Introduction
Have you ever wondered why marketers focus on specific markets and how they identify these markets? Consider universities: how do they determine which students to reach out to regarding degree programs? What criteria or variables do they use, such as location, age, or academic performance? Do they employ different marketing strategies for postgraduate and undergraduate students? And what about international versus domestic student groups—does this difference impact the efficacy of marketing higher education services to students?
This essay provides a concise response to the question by introducing market segmentation and its methods. It further explains the process of identifying market differentiation. Additionally, it discusses how to target a specific market and the criteria for making effective judgments. The essay also presents targeting approaches and strategies for implementing market positioning. Lastly, two examples are provided to support the aforementioned points.
The purpose of this essay is to offer a straightforward explanation of market segmentation to readers.
Market segmentation
Market segmentation involves dividing a market into groups of customers who have similar needs. In other words, it entails splitting a mass market into identifiable segments with common characteristics and needs that respond similarly to marketing actions. The objective of market segmentation is to optimize limited resources and tailor the elements of the marketing mix (price, distribution, products, and promotion) to meet specific needs of different customer groups. Due to constraints on resources, companies cannot cater to all individuals with all possible products at all times. Instead, the best approach is to offer selected products to specific groups most of the time. This enables companies to effectively address the unique needs of particular customers (RIES and TROUT, 1972).
There are two main approaches to market segmentation. The breakdown method views the market as composed of customers who are essentially the same, aiming to identify groups with slight differences. In contrast, the build-up method considers each customer in the market to be different and seeks similarities among them. It is interesting that these two methods have become somewhat similar recently. Both methods share an objective: identifying market segments with identifiable differences between segments and similarities among members within each segment.
According to segmentation researchers, there are two different methods: a priori and post hoc segmentation methods. The former involves pre-determined segments based on the researchers’ judgment, while the latter deduces segments from research.
For a priori segmentation, there are seven stages: selecting the base for segmentation (e.g. demographics, geographic), selecting segment describing words, sample design (usually stratified sampling methods or occasionally quota sampling), data collection, forming segments based on respondent categories, setting up segment profiles using multivariate statistical methods (e.g. multiple discriminate analysis, multiple regression analysis), and translating findings into specific marketing strategies.
On the other hand, for post hoc segmentation, the process is slightly different: sample design (mostly quota or random sampling methods), identification of suitable statistical analysis methods, data collection, data analysis to form distinct segments using multivariate statistical methods, establishing segment profiles using multivariate statistical methods (e.g. factor analysis) and selecting segment descriptors, and translating findings into specific marketing strategies.
Establishing an effective segmentation relies on every step highlighted above, with particular emphasis on the extensive data collection from customers. It is crucial for companies to obtain accurate information in order to determine appropriate offerings for the target market.
Identifying consumer characteristics
To effectively segment markets, it is crucial to have knowledge about customers, collect relevant data, and utilize market information in branding. Typically, companies utilize the following segmentation bases or variables for market segmentation: profile (such as understanding who the target market is and their location), behavioral (including knowledge about how, when, and where the target market behaves), and psychological criteria (exploring the reasons behind the target market’s behavior). (Elizabeth C. Thach, 2006)
To fully comprehend the figure above, a thorough analysis will be conducted by assessing each element individually. For further clarification, please refer to the table below:
Table: Detailed segmentation criteria for consumer markets
- Base type Segmentation criteria explanation profile
- Demograhic Age, sex, occupation, level of education, religion, social class and income characteristics etc., this item determines a potential buyer’s ability to purchase a product or service
- lifestage Based on the fact that people need different products at different stages in their lives ( childhood, adulthood, young couples, retired)
- geographic The needs of potential customers in one area are different from those in another area, due to climate, customs etc.
- geodemographic A relationship between the type of housing and location that people live in and their purchasing behaviours.
- psychological Psychographic or lifestyles From customers’ activities, interests and opinions, we can know individual lifestyles and behaviour patterns, and this in turn affect their buying behaiviour and decision-making processes.
- Benefits sought From customers’ motivations in purchases, we can know the benefits customers get from product use.
- behavioural Purchase/transaction For analyzing who buys what, when how often, how much they spend, and channel etc., also rich data for identifying ‘profitable’ customer segments.
- Product usage Usage frequency, usage time, usage situation for finding segments
- Media usage What media channels are used, by whom, when, where, and for how long can give insight into the reach potential for certain market segments via differing media channels.
