Market segmentation is the method for achieving maximum market response from initial marketing resources by recognizing differences in the response characteristics of various parts of the market. In this sense market segmentation is the strategy of divide and conquer, i.e., dividing market in order to conquer them.
Market segmentation enables the ma rketers to give better attention to the selection of customers and offer an appropriate marketing mix for each chosen segment or a group of buyers having homogenous demand. Each subdivision or segment can be selected as a market target to be reached with a distinct marketing mix.
Learn about:- 1. Meaning of Market Segmentation 2. Definitions of Market Segmentation 3. Characteristics 4. Importance 5. Bases 6. Examples 7. Levels 8. Strategies 9. Process
10. Evaluating and Selecting Market Segmentation 11. Different Patterns 12. Criteria for Effective Segmentation 13. Benefits.
Market Segmentation: Meaning, Definition, Bases, Importance, Examples, Levels, Strategies, Criteria and Benefits
Market Segmentation – Meaning
Market segmentation is the method for achieving maximum market response from initial marketing resources by recognizing differences in the response characteristics of various parts of the market. In this sense market segmentation is the strategy of divide and conquer, i.e., dividing market in order to conquer them.
Market segmentation enables the marketers to give better attention to the selection of customers and offer an appropriate marketing mix for each chosen segment or a group of buyers having homogenous demand. Each subdivision or segment can be selected as a market target to be reached with a distinct marketing mix.
Market segmentation is defined as the segmentation or division of markets into various homogenous coups of customers, each of them reacting differently to promotion, communication, pricing and other variables of the marketing mix. Market segments should be formed in such a 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. Market segmentation and the identification of target markets are an important element of each marketing strategy. 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 behaviours. Since it is virtually impossible to cater for every customer’s individual characteristics, the marketing people group customers into various market segments by variables they have in common. These common characteristics allow developing a standardised marketing mix for all customers in this segment. They are the basis for determining any particular marketing mix.
Very often, companies shape their market segmentation using the results of market research and analysis. Market segmentation research is not designed to shape the market. Rather, it reveals underlying divisions in the market and characteristics of the market segments that can be used for effective and profitable marketing.
At the very least, segmentation research places the steps companies take on a firm factual foundation. Often, it also uncovers characteristics of the market that are not obvious and identifies ways of dividing and approaching the market that will be particularly effective. If these ways are not evident to competitors, the marketing impact of segmentation research can be even more beneficial.
At a more tactical level, market segmentation can make the choices a company faces in developing products, services, and marketing messages easier. Often, market segmentation shows that many conceivable combinations of interest in product features, combinations of service needs, or combinations of attitudes are actually very rare in the marketplace.
Segmentation refers to a process of bifurcating or dividing a large unit into various small units which have more or less similar or related characteristics. The concept of market segment is based on the fact that the market of commodities are not homogeneous but they are heterogeneous. Market represents a group of customer having common characteristics but two customer are never similar in their nature, habits, hobbies, income and purchasing techniques.
Market segmentation is a marketing strategy that involves dividing a broad target market into subsets of consumers who have common needs, and then designing and implementing strategies to target their needs and desires using media channels and other touch-points that best allow to reach them.
Market segments allow companies to create product differentiation strategies to target them.
So it can be concluded here that companies cannot connect with all customers in large, broad, complex or diverse markets. But division of such markets is possible into groups of consumers or segments with distinct needs and wants. After that organization can select any segment in which it can perform well and which is best suited for the overall interest of the organization.
This decision requires a keen understanding of the customer behavior. To develop the best marketing mix, marketer need to understand what makes each segment unique and different. Identification and satisfaction of the right market segment is often the key to marketing success.
Market Segmentation – Definitions
In order to be a true market segment, the people or organizations in each segment must respond differently to variations in the marketing mix compared with those in other segments. This implies that for any classification, scheme to qualify as market segmentation, the segments must exhibit these behavioral response differences.
Paul Green and Donald Tull set four basic criteria for market segmentation:
1) The segments must exist in the environment (and not be a figment of the researcher’s imagination)
2) The segments must be identifiable (repeatedly and consistently)
3) The segments must be reasonable stable over time, and
4) One must be able to efficiently reach segments (through specifically targeted distribution and communication initiatives).
According to Schiffman and Kanuk, “Market Segmentation can be defined as the process of dividing a market into distinct subsets of consumers with common needs or characteristics and selecting one or more segments to target with a distinct marketing mix”.
Rajan Saxena defines, “Segmentation as the process of dividing heterogeneous market into homogeneors sub units.”
As per SJ.Skinner, “Market segmentation is the process of dividing a total market into groups of consumers who have relatively similar product needs.”
Thus, on the basis of the above definitions, it can be concluded that segmentation is to divide a market composed of consumers with diverse characteristics and behaviors into homogeneous segments that contain persons who will all respond similarly to a firm’s marketing effort.
The concept of market segment is based on the fact that the markets of commodities are not homogenous but they are heterogeneous. Market represents a group of customers having common characteristics but two customers are never common in their nature, habits, hobbies, income and purchasing techniques. They differ in their behavior and buying decisions. On the basis of these characteristics, customers having similar qualities are grouped in segments.
According to Philip Kotler, “Market segmentation is sub-dividing a market into distinct and homogeneous subgroups of customers, where any group can conceivably be selected as a target market to be met with distinct marketing mix”.
According to William J. Stanton, “Market segmentation consists of taking the total heterogeneous market for a product and dividing it into several sub-market or segments, each of which tends to be homogeneous in full significant aspects”.
According to R. S. Davar, “Grouping of buyers or segmenting the market is described as market Segmentation.”
The main aim of market segmentation is to prepare separate programmes or strategies to all segments so that maximum satisfaction to consumers of different segments may be provided. In the words of Philip Kotler, “the purpose of market segmentation is to determine difference among them or marketing to them.”
