Market Segmentation

Every company that provides a product or services will always face the problem of how they should present their goods or services to their customers. Not only that, they must first decide what products or services to produce, where they should geographically distribute them and what outlets they should use for their distribution. For a company to be successful it must have the ability to attract and keep customers who are willing to pay a competitive price for their products or services. To do this a company must be able to find customers and produce products and services that satisfy their need and desires.

Lastly, they also must find an effective way to communicate to their customers how much they need or want the products and services the company is supplying. One of advertising’s primary roles is to communicate a product’s utility. A product’s utility refers to its ability to satisfy the perceived need and wants of a customer. There are many ways advertising can communicate utility. Some try to use sex appeal or symbolism while others simply communicate product features and benefits. The type of utility your company chose to advertise depends on the market segment and target audience you have chosen for you product.

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The process of market segmentation is typically a two-step strategy. The first step is identifying groups of people that have the same needs and characteristics within the big markets for all kinds of consumers. The next step is then to combine these groups into larger market segments according to their mutual interest in the utility of the products that you may offer. This enables a company to have a selection of market segments they can target and allows them to choose different advertising strategies for the selected segments. A company that produces many products may market to many different segments.

Sometimes a company may have one large group or segment that they market to but then produce different products for a more defined segment. This was part of Samsung’s market strategy. In 2007 Apple came out with the iPhone and controlled the vast majority of the market share for smart phones. That was until the second quarter of 2012. Samsung shipped about 50 million smartphones; the most ever shipped in a single quarter by any vendor, according to market research firms Strategic Analytics and IDC Worldwide (Beer, Jeff). Also, in that quarter Apple sold only 26 million phones (Beer, Jeff).

So how did Samsung manage to outsell the king of smart phones? There are many aspects to how Samsung turned around its failing smart phone division but the first and possibly the biggest part was by vastly improving their phones utility by adopting Google as a partner (Beer, Jeff). Using Android, Google’s very popular open-source operating system, gave Samsung a free platform that rivals the user-friendliness of Apples iOS (Beer, Jeff). Android allows Samsung to tweak the system to their liking and it gives them access to all of Google’s properties like the only App store that even comes close to competing with Apple’s App store (Beer, Jeff).

Not only did Samsung vastly improve their operating system but they also had to look at their hardware. Samsung chose a totally different approach to their hardware strategy than Apple. Apple offers only the one iPhone. The only variation with the iPhone is the amount of memory that it comes with the device, i. e. 16Gig, 24Gig, 32Gig exc. Samsung, on the other hand, came out with multiple phones that all had different capabilities and price points (Beer, Jeff). This allowed Samsung to obtain customers that might not want or need all the advanced capability as the iPhone.

At the same time they could cut into Apple’s market share by offering a phone that matched the iPhone’s capabilities and even offered some perks that the iPhone didn’t. Features like the ability to run multiple apps simultaneously was something that Samsung phones could do long before the iPhone (Beer, Jeff). At this point Samsung now has a product that can compete with the iPhone but what they didn’t have is the image of “cool” that Apple and the iPhone possess. To get this, Samsung would have to drastically change their marketing and advertising approach.

In an interview with Samsung Canada’s vice president of marketing, he stated, “We used to be very product centric in our marketing, show you a big device, show you the techs and specs, the features” (Beer). So what could Samsung do to put them on the same level as Apple in regards to their image? To do this they would need to show the consumer how cool their phones really are, not just tell them what they can do. Realizing this, Samsung began advertising in a different way. Their vice president of marketing stated, “Our advertising over the last 12 months is much more consumer-benefit-focused.

In the Galaxy ads, we don’t just talk about how you can do NFC [near field communication], we show a couple exchanging a message through the glass at the airport for consumers to vividly see that benefit. So we’ve started to create some emotion around the brand, and that’s a big shift for us. ” When people actually see others participating in “acts of coolness” with a company’s product it can greatly improve the perceived utility of that product. It may have taken a company five years to match the level that Apple and the iPhone play on but it seems someone finally figured it out.

