You must have ever wondered why marketers only target certain markets and how these markets are identified. Think about universities: how do they identify which students to touch with about degrees schemes? What criteria or base (variables) do they use? Do they base it on where you live, your age, or your previous schooling scores? Do they market to postgraduate and undergraduate groups differently, what about international and domestic student groups—-is this difference important for the effective marketing of higher education services to students?
This essay gives a brief answer to it. Firstly it introduces market segmentation and its methods; then it describes how to identify market differentiation. Thirdly, it introduces how to target a market and the judgement criteria and also puts forward targeting approaches and how to implement the positioning of the target market as well, finally 2 examples are given to support the above view.
This essay is intended to provide a simple understanding about market segmentation for readers.
Market segmentation is the division of a market into different groups of customers with similar needs. Or to express it in another way, market segmentation is the division of a mass market into identifiable and distinct groups or segments, and each has common characteristics and needs and displays similar response to marketing actions. The purpose of market segmentation is to leverage scarce resources; or to ensure that the elements of marketing mix (price, distribution, products and promotion) are designed to meet specific needs of different customer groups. For companies have limited resources it is not possible to produce all possible products for all the people all the time. The best way is to provide selected offerings for selected groups of people most time. This allows companies to focus on particular customers’ needs in the most efficient and effective way (RIES and TROUT, 1972).
There are two main approaches to segmenting markets. The first adopts the point of view that the market is considered to consist of customers which are basically the same, so the task is to identify groups which share detail differences. This is referred as the breakdown method. The second approach considers a market to consist of customers that are all different, so here the task is to find similarities. This is known as the build-up method. Nowadays these 2 methods become similar in some way. The aim of both methods is to identify segments in the market where identifiable differences exist between segments and similarities exist between members within each segment.
Other segmentation researchers have distinguished between a priori or post hoc segmentation methods (Green, 1979). For the former, segments are predetermined using the judgment of the researchers beforehand (i.e. a priori). The procedure encompasses 7 stages as followed: ?seletion of the base (a priori) for segmentation (e.g. demographics, geographic); ?selection of segment describing words; ?sample design—mostly using stratified sampling methods and occasionally a quota sample; ?data collection; ?forming the segments based on a division of respondents into categories; ?setup of the profile of the segments using multivariate statistical methods (e.g. multiple discriminate analysis, multiple regression analysis); ?translation of the findings about the segments’ size and characteristics into specific marketing strategies. For the latter, the process is slightly different from the former, the segments are deduced from the research and the flow is as follows: ?sample design—mostly using quota or random sampling methods; ?identification of suitable statistical ways of analysis; ? data collection; ?data analysis: forming distinct segments using multivariate statistical methods; ? establishing the profile of the segments using multivariate statistical methods (e.g. factor analysis ) and selection of segment descriptors; ? translation of the findings about the segments’ size and characteristics into specific marketing strategies.
Every step of the above is important in establishing an effective segmentation, especially the data collection must be from customers in a wide scope. Only through the accurate information can companies know what offerings can be provided to the target market.
How to identify the characteristics of consumers
To segment markets, we must know about customers and collect the data and use market information in brands. As shown in the following figure, companies normally use the following segmentation bases(variables) for segmenting market: profile (e.g. who are my market and where are they?); behavioral (e.g. where, when, and how does my market behave?); and psychological criteria (e.g. why does my market behave that way?). (Elizabeth C.Thach, 2006)
In order to understand the above figure in details, let’s analyze the picture item by item, see the following table for reference:
Table: Segmentation criteria for consumer markets in details
- 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.
Only grasping the information on different groups of customers’ hobby, motivations, purchase power and customs etc. can companies segment the market and produce unique products to the different customers with maximum efficiency. For example, we use life stage as a way to segment market, which is based on the premise that people at different stages in the lifecycle need different products and services. The milk powder market in China is a good example for this, the products are classified into different kinds catering for different age levels, such as baby-oriented milk powder, pregnant-women-oriented milk powder, and old-oriented milk powder, etc., the famous brands include SANLU, Wondersun, YINQIAO, YILI, etc., they do very well in market segmentation.