Market Segmentation – Top 5 Characteristics
Another aspect is the criteria for effective targeting of market segments. The marketers will have to select one or more segments to target with an appropriate marketing mix.
For a segment to be viable, it must have the following characteristics:
Characteristic # I. Identification:
To facilitate division of the market in various segments based on certain common characteristics relevant to a particular product or service, the marketers must be in a position to identify these characteristics. It is easy to identify certain segmentation variables because they are easily visible or observable.
These are demographics such as age, sex, marital status, education and occupation. This information about demographic variables can be obtained either through observation or through research (by using questionnaires). Similarly, geographic segmentation (region, city size, density of area and climate) can easily be identified as they are observable or through mapping. But there are certain characteristics which are not easily identifiable.
These could be a part of the psychographics, like benefits sought or lifestyle. And it is such intangible consumer behaviour characteristics which will help the marketers, to use it as a base for market segmentation.
Characteristic # II. Measurability:
Another important characteristic ascertains the degree of measurability of the size and purchasing power of the segments. The marketer must be able to determine the size of the market that is to find out how many people are there in the segment and where they are located.
The marketer must be able to measure the sales potential of the particular segment and also be able to determine the extent of influence of the marketing mix elements on the particular segment. For instance, a restaurant may want to improve upon the F & B services offered by it.
The size of the customers will include regular customers as well as occasional customers, the latter may eat and drink (especially the youngsters) to rebel against their parents. A knowledge of such consumer behaviours, though difficult to measure will be useful to the marketer.
Characteristic # III. Accessibility:
The extent to which the market segments can be reached and served is another area of concern. The consumers must be accessible or available to the marketers. For instance, a company which sells ‘skin care products’, may find that heavy users of its brand are teenagers and young women, who are frequent visitors at fast-food centres and beauty parlours.
But unless the firm is able to get more information on places or store preferences and exposure to various media’s it will be difficult to reach this consumer segment. Because once the firm has found a medium that reaches their consumers, it can communicate with it’s target segment effectively. Marketers try to reach their consumers through “differentiated marketing for differentiated consumer profiles “.
Characteristic # IV. Substantiality:
Another matter of concern for the marketer is the extent to which the segments are large enough and worthy of investment. For a market segment to be worthwhile, it must have a large number of people with specific needs and interests. The size of the large segment must be big enough to be economically viable. The size of the market is not the only indicator of the economic worthiness of the segment.
It is also necessary to undertake consumer research methodology to determine whether the consumers are dissatisfied or only partly satisfied with the existing products and whether they are willing to pay for the firm’s product. The target segment should be a large homogeneous group worth focusing with a tailored marketing programme.
For instance, a company may observe that ‘retired persons’ prefer to have a rocking chair. But going by the problem faced of space availability in houses, the size of the market is shrinking in nature. In this case the particular segment will not be substantial to make it a market.
Characteristic # V. Stability:
Marketers would like to target consumers whose behaviours can be predicted. The marketers want to be sure of the stability of the consumers in terms of their demographic and psychological characteristics and wants and needs which are likely to grow faster over a period of time. Marketers would like to avoid ‘fads’ which may disappear one day because it is unpredictable in terms of durability.
A few years ago the travel industry noticed that when the ‘airfares’ were reduced (especially with the entry of the low cost airlines) many middle class customers were exposed to a taste of international travel for leisure.
Today, when economic recession could have a negative impact on the travel plans of most persons, the industry is attempting at segmenting the market by offering special product service offerings to niche market segments. This is aimed at out bound tourists who are moving beyond the popular all family group tours.
Travel companies are now offering segmented (customised) holiday offerings for men and women separately. For instance, Kesari Travels (Mumbai) has ‘My Fair Lady’ offering trips for the woman who would like to let her hair down in the company of other women. They have built up a community around its ‘My Fair Lady’ travellers.
The woman customers are offered a Club Card, with discounts from Card associate companies such as Tanishq, VLCC. They also keep the link alive through get-together organised periodically. The offerings include trips to a variety of domestic and international destinations.
Market Segmentation – Importance
Some of the importance of market segmentation are described below:
1. Co-Ordination of Product and Marketing Appeals – As market segmentation presents an opportunity to understand the nature of the market, the seller can adjust his thrust to attract the maximum number of customers by various publicity media and appeals.
2. Better Position to Spot Marketing Opportunities – As the producer can make a fair estimate of the volume of his sale and the possibilities of furthering his sales in the regions where response of the customers is poor.
3. Allocation of Marketing Budget – It is on the basis of market segmentation that marketing budget is adjusted for a particular region or locality. Specific budget can be allocated according to different market segments.
4. Meeting the Competition Effectively – It helps the producer to face the competition of his rivals effectively. The producer can adopt different strategies for different markets taking into account the rival’s strategies.
5. Effective Marketing Programme – It helps the producer to adopt an effective marketing programme and serve the consumer better at comparatively lower cost. Diverse marketing programmes can be attached for various segments.
6. Evaluation of Marketing Activities – Market segmentation helps the manufacturer to find out and compare the marketing potentialities of the products. It helps to adjust production and using his resources in the most profitable manner. As soon as the product becomes obsolete, the product line could be diversified or discontinued.
Spotting of opportunities in right time is found essential to influence the target market. It is quite natural that the needs and requirements of different users living in different segments, regions are not identical. The marketers bear the responsibility of identifying the difference in preferences so that the strategic decisions are formulated in line with the same. This helps in sensitising the marketing resources. The marketing inputs are found instrumental in developing the required marketing outputs.
We appreciate the crop insurance and cattle insurance facilities for furthering the interests of the agricultural sector, we feel that the insurance organisations come to know the changing needs and requirements of the rural sector and innovate their services/schemes accordingly.
