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CHAPTER TOPICS
1. The Marketing Environment in the Noughties Technology boom Focus oh healthier lifestyles Case in point 2.1Maccas turns a new leaf Multicultural influences Busy lifestyles Changing household composition Changing media consumption patterns Sports marketing Environmentally aware community Changing gender roles What is segmentation? Market aggregation Broad approaches to segmentation Conditions for effective segmentation Advantages and limitations of segmenting markets Business market segmentation
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What is segmentation?
The entire market is too large for most marketers to serve and satisfy. It is impossible to be all things to all people. Marketers need to break the market into groups of customers with similar needs. The proce ss of dividing the market into similar groups is called market segmentation. Segmentation allows marketers to properly satisfy the needs of their particular markets. A separate marketing mix is then developed to match each segments needs. The actual process of segmentation involves identifying target market(s) to serve. There are five steps to identifying markets: 1. Conduct research to identify customer needs for each type of product 2. Consider how these needs relate to segmentation bases (see below) 3. Describe segments 4. Determine which segment/s you will target and your positioning strategy 5. Develop the appropriate marketing mix. Bases of segmentation Markets can be segmented by criteria often referred to as bases of segmentation. The segmentation bases used in consumer markets include the following: Geographicfor example by country, state, region, urban/rural, by climate, suburb, local government area.
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Solomon (2002) suggests that segmentation needs to be focused more on consumer characteristics and 1 behaviour rather than on products characteristics.
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Market aggregation
Market aggregation is where the marketer targets the entire market. One marketing mix is developed for the whole market. This is only appropriate when: the majority of customers have the same attitudes and perceptions about the products in the market; economies of scale can be achieved through production or other efficiencies; the company has insufficient resources to design and manage separate marketing mixes; or the identified segments are too small to warrant separate attention.
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Effective segmentation requires that a company really understanding its customers and prospects. The questions that need to be addressed include: What business is the company really in? What are the psychological reasons or underlying motives behind consumers expressed needs? How is the market changing? Examples include local competitors, global players, new products or substitutes, government regulation and the Internet. For example, Nokia introduced camera phones because of the rapid growth of the digital camera market. As a result, Kodak have seen digital technology as a threat and lost significant market share and substantial profits. Other companies like Big W have seen an opportunity, introduced photography, and now print some of the cheapest digital photographs.
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The overriding aim of marketing activities is to better understand the customer in order to satisfy their needs. However, company objectives and resources also need to be kept in mind. Meeting all consumers unique needs would be a timely and costly exercise. Profit is usually the main aim of any company. With each market segment served, separate marketing programs need to be developed. Resources, human and financial, are then required to serve each segment. Therefore, it is important a company does not target too many segmentsor long-term profits will be jeopardised. A segment should meet the following criteria: Measurablewell-defined so a marketer can determine precisely how many people are in the segment. Accessiblea marketer can actually serve the market with their resources, capabilities and knowledge. Profitablethe segment needs to have enough sales potential to cover costs and make a profit.
Solomon, M.R. (2002) Consumer behaviour: buying, having and being. Prentice-Hall, New Jersey, Chapter 1.
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There are several advantages and limitations to segmentation. Benefits of segmentation Companies that understand where their customers live, their preferences for certain styles of products, and basic demographic characteristics are able to improve their marketing activities, better satisfy the needs of their customers and provide a sustainable advantage over competitors. Segmentation also allows for more efficient use of limited company resourcesbeyond financial. Limitations of segmentation centre on the need to develop separate marketing mixes for each segment. It can be expensive to produce small amounts of different items, with different colours and sizes. Tailored production runs are far more expensive than more standardised runs where economies of scale can be achieved. Case in point 2.2Telltale habits Freedom Furniture is developing technology to discover what sort of people their customers are, rather than relying only on geographic criteria. Micro-segmentation tools are being used to develop detailed statistical profiles of its customers. The information is being used to fine-tune catalogue distribution, determine product ranges for individual stores and guide direct marketing activities. A better understanding of life stage and spending patterns of customers in specific regions controls a lot of the marketing activities of Freedom, including store layout, display and product ranges. For example, more exclusive areas require more elaborate contemporary interior designs. Areas where families reside require greater durability and more conservative designs. Although this information was assumed, it can now be supported by research data and allow greater use of direct marketing rather than advertising. Knowing consumers needs allows brochures to be sent out to specific micro -segments, which often results in greater spending by core customers. Ask students to use their intuition in their town or suburb, to describe the likely key areas of demand for furniture and furnishings. What type of segmentation bases are being used in their assumptions?
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Business markets can be segmented like consumer markets, but use different criteria. Geographicsame concept as consumer markets with consideration of countries, regions, states, etc. Customer type and sizesize of the organisation can affect marketing, because of the more formal processes involved in dealing with larger organisations. Telstra would offer different services to the small office/home office (SOHO) segment, compared to a call centre operating a national base like Ezibuy. Industry type is another segmentation variable to consider. Other variables that could be considered are addressed in the table below.
Table 1: Bases for segmenting business markets Base of segmentation Description Demographic Industry (addressed above) Company size Location Operating variables Which customer technologies should be focused on User/non-user status Customer capabilities and number of services required Purchasing Centralised or decentralised purchasing functions approaches Power structure and cultureengineering focused, R&D focused, customer centred Extent of existing relationships Purchasing policiesleasing, outright purchase, service contracts Purchasing criteria like service, quality and price
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Personal characteristics
Source: Adapted from Kotler, P., Adam, S., Brown, L. and Armstrong, G. (2003) Principles of Marketing, 2nd edition. Pearson Education: Australia, p. 226.
DISCUSSION EXERCISES
1. 2. 3. You are the product brand manager for Kelloggs Nutri-Grain. Determine which trends in the environment might impact on your marketing activities. Choose a magazine from a newsagent. Determine what bases of segmentation could be used to describe the target market for that magazine. Scan through some newspapers and look at the attention given to particular social or environment issues. What opportunities exist for companies with this type of issue? Which companies are under threat? What will companies need to do prior to introducing a new product or extension of an existing product? You are the marketing manager for the Australian Meat & Livestock Corporation. Consider the different types of market you could target. Describe two different consumer markets and two different business markets which could be worth targeting with specialised marketing efforts. Justify your reasons.
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