Developing utility in a product is only one part of marketing and market segmentation. Another part is finding the right niche. Marketers do this by first finding people with shared characteristics. This means finding people who have the same type of behaviors, people who may live in the same geographic location, people with similar demographics and so on. Marketers will locate these groups of consumers and try to better understand them. They then create marketing messages for these groups in hopes that their advertising can speak directly to their target audience.

Samsung most likely chose to market to people who were in their early twenties to middle aged and had a higher level of education, at least for their Galaxy SIII. For their cheaper, less capable phone they may have chosen a niche of younger aged people with lower incomes. There are many types of segmentation when choosing a market niche. Behavioristic segmentation is one of the best ways to segment people by what they buy. Within behavioristic segmentation there are sup-categories you can use to segment groups of consumers.

User status, usage rate, purchase occasion, and benefits sought are some of the variables by which behavioristic segmentation is determined. When segmenting by user status the traits of people such as how loyal they are to the brands they use, if they generally shop for discounted products, and if they are someone who would be willing to try a different brand because of an advertisement they saw. The usage-rate of a consumer refers to how much they use a company’s product. Consumers are usually placed into light, medium, or heavy user categories.

Marketers measure this because it is easier to get a heavy user to use their product even more than it is to get a light user to use it more. Marketers try to find common characteristics with their heavy users so they can better advertise to them. In must instances only twenty percent of the population will consume eighty present of your product or serves. It is the marketer’s job to find out the common characteristics of that twenty percent. Customers can also be categorized by the times that they buy. This is called the purchase occasion.

One obvious reason for categorizing customers in this way is because there are things that you would only buy in particular seasons of the year. If fact, most businesses experience some form of seasonal highs and lows. This could be due to seasons of the year, holidays, events like summer break from school, or even the Super Bowl (Inc. Staff). The last major behavioristic variable is benefits-sought. This variable focuses on what exact benefits the consumer is looking for when they make their purchase. Things like level of quality, low price, status, or health-conscious.

Often times, consumers are very interested in symbolism. Symbolism is what a product means to the consumer, to their friends, or to society. Benefits-sought is one of the most studied aspects of consumer segmentation through consumer attitude tests. Geographical segmentation is a very simple way to define consumer markets. This is done because people in one area of the country, for instance, Colorado, would not have the same need as someone living is southern California. This is obviously because of the climate differences; someone in southern California is not going to need a snow shovel.

But cultural differences also very by region and this also can change the product used in that area. The size of the area or population can have a big effect on how marketers advertise to an area. A local car dealer in central Missouri advertises, “Buy a truck, and get a gun free! ” This is something you would never hear in a more urban geographic segment. Demographic segmentation is dividing people into groups depending on their sex, age, ethnicity, education, occupation, income, and many other measurable factors.

Many times marketers combine geographic segmentation with demographic segmentation, this is called geodemographics. Marketers do this because there are lots of times when the same class of people act very differently in different geographical areas. Many different demographics can be marketed to at the same time. A common grouping of different demographics would be sex, age and income. Ford Motor Company in known for advertising their Ford-F150’s as “tough” (Ramsey, Mike). But who specifically would want a truck that is tough. Well it seems like everyone!

Mike Ramsey states in an article in the Wall Street Journal that “The F-series is one of the most profitable motor-vehicle lines in the world. In 2011, a third of Ford’s $8. 8 billion global operating profit was generated by F-series sales. ” This may be because they market it as “tough,” which targets many different demographic like most men in their teens to their fifties, almost any ethnicity, people with occupations that might include manual labor and many other demographics. Psychographic segmentation is the division of people by their values, attitudes, personality, and lifestyle.

