STRATEGIC MARKET SEGMENTATION

Class: Psihologija u oglaavanju Faculty Dramatic Arts Belgrade Student: Vasilis Blioumis Professor: Dr Tijana Mandic

INTRODUCTION The market for any product is normally made up of several segments. A market after all is the aggregate of consumers of a given product. And, consumer (the end user), who makes a market, are of varying characteristics and buying behavior. There are different factors contributing for varying mind set of consumers. It is thus natural that many differing segments occur within a market. In order to capture this market for any product, marketers usually divide the market into a number of sub-markets/segments and the process is known as market segmentation . Thus we can say that market segmentation is the segmentation of markets into groups of customers, each of them reacting differently to promotion, communication, pricing and other variables of the marketing mix. Market segments should be formed in that 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. 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 behaviors. Since it is virtually impossible to cater for every customers individual characteristics, marketers group customers to market segments by variables they have in common. These common characteristics allow developing a standardized marketing mix for all customers in this segment. Through segmentation, the marketer can look at the differences among the customer groups and decide on appropriate strategies/offers for each group. This is precisely why some marketing experts have described segmentation as a strategy of dividing the markets for conquering them. Segmenting markets is the foundation for superior performance. Understanding how buyer needs and wants vary is essential in designing effective marketing strategies. Segmenting markets may be critical to developing to developing and implementing market driven strategy. The need to improve an organizations understanding of buyers is escalating because of buyers demand for uniqueness and an array of technology available to generate products to satisfy the demands. Companies are responding to the opportunities to provide unique customer value with products. Buyers vary according to how they use the products, the needs and preferences that the products satisfy, and their consumption patterns. These differences create market segments. Market segmentation is the process of identifying and analyzing subgroups of buyers in a product market with similar response characteristics. Recognizing differences between market segments, how they change better and faster than competitors is an increasingly important source of competitive advantage. Analyzing Market Segmentation? Market segmentation is the process of partitioning markets into groups of potential customers with similar needs or characteristics who are likely to exhibit similar purchase behavior.

Market segmentation requires a major commitment by management to customer-oriented planning, research, implementation and control. There are four major benefits to market segmentation analysis and strategy: A. Designing responsive products to meet the needs of the marketplace. B. Developing effective and cost-efficient promotional tactics & campaigns. C. Gauging your companys market position how your company is perceived by its customers and potential customers relative to the competition. D. Fine-tuning current marketing strategies A three-step process is used to develop a market segmentation strategy 1. Segment Identification determining a given number of homogeneous market segments based on selected segmentation variables and criteria. Segments should be customer-focused, a justifiable size, distinguishable, accessible, accountable & profitable. 2. Market Selection selecting one or more groups to target for marketing activity. You must make strategic choices based on customer needs, competitive opportunities, corporate objectives, and your firms financial, technical andmarketing resources. 3. Positioning carving out a market niche for your firm. This may be accomplished by searching out unique marketing advantages, seeking new market segments that competitors are not cultivating, or developing new approaches to old problems1

Roe Smithson and Associates Marketing Agent

ATTRIBUTES OF EFFECTIVE SEGMENTATION Market segmentation is resorted to for achieving certain practical purpose. For example, it has to be useful in developing and implementing effective and practical marketing programs. For this to happen, the segments arrived at must meet certain criteria such: a. Identifiable - The differentiating attributes of the segments must be measurable so that they can be identified. b. Accessible - The segments must be reachable through communication and distribution channels. c. Sizeable - The segments should be sufficiently large to justify the resources required to target them. A very small segment may not serve commercial exploitation. d. Profitable - There is no use in locating segments that are sizeable but not profitable. e. Unique needs - To justify separate offerings, the segments must respond differently to the different marketing mixes. f. Durable - The segments should be relatively stable to minimize the cost of frequent changes. g. Measurable - The potential of the segments as well as the effect of a specific marketing mix on them should be measurable. h. Compatible - Segments must be compatible with firms resources and capabilities. Common segmentation objectives Developing new products Creating differentiated marketing communications & ads Developing differentiated customer servicing & retention strategies Targeting prospects with the greatest profit potential Developing multi-channel distribution strategies Once you have decided what your objective is for the segmentation, you can answer the question, "what do I want the segmentation to do for me?" Criteria for selecting Market Segments Measurable A segment should be measurable. It means you should be able to tell how many potential customers and how many businesses are out there in the segment. Accessible A segment should be accessible through channels of communication and distribution like: sales force, transportation, distributors, telecom, or internet. Durable Segment should not have frequent changes attribute in it. Substantial Make sure that size of your segment is large enough to warrant as a segment and large enough to be profitable

Unique Needs Segments should be different in their response to different marketing efforts (Marketing Mix). ases for Consumer Market Segmentation There are number of variables involved in consumer market segmentation, alone and in combination. These variables are:

Geographic variables Demographic variables Psychographic variables Behavioral variables

