focusing on what is similar across consumers, rather than what is dissimilar. This is not often used anymore simply because of the magnitude of cultural diversity. The fact that peoples needs are so dissimilar prevents this tactic from being effective.
- Concentrated Strategy - Here, a marketer has one or a few products in marketing programs directed at one or a few segments. Economies of scale help drive price down. Also, if the marketer chooses to go after a certain segment, competition may choose not to go into that segment because it then doesn't look as lucrative. This is risky because the marketer is putting all of his eggs in one basket. If needs change, it may be hard for him to redirect his efforts into another area.
- Differentiated Strategy - Using this strategy, a marketer will have a number of different products and programs aimed at a number of different segments. This reduces risk. Sales and profits will be higher. This tactic assumes that all needs are different. It tailors products to each individual segment with differing needs. This limits specialization, unlike concentrated and undifferentiated strategy. Coca-Cola does this by offering different beverages in different geographic regions.
Product positioning is the point in the segmentation process where the marketer creates the product offering in a way that hits the consumers mind and separates the offering from competition. The marketer is trying to focus on attributes the consumer considers to be very important.
There are two main types of positioning
- Consumer Positioning - The viewpoint taken by the company here is "What needs are we trying to satisfy? A good example of this would be toothpaste companies. Crest may choose to focus on whitening, while a company like Colgate may choose to focus heavily on cavity protection
- Competitive Positioning - Using competitive positioning, a marketer tries to distinguish himself from competition by comparing himself to competition directly or indirectly. This can often be problematic because it gives competition free advertising. The consumer may even forget which company is better if an ad discusses a comparison of two companies.
One thing to note here is that if the option to go after the largest segment is chosen, the marketer is engaging in what is known as majority fallacy. This is where one goes after the largest segment. Yet, because it is large, it will likely draw a far larger number of competitors. In order to be successful, the product offered must satisfy the needs better than competition and have strong resources to compete.
Example of the Segmentation Process
In the above example, the company is in the lawn-care product industry. They sell three different types of mowers (non-powered, powered, and powered riding). There are three different market segments (urban, suburban, and rural). The percentages reflect which consumers are using which mowers the most. In this scenario, it may seem more attractive to go after the larger segments (suburban consumers with powered walking mowers) However, this segment may already be flooded with competition. It may be more beneficial to target a small segment of consumers, like urban consumers using non-powered or powered walking mowers. Many factors must be taken into consideration when selecting a target market. The smallest segment may be the most profitable and lucrative.
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