Strategic Marketing - Market Segmentation, Targeting & Positioning - Essay Example

Strategic Marketing: Market Segmentation, Targeting & Positioning What is Market Segmentation? Customers are not alike. Not every offering is right for every customer. Every customer is not responsive to your efforts. This means you cannot bring your product to the awareness of every customer. In order to be successful you have to adopt a targeted approach to ensure that your product and its promotional resources are used properly. So you have to organise your customers into groups that allow targeted approach. This is called Segmentation. Market segmentation is the process of dividing a market into distinct segments that have common needs. Each segment is reasonably homogeneous in the needs and behaviour, so the customers in a segment respond similarly to a particular marketing strategy for products or services that are sold at a particular price, distributed in a particular way, and promoted in a particular way. The eventual result of segmentation of the customers is enhanced customer satisfaction after using your product. By doing the segmentation analysis, you can establish, maintain, and see a growing customer base. How Markets are segmented? Markets can be segmented by criteria such as industry, public sector, private sector etc. Market segments can be of various types such as niche markets or specialty markets, consumer or industrial markets etc. The process of segmentation is different from targeting and positioning. Targeting means choosing segments to address) and positioning means designing an appropriate marketing plan for each segment. The overall objective of Segmentation is to identify groups of potential customers having similar needs; prioritise those groups; understand their behaviour; and give an appropriate response with a marketing approach that satisfies different preferences of each segment. Improved segmentation leads to improved marketing success and the right market segmentation and advertising result in improved customer satisfaction and thereby improving the revenues. The basic requirements for successful segmentation are: there should be homogeneity within the segment, there should be heterogeneity between segments, the segments should be measurable, identifiable, accessible and actionable, and the segment should be large enough to be profitable. Factors influencing Market Segmentation Market Segmentation is the process of splitting and segregating the market into groups on the basis of customer characteristics and needs. It consists of activities like finding out the actual potential customers, identifying segments, doing analysis of competitors' business in the market and finally selecting attractive and suitable customer segments. Competitor analysis is important in market segmentation because the market segments that are identified may not attractive to target. A company rarely experiences monopoly since it is never alone in a chosen market. Competitors are omnipresent and they may have some bearing on the attraction of entering certain markets. When there is more established competitor presence, obtaining a profitable market share is quite difficult and therefore a new company should decide not to enter that market. In other words, this segment is not attractive to target. Market Segmentation Strategies The most common market segmentation approaches used for dividing the consumer markets in Europe are geographic location, demographic factors, psychographic characteristics, and behaviour of customers or apparent product benefits. A table showing market segmentation variables Market Segmentation Variables Geographic Demographic Psychographic Behavioural Region of the world: country East West South North Central coastal hilly Country size Metropolitan Cities small cities towns Density of Area Urban Semi-urban Rural Climate Hot Cold Humid Rainy age gender: Male and Female sexual orientation family size family life cycle Education: Primary, High School, Secondary, College, Universities income occupation socioeconomic status religion nationality/race language personality life style value attitude benefit sought product usage rate brand loyalty product end use readiness-to-buy stage decision making unit Geographic Segmentation Geographic segmentation means dividing the market on the basis of the place where people live. Divisions may be in form of neighbourhoods, vicinities, towns, small cities, metros, counties, states, regions (East, West, South, North, Central, coastal, hilly), and countries. Divisions may also be in form of density of urban, suburban, or rural areas, size of the area, climate (hot, cold, humid, rainy), and local or regional population. Examples of Geographic segmentation are marketing of equipment for removing snow will focus on identifying potential customers in areas of heavy snow fall; retail outlet chains that are dependent on high-volume traffic, focus their marketing efforts in densely populated areas. Demographic Segmentation Demographic segmentation means dividing the market on the basis of statistical differences in personal characteristics, such as age, gender, race, income, life styles, life stage, birth era, HHD size, residence tenure, marital status, occupation, and education level. Examples of Demographic segmentation are marketing of clothes will focus on the age groups such as children, teenagers, young, adults, mature and old people; Jewellers and Cosmetics and hair care companies focus on female population; home builders focus on life styles, life stage, professional status and occupation. Home construction companies may like to focus on young married couples with a particular range of income as tenants for a new garden apartment complex. Tourism companies allure newly married couples for honeymoon package tours to various attractive destinations. Psychographic Segmentation Psychographic segmentation is based on personality, way of thinking, interests, and lifestyles of impending customer groups. Companies that are marketing new products, try to find customer groups that are positively inclined to new ideas. E.g. companies marketing products that are environment friendly will focus on segments with environmental awareness. Banks and financial institutions try to tap groups with a strong interest in buying their products by sponsoring their favourite sports team, or focus on professional organisations by distributing credit cards with their logos. Likewise, health companies marketing low-fat/calorie products try to isolate health-conscious groups in the market. The company like Nike that produces and markets athletic footwear and T-shirts globally has market segments for sports playing segment so they focus on advertisements involving famous sports personalities resulting in sports lovers all over the world responding to their advertisements and buying their products. Behavioural Segmentation Behavioural market segmentation depends on behavioural variables like product benefits, product usage rate, brand loyalty, end use of the products, ready-to-buy stage of products and decision making unit. Market segmentation can be based on the perceived benefits or advantage the consumers receive from a product or service over the alternatives. In this segmentation, markets are partitioned on the basis of product quality and performance, product image in the market, product service, or any other special features that