Insurance companies are always seeking alternative ways to improve the level of satisfaction among their customers; market segmentation may be a useful tool. The paper argues that in spite of the egalitarian approach that underpins the marketing of insurance, market segmentation may be used to better serve the needs of their customers. In utilizing market segmentation, the insurance companies must pay particular attention to barriers that may negatively impact the effectiveness of the market segmentation exercise.
Consequently, the need to pay particular attention to issues relating to barriers to implementing market segmentation is highlighted. This paper also attempts to address management’s concerns about the practicality and usefulness of segmentation. Introduction: The market for any product is normally made up of several segments. There are different aspects contributing for varying mind set of consumers. It is natural that many different segments occur within a market.
Market Segmentation Essay Example
In order to capture this heterogeneous market for any product, marketers usually divide or disintegrate the market into a number of sub-markets/segments and the process is known as market segmentation. Thus we can say that market segmentation is the segmentation of markets into homogenous groups of customers, each of them reacting differently to promotion, communication, pricing and other variables of the marketing mix. Market segments should be formed in that way that difference between buyers within each segment is as small as possible. Thus, every segment can be addressed with an individually targeted marketing mix.
The importance of market segmentation results from the fact that the buyers of a product or a service are no homogenous group. Actually, every buyer has individual needs, preferences, resources and behaviors. These common characteristics allow developing a standardized marketing mix for all customers in this segment. Through segmentation, the marketer can look at the differences among the customer groups and decide on appropriate strategies/offers for each group. This is precisely why some marketing experts have described segmentation as a strategy of dividing the markets for conquering them. Market Segmentation
Ever wondered why marketers target only convinced markets and how these markets can identified? Think about vehicle industry of Toyota for a moment, how do they identify which customer are interested about Toyota vehicle? What standard do they use? Do they base it on their income, age, social status or is it just about business or job purposes? Do they market to upper class and middle class customer in a different way, what about low income level and mid income level customer groups – is this difference important for the effective marketing of vehicle industry to prospective customer? The Concept of Market Segmentation
Market segmentation is the division of a market into different types of customers with particularly similar needs and product or service requirements. In other word, market segmentation is the partition of a mass market into particular and different groups or segments, each of which have common characteristics and needs and display similar responses to marketing actions. Market segmentation first defined as ‘a condition of growth when core markets have already been developed on a generalized basis to the point where additional promotional expenditures are yielding diminishing returns’ (Smith, 1956).
The Process of Market Segmentation There are two main approaches to segmenting markets. The first approach is identifying segmentation variables. The characteristics of individual customers or organizations used to divide a market into segments. Consumer market segmentation is four types such as Demographic, Geographic, Psychographic and Behavioral. Demographic Segmentation In demographic segmentation, Toyota divides the market into groups on the basis of variables such as age, family size, family life cycle income occupation, education nationality and social class.
Demographic variables are very popular with marketers because they frequently associated consumer needs and wants. Geographic Segmentation Geographic segmentation calls for dividing the market into different geographical units for example neighborhoods, cities, regions states or countries. The company can operate in one or few areas but always pay attention to local variations. For example Toyota produce their car for Australia or South Asia right hand operation but for USA or Europe those countries preferred left hand operation Toyota produce left hand driving vehicle.
Psychographic segmentation Psychographics is the knowledge of using psychology and demographics to better understand consumers. In psychographic segmentation buyers can be divided into different groups on basis of their psychological or personality traits, lifestyle, social class within the same demographic group can demonstrate in different psychographic profiles. Behavioral Segmentation In behavioral segmentation, marketers divide buyers into groups on the basis of their knowledge of, attitude towards, use of or response to a product. It is easy to identify the buyer for various type of car.
Young people always prefer sports type car on the other hand executive people prefer luxurious car like Prado. According to the many marketers behavioral variables are occasions, benefits, user status, uses rate, loyalty status and attitude are the best starting points for constructing market segments. The second approach is developing market segment profiles. Market segment profiles explain the similarities among the potential customers within a segment and explain the differences between the people and organizations in different segment.