In addition to the mobilisation of savings, we also need to promote investments. This requires an overriding priority to the industrial sector or the corporate sector. The insurance organisations also need to identify profitable opportunities in the services sector.
Knowing and understanding the market is considered significant to the insurance professionals since the process helps them in scanning the changing needs and requirements. The formulation of an optimal marketing strategy is not possible unless we know a segment. The needs and requirements of industrial sector would be different to the needs and requirements of the agricultural sector.
Like this, the needs and requirements of rural sector would be different to the needs and requirements of urban sector. A study of segmentation would help insurance professionals in formulating a sound marketing strategy. The product mix would be competitive and all the prospects would have additional attractions in using the services.
The product portfolio would be sound which would make the marketing processes productive not only for the present but even for the future. The formulation of a sound package would act as a motivational tool. It is in this context that we find segmentation important to the formulation of product mix of the insurance organisations.
The segmentation would help insurance professionals in making the promotional measures creative which would be very much instrumental in sensitising the prospects. The advertisement professionals would make advertisement appeals, messages and campaigns proactive to the receiving capacity of the target audience. The sales promotion measures can also be innovated to get a positive response.
The personal selling may be effective since the sales personnel/agents are supposed to be aware of the needs and requirements of customers/users. Thus, the segmentation would help marketers in many ways. The pricing/fee decisions can also be rationalised and the weaker sections of the society would get substantial benefits. The main thing in segmentation is perceiving the expectations of users/prospects in a right fashion. If we succeed in understanding the users, we also succeed in making the marketing decisions proactive.
These facts are a mute testimony to this proposition that market segmentation would prove its instrumentality in knowing and understanding the changing level of expectations which would simplify the task of insurance professionals. They can also have an idea of identifying the emerging profitable segment of the future. In the Indian perspective, we find rural market to be a profitable market for both the bank and insurance organisations in the 21st century.
If the insurance professionals assign due weightage to the rural segment, they can make their services/schemes rural-oriented and such orientation would make the ways for positive developments. It is against this background that we find market segmentation an essential component of managing the marketing activities and the insurance organisations are supposed to intensify research for exploring new markets found more productive but generating less complications. We can’t negate that the foreign insurance companies assign due weightage to market segmentation and it is due to the fact that they have an in-depth idea of the emerging profitable markets.
The purpose of insurance business is to cover the maximum possible potential policyholders. In addition, it is also pertinent that liquidity, safety and profitability are given due weightage. Mobilisation of savings and channelisation of investments, if done in a right way would make the insurance business productive.
A market is composed of different users and the corporate objectives focus on covering all the segments so that a sound product portfolio is designed in which the services/schemes of present and future are blended optimally. The market segmentation would make possible formulation of a sound market planning which would make the strategic decisions sensitive.
A closer view of smaller market aggregate would permit the planner to spot opportunities. The development of most profitable or attractive package of insurance services/schemes would also be possible with the help of segmentation. To maximise the rate of profitability, the marketers need to identify the profitable segments.
Since we also expect privatisation of insurance services or deregulating the business conditions, it is high time that the public sector insurance organisations in particular know about the emerging profitable segments.
It is right to say that segmentation needs a priority attention of insurance professionals. How to reach and influence the target market is found meaningful to accomplish the corporate objectives. The segmentation would help marketers in transforming the prospects into users.
Market Segmentation – 3 Bases for Market Segmentation
The step towards developing a segmentation strategy is to allocate base for segmenting the market. These are different variables used for this purpose.
The bases for market segmentation can be broadly classified into following groups:
1. Customer based segmentation
2. Product related segmentation
3. Competition related segmentation.
1. Customer Based Segmentation:
Customer based segmentation further classifies as follows:
a. Geographic Location of Customers:
The starting point of all market segmentation is the geographic location of customers. It helps the firm in planning the marketing offer. The common method is to classify according to rural and urban, metro or non-metro markets. There are also other classifications like district and block markets. We all know that here was the perception that the rural markets are different from urban markets and naturally the product promotion, pricing and distribution were accordingly designed to meet those markets.
But now with the development of technology and the advent of various modes of communication like TV, the customers in the rural areas are much exposed and are more aware of the availability market. Today the rural customer buys the same branded product which is purchased by urban customer.
b. Demographic Characteristics:
Factors like age, sex, income, occupation, family size, education; marital status is used singly or in combination to segment the market.
Age is one of the most important factors for segmenting the market. The market the producer should know for what age group his product could be most suited so that he can plan his pricing policy, advertisement policy, marketing policy and strategy accordingly.
For example, Cloth market or Garment market may be segmented on this basis of age as –
Children b/w the age group of 3-12yrs
Children b/w the age group of 13-15yrs
Teenagers’ b/w the age group of 16-20yrs
Adults’ b/w the age group of 21-30yrs and so on
The manufacturer should also bear in mind while preparing his marketing policy, the income of the prospective buyers of his product. Consumer’s needs, behaviour, persuasion etc. differ in different income groups. For example, people in high-income group prefer quality of goods, design, fashion-oriented products, etc. hence they can be motivated on these factors. People in low-income group attract towards low price.
Marketers may also be divided on the basis of sex i.e., male and female. Some products are exclusively produced for women while some others are for men. For example, Lip Stick is meant for a woman and on the other hand Shaving cream is only meant for men.
Occupation is also another variable in segmenting the market. An individual’s employment does definitely affect the consumption; different categories of segments can be identified like doctors, consultants, entrepreneurs, lecturers etc.
Education of the consumer also affects the preference and taste. The choice of literate person would obviously differ from that of an illiterate, as a literate he would be having a lot of exposure to the outside worlds where as an illiterate although exist the same environment would lack the ability to understand, when we look at all these aspects it is easy to indicate that education plays an important role in the life of an individual as it creates awareness about the environment, the availability of different products in the market and awareness about their rights.