With psychographic segmentation people are grouped into two dimensions: Primary motivation and resources. Primary motivation is the values that a person believes in, the achievement within someone’s life, or the way someone expresses themself. Recourses refer to factors such as the amount of money they have, their level of intelligence, support from family and friends and so on. Marketers use psychographic segmentation to put people in groups depending on their shared need and wants. This type of segmentation helps marketers better understand the individuals within different demographics.

When marketers understand the individuals better it enables them to show a product’s utility in a way that the individuals will better relate to. A company might know some of the demographics of their target market like, women ages 20 to 30 with mid-level income. But with psychographic segmentation data, the company can better define this group. For example, women ages 20 to 30 with mid-level income who are motivated by the need to feel accepted by other women in the work place. The company could then tailor their advertising in a much more precise way to influence these individuals.

Psychographic segmentation helps a company understand the motivations of their clientele. Because of this it can be very useful in the areas of new product development, target marketing, product positioning, advertising message development, and media planning. After a company has completed the market segmentation process, their next step is to think about target marketing. This is how a company wants to market to its specific market segments and the type of advertising they want to use. The process of target marketing will help a company to develop the content, look, and feel of its advertising.

There are two major steps within the target marketing process. First, selecting a target market and second, developing the right marketing mix. The first part of target market selection is to find were your profits are. Look at your market segments that you have developed to see which one have the greatest potential for profits and which ones are least saturated with competing products. When you have waded through all of the segments and decided on the ones with the highest possible potential, you will have your target market.

These are the customers that the company will specifically design their products for and aim its marketing. The point of going through all of the potential clientele and segmenting them out is so you can develop the target market. When Toyota came out with its Scion line of cars in 2004 they knew exactly who their target market was going to be. In fact, Toyota designed these cars from the ground up specifically for the “Y” generation. These are people born between 1978 and 1994. Toyota wanted to do something specifically for these people for multiple reasons.

They are a huge group, about 75 million and they’re going to be a huge part of the buying market in the next five to ten years; also, this group has not yet adopted a brand (Jones, Roland). Unfortunately, this group tends to be extremely “fickle” and may lose interest if not marketed to in unique ways. Because of this, Scion tries to focus on “underground” marketing tactics and rarely advertises on television (Jones, Roland). Scion developed a virtual model of their cars for the online game called Second Life in an attempt to keep their advertising fresh and aimed at their target market (Jones, Roland).

Scion is a great example of a company who used good market segmentation research to develop a product and target a very large group of consumer who are capable of being in the buying market. Toyota’s Scion had a large enough market segment that they only need one but most companies must have at least two well defined markets segments to be profitable. A company may develop a couple slightly different products. For example, if Scion’s market was not as big as it is, they could develop a cheaper model and market it to the people that might buy cars like the lower end Kias. With price points nder twenty thousand they could engage a whole new demographic. Scion would probably not want to do this because they thrive on the image of “cool” and selling discount cars may be perceived as cheap or “not cool”. Scion worked to develop a brand perception for itself through its underground advertisements and low-key approach. By creating a product concept that is hip, modern and understated, Scion was able to capture fresh, young faces on the car buyer’s market. By appealing to a young adult’s desire to be cutting-edge, Scion was able to develop a strong presence and marketing mix.

The four Ps of the marketing mix include product, price, place and promotion. By establishing a solid, attractive product, Scion was able to pitch its vehicle line at a price that was higher in price than vehicles of similar features. According to Global Insight, individuals in Generation Y seek extravagance and desire a more luxurious way of life (Jones, Roland). Scion offers an expensive look but at a higher than discount price that still feels like you’re a “cut above,” the rest. Placement and promotion have been key marketing mix factors for Scion as they targeted Generation Y through their online marketing tactics.

Their non-traditional marketing campaigns cut directly through to the people they wanted to influence, those of us who have grown up using the internet for almost our entire lives. Analysts have been slightly surprised at Scion’s ability to maintain products that have outperformed similar models in product life cycle. A 2010 report by WardsAuto, an automotive news and analysis group, revealed that the Scion tC model was destined for another six-year lifecycle. Most vehicle models withstand four to five years before they are redesigned in their appearance.

