Market segmentation is a marketing strategy that is one of steps goes into defining the selection of consumers who have common need and will assist consumers with products that satisfy their individual sets of needs and buying practices. The purpose of market segmentation is to guide the consumer purchases, businesses are offering through marketing and sales program to maintain sales and growth of the business to survive from competitive market industry. In order to achieve that, businesses rapidly release product with similar characteristic.
Therefore an organization needs to respond consumer’s preference, willing to change and quickly adapt to the new ways of conducting business. The logical segmentation of marketing planning process will determined what an organization can become and how it can achieve that goal from selected segments and formulate marketing activities including geographic such as region, size, population or climate, demographic such as gender, income, age or occupation or psychographic such as activity, interest, opinion or attitude and behavioral such as benefits sought, usage rate or brand loyalty. Business Software Resource 2012) If it is perform systematically, it will allow a company to achieve its highest return such as Nissan, breaks out of sales declines and weak product lineup in 2002 and Wireless Telecommunication Industry, makes profits $152. 6 billion USD in 2011. Theory The logical segmentation of marketing planning is enabled to set a strategic planning that will determining what an organization can become and how it can achieve that goal from selected segments and formulate marketing activities.
The key stages of this process fall into three stages including goal setting, compiling a situation review, strategy formulation and monitoring. (Malcome and Ian 2003) When an organization decides to set a goal, they need to collect information about size and growth of market will be into and consumer’s preference to satisfy. (Art 2004) states that researching customer’s preference is an essential component of segmentation that analyse the customer’s satisfaction at profit. After deciding the target market, it moves to compiling a situation review stage that an organization applies the key element of segmentation to analyze their trength, weakness, opportunity and treat. Therefore, it is necessary to understand what customers would like to get and what they prepared to give it return in customer’s point of view. (Malcome and Ian 2004) reveals that this understanding is a simple way to gain the benefits from the product and service. In strategy formulation and monitoring stage, an organization is estimate of expected results of market strategy formulation from the marketing objectives and reevaluates their strategy to identify alternatives from new opportunity or circumvent potential treat Importance of market segmentation
Furthermore, it is essential to understand the benefits and complexities of market segmentation. Segmentation is an effective method to boost up the concentrate of a firm on market segments to allocate a company to achieve its highest return on investment (ROI). A business can apply various types of segmentation strategies to search for a new market segment, which can attract new consumers with curiosity to new product. Previous studies show that mass marketing creates the largest potential market at the lowest costs, which can lead to lower prices and higher profit margins (Martin 2011).
There are several advantages of segmentation. Thus, when the business’s focus improves, simultaneously increase in competitiveness in the market. As the business enters the new segment in advance, it will obtain higher market share percentage and low in competition. Popular brand would be beneficial. In contrast, minor brands might suffer from lack of scale economies in production and marketing, pressures from distributors and limited space on the shelves. (Kotler, 2001) states that market segmentation improve values for the consumer and develop consumer relationships.
Due to needs, preference and behaviors of segment, consumers are similar but not identical. In mass markets, the target consumers of the business might miss out the opportunity to receive the marketing messages if the marketing campaigns are too extensive. Risks included in target marketing communication are high cost of promotions, unprofitable return, low sales volumes and unable to reach the target consumer if wrong type of promotion is applied. Therefore, using the arket segmentation, all the risks could be calculated and reduce in considerably such as lower costs of promotion as that messages directly send to a particular customers. In addition, market segmentation correspondingly retains the customers. In this dynamic world, many different consumers with different needs and requiring different products. They differ in their wants, resources, and locations, buying attitudes and buying practices over time. The business fails to retain the customers. They will switch to competing products and brand.
Hence, creating various offers for each segment will provides customers with a better solution. Diversity in marketing segmentation is expanding quickly and companies have prolonged how to make a distinction between their products and services compare to their competitors. Certainly, in different geographic, customers have many levels of income disposable which cause price plays a crucial role while segmenting markets. Some businesses can raise average prices and subsequently enhance profits. In relate to that, business also have better opportunities to expand and growth.