Accordingly based on education, the Indian Market can be segmented as illiterates, literates-high school, college and university educated
vi. Marital Status:
Marital status is another demographics variable used. The behavioral of single and married people differs. Married people are more conservative than unmarried people.
vii. Family Size and Structure:
Markets may also be segmented on the basis of size of family Refrigerators and cookers are produced in different sizes to suit the needs of families of different sizes.
c. Psychographics Variables:
No two consumers act in the same manner though they two may be of the same age, from the same profession, same education and have same income. Each of the customers may have different attitudes because of personality and life-style differences. Markets are using psychographics variables to segment their market.
For example, Citibank, Diners card, Titan Watch, Savvy has used Psychographics variables to segment its market and distance itself from all others, including Femina. Savvy Women is identified as the highly liberated independent strong women, who have a definite plan in the society and to whom career would be extremely important.
d. Buyer Readiness:
Buyers are at different stages of readiness. People may be unaware, people who are aware but are not interested, people who are interested and desires to buy and those who will buy the product. The relative proportion of buyers at different stages will affect the marketer’s tasks.
2. Product Related Segmentation:
Different customers use the same product in different situations for example; Rasna – for parties, unexpected guests, and a drink for quenching thirst etc. A market makes the product versatile so that it can be used in different situation. A consumer may buy different brands of the same product for different situations for e.g., saree for kitty party, work place.
Thus depending upon the situation, a product or a brand may be selected by the customers. Knowing these situations marketer can plan the positioning strategy. Another product related variable is the benefit segmentation. The marketer identifies benefits that the customer looks for when buying a product.
3. Competition Based Segmentation:
The success in marketing depends on the number of loyal customers. Customer loyalty therefore is an important factor to determine the competitive position of the firm.
On the basis of brand loyalty further the market could be classified as:
i. Hard core loyal – These are the customers who buy the same brand, for examples Newspaper readers, tea drinkers etc.
ii. Soft-core loyal – Customers who are loyal to two or three brands in a product group, for e.g., Housewife buying toilet soap (Lux, Cinthol, Pears). The marketers have to watch such customers and shift them to the core loyal.
iii. Switchers – Customers who never stick to a brand. This is a slipping market segment for the marketer. The marketer has to find out why customers keep switching from brand to brand and from the existing to the competing brand. This can help the firm to strengthen its competitive position in the market. The marketer should also take into amount factors like price, non-availability of brands, indifferent habit etc.
Market Segmentation – Examples
Segmentation in the ice cream market can be done in a number of ways. While developing strategies for its portfolio of products, an ice cream company such as Brooke Bond, Lipton India Ltd. can adopt one or more suitable segmentation processes to be followed up with effective targeting and positioning.
The market can be assumed to take the shape of a pyramid with the various segments occupying the different layers. Base up, the pyramid (denoting the market) can be seen to be segmented into Base, Medium, Premium and Super Premium categories. The surface area of the layer is supposed to be an indication of the strength of that segment (in terms of number of households). Kwality Wall’s array of choices can be categorised according to the income segments they wish to address.
As an Example:
Base – Mini milk, Ice Candies, etc.
Medium – Chocobar, etc.
Premium – Feast, Cornetto, etc.
Super-premium – Nothing in this segment as yet
Considering that consumers belonging to different age groups have different preferences (children—basic flavours; young adults—cones, etc.; adults—ethnic flavours), it is essential to segment the market in terms of age as well.
The existing portfolio of BBLIL’s ice cream division can be geared to meet the preferences of different target segments in this manner:
Adults – Dairy Classic range, Pot Kulfi, etc.
Young adults – Cornetto, Split, etc.
Teenagers – Chocobar, Top 10, Feast, Cassatta, etc.
Children – Mini milk, Solo, Hattrik, Paddle Pop, etc.
Considering that ice creams are consumed for myriad reasons, it would be vital to segment the ice cream market by occasion of consumption, and categorise the product offerings on the same lines as well.
Refreshment – Water ices, Sparkle, etc.
Snacks – Chocobar, Feast, Cornetto, etc.
Dessert – Dairy Classic range, Cassatta, etc.
The various outlets for end consumption of ice creams in India are Parlours, Hotels, Restaurants and Retailers. Further, retailers could either induce on-the-premises-consumption or take-home-consumption. For all these different end consumption points, the company can tailor its product portfolio.
Parlours – Dairy Classic range, parlour offerings such as Sundaes, etc.
Hotels and restaurants – Dairy Classic range, etc.
Take-home – Pot Kulfi, Dairy Classic range, etc.
On-the-premises consumption (retailers, push-carts) – Entire range.
The market for air-conditioners can be segmented on the nature of customers in India.
(i) Individual Consumers:
This segment consists of consumers in homes, small offices, etc. In sales, the room A/C segment was about Rs. 9,365 million in 1995-96. The industry growth rate for 1998-99 was 30 per cent for this segment.
(ii) Industrial Consumers:
This segment consists of consumers from Industrial/Corporate sector. In sales value terms, the central A/C segment is about Rs. 3,600 million. The central A/C segment increased by 20 per cent during 1998-99.
This market can be divided into two categories:
(a) Window A/C segment – It covers 86 per cent of industrial consumers.
(b) Splits segment – It covers 14 per cent of industrial consumers.
The paint market is broadly classified as industrial and decorative paints.
(i) Industrial Paints:
There are five types of industrial paints on the basis of end user profile:
a. Powder coatings
b. High performance coatings
c. Automotive paints
d. Marine paints
e. Other general industrial finishes.
(ii) Decorative Paints:
This market can be further classified on the basis of the following:
a. Customer types – Institutional/Retail or domestic use
b. Product features/Categories – Distempers, enamels, emulsions, etc.
Market Segmentation – 4 Possible Levels of Market Segmentation
Market Segmentation can be carried at many different levels. Companies can practice No Segmentation (Mass Marketing), something in between (Segment Marketing or Niche Marketing) or Complete Segmentation (Personalize Marketing).