Market targeting A target market is a set of customer or organizations for which a business creates and maintains a marketing mix specifically designed to satisfy the needs of group member. Segment marketing is a targeting a group of customers who share a similar set of needs and wants. For developing the market segment lots of statistical techniques was developed. When any company identified its market segment opportunities that time company must decide how many customers and which ones should target.
For example, Toyota produces various types of cars for different type of customer. Toyota produces Lexus or Prado for the high rich people, Toyota Corolla or Carina for the mid level income people, Toyota Supra for young generation those are interested for sports car. Kotler (1984) suggested that in order for market segmentation to be effective, all segments must be: • Distinct—is each segment clearly different from other segments? If so, different marketing mixes, to use the traditional approach to marketing, will be necessary. Accessible—can buyers be reached through appropriate promotional programmers and distribution channels? • Measurable—is the segment easy to identify and measure? • Profitable—is the segment sufficiently large to provide a stream of constant future revenues and profits? Now a day to be useful, market segments must rate favorably on five criteria such as, Measurable: Size, buying power and segment characteristics can be measured. Substantial Segment can be largest possible homogeneous group worth going after with a tailored marketing program.
Such as Toyota manufacture develops cars for customers who are not more than four feet tall. Accessible The segments can be effectively reached and served. Differentiable conceptually segments are distinguishable and respond differently to different marketing mix elements and programs. If young people and old people respond similarly to a sale on car, they do not constitute separate segments. Actionable efficient programs can be formulated for attracting and serving the segments.
Market Segmentation Limitations While market segmentation is a useful process in allowing an organization to aggregate customer needs into distinct groups, it is not an ideal process. Market segmentation has been criticized for the following reasons: The process involves approximating product or service offerings to the needs of customer groups, rather than providing an individual customized offering, there is a chance that our customers’ needs are not being fully met.
There is inadequate consideration of how market segmentation is linked to competitive advantage. Whilst the product differentiation concept is clearly linked to the need to develop competing offerings, market segmentation has not tended to stress the need to segment on the basis of differentiating the offering from competitors. The Positioning Concept For developing a sustainable situation it is essential to know the market in which the product is to compete and to understand the way in which competitor brands are competing.
In another words, what is the nature of the competition in the market and what tangible and intangible attributes are customers looking for when buying these types of products? Positioning takes place during the target market selection process. Strategic groups are the various clusters of brands that compete directly against each other. Such as, in the car market, Toyota, Ford, BMW and Mercedes Benz each company create their own brands and these brand compete against each other in the high-end luxury car market.
This tactical group consists of Jaguar, Lexus, and the S-Class respectively, amongst others. The design and specification of these cars are based on the feature that customers in this segment consider to be important and are prepared to pay for. Whatever, designing a car that includes key attributes alone is insufficient. Successful positioning of each of these car brands is important in order that customers recognize how each brand is different and understand the value that each represents. Key to this process is the identification of the attributes that are considered to be important.
These attributes may be tangible and intangible. Tangible items are transmission system, seating, gearbox, and interior design and intangible items are prestige, the reputation, and allure that a brand generates. By understanding what customers consider to be the ideal standard or level that each attribute needs to attain and how they rate the attributes of each brand in relation to the ideal level, and each other, it becomes possible to see how a brand’s attributes can be adapted and communicated to become more competitive.
Through market research we can identify what factors are the key drivers of a consumer’s preference for a brand. Positioning Strategies For understanding the brands position it is important to provide inputs not only to the way a brand performs but also to the marketing communications used to support a brand. Through communications, and especially advertising, information can be conveyed about each feature and in doing so adjust the perceptions customers have of the brand.
Marketing communications can be used in one of two main ways to position brands, namely to position a brand either functionally or expressively (symbolically). Functionally positioned brands emphasize the benefits and features, whilst expressive brands emphasize the ego, social, and hedonic satisfactions that a brand can bring. References Smith, W. R. (1956), ‘Product differentiation and market segmentation as alternative marketing strategies’, Journal of Marketing, July, 3–8. Kotler P & Keller, K, Burton S (2008) Marketing Management 1st Adaptation edition published by Pearson Education Australia Pty Ltd.