Therefore, market segmentation needs to be done systematically. This is when the marketing segmentation failures should take into account. Weaknesses of market segmentation Dolnicar, and Lazarevski professors of University of Wollongong have shown that while implementing the market segmentation strategy, there are two main failures that minimising the company to benefits. These problems are managerial and operational. Managerial failures relate the business’ inflexible organisational structures that lead to lack of communication between managers and staffs and minimal of marketing knowledge (Dibb and Stern 1998).
Furthermore, unclear of the objective and inaccuracy of the data also shrink the effectiveness of market segmentation. Operational failures are usually the incorrect marketing procedures and technical execution of the segmentation study. These misconceptions can result to misinterpretations of segmentation solutions, especially the overestimation of validity Greenberg and McDonald (1989). Consequently, these failures lead to inadequate budgets for segmentations. To review the key points of weaknesses, the theory of market segmentation strategies should be pursuing accurately and adequately.
In order to maximise benefits of the market segmentation, a company should avoid the managerial and operational failures. There are numerous ways in which a market can be segmented. A business will need to use the right strategy that is best for their product or services. Often the best choices arise from mixing various strategies. Every business will need to shape their marketing strategies to their consumers buying habits. Market segmentation strategy Segmentation seeks to assist consumers with products that satisfy their individual sets of needs and buying practices.
For this reason, to be unbeaten businesses need to research, consider and divide into suitable segments used fully through suitable marketing mix. In today business world, to maintain sales and growth of the business, product differentiation is an ideal factor for firm to remain industrial advantage. Therefore, marketing campaigns with the high route to success would be trying to purposely target a certain customer fragments. This is performed by the market segmentation method. The method of investigating the enormity of the four P’s in marketing is identified as the market segmentation strategies.
It requires the isolation of the extensive group of customers who have common demands and expectations of the similar products. In this section, fundamental concept of segmenting would be discussed such as segmentation strategy, criteria for market segmentation, levels of market segmentation and dimensions of segmentation for consumer market and business market. After all these alternatives are taken in account, business will select their target market with the most appropriate market-oriented approaches.
In the segmentation process, business needs to consider multi and single offer strategies. Multi-offer involves many products with many different marketing strategies. It includes special product innovation or characteristic and exclusive marketing promotions to target each segment for example: Toyota group. Single-offer involves business providing one product and single marketing program to a large or small market. This is when the business focuses on one single segment. This is usually applied when the business has limited resources or the small size of target consumers.
Furthermore, there are four criteria that marketer use to verify while segmenting an intensive product market such as homogeneous, accessible, substantial and operation. Homogeneous refers to measuring the potential customers reacting to the marketing mix variables in the similar manner due to their identical preferences and the competitors. Accessible refers to the convenience of the distribution such as sales force, transportation, telecommunication and product locations. Substantial refers to the segment’s size. Ensure that the segment is large enough to achieve cost-effective such as profitability.
Finally, operation refers to durability and unique needs. This directly point-out the target customers and determine the marketing mix variables such as usage frequency and product differentiation. In relate to that when the criteria are determined, segment identification is a section that identifying who is the target market is extremely important. In this section, it involves segmenting dimensions for consumer market and business market, relatively also known as qualifying dimension and determining dimension. Qualifying dimensions for consumer market categorised into geographical, demographical, psychological and behavioural dimensions.
This is the common type of segmentation dimension to provide the primary demands. The frequently ask question for this is “what do you need out this product? ” For example: when buying a car, buyer may be needed to have driver license, insurance and income. Geographical dimension is focus all the geographic factors such as region, population density, city size and climate. For example: a new product first being release, a company might distribute the product in a certain country, state or neighbourhood, in urban, suburban or rural area.
The number of products will depend on size of the area, population size or growth rate. When the product will appear in the market will depend on the regions climate. After all these factors have been encountered, the company can concentrate on the marketing mix. Whilst, demographical dimension is to select a focal range in a diverse groups such as age, occupation, education, social class, family size, income, gender, generation, ethnic, nationality and religion. These factors will help to categorise the consumer’s group and define their needs, wants and usage rates.