Scion’s tC was able to withstand a longer-than-usual six year stint before its redesign in 2011 (Schweinsburg). It appears that in 2011, the tC was in the midst of its maturity cycle. The new redesign was altered to appeal to men with its newer aggressive look and enhanced horsepower (Schweinsburg). Scion recognized that the former model was primarily purchased by women and sales had slightly stagnated. To enhance the aforementioned features was a selective demand push to reverse the tC’s maturity stage. It appears that this may help the tC avoid the decline stage for the next few years.

Product classifications are an important part to advertising and the product element. There are many ways you can classify a product and the way that you do can change the marketing mix. Two important classifications are the rate of consumption and tangibility, and by purchasing habits. For a product like the Scion tC, it would be considered durable goods in the rate of consumption category. Things like cars, furniture and products that are infrequently bought because of their tangibility are considered durable goods.

When shopping for things like car you spend a lot of time comparing prices and options, quality and style. When classifying a product by purchasing habits, “shopping goods” is where the tC would land. You generally spend more time shopping for things like this that you would for something like food or a magazine, which would be considered “convenience goods”. Because Scion redesigned the tC it may have given the car a new lease on life. The tC was defiantly in its maturity stage and possibly in the decline stage of its life cycle. After the redesign it is safe to say that the car is back into the growth stage.

Toyota knows this, they know the tC product classifications, and they know that it is perceived as a fresh alternative to a luxury car (Jones, Roland). Because Toyota’s marketing team knows this they are easily able to position the car. Product positioning is a very important strategic step in the marketing process. The tC has been positioned as “cutting edge” (Jones, Roland). Something Toyota knows that its market segment is looking for. When a company comes out with a new product they need to make sure they are able to differentiate their product from competitors in their market.

Companies that have products that can easily be differentiated from competitors will capture more of their market segment. Samsung did this by coming out with a phone that was competitive on every level with the iPhone by but differentiated themselves by having multiple levels of phones at different price points (Beer). They also came out with specific advertising that showed people using their phones and doing things with them that you could not do with the iPhone. Things like near field communications and running multiple aps at the same time (Beer, Jeff).

Differences between the iPhone and the Samsung Galaxy SIII like these are called perceptible differences because it is easy for the customer to see the differences between the two competing products. The Scion cars have also been very good at differentiating themselves from other car manufacturers. Not only did they come out with cars specifically designed for the generation “Y” but they also used unorthodox advertising methods that they referred to as “underground” marketing (Jones, Roland). This type of underground marketing greatly helped Scion brand their cars.

Toyota is an extremely well known car manufacturer that is generally known for being reliable and holding its value. Toyota upholds their brand through constantly producing cars that meet these expectations and by using consistent advertising campaigns. So why would Toyota create a whole new brand of car when its current image is already an asset. Toyota and other car companies do this to better market to a targeted segment. The Scion had a very specific group of people in mind when they designed their cars.

They wanted to make a car that spoke to the people who wanted the perks of such luxury cars as BMW and Lexus but might not have the level of income you need to own such a car (Jones, Roland). They backed this up by using manly “underground” advertising methods. Scion took their tC on what they called an “xChange tour” (Schweinsberg, Christie). You could trade in an old tC for a new one. Scion would then sell your old tC and give the money to non-profit charities in the cities where they got the cars (Schweinsberg, Christie). Scion also came out with a movie-preview-style advertisement that would air in theaters.

They filmed it in 3D and would hand out 3D glasses with the Scion brand on it (Schweinsberg, Christie). Both of these advertising strategies are great examples of branding a product in a way that their target audience would greatly connect with. The cost of a product is a very important part of the marketing mix. Companies like Apple do not compete on price. Instead they use their image to create a perception that there product is better than others. With companies coming out with phones that can match the capabilities of the iPhone but at discount prices, Apple could use this to separate their brand as the more elite phone.

