Segmentation is a process by which a market is divided into distinct customer subsets of people with similar need and characteristics
A company that decides to operate in a brand , recognizes that it normally cannot serve all customers in that market . The customers are too numerous and diverse in their buying requirements. Instead of competing everywhere the company needs to identify the market segments it can serve most effectively .
To choose its market and serve them well , many companies are embracing target marketing. In target marketing the seller distinguishes the major market segments, targets one or more of those segments , and develops products and marketing programs tailored to each segment.
Marketing required marketers to take major steps
Market segmentations, Market Targeting , Market positioning ( STP ) : Market segmentation is a process by which a market is divided into distinct customer subsets of people with similar needs and characteristics that lead them to respond in a similar way to product offering and strategic marketing programmed .
Evaluating the relative attractiveness to each segment ( size , revenue potential and growth rate ). The benefits sought and the firm relative business strength are a process called target marketing.
A company can either follow market aggregation or market segmentation strategy . Market aggregation strategy is appropriate when most customers have similar needs and desires.
When customers are more diverse , a single standardized product and marketing programme does not appeal to those who need or want a variety. segmentation has become increasingly popular because it reflects the realities faced by firms in most markets .
For Market segment to be really useful to a company it must be
- Measurable and
- Must be large enough to vala parts -( Profit )
Thus if one says there are school children in a school , it is a very useful statement for a garment manufacturing company . It becomes useful when one says. There are X no’s of boys and Y no’s of girls. This means we are identifying the segments as “Boys” and “Girls” and we are measuring this segment as X no’s of boys and Y no’s of girls . Each of the segments must be large enough so that the manufacturing company makes money by servicing either one or both strategically.
Market segmentation leads companies to follow two basic strategies
- Volume – based strategy
- Niche – based strategy
Volume – based strategy involves servicing large volumes , e.g., FMCG products , while Niche – based strategy usually involve servicing small segments , e.g., Industrial products .
It is important to understand the implication of these strategies . In volume- based strategy cost is a major driving force . The form always tries to reduce its cost and hence the price. The volume of the product per transaction is usually low, as the distribution channels used are quite big and involve a huge depth. Again the product is always mass communication. Standardization of products is the key to success .
In Industrial Product | Niche based products, product differentiation is the key to success . Cost is a major driving force but not the key driving force. The value of the product per transaction is quite high . ” B to B ” Market is widely used . The distribution channel is quite short and the promotion is limited. It is not mass communication.
The process of segmentation involves :
- Describing the characteristics of the customer using appropriate variables.
- Identifying different needs or benefits sough by the customer as to measure the extent of differences in benefits sought by the various segment.
Consumer goods customer can be classified in the basis of
- Demography : Sex , Age , Race , Religion , Education , etc.
- Geography : Region wise , Climatic environment , etc.
- Economy : Income – oriented , saving potential , etc.
- Social and Psychology : Lifestyle , Social Class , Family cycle, etc.
Consumers can also be classified according to the stage in the family cycle . For e.g., a bachelor who is young and single and more specially not staying at his / her parent home is more likely to have few financial burdens.
Bachelor will be interested in fun, recreation products , enjoying parties, etc. the couple is likely to spend time as well as money in purchasing a house , residential accommodation , consumer durables like cars , refrigerators , etc.
The newly married couple with one child is likely to spend money on purchase of medicines , food , toys all directed towards the child . He is the right candidate for targeting insurance policies , etc.