prospective consumers need. Examples of behavioural segmentation can be seen in a wide range of businesses like cosmetics, cameras, shampoo, athletic footwear, automobiles etc trying to match up with customers' expectations. Many companies market similar products of different grades such as soaps, hair oils, after shave lotions, edible oils. Many companies market their products with different services to different groups based on product-benefit preference e.g. housing construction companies will focus on marketing apartments to low income groups and bungalows to higher income groups. The other example is automobile marketing companies would target teenagers and housewives for mopeds and scooteretts, young college students for motorbikes and economy cars for middle-age professionals and luxurious cars for business class. Industrial Market Segmentation Factors used in industrial markets segmentation are different than those used in consumer markets segmentation to some extent. Industrial markets are normally partitioned on the basis of organizational variables, such as type of business of the company, the company size, its geographic location, and the company's domain area and technological base. In some cases the industrial markets are segmented on the basis of different operational lines such as actual sale of products, related processes that are used in production, volume of the products, product end-use, centralized and decentralized purchasing practises, company policy regarding number of vendors, buyer-seller relationships decided by the company and similarities of quality of the product, the accompanying services, and the need of the products and services that are readily available. Adopting a Market Segmentation Strategy First you should identify the potential market segments. Secondly segregate the market segments that are large, worth to be pursued, having profit potential, reachable, and likely to respond favourably. The third step is to narrow down the partitioning to segments that are viewed to be the best targets for the company's products and services and seen as having potential or capacity to expand. After selecting the market segments, the fourth step is to design a separate marketing plan for each market segment to be targeted. Benefits of Adopting a Market Segmentation Strategy Adopting a particular market segmentation approach or plan can benefit a company in a number of identifiable areas. It gives a definite customer-driven direction to manage current products of the company. It also uses marketing resources more efficiently, helps to identify new opportunities for growth and expansion of company's business and at the same time, it gives the company a competitive advantage. Drawbacks of Adopting a Market Segmentation Strategy Adopting the market-segmentation approach can also have some drawbacks. For example when a company targets multiple segments, it increases production and marketing costs and may prove to be costlier than mass marketing. So that means different product models are required for each targeted market segment demanding maintenance of separate inventories for each version of the product, and adopting different promotion plans for each market. Further there is an increase in administrative expenses with the manipulating of planning, implementation, and control of multiple marketing programs for different products or services. In the late 1960s, a significant change in marketing approach of the companies was observed. The market segmentation strategy surged ahead of mass marketing and became a predominant marketing approach. After 1970s and 1980s there were wide changes in the society as a whole. There was a prominent increase in financial and economic opportunities, which resulted in continuous expansion of the number of consumer groups having specific needs of special products or services and increase in buying power of the consumers. The companies responded by turning increasingly to the market segmentation approach to capture the market share. Market Targeting After the company selects the most attractive segments, it starts targeting or aiming at each segment for its products and services. Based on the following market targeting activities, the company decides on the segments to be actually targeted: defining the abilities of the company, selecting the resources needed to enter the chosen market, benchmarking i.e. analysing resources and skills of the potential competitors and comparing the company’s abilities with them, and then settle on the actual target markets. Targeting includes competitor analysis that a company uses to zero down on the market segments that most attractive to target and give the company a good chance of a profitable market share. Different targeting options that a company can adopt are 1. Undifferentiated/ Mass marketing strategy i.e. focussing all resources for one particular product in the market to attract huge number of consumers. For example Coca Cola, Cadbury's milk chocolates etc. 2. Differentiated marketing strategy i.e. focussing all resources for different products/services with separate marketing plans to attract different groups. For example Airline companies offering executive, business and economy class with different fares and facilities. 3. Concentrated marketing strategy i.e. concentrating all marketing effort on one particular segment to address the needs of that particular group. For example luxurious Rolls Royce cars aimed at the premium segment and Harrods in the UK. Market Positioning After deciding on the list of target markets but before starting to decide on a good marketing plan, it is important to create a product image or identity or image in the minds of the customers who potential product users. Customers in different segments have different expectations from the product. So the company has to position itself and its products in the potential market. The process of positioning the company involves identifying different advantages in each market segment, deciding different positioning concepts for different market segments, preparing the process-data model showing different predefined concepts or activities before and within market positioning. For market positioning a thorough study and analyses of potential market, competitors' analyses and benchmarking of company's abilities are necessary to create a good market positioning. After preparing the market positioning statement, the company starts creating the marketing plan. Ultimately market positioning is all about how the company wants the potential consumers to perceive its products and services and what marketing strategies the company adopts to reach this goal. References Edward J. Hass, Ph.D., "An Overview of Segmentation: Why You Should Consider It And a Thumbnail of Its Dynamics", ICR Survey Report, Nov 30, 2005 Market segment, Wikipedia, the free encyclopaedia, retrieved Mar 23, 2007 And Answers.com, retrieved Mar 23, 2007 McKenna, R., "Marketing in the age of diversity", Harvard Business Review, vol 66, September-October, 1988 Day, G., "Strategic Market Analysis", Marketing Science Institute, Cambridge, Mass. 1980 Pine, J., "Mass customizing products and services", Planning Review, Vol 22, July-August, 1993 Steenkamp and Ter Hofstede, "International market segmentation: issues and perspectives", Intern. J. of Market Research, vol 19, 2002 STP worksheet, Learnmarketing.net, retrieved Mar 23, 2007 Read More