Geographic Segmentation In geographical segmentation, market is divided into different geographical units like: Regions (by country, nation, state, neighborhood) Population Density (Urban, suburban, rural) City size (Size of area, population size and growth rate) Climate (Regions having similar climate pattern) A company, either serving a few or all geographic segments, needs to put attention on variability of geographic needs and wants. After segmenting consumer market on geographic bases, companies localize their marketing efforts (product, advertising, promotion and sales efforts). Demographic Segmentation In demographic segmentation, market is divided into small segments based on demographic variables like: Age Gender Income Occupation Education Social Class Generation Family size Family life cycle Home Ownership Religion Ethnic group/Race Nationality Demographic factors are most important factors for segmenting the customers groups. Consumer needs, wants, usage rate these all depend upon demographic variables. So, considering demographic factors, while defining marketing strategy, is crucial. Psychographic Segmentation In Psychographic Segmentation, segments are defined on the basis of social class, lifestyle and personality characteristics.

Psychographic variables include: Interests Opinions Personality Self Image Activities Values Attitudes A segment having demographically grouped consumers may have different psychographic characteristics. Behavioral Segmentation In this segmentation market is divided into segments based on consumer knowledge, attitude, use or response to product. Behavioral variables include: Usage Rate Product benefits Brand Loyalty Price Consciousness Occasions (holidays like mothers day, New Year and Eid) User Status (First Time, Regular or Potential) Behavioral segmentation is considered most favorable segmentation tool as it uses those variables that are closely related to the product itself. MARKET TARGETING Once the firm has identified its market-segment opportunities, it has to decide how many and which one to target. Evaluating and selecting the market segments In evaluating different market segments, the firm must look at two factors: the segments overall attractiveness and the companys objective and resources. Having evaluated different segments, company can consider five patterns of target market selection. Single-segment concentration Suzuki concentrates on the small-call market and Honda on the family car market. Through concentrated marketing, the firm gains a strong knowledge of the segments needs and achieves a strong market presence. Furthermore, the firm enjoys operating economies through specializing its production, distribution, and promotion. If it captures segment leadership, the firm can earn a high return on its investment. 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 moneymaker.

Product specialization The firm makes a certain product that it sells to several segments. An example would be a microscope manufacturer who sells to university, government, and commercial laboratories. The firm makes different microscopes for the different customer groups and builds a strong reputation in the specific product area. The downside risk is that the product may be supplanted by an entirely new technology. Market specialization The firm concentrates on serving many needs of a particular customer group. An example would be a firm that sells an assortment of products only to university laboratories. The firm gains a strong reputation in serving this customer group and becomes a channel for additional products the customer group can use. The downside risk is that the customer group may suffer budget cuts. Full market coverage The firm attempts to serve all customer groups with all the products they might need. Only very large firms such as IBM (computer market), General Motors (vehicle market), and coca-cola (drink market) can undertake a full market coverage strategy. Large firms can cover a whole market in two broad ways: through undifferentiated marketing or differentiated marketing. In undifferentiated marketing, the firm ignores segment differences and goes after the whole market with one offer. Differentiated marketing typically creates more total sales than undifferentiated marketing. However, is also increases the cost of doing business. The following costs are likely to be higher: 1. Product modification costs: Modification a product to meet different market-segment requirements usually involves R&D, engineering , and special tooling costs. 2. Manufacturing costs: it is usually more expensive to produce 10 units of 10 different products than 100 units of one product. The longer the production setup time and the smaller the sales volume each product, the more expensive the product becomes. However, if each model is sold in sufficiently large volume, the higher setup costs may be quite small per unit. 3. Administrative costs: The company has develop separate marketing plans for each market segment. This requires extra marketing research, forecasting, sales analysis, promotion, planning, and channel management. 4. Inventory costs: it is more costly to manage inventories containing many products. 5. Promotion costs: The company has to reach different market segments with different promotion programs. The result is increased promotion-planning cost and media costs.2 Because differentiated marketing leads to both higher sales and higher costs.

. Usman Badar and Kainaat Rizvi Essay Identifying Market-segment and selecting target-market

Price Discrimination Where 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. Examples of this exist in the transport industry (a plane or train journey to a particular destination at a particular time is a practical monopoly) where business class customers who can afford to pay may be charged prices many times higher than economy class customers for essentially the same service.3 Conclusion Segmentation is a vital management tool that marketers require to identify their target market to effectively and efficiently promote their product or service. Marketers are also able to expand that same target market or enter a new market in response to their consumers needs and wants. Market segmentation involves the grouping of costumers together with the aim of bettersatisfying their needs. If properly executed should deliver more satisfied costumers, some direct confrontation with competitors and better designed marketing programmes.In closing, segmentation can be tricky and complex, and no doubt requires a great deal of expertise & experience. Putting in place flawed segmentation strategies can be far more detrimental to a business than not having them at all. However, when designed the right way, segmentation strategies can provide tremendous returns relative to one-size-fits-all approaches

http://en.wikipedia.org/wiki/Market_segmentation