Segmentation based on Behavior , Patterns with respect to family cycle .
|Stage in Family Characteristic||Buying or Behavior Pattern|
|Young single people not living at home – Bachelor||Few financial burdens . Interested in Fun , Fashion , Opinion Leaders , Parties etc. Buy – Recreation – oriented|
|Young but no children – Newly Married Couples||Better off financially now then in the later period , Higher purchase rate and highest average purchase of durables . Buy cars , Refrigerators , Furniture, Vacation etc.|
|Youngest child is under six years – Full Nest 1||Home purchasing at peak liquid assets LOW Dissatisfied with financial position and amount saved . Buy washers , dryers , TV Food , Cold cough medicines , vitamins , dolls and Toys etc.|
|Youngest child is over six years – Full Nest 2||Normally two incomes , Less influenced by TV advertisements . Buy large sized Packets , multiple units deals , bicycles ,music instruments , cleaning material , insurance packages , tax saving packets , etc.|
|Older married couples with dependent children – Full Nest 3||Some children may or may not work . More wives work . Hard to influence though advertisements . High average purchase of durables . Buy New furniture . Home , travel , insurance packages , tax saving packets , etc.|
|Older married couples with children not living with them , head still in services – Empty Nest 1||Interested in travel , Recreation , self – education . Not interested in new products . Make gifts and contributions. Visit religious places. Buy medical insurance packages , Retirement benefit packages, etc.|
|Older married couples with children not living with them head retired – Empty Nest 2||Drastic cut in income . Buy medicines and medical insurances . Medicare appliances that help in maintaining good health , sleep and digestion.|
|Head totally retired – Solitary Survivor||Further drastic cuts in income . Buy medicines and medical insurance , Medicare appliances that help maintaining good health , sleep and digestion , special need for love , affection and security|
Consumer can also be classified according to their Income .
|Share of the middle class Group |Size of the Group||Buying or Behavior Patterns|
|Upper upper – less than 1 %||Social elite have INHERITED wealth, Donate large sums to charity maintain more than one home and send their children to finest schools , they are the market for jewelry , antiques , home and vacations, they are often a REFERENCE group for other groups|
|Lower Upper – Approx. 2%||This class are the nouveau riche. Have earned a high income or wealth through exceptional ability in their professions or business. usually come from the middle class and are active in social and civic affairs . buy’s the symbols of status for themselves and their children .Mostly buying Patten are expensive homes, schools and automobiles.|
|Upper middle Approx. 12 %||This class of people do not have family status or an unusual wealth. They are primarily concerned with their career . income is based on positions as professionals , independent business persons and corporate managers. They believe in education and want their children to develop professional or administrative skills so as to maintain their culture .They are highly civic minded and are a quality market for good homes, clothes, furniture, etc.|
|Lower Middle – Approx. 30 %||pure white collared employees who are concerned with RESPECTABILITY. They exhibit conscientious work habits and adhere to culturally defined norms and standards. They buy conventional home furnishing and do a lot of their own work at home , they prefer cloths which are clean and high style|
|Lower Middle – Approx. 36 %||They are mainly blue collared workers . The working class husband has a strong ALL MALE self – image and is normally a sport enthusiast , outdoorsman , heavy smoker and beer drinker , the working class women is more HOME oriented interested in housekeeping , cooking and caring for her children.|
5 Pattern to target Market selection
- Single clear segment concentration : Through concentrated marketing a firm gains a strong knowledge of the segment need and achieves a clear marker presence . further the firm enjoys operating economics though specializing in production , distribution and promotion . If it captures segment leadership , the firm can earn a high ROI.
- Selective specialization : The firm selects a number of segments each objectively attractive and appropriate. there may be little or no synergy among the segments , but each promises to be a money – maker. their multi segment strategy had the advantage of diversifying the firm’s risk.
- Product specialization : The form makes a certain product that it sells to several segments.
- Market specialization : The firm concentrates on serving many needs of a particular customer Group.
- Full market coverage : The form attempts to serve all customer groups with all the products they might need.
To determine which Positioning strategy to adopt a form must follow 8 steps
- Identify a relevant set of competitive products.
- Identify the set of determinant attributes that define the product space in which positions of current offering are located.
- Collect data from a sample of customer and potential customer about perception of each product on the determinate attributes
- Analyze the intensity of the product’s current position in the customer’s mind.
- Determine the product current location in the product space.
- Determine customers’ most preferred combination of attributes.
- Examine the fit between the preferences of the market segment and the current position of the product
- Select a positioning or repositioning strategy which should reflect future potential of the various positions.