Market segmentation
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Market segmentation

Preface

Segmentation is important as buyers have unique needs and wants. In segmenting a market, marketers look for broad classes of buyers who differ in their needs. There is no one right way of segmenting markets. A marketer has several bases available to him/her for the segmentation of markets.

It is the division of a heterogeneous market consisting of buyers with different needs and wants, into homogeneous segments of buyers with similar needs and wants. Therefore, the segments are heterogeneous between (ie. all the segments are different, eg. one segment all males, one segment all females) themselves, but homogeneous within (eg. within the male segment, all buyers are male; within the female segment, all buyers are female).

Market segmentation is the division of a market into distinct groups of buyers who might require different products or marketing mixes (Kotler et al, 1994).

The aim of our paper is to describe what exactly segmentation is, what are segments in the market and how to segment market.

The goals of our paper are:

1. Present concept of segmentation.

2. To find out what segments are in the market;

3. To ascertain how to segment a market;

The method of our paper is literature analysis.

1. The importance of market segmentation

Market segmentation means the analysis of a particular market demand on the basis of its constituent parts, so that sets of buyers can be differentiated. It is an important input to marketing planning because it can be used to formulate company „product-market“ objectives, by which the enterprise may:

define its markets;

position ranges of brands and product varieties;

identify gaps which offer significant opportunities for expansion or new product positioning;

Rationalize policies for existing brands, products and mixes.

Market segmentation plays a dual role, namely as a marketing tool, and as a basic input to business planning. Its role in business planning is dealt with in a later chapter.

There are three main reasons for the importance of market segmentation. These are:

market fragmentation, caused by demographic and lifestyle changes, new product and process developments and intense market competition/Some markets, which once had a homogeneous character, have tended to splinter into a variety of consumer groups, each with different tastes and preferences;

The development of retailer power, in which the relative advantage obtained from bulk buying, the use of retailers’ „own brands“, and policy limitations on the range of items stocked have all combined to put the manufacturer or supplier at a disadvantage. At the same time concentration has occurred amongst retail companies, leaving a small number of very large companies as well as a large number of smaller retailers.

The volume trap, in which markets for commodity type products (like plant-baked bread) may become dominated by suppliers capable of volume production and distribution to retail multiple chains bulk-buying on a centralized basis.

In each case, market segmentation offers an answer to the marketer. For instance, non-standard or value-added lines are now frequently targeted on customer segments which seek to avoid the purchase of standardized products, whether these are foodstuffs, clothes, computers or industrial machinery. Alternatively, production arrangements may be designed to be flexible enough to supply target markets in a large number of relatively small and specialized niches, such as in the market for industrial or aviation control systems.

Technological developments in product design, manufacturing, distribution and retailing have also been essential to meeting these market developments. Technological developments have permitted product differentiation, and made possible more flexible production and supply arrangements. Such changes are needed if the demands of an increasing number of market segments are to be met, especially if they are relatively small in volume and value.2. Marketing complex

Marketing departments use segmentation so they can target their products more accurately. It affects each of the 4Ps in their marketing mix:

Product

Price

Promotion

Place

If the product is effectively segmented a company will be able to promote the right product, at the right price and use the right distribution to reach the place where the consumers are.

Now look at the way the 4Ps are used in market segmentation.

Product

Firms have a range of products that will be targeted at different groups or segments. For example, a car manufacturer will often have a range that includes a family model, an executive model and a sports model. Lifestyle segmentation will be used to develop their product line and to target their products.

Price

Price and quality are obviously linked but not everyone can afford to buy the most expensive goods. There is a large range of televisions on the market, for example, each with slightly different features. Within this range of products, there will also be a range of prices to cater for varying disposable incomes.

Promotion

Studying how a product is advertised can reveal its target market. A mobile phone company recently used advertising campaigns that varied for men and women. The male phone was pictured in black and white, and all its features and business applications described. The female phone was in bright colors, and was pictured as a matching accessory to go
with a woman’s lipstick and handbag. You may not agree with this stereotyping, but it is a good example of gender segmentation.

Place

A firm needs to know where its target market is. A producer of kosher food needs to identify areas where Jewish people live. The firm would have to consider how best to get its product to these areas. This is an example of cultural segmentation.

3. Segmentation definitions

Market segmentation means THE ANALYSIS OF A PARTICULAR TOTAL DEMAND IN TERMS OF ITS CONSTITUENT PARTS, SO THAT SETS OF BUYERS CAN BE DETERMINED. These sets of buyers should possess anguishing characteristics, so that:

* they may be used as marketing targets against which products are positioned to meet segment customer need;

* A marketing mix appropriate to a particular segment may be selected.

Segmentation starts with the notion that a „global“ analysis total market demand needs to be broken down into its component parts. These are likely to be more effective for marketing and operational planning purposes. The mass producer (who may be production, quality or sales orientated) may attempt to supply all, or a substantial part of this total demand and in so doing may consider that he can obtain a price, volume or distribution advantage relative to smaller scale producers. However, this mass producer is then forced to market a product range that is limited to a demand pattern of hypothetical „average consumers“. At the same time he will miss out on segments of the market which in mass production or distribution terms are not thought economic to supply. This strategy has two basic flaws:

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