Behavioural dimension variables include usage rate, product benefits, brand loyalty, and price attraction, occasion and user status. This dimension closely relate to consumer knowledge, preference, attitude and response to the product. For example: the company will use this dimension to choose the pricing methods and promotion. Lastly, psychological dimension is a crucial element of segmentation as it is base on perception, personality characteristics, lifestyle and social class. The main variables of psychographic are interest, opinion, personality, value, self-image, cognition, activity and attitude.
In contrast, determining dimension for business or organisation involves kind of relationship, type of customer, demographics, type of buying situation and purchasing methods and use of the products also known as determining dimension. Determining dimensions usually drawn customers to purchase a certain product or brand in the market. This dimension is a selective process in the market to fulfill customer’s demands. For example: When consider purchasing a car, the buyer will look at performance, safety and appearance.
Level of segmentation involves mass marketing, niche marketing and micro marketing which will require different marketing mix but provide many benefits to the consumers and businesses. When the business only allocates distribution, price, product and promotion at a specific group of customers, the business will achieve higher profits with fewer competitors in the segment. Segment is a part of generally market while niche market is the small group in this segment. Segments is fairly broader with more competitors and niche has one or competitors.
In niche market, the price is usually set at premium, because business is able to fulfill their niche’s needs. Companies with smaller size are more successful in sector because of the sacred resources and compete in narrow range of competitors. Nevertheless, large companies also interest in this sector to increase their sales volumes, to be dominance, gain market shares and compete the profit away. For example: Nike produces shoes for different sports such as basketball and soccer. Niche market is normally used in the marketplace.
Similarly, micromarketing is more focus on their consumers, businesses design product and marketing mix to suit individual and locations. In another words, the business customizes their offer to each person, for example: designs Micromarketing separated in to local and individual. Local marketing producing the marketing mix to suit the needs and wants of local customer groups in a specific region. Positioning, product, income levels and ethnic should be consider. Further, a brand’s overall image might be diluted if the product and message vary too much in different localities.
The other micromarketing is individual marketing is the extreme part of micromarketing. Marketing mix is aim individual customer’s need and preferences. The advance of technologies has added the simplicity to the manufacturing, communication and flexibility. Door to door selling marketing is a classical example. As the trend toward more interactive dialogue and less advertising monologue continues, self-marketing will grow in importance. They will need to involve customers more in all phases of the product development and buying processes, increasing opportunities for buyers to practice self-marketing.
Overall, micromarketing is increasing, as more business seeks to new sectors. Connection between market segmentation concept and strategies with examples Market segmentation is the concept that every customer is different, not one customer will be the same to another. This means that business should address each of them differently, through different distribution channels, at different prices on products, with an altered message to customers, and with different products. Segmenting the market from a business point of view can make or break the business, depending on how well the segment in the arketing mix is carried out. Businesses should attempt to segment the market due to the many benefits its can bring a business. If a business segments the market and its products they can better match of customer needs. Customer’s needs are all different. Designing different offers for each segment would make a lot of sense in providing customers with better outcomes. If customer needs are matched then in time profits will maximise for the business. All individuals have different income levels. With this in mind, the business has to be flexible in how sensitive customers are to price.
By segmenting their market, businesses can slowly raise average prices and greatly improve profits and revenue. Advertising to the business’s target market is essential, businesses have to send their marketing message to the business customer audience. To communicate the businesses messages to the public: Let them know that the businesses products and services will help them get their goals. If their target market is to large, unfortunately it is highly likely that the important customers have been missed, the whole job becomes very expensive to run for an ineffective promotion and can be unprofitable.
By segmenting markets, the target customer can be reached more efficiently and often at lower cost to the business. If promoting to the niche target market was successful then the business is going to retain more customers. With customers needs, wants and characteristics (income, age, job, location, buying patterns.. ) always changing it has been viewed as a successful idea to market products to people at different stages throughout their life. If a business can do this successfully, they can retain profits and customers, greatly enhancing the business.