Apple generally does not put the iPhone on sale and has a higher price point then competitors like Samsung. You can get a new iPhone 5 16GB (their base model) with a two year contract for $199 and the price can go all the way up to $399 for the 64GB iPhone (Clay, Kelly). Apple uses a set-price strategy and so far it has worked well. But now that other companies are able to match the iPhone on a technical level you may start to see changes in Apple’s approach on sales and discounts (Beer, Jeff). In contrast, Samsung has come out with multiple phones all at different price point and these phones can be found at discount prices.

Samsung ran a special for its top selling Galaxy phones. For a three year contract, the phone was free to the consumer (Beer, Jeff). The distribution methods also differ greatly between Apple and Samsung. Apple began as a direct distributor only. This means that you had to go to an “Apple Store” to get any Apple products. Apple ran their business like this for quite some time. Recently, Apple started distributing their products through select retailers such as Best Buy. Samsung on the other hand did quite the opposite.

Samsung has always been available through indirect distribution at retailers like Best Buy and even Wal-Mart but recently Samsung has tried to adopt a more Apple-like direct distribution process. Samsung as already opened up its first “Samsung Store” in Canada and has plans to open more (Beer, Jeff). Now that both Apple and Samsung are engaged in both direct and indirect distribution you may see their more competitive sides come out. Apple can see that Samsung is becoming a real competitor and you can tell by the number of lawsuits Apple has against Samsung. There are different lawsuits going on all over the world between the two.

In August of 2012, a California court awarded Apple $1 billion in damages after ruling against Samsung in a copyright infringement case (Beer, Jeff). Samsung has since took the case back to the courts due to conflict of interest by the jury foreman (Beer, Jeff). Ironically, all of these lawsuits are going on while at the same time Samsung is Apple’s single biggest parts supplier for both the iPhone and the iPad (Beer, Jeff). The marketing and communications aspect of all companies from Scion to Samsung are the planned messages that they create to support their marketing objectives.

Scion used an effective sales promotion when it came out with the xChange program. Scion knows that generation “Y” consumers tend to notice things like charitable donations. Because of this, Scion could tap the technological essence of their target markets while simultaneously doing good in the local communities of their customers, offering a one-of-a-kind sales promotion and creating brand awareness. By using genuine, original methods of targeting their key market audiences, brands such as Scion and Samsung have climbed to the top and maintained their market share.

More importantly to recognize, is that these two brands didn’t keep the same strategy. They launched a product, assessed what wasn’t and what was working, and went back to the drawing board to modify their approach. Both Scion and Samsung have been able to take a step back and learn from their experiences to generate an even better product and marketing approach than before. I believe that this is a telltale sign of a successful marketing program. You must be nimble, proactive, and resourceful while sticking to your core values and mission of the company. Most importantly, you cannot give up.

Works Cited

Beer, Jeff. “Apple Smasher.” Canadian Business; Vol. 85 Issue 17 (2012): p54-57.
Inc. Staff. “Seasonal Businesses.” Ink. Magazine.” N.p. Nov 9, 1999. Web. Nov. 13, 2012.
Ramsey, Mike. “Ford’s Trade-In: Truck to Use Aluminum in Place of Steel”. Wall Street Journal.
July 26th, 2012. Web. Nov. 13, 2012. Jones, Roland. “Can Toyota’s Scion keep its edge?” March, 21 2007. Web. Nov. 14 2012. keep-its-edge/#.UKWwI8XA_90
Schweinsberg, Christie.” Scion tC Headed for Another 6-Year Lifecycle”. Wards Auto. Aug. 6,
2010. Web. Nov. 14, 2012. Clay, Kelly. “The Real Cost Of An iPhone 5”. Forbes. Sep. 12, 2012. Web. Nov. 15, 2012.

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