Each of these possible levels of segmentation is as follows:
1. Mass Marketing:
Companies have not always practiced target marketing rather followed mass marketing characterized by mass-producing, mass distributing, and mass promoting the same product in about the same way to all consumers.
The traditional argument of mass marketing is that it creates the largest potential market, which leads to the lowest costs, which in turn can translate into either lower prices or higher margins. However, many factors now make mass marketing more difficult.
Today, marketers find it very hard to create a single product or program that appeals to all diverse consumer groups that exist in market. The proliferation of advertising media and distribution channels has also made it difficult to practice “one size fits all” marketing practices.
Consumers now days want to have their own special identity and they project it through product and services they consume. Marketers must understand that consumers have different expectation form the products they purchase, especially in terms of products ability to help consumer to project their image that they intend, to show to society and peer groups. Such consumer psychologies make segmentation inevitably.
No wonder some people claim that mass marketing is dying. Not surprisingly, many companies are turning away from mass marketing and adapting segmented marketing.
2. Segment Marketing:
A company that practices segment marketing recognizes that buyers differ in their needs, perceptions, and buying behaviors. The company tries to isolate broad segments that make up a market and adapts its offers to match more closely the needs of one or more segments.
Segment marketing offers several benefits over mass marketing. The company can market more efficiently, targeting its products or services, channels and communications programs towards only consumers that it can serve best. The company can also market more effectively by fine-tuning its products, prices and programs to the needs of carefully defined segments.
The company may face fewer competitors, if fewer competitors are focusing on this market segment.
3. Niche Marketing/Concentrated Marketing:
Market segments are normally large identifiable groups within a market – for example, luxury car buyers, performance car buyers, utility can buyers, and economy car buyers, Niche marketing (or niching) focuses on subgroups within these segments.
A Niche is a more narrowly defined group, usually identified by dividing a segment into sub-segments or by defining a group with a distinctive set of traits who may seek a special combination of benefits.
For example, the utility vehicles segments might include light-duty pickup trucks and Sport Utility Vehicles (SUVs). And the sport utility vehicles sub-segment might be further divided into standard SUV (as served by Ford and Chevrolet) and Luxury SUV (as served by Lexus) niches.
Whereas segments are fairly large and normally attract several competitors, niches are smaller and normally attract only one or a few competitors. Niche marketers presumably understand their niche’s needs so well that their customers willingly pay a price premium.
Niching offers smaller companies an opportunity to compete by focusing their limited resources on serving niches that may be unimportant to or overlooked by larger competitors. However, large companies also practice niche marketing. In many markets today, niches are the norm.
As an advertising agency executive observed, “There will be no market for products that everybody likes a little, only for products that somebody likes a lot.” Other experts assert that companies will have to “niche or be niched.”
Segment and niche marketers tailor their offers and marketing programs to meet the needs of various market segments. At the same time, however, they do not customize their offers to each individual customer.
Thus, segment marketing and niche marketing fall between the extremes of mass marketing and micro marketing. Micro marketing is the practice of tailoring products and programs to specific individual and locations.
Micro marketing includes:
i. Local Marketing and
ii. Individual Marketing.
i. Local Marketing:
Local marketing involves tailoring brands and promotions to the needs and wants of local customer groups – cities, neighborhoods, and even specific stores. Local marketing helps a company to market more effectively in the face of pronounced regional and local differences in community demographics and lifestyles.
It also meets the needs of the company’s “first-line customers” – retailers – who prefer more fine-tuned product assortments for their neighborhoods. Pepsi has tied up with farmers of Haryana for supplying potato for their ‘Lays’ brand chips and in return mentor them on potato farming. Airtel support sports events organised by institutions in various cities.
ii. Individual Marketing:
In the extreme, micro marketing becomes individual marketing – tailoring products and marketing programs to the needs and preferences of individual customers. Individual marketing has also been labeled “markets-of-one marketing,” “customized marketing,” and “one-to-one marketing”.
The tailor custom-made the suit, the cobbler designed shoes for the individual, the cabinetmaker made furniture to order. Today, however, new technologies are permitting many companies to return to customized marketing.
More powerful computers, detailed database, robotic production, and immediate and interactive communication media such as e-mail, fax, and Internet – all have combined to foster “mass customization”. Mass customization is the ability to prepare on a mass scale individually designed products and communications to meet each customer’s requirements.
For example, Citibank provides credit limit to its customers based on their individual credit history and credit needs.
Market Segmentation – Top 3 Strategies (Concentrated Marketing, Differentiated Marketing and Undifferentiated Marketing)
The following three strategies are identified for market segmentation.
1. Concentrated Marketing,
2. Differentiated Marketing, and
3. Undifferentiated Marketing.
1. Concentrated Marketing:
This strategy aims to concentrate or put all the available resources on one segment within the total market. Here, a firm wishes to match what it can do the best amidst the strong competitors. It intends to have an advantage of differentiated strategy. It is done on the basis of one marketing mix for the competitive advantage in a particular segment of market. The various forms adopted are of high fashion and design-oriented house-ware shops. In India, we can see Glass Manufacturing Companies, Johnson & Johnson for kids, Cars Companies, HMT Quartz etc. A firm targets on a major offering to a specific market segment.
2. Differentiated Marketing:
This strategy intends to cover the whole market for designing different products and marketing programs for different segments of the market. A firm makes customers to identify the brand or its name, so that additional sales and increased customer identification can be achieved. This strategy is suitable for medium and large-sized firms which are operating in many markets with a broad product line.