Understanding customers’ hobbies, motivations, purchasing power, and customs is crucial for companies to segment the market effectively and create unique products for each customer group. One way to segment the market is by considering customers’ life stages, as different stages require different products and services. A notable example is the milk powder market in China, where products are categorized based on age groups, such as baby-oriented milk powder, pregnant-women-oriented milk powder, and elderly-oriented milk powder. Well-known brands like SANLU, Wondersun, YINQIAO, and YILI excel in this market segmentation strategy.
Targeting target markets
Companies are provided with a judgement to determine the selected markets and which ones should be ignored. To ensure effective market segmentation, all segments must meet the following criteria:
- Distinct—is each segment clearly different from other segments?
- Accessible—can buyers be reached through right promotional programmes and distribution channels?
- Measurable—is the segment easy to identify and measure?
- Profitable—is the segment sufficiently large to provide a stream of constant future revenues and profits?
The evaluation of market segments can be approached in two ways. One approach, referred to as DAMP, is often used for the convenience of readers. The other approach involves rating different segment attractiveness factors, such as market growth, segment profitability, segment size, competitive intensity within the segment, and the cyclical nature of the industry.
Targeting approaches
Below, we will provide a detailed introduction to the four different approaches to target marketing: undifferentiated, differentiated, concentrated or focused, and customized.
There is a non-distinct strategy where market segments are not differentiated. The market is seen as one large market. For instance, the Olympics is marketed to a global market without segment differentiation.
The recognition of multiple attractive market segments and the planning of specific marketing strategies for each segment is an essential component of a differentiated targeting approach adopted by marketing companies.
A concentrated or niche marketing strategy acknowledges the existence of market segments but chooses to focus on a small number of them. This approach is commonly adopted by companies with limited resources available to fund their marketing efforts.
The final approach is to develop a customized targeting strategy for each customer instead of for each market segment.
One option is for companies to choose to focus on specific markets.
Changing the position of an element
After analyzing customer characteristics and segmenting the market to select target markets, the next step is brand positioning within these target markets. Brand positioning is crucial as it enables products to differentiate themselves from one another, giving consumers a reason to purchase. Positioning involves two main components: the first component focuses on the physical attributes, functionality, and capabilities of the brand. The second component entails communicating how consumers perceive the brand compared to competing brands in the marketplace. Creating associations between positioning variables and the brand name in consumers’ minds through a brand strategy is the most effective way to position a brand (JORGE A. RESTREPO, 2005). Marketing communication can be utilized to position brands either functionally or expressively.
Market dynamics are constantly changing due to technological advancements, evolving customer preferences, and the introduction of new competitor products. Consequently, companies are adopting repositioning strategies to succeed in a fiercely competitive environment. Repositioning can be achieved through four primary approaches, and occasionally even the brand itself requires adjustments prior to relaunch.
Inform the identical market regarding the revised edition of the product subsequent to changes made to its physical characteristics.
Revise the method of conveying information regarding a product to the original intended audience.
Modify the target market and provide the identical product.
Modify both the product attributes and the target market.
Example1: Mobile phones are widely popular among young people, available in different colors and styles. The growing popularity of these devices has resulted in fashionable designs and a wide variety of options. Moreover, mobile phones can be seen as a status symbol, reflecting social standing through their design, features, and price. Manufacturers have shifted from targeting all customers to catering to specific market segments by producing various types of handsets.
NOKIA excels in market segmentation with its mobile phones, which are known for their smart and compact structure, as well as their diverse styles that cater to different groups of people. For instance, NOKIA offers mobile phone casings in various colors such as red, blue, green, and yellow. These casings can be easily replaced to suit individual preferences, making them particularly appealing to young people. The phone’s design is also versatile and smooth, with options like car-shaped and backpack-shaped models available. Moreover, NOKIA takes into consideration the diverse hobbies and consumption habits found in different regions around the world. For example, a few years ago, metal-covered mobile phones were popular in China, while backpack-shaped phones were in high demand in Japan.
MOTOROLA, another brand, focuses on market segmentation from different angles. It prioritizes personalization and time-related features. After conducting a 3-year investigation in 35 countries, MOTOROLA has categorized the market into four segments: sci-tech-oriented, time-managing-oriented, image-oriented, and personal-exchange-oriented. As a result, MOTOROLA has established four brands to cater to these particular customer groups.
