Marketing Pillars – Segmentation

1 January 2017

 While there may be theoretically ‘ideal’ market segments, in reality every organization engaged in a market will develop different ways of imagining market segments, and create product differentiation strategies to exploit these segments. The market segmentation and corresponding product differentiation strategy can give a firm a temporary commercial advantage. Criteria for Segmenting An ideal market segment meets all of the following criteria: * It is possible to measure. It has to be large enough to earn profit. * It has to be stable enough that it does not vanish after some time. * It is possible to reach potential customer via organization’s promotion and distribution channel. * It is internally homogeneous (potential customers in the same segment prefer the same product qualities). * It is externally heterogeneous, that is, potential customers from different segments have different quality preferences. * It responds similarly to a market stimulus. * It can be reached by market intervention in a cost-effective manner.

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Useful in deciding on marketing mix Market segmentation is a marketing strategy that involves dividing a broad target market into subsets of consumers who have common needs and applications for the relevant goods and services. Depending on the specific characteristics of the product, these subsets may be divided by criteria such as age and gender, or other distinctions, like location or income. Marketing campaigns can then be designed and implemented to target these specific customer segments.

Basis for segmenting consumer markets Geographic segmentation The market is segmented according to geographic criteria—nations, states, regions, countries, cities, neighborhoods, or zip codes. Geo-cluster approach combines demographic data with geographic data to create a more accurate profile of specific. With respect to region, in rainy regions you can sell things like raincoats, umbrellas and gumboots. In hot regions you can sell summer wear. In cold regions you can sell warm clothes. Demographic Segmentation

Demographic segmentation consists of dividing the market into groups based on variables such as age, gender, family size, income, occupation, education, religion, race and nationality. As one might expect, demographic segmentation variables are amongst the most popular bases for segmenting customer groups. This is partly because customer wants are closely linked to variables such as income and age. Also, for practical reasons, there is often much more data available to help with the demographic segmentation process. Psychographic Segmentation

Psychographics is the science of using psychology and demographics to better understand consumers. Psychographic segmentation: consumers are divided according to their lifestyle, personality, values. Aliens within the same demographic group can exhibit very different psychographic profiles. “Positive” market segmentation Market segmenting is dividing the market into groups of individual markets with similar wants or needs that a company divides into distinct groups which have distinct needs, wants, behavior or which might want different products & services.

Broadly, markets can be divided according to a number of general criteria, such as by industry or public versus private. Although industrial market segmentation is quite different from consumer market segmentation, both have similar objectives. All of these methods of segmentation are merely proxies for true segments, which don’t always fit into convenient demographic boundaries. Consumer-based market segmentation can be performed on a product specific basis, to provide a close match between specific products and individuals. However, a number of generic market segment systems also exist, e. . the system provides a broad segmentation of the population of the United States based on the statistical analysis of household and geo-demographic data. The process of segmentation is distinct from positioning (designing an appropriate marketing mix for each segment). The overall intent is to identify groups of similar customers and potential customers; to prioritize the groups to address; to understand their behavior; and to respond with appropriate marketing strategies that satisfy the different preferences of each chosen segment. Revenues are thus improved.

Improved segmentation can lead to significantly improved marketing effectiveness. Distinct segments can have different industry structures and thus have higher or lower attractiveness Once a market segment has been identified (via segmentation), and targeted (in which the viability of servicing the market intended), the segment is then subject to positioning. Positioning involves ascertaining how a product or a company is perceived in the minds of consumers. This part of the segmentation process consists of drawing up a perceptual map, which highlights rival goods within one’s industry according to perceived quality and price.

After the perceptual map has been devised, a firm would consider the marketing communications mix best suited to the product in question. Behavioral Segmentation In behavioral segmentation, consumers are divided into groups according to their knowledge of, attitude towards, use of or response to a product. It is actually based on the behavior of the consumer. Occasions Segmentation according to occasions. We segment the market according to the occasions of use. For example, whether the product will be used alone or in a group, or whether it is being purchased as a present or for personal use.

Benefits Segmentations according to benefits sought by the consumer. Using Segmentation in Customer Retention The basic approach to retention-based segmentation is that a company tags each of its active customers with 3 values: Tag #1: Is this customer at high risk of canceling the company’s service? One of the most common indicators of high-risk customers is a drop off in usage of the company’s service. For example, in the credit card industry this could be signaled through a customer’s decline in spending on his or her card. Tag #2: Is this customer worth retaining?

This determination boils down to whether the post-retention profit generated from the customer is predicted to be greater than the cost incurred to retain the customer. Managing Customers as Investments. Tag #3: What retention tactics should be used to retain this customer? For customers who are deemed “save-worthy”, it’s essential for the company to know which save tactics are most likely to be successful. Tactics commonly used range from providing “special” customer discounts to sending customers communications that reinforce the value proposition of the given service.

Process for tagging customers Niche Marketing A niche is a more narrowly defined customer group who seek a distinct set of benefits. Identified by dividing a segment into sub-segments, distinct and unique set of needs, requires specialization, and is not likely to attract too many competitors. Local Marketing Marketing programs tailored to the needs of local customer groups. Price discrimination Where a monopoly exists, the price of a product is likely to be higher than in a competitive market and the quantity sold less, generating monopoly profits for the seller.

These profits can be increased further if the market can be segmented with different prices charged to different segments charging higher prices to those segments willing and able to pay more and charging less to those whose demand is price elastic. The price discriminator might need to create rate fences that will prevent members of a higher price segment from purchasing at the prices available to members of a lower price segment. This behavior is rational on the part of the monopolist, but is often seen by competition authorities as an abuse of a monopoly position, whether or not the monopoly itself is sanctioned.

Areas in which this price discrimination is seen range from transportation to pharmaceuticals. Targeting: Targeting is the second stage of the STPD process. After the market has been separated into its segments, the marketer will select a segment or series of segments and ‘target’ it/them. Resources and effort will be targeted at the segment. Target Marketing helps the marketers to divide the market into small units comprising of like minded people. Such segmentation helps the marketers to design specific strategies and techniques to promote a product amongst its target market.

A target market refers to a group of individuals who are inclined towards similar products and respond to similar marketing techniques and promotional schemes. For Instance, Kellogg’s K Special mainly targets individuals who want to cut down on their calorie intake. The target market in such a case would be individuals who are obese. The strategies designed to promote K Special would not be the same in case of any other brand say Complan or Boost which majorly cater to teenagers and kids to help them in their overall development. The target market for Kellogg’s K Special would absolutely be different from Boost or Complan.

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