For instance, – (i) Hindustan Lever Ltd., sells Lux, Lux Supreme, Lifebuoy, Rexona, Saral, Pears, and Lyril (ii) Golden Tobacco Company markets its ten products in different segments like Panama, Gold Flake, New Deal, Taj, Gaylord, Taj Mahal, Square, Target, Sainik, and Diamond, (iii) Usha Fan Company offers Usha Prima, Usha Deluxe and Usha Continental. Here, each firm targets several markets i.e., offers one product to each of several market segments.
3. Undifferentiated Marketing:
In this, a firm considers the whole market as its target. It competes successfully using the same marketing mix. This is adopted when a firm finds that there is no need for their segmentation. For example, Coca-Cola, Canada Dry, Sprint, Pepsi-Cola, Campa-Cola, Thums-Up etc. Here, all products of all organizations are targeted to all or majority of the market.
Market Segmentation – Process and Strategy Bases
The first stage of segmentation involves formation of macro segments based on the characteristics of the buying organisation and the buying situations.
The second stage involves dividing the macro segments into micro segments based on the characteristics of Decision Making Units (DMUs). The hierarchical approach enables an initial screening of organisations and selection of these macro segments which on the basis of organisational characteristics provide potentially attractive market opportunities.
Starting with grouping of organisations into homogenous macro segments also provide a reduction in total research effort and cost. Most of the data for the initial screening can be drawn from the company records. It can be standardised as a part of Marketing Information System.
A set of acceptable macro segments may be divided into micro segments on the basis of similarities and differences among DMUs within each macro segment. The two basic strategy bases that could be identified in industrial marketing are customer dispersion and product differentiation.
1. Customer Dispersion:
Dispersion refers to the number of customers in a market and how the market is allocated among them. For example, the supplier of fasteners may get the major chunk of business from two or three automobile- manufacturing units. Dispersion can be calculated by an estimation of an industry off-take in each end-use application of the product.
For example, the application of machine tools may be related to horizontal markets (markets with a number of applications). A company may work out the customer dispersion by comparing the number of customers using its products for a few applications to the total number of customers using machine tools for the same type of applications.
2. Product Differentiation:
Product differentiation refers to the degree to which the product has to be custom-made to the needs of the buyer or the end-user software services. A close interaction is required with the buyer throughout the buying and execution phases to ensure a good ‘need-fit’. The marketer will have to interact with personnel belonging to different functional areas, R&D of the buyer organisation, and the finance department to stress on the cost-effective aspects.
If projected costs offset the costs of differentiation, it may be worthwhile to pursue differentiation. It could also serve as an entry barrier for competitors. When an industrial product/market has low product differentiation and high customer dispersion, its customers can be categorized into ‘voicing’ strategies. Products of this kind are made as per the specification of the buyer and price is the factor which emphasized in the marketing mix.
Low customer dispersion and high product differentiation may be applied to some markets. A company offering repair services for various kinds of computers (third party maintenance) can be called as ‘flexing’ strategy. ‘Augmenting’ is a strategy which would be suitable for products which are similar to consumer products but which are marketed to organisations (standardized office furniture, catering services).
These products have low customer dispersion because the organisations have the option of either manufacturing them or obtaining them in a standardised manner.
3. Industry Practice:
Industry marketers categorise bases of segmentation into three clusters, which they evaluate on two sets of criteria.
The three clusters are:
(i) Organisation characteristics
(ii) Product characteristics
(iii) DMU characteristics
Organisation characteristics include the type of industry, size of the firm and geographic location. Product characteristics include usage, end-use and product specifications. DMU characteristics include the job titles, personality of the buyers and pattern of source loyalty.
Market Segmentation – Top 8 Methods for Consumer Market Segmentation
1. Geographic or Territorial Segmentation:
The market can be divided into several well-defined areas, each of which will be a sub-market, for example, states in India can be deemed as separate market segments.
The benefits of geographic segmentation are:
i. It is possible to allot territories to salesmen.
ii. Statistics and other data are easily available.
iii. It is easier to promote the product. Advertising and publicity can be in local language.
2. Demographic Segmentation:
Dividing the total market into different parts on the basis of population is demographic method.
The categories based on which the market is segmented are:
i. Age – Here, child, teenager and adult can be the basis of segmentation.
ii. Gender – Here, gender can be the basis of division or segmentation.
iii. Literacy – There are illiterate, semi-literate and literate groups, which form the basis of division. Promotional methods have to change according to the educational level of customers.
3. Product Segmentation:
The products may be divided on certain criteria which may suit particular segments of the people. For example, products may be divided into prestige products, anxiety products, functional products and maturity products.
4. Socio-Economic Segmentation:
The segmentation here is done on the basis of social class like working class, middle income group, etc. Since marketing is potentially and intimately connected with the “ability to buy”, this segmentation is meaningful in analysing buying patterns of a particular class. Socio-economic factors, especially when used together, can help locate a market precisely. This method is widely used because they not only help in locating segments but also in measuring the size of segments easily.
5. Benefit Segmentation:
Consumers are interviewed to learn about the benefits they are expecting from a product. It may be classified into generic or primary utilities and secondary or evolved utilities.
But choosing the benefit to be emphasized is not an easy job, for the thrust of various utilities may shift from time to time.
6. Volume Segmentation:
Buyers may be divided on the basis of quantity purchased—bulk users, moderate quantity buyers and single-unit buyers.
Different marketing strategies can be adopted to tackle each group.
7. Life Style Segmentation:
The lifestyle of consumers may differ widely. Office or factory workers have a different lifestyle from that of students. Businessmen differ in lifestyle from that of professionals like doctors and lawyers.
8. Marketing-Factor Segmentation:
The responsiveness of buyers to different marketing activities is the basis for this type of segmentation. For example, if a manufacturer knows that one group of his customers are giving more response to change in advertising than others, he must increase the amount of advertising aimed at them.
Market Segmentation – Evaluating and Selecting Market Segmentation
In evaluating market segmentation a firm must look at three factors.