Business also segments to understand their clients’ motivations and driving forces for purchases, to find out why customers spend their money. How can the business make money and how they can save money. If a business can find out the driving forces and motivations of customers they can channel money into those key factors saving money but enhancing promotion and revenue. If business segment their market there provides a lot higher opportunities for growth in their market. Segmenting the market can increase sales. Leaving the business with higher revenues and profit. Business will segment the market to gain share of the market segment.
If the business is leading in market share then this is irrelevant. Brands with a smaller name and less known suffer from lack of scale of economies in producing and marketing the product along with pressures from distributors and limited space on the shelves. After segmenting and targeting a market the businesses can often achieve competitive production and marketing costs. This leads to the smaller brand becoming the preferred choice of customers and for distribution methods. Basically if a smaller business segments the market it gives them a change to compete with large businesses.
There are different types of segmentations businesses can choose to use when deciding to segment the market, each type is used to provide a different goal. For example: psychographics segmentation sectors such as lifestyle and social class. Lifestyles segmentation attempts to examine the way consumers live, perform day to day activities, interests and morals and beliefs, therefore marketers can find out who they are and try predict their purchasing behaviour. Businesses should attempt to develop goods and services that target particular lifestyle groups, on the basis it can enhance their lives.
Marketers observe consumers characteristics and make decisions about marketing to that market based on the majority of them. This gives marketers an idea of where they should be investing money into promotions and more information on niche market promotions. This aligns with another type of segmentation, which comes from the personality of the consumers. Products and brands are aimed at personalities all the time. Nautica clothing is aimed at sailing, Nike is aimed at sport, Harley Davidson motorcycles are aimed at older 45+ males while Kawasaki motorcycles are aimed at younger 18-25 males.
Marketers aim to develop a personality for their product, the iPod was given a stylish, new and young personality with its slick design. The products personality is given to reflect the personality of the consumer that owns it. A segmentation that relies on the benefit after sale is the behavioural segmentation, this is the benefit that the consumer seeks from purchasing a product and how it will enhance their lifestyle. Another variable is the date, there will be a higher demand for toys for kids at Christmas and higher demand for roses and chocolates around Valentines day, if this oncept is taken advantage of, it will increase sales. The location of the business also has a large importance and segmenting the market into locations is also a very valid concept. The population can be divided into income, gender, age, income, life cycle, race, background, beliefs and many more. People are always getting older, so their needs are constantly changing, some organisations have already taken advantage of this and made specific products for the elderly (clothes, hearing aids) and some have specialised products for babies (nappies, dummies).
Gender is a major segmentation, males and females need different hygienic products, clothes, stationery, magazines, make-up and endless other items. This is a major segment and should be used by businesses, providing a niche for gender wound maximise revenue. Income is also an important segment, higher levels of income will shop at higher fashioned and more expensive shops for clothes (eg Gucci, Versace, Louis Vuitton) whereas lower income level consumer will purchase at shops like Glue specialty stores and large department stores. Case Studies on Market Segmentation
Defining the selection of consumers to their desired products or service is of utmost importance to market strategy. It is a practice that has increasingly developed as the global economy evolves into a global market. As illustrated in previous sections of this study, market segmentation plays a pivotal role in a businesses’ ability to engage and retain its customer or client base as it provides the basic ground work to all future marketing campaigns and product or service development. In this section of research on market segmentation, two case studies are analysed to illustrate the need for this marketing strategy.
Note that even though the needs of the company differ, and their approaches in market segmentation vary, the outcome or goal for undertaking this task is the same: to target customers at the international segment level and acquire relevant positioning globally. Geographical segmentation or groups of individuals exhibiting interest in the companies’ marketing efforts have been an ever increasing and fundamental issue and the breakdown of the following case studies exemplify the importance market segmentation. Case Study 1: Nissan Motor Company (Chan, 2007)
Nissan Motor Company is an automotive company based in Japan with manufacturing plants in twenty countries around the world and offers products and services in more than one hundred and sixty countries worldwide. It is one of the leaders of innovation in automotive technology and caters for a wide variety of target markets (Nissan 2011). Nissan caters for both the consumer and business markets. For consumers, they offer a wide range of vehicles that cater for different target markets – going from entry level Nissan Micras to family suburban vehicles (SUVs) to luxury performance vehicles as represented in their Infinity range.