Each mobile phone manufacturer is dedicated to market segmentation and achieves positive outcomes.
Example 2: relocating the Yorkie bar
The chocolate bar brand Yorkie was originally marketed as a chocolate bar for men. It was established in 1976 with a lorry driver symbolizing masculine values. However, this association became outdated and lost relevance with modern consumers, causing the brand to lose market share.
Market research was conducted to understand societal perspectives on various issues, particularly during a period when the media highlighted the increased success of women in education and the workplace. This coincided with the growing popularity of being politically correct (PC), which further highlighted the rise of feminism and diminished the perceived importance of men.
A repositioning of the brand was necessary due to the influence of other brands using masculinity as a positioning strategy. This encouraged the continuation of targeting men only. Examples within the alcohol market include Vinnie Jones representing Bacardi, a ‘cheeky chappie’ for Smirnoff Ice, and WKD’s ongoing appeal to a rogue identity.
The campaign known as the ‘not for girls’ campaign was created within this context and utilized various media platforms such as television, press, posters, online platforms, sponsorship idents, and public relations. The campaign achieved extensive coverage and was prominently featured in major newspapers and radio stations. More than 50 newspaper articles and over 40 radio segments were dedicated to the campaign. The situation at Liverpool railway station played a significant role in generating this coverage. When a sampling team declined to provide chocolate bars to women passing by, it sparked allegations of sexism against Yorkie, leading to its subsequent prohibition.
The ‘not for girls’ campaign led to a more than 40% increase in Yorkie’s market share during the advertised period. Additionally, over the long term, base sales have experienced an average growth of 20%.
There are several drawbacks associated with market segmentation.
Although market segmentation is valuable in enabling companies to gain a competitive edge, it is not without its flaws. Market segmentation has faced criticism for the following reasons:
Compared to a customized approach, it is not possible for it to fully meet every customer’s needs.
Although the concept of product differentiation is connected to the need for developing competing offerings, market segmentation has not emphasized the significance of segmenting based on differentiating the offering from competitors.
l How to determine the effectiveness of market segmentation processes is not yet available.
Conclusion
Market segmentation has become a valuable strategy in today’s highly competitive business environment. The crucial first step in successful market segmentation is to thoroughly analyze customers’ characteristics from every angle. By collecting and analyzing this data, businesses can then identify specific target markets and establish appropriate strategies for reaching them effectively. Ultimately, a brand’s positioning in the market depends on its strategy to cater to the desired target audience. However, it is important to acknowledge that the market is constantly changing due to various factors like technology advancements, evolving consumer preferences, and competition. Therefore, market segmentation is not a flawless approach and continuous development is necessary for optimal results.
Reference
Abratt, R. (1993), ‘market segmentation practices of industrial marketers’, industrial marketing management, 22, 79-84
The article by Elizabeth C. Thach and Janeen E. Olsen (2006) discusses market segment analysis for targeting young adult wine drinkers in the publication Agribusiness, Vol. 22(3), pages 307-322.
Geraldine Fennell and Greg M. Allenby (2004) assert that combining market definition, market segmentation, and brand positioning can be a powerful strategy in marketing research (Winter 2004, pp. 28-34).
Beane and Ennis (1987) conducted a review on market segmentation in the European Journal of Marketing. The article is titled “Market segmentation: a review” and was published in volume 32, issue 5, with page numbers 20-42.
Day, G., Shocker, A. D., and Srivastava, R. K. (1979), ‘Customer-orientated approaches to identifying product markets’, Journal of marketing, 43, 4, 8-19.
Green, P.E. (1979), ‘a new approach to market segmentation’, business horizons, Feb., 61-73
Subhash Lonial, Dennis Menezes, and Selim Zaim conducted a study in 2000 titled ‘Identifying purchase driving attributes and market segments for PCs using conjoint and cluster analysis’ in the Journal of Economics and Social Research. The study was published in volume 2, issue 2 of the journal and can be found on pages 19-37.
Michman, R. D. (1991) Lifestyle segmentation New York: Praeger.
Christensen, C., Cook, S., and Hall, T. (2005), ‘marketing malpractice: the cause and the cure’, Harvard Business Review, 11.
Ries, A and Trout, J. (1972), ‘the positioning era cometh’, Advertising Age, 24 April, 35-8