1. Segment size and growth
2. Segment structural attractiveness
3. Company objectives and resources.
1. Segment Size and Growth:
The company should do the analysis of current sales, projected sales, growth rates and profit margins of the different segments. The company will select that segments which have right size and growth. All the companies will not select segments with large currents sales, high growth rate and high profit margins. Small companies lack the skills and resources needed to serve the large segments. Hence they select segments which are small and less attract.
2. Segment Structural Attractiveness:
Segments having desirable size and growth do not always leads to profitability for a company. The company’s long run profit depends on the competitors in the segment. A segment is less attractive if there are already many strong and aggressive competitors. An analysis of the competitors in each segment is required to help the managers to evaluate the strengths and weakness of their position. In relative to the competitors, the company’s brand products sales depend on both market potential and effectiveness of marketing.
Segment sales forecast – Segment market forecast x Segment share of the company
The company has to assess the smaller segments for new opportunities, because the existing firms are likely to be successfully established in larger segments.
Companies should consider the following five aspects:
a. Threat of substitute products.
b. Relative power of buyers.
c. Relative power of suppliers.
d. Threat of new entrants.
e. Threat of segment revelry.
3. Company Objectives and Resources:
The company must consider its own objectives and resources for evaluating the market segment. The company must decide whether it has got the skill and resources needed for the success in that segment. If it is not having required strength then it should not enter the segment. The segment should match the company’s objectives. The company should have financial position and staff resources to enter into the segment.
Selecting Market Segments:
The selection of market segment begins after the evaluating market segment. The company has to select the segment that will target markets.
There are three types of market coverage strategies:
i. Undifferential Marketing.
ii. Differential Marketing.
iii. Concentrated Marketing.
i. Undifferential Marketing:
This focuses on common needs of the consumers. This targets the whole market with one product which is common in the needs of consumers and not different products. This marketing strategy is cost-economy because of mass production, mass transportation and mass advertising. This type of marketing can be done very successfully when the market is homogeneous. For e.g. Maruti Udyog Limited in the earlier stage marketed only Maruti-800 cars to all segments of customers with one marketing mix programme.
ii. Differential Marketing:
A company targets several market segments providing different products to the market. By providing different products the company has better return or higher sales and it gets a stronger position in each market segment. Maruti Udyog Limited in the later stage started manufacturing different types of cars to meet the needs of different customers. The cost of production, distribution, etc. increases in this differential marketing.
iii. Concentrated Marketing:
This type of marketing is for smaller companies or organization with limited resources and skills. This offers opportunity to smaller companies of entering race of competing with larger companies. Through this the company may achieve strong market position in the segment because of excellent knowledge of the requirements of the consumers within the segment.
Compaq concentrates on personal computers. Apollo concentrates on computer work stations segment, etc. This involves higher risk because the particular market segment can turn negative when consumer stops buying the particular products.
Market Segmentation – Different Patterns of Market Segmentation
Where, the market was segmented by income and age, resulting in different demographic segments, assume that, instead, buyers are asked how much they want of each of two product attributes (say sweetness and creaminess in the case of an ice cream). This results in identifying different preference segments in the market.
Three different patterns can emerge:
1. Homogeneous Preferences:
This category reveals a market where all the consumers have roughly the same preference. The market shows no natural segments, at least as far as the two attributes are concerned. We would predict that existing brands would be similar and located in the centre of the preferences.
2. Diffused Preference:
At the other extreme, consumer preferences may be scattered fairly evenly throughout the space with no concentration. Consumers simply differ a great deal in what they want from the product. If one brand exists in the market, it is likely to be positioned in the centre because it would appeal to the most people.
A brand in the centre minimizes the sum of total consumer dissatisfaction. A competitor coming into the market could locate next to the first brand and engage in an all-out battle for market share. This is the typical situation in a political market where the two candidates both go middle-of-the-road to gain the greatest following.
The other choice is for the competitor to locate in some corner to gain the loyalty of a customer group that is not satisfied with the centre brand. If there are several brands in the market, they are likely to eventually position themselves fairly evenly throughout the space and show real differences to match preference differences.
3. Clustered Preference:
An intermediate possibility is the appearance of distinct preference clusters. They may be called natural market segments.
The first firm to enter this market has three options:
(a) It might position itself in the largest market segment (concentrated marketing).
(b) It might position itself in the centre hoping to appeal to all the groups (undifferentiated marketing).
(c) It might develop several brands, each positioned in a different segment (differentiated marketing). Clearly, if it developed only one brand, competition would come in and introduce brands in the other segments.
Market Segmentation – Criteria for Effective Segmentation
1. It is identifiable and measurable:
The segment or the group of buyers must be clearly defined. That is, who is in segment? Who is outside the segment? After answering these questions, it is essential to get demographic, social and cultural data about segment members.
These data should permit the measurements of the size and importance of the segment as a potential project of marketing strategy. Unfortunately, obtaining segment data is seldom easy especially when the segment is defined in terms of behavioral features.
2. It is economically accessible:
Segmentation involves a search for enough similarity among-buyers to permit the seller each search of these potential customers economically. For example, segment members could be concentrated geographically, may be shopping at the same store or may be reordering the same magazines. A segment based on motivational characteristics cannot be reached economically.
If ‘Close-up’ tooth-paste makers attempt to reach a segment identified by the user’s desire enhances sex appeal, it may take up TV advertising. This message reaches both the intended and others. The cost per segment member is much higher in case of TV advertising. Anyway, a segment should allow mass media.
3. Is the basis of market segmentation useful to the company?
It is easy to develop bases for market segmentation while losing sight of the purpose of the exercise. Essentially, the exercise is worthwhile only if it allows a company profitably to penetrate a greater proportion of its market than would have been the case if the exercise had not been undertaken. Groups identified as homogeneous market segments must be just that; similar in terms of the needs and buying behaviour of the individuals they contain.