Nissan also caters for the commercial or business markets with its line up of forklifts and marine vehicles (marinas normally sold at corporate level). Due to the range of customers that Nissan provide for, every vehicle is looked at separately upon embarking on a marketing campaign. Earlier on, Nissan has identified the importance of market segmentation as a popular method to connect with the appropriate customers for a successful product launch.
Wanting to break out of a decade long period of sales declines and weak product line up, 2002 saw Nissan introduce a revamped product line up that would claim both momentum in the marketplace and products that were highly desirable and praised. Before launching this new marketing campaign, Nissan was always on par with Toyota as being a reliable, quality automotive brand, but never had the same market share. Instead, Nissan identified in its market research that its most successful products came from its performance line-up which lead to the conclusion that the new marketing campaign will concentrate more on Psychographic Segmentation.
This involves creating marketing campaigns that appeal to consumers’ psychological traits and key demographics that influence consumer behaviour (Strategic Business Insights, 2012). The main focus of this campaign was the consumer’s lifestyle. Nissan began to look at its brand and focused on two words that would be used in its campaign all over the world: bold and thoughtful (Stinsmuehlen 2009). This lead to the tagline ‘SHIFT’ which marked Nissan’s presence in its ad campaigns. It came to be summarised as, “A shift can change a person, a life, the world… r it can simply change the world through it. ” (Nissan 2011). By going back to the grass roots of Nissan’s marketing campaign, this tagline was used for all products in Nissan’s consumer line-up. Vehicles such as the Nissan 350Z – a performance vehicle geared towards consumers of ‘achievement’ and ‘self-expression’ according to the VALS™ Framework – was advertised as ‘exhilarating’ whilst the Nissan Leaf, a hybrid electric vehicle for the environmental conscious was represented as ‘innovative’.
Regardless which of their consumer line up of products is being sold, it all comes down to the marketing campaign being relevant because the link between customers and campaign activities was established during market segmentation. Nissan’s marketing campaign prevails to this day. Case Study 2: Wireless Telecommunication Industry (Hwang, Jung & Suh, 2003) The progression of the information age has seen a spike of the demand of wireless telecommunications devices.
According to a study conducted by Cellular Telecommunications and Internet Associations, the wireless telecommunications industry made a total of $152. 6 billion USD in calling revenues alone (Cellular Telecommunications & Internet Association 2011) – $87 million USD more than the previous year. In order to increase annual revenue, telecommunications providers have identified that it needs to gear products and services towards wireless communications which they believe will eventually become a staple for day to day communications amongst the business and consumer markets.
Due to the vast number of customers belonging to different marketing segments, positioning has been determined by a metric tool known as the Customer Lifetime Value (CLV). CLV is a prediction of the net profit attributed to the future relationships of customers (Hwang, Jung & Suh, 2003). Customer segmentation is classified into three categories: current value, potential value and customer loyalty. An advantage of this technique is that it focuses on customer relationships which enables companies to target their customers’ specific needs. This is a method that can be applied both to the business and consumer markets. CONCLUSION
To succeed in competitive market industry, an organization needs to understand the concept of market segmentation that every customer is different and business should address each of their preference or differentiation through qualifying and determining dimension that identifying who is the target market that are extremely important in both consumer market and business market because business have to communicate the business messages to the public to let them know about business product and service, motivates future customer’s purchasing forces and provides a lot higher opportunity to increase the volume of sales and gain market share.
However, it depends on how well the segment in marketing mix being welcomed by the marketplace and potential customers deciding to purchase due to weakness of market segmentation including Managerial failure that lead to lack of communication between managers’ and staffs and operational failure that has the incorrect marketing procedures and technical execution of the segmentation.