Many companies fail in their segmentation exercises because their assumptions about homogeneity within a segment overlook some critical differences within the segment which leads to varied responses to a product offer that has been specifically targeted at the segment.
4. Are the segments of an economic size?
Any basis for segmentation should yield segments that are of a size that a company can profitably exploit. Companies face a dilemma here, because as segments get smaller, they get closer to achieving the marketing philosophy of satisfying each customer’s needs as though each one were the centre of all the company’s attention.
The problem for the company is that smaller segments may be uneconomic to provide for. What is a reasonable size of segment varies from one market to another, and is constantly changing over time. The financial services industry is possible to develop quite specific products to target very small segments of a market.
Market Segmentation – Benefits of Market Segmentation
A seller receives the following benefits of the market segmentation:
1. To Frame a Firm Marketing Programme:
A seller becomes successful in framing a firm marketing programme by dividing the entire market into several segments. A marketing programme in order to attract all prospective customers is not exercised under it but varied programmes according to the necessities of different segments are framed.
2. Spotting Marketing Opportunities:
More information regarding marketing opportunities can be obtained through market segmentation. The seller may vouch the demands of every set and spot consumer’s satisfaction by taking in account the prevailing competition. He can make necessary alterations in marketing facilities for increasing the sale among the sets where product is bought in lesser quantum.
3. Proper Use of the Means:
A seller becomes successful in making the best use of his means through market segmentation. He can use his financial and marketing means according to the needs of various segments of market. Marketing expenses are ascertained lesser for those segments of market where marketing possibilities are not found so good.
4. Possible to Cope Efficiently with the Competition:
As several marketing strategies can be made and exercised to sustain in the competitive atmosphere for different segments of market through segmentation of market, it is always good for marketing of product.
5. To Strike Balance in Demand:
Marketing segmentation assists in understanding the sensitivity of market segments. The managers of an institution therefore, can strike a balance in the quality of their product and the demand for the same among the buyers of various segments in the market.
6. To Assist for Determining the Product Line:
Some sellers introduce a product in the market which for certain demand among a few groups of buyers but it is not widely accepted. Such a product does not satisfy the buyers in full, while it is the prime objective. It is the market segmentation that enables recognising the necessity for a certain product among different groups of buyers thereby incorporating products in a service as per their demand and which is viable to meet the same.
7. Helps in Advertising:
Influencive messages to the consumers through media can be propagated when the choice, habit, necessities and preference of different buyer groups are duly recognised with the help of market segmentation.
Other Advantages- The other information i.e., marketing, research, product development, evaluation of marketing means etc., can be utilised properly when once the seller is duly known to the segments of the market.
Market Segmentation – Requirements for Effective Segmentation
In order to be effective, a segmentation exercise would have to fulfil the following requirements.
Whether market segmentation is successful or not can be evaluated by the following questions:
1. Is it sizeable?
Size-wise, the popular segment is a bigger compared to the premium segment. In term of tonnage, of the total market of around 6, 00,000 tonnes, the popular segment account for 80 per cent and the premium segment for the remaining 20 per cent. If the firm wants a very large volume, it has to think of the popular segment.
At the same time, it has to note that the premium segment too is sizeable, as it account for over 120,000 tonnes. In term of value, the premium segment is even more sizeable, formerly nearly 30 per cent of the total market. Clearly, the segment cannot be ruled out as lacking in size.
2. Is it growing?
Growth rate and likely future position of the segment will be the next consideration in the evaluation process. Usually, business firms seek out the high growth segments. Analysis will readily indicate to the firm that in bath soaps, the premium segment happens to be the high growth segment.
Whereas the popular segment has been growing at 10 per cent per annum, the premium segment has been growing at over 20 per cent annum. When this fact is taken into consideration, the firm’s choice may tilt toward the premium segment. The tilt will be particularly pronounced if the firm’s natural disposition is to strive for a position in the high growth segment of the business.
3. Is it profitable?
Next consideration will be the extent of profitability. In the present example, the firms quickly sense that the premium segment is more profitable one. Even a relatively lower volume in the segment may bring in good returns. On the contrary, in the popular segment, a much larger volume will be necessary for the business to be viable, since prices and margins in the segment are low.
Another point is that costs of marketing, distribution and promotion in the business are quite high and are constantly on the rise. Costs of launching a new brand are particularly high. The market is very competitive, aggressive promotional support through expensive media like TV becomes essential. In this background, the firm may come to the conclusion that it may be worthwhile to gamble in the premium segment rather than the popular segment.
4. Is it accessible?
The firm has now to consider whether the segments are accessible to it. This may need further analysis. The market realities will have to be taken into consideration. The popular segment will be accessible only to the firm with a cost advantage, since price is a major determinant in this segment. Premium segment will be accessible only to firms, which enjoy a differentiation advantage, and which are also marketing savvy.
Liril of Hindustan Lever has a commanding position in this segment. At the upper end of the segment, HLL’s Pears and Dove are well entrenched. Several other brands of different companies are competing in the segment. The firm has to take due note of this reality. At the same time, analysis also reveals that new brands do keep entering the segment every now and then, and some of them do manage to stay.
So, the firm has no reason to believe that the premium segment is not accessible to it, unless it is convinced that it is very weak in marketing.
5. Is it compatible with the firm’s resources and capabilities?
Having reached the conclusion that the premium segment is sizeable, growth oriented, profitable and accessible, the firm has to now find out if the segment matches its resources. For some firms, the popular segment maybe the natural choice and for others, the premium segment. And, for some choosing both. The premium segment is a highly competitive segment.
Only firms endowed with strong resources and an aggressive marketing strategy/culture can fight and survive in the market. The firm therefore has to assess whether the particular segments are compatible with its resources and capabilities.
Thus by this following analysis a firm can easily evaluate it market segmentations and also can tackle its problem.