Target markets (targeting)
Here is a judgement provided for companies to determine which markets are selected and which ones should be ignored. In order to make market segmentation to be effective, all segments must be:
- 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?
This approach to the evaluation of market segments is often referred to by the DAMP acronym, for readers easier to remember. The other approach to evaluating market segments uses a rating approach for different segment attractiveness factors, such as market growth, segment profitability, segment size, competitive intensity within the segment, and the cyclical nature of the industry.
Four differing approaches can be used to target marketing, they are undifferentiated, differentiated, concentrated or focused, and customized target marketing approaches. And they are introduced in details as followed for you to grasp:
An undifferentiated approach: there is no difference between market segments, and the market is regarded as one mass market. For example, the Olympics is marketed at a world market, for there is limited segment differentiation.
A differentiated targeting approach does recognize that there are several market segments to target, each being attractive to the marketing company. In order to exploit market segments, a marketing strategy is formed for each segment.
A concentrated or niche-marketing strategy recognizes that there are segments in the market, but implements a concentrated strategy by focusing on just a few market segments. This is often adopted by firms that either have limited resources by which to fund their marketing strategy.
The final approach is a customized targeting strategy in which a marketing strategy is developed for each customer as opposed to each market segment.
Companies can select one of them to target markets.
Positioning and repositioning
Then, after we analyze customers’ characteristics and segment the market and select specific target markets, now we go to the next stage—-position a brand within the target market(s). Positioning is important because it is the means by which products can be differentiated from one another and so give consumers a reason to buy. Positioning encompasses 2 fundamental elements: the first concerns the physical attributes, the functionality and capability that a brand offers. The second positioning element concerns the way in which a brand is communicated and how consumers perceive the brand relative to other competing brands in the marketplace. The best way for positioning is brand strategy which builds barriers to protect the selected position by creating associations of the positioning bases (variables) with the brand name in the mind (JORGE A. RESTREPO, 2005). Marketing communication can be used to position brands, to position a brand either functionally or expressively. Functionally positioned brands emphasize the ego, social, and hedonic satisfactions that a brand can bring.
Markets change and some change quickly. Technology, customer tastes, and competitors, new products are reasons for these changes. So repositioning strategies is increasingly adopted by companies nowadays to win in competition. There are four main ways to approach repositioning a product. In some cases, the brand needs to be adapted before relaunch.
l Change the tangible attributes and then communicate the new product to the same market.
l Change the way a product is communicated to the original market.
l Change the target market and deliver the same product.
l Change both the product (attributes) and the target market.
Example1: at present, all kinds of mobile phone can be seen anywhere in hands of youngs, with different colours and styles. And more and more handsets appears in people’s hand, becoming a fashion. With handset popular, its shape evolves rapidly, and style is richer, mobile phone can also produce the concept of grade due to its style, functionality, and price. The manufactures started with considering customers as a whole body, then develops to segment the market (customers) and design different kinds of handsets for customers.
in market segmenting, NOKIA does well; its mobile phone is featured by its smart and compact structure as well as multistyles and popular with different groups of people. For example, the casing of NOKIA mobile phone is made different in color, such as red, blue, green, yellow etc. and the casing can be replaced at one’s will, suitable for the young’s tastes. The shape is diversified and smooth with car-shaped, backpack-shaped available etc. meanwhile, NOKIA pays attention to understand different hobbies and consumption habits in different areas over the world, e.g. a couple of years ago, metal-covered mobile phone is popular in China, while the backpack-shaped is well sale in Japan.
Another brand MOTOROLA also segments the market from another aspects. It pays more attention on demand personalization and times-feature, and after 3- year-long investigation on 35 countries, MOTOROLA divides the market into 4 kinds: sci-tech-oriented, time-managing-oriented, image-oriented and personal-exchange-oriented, accordingly, and setup 4 brands to meet the 4 kinds of customer groups.
Each mobile phone manufacturer gives all efforts to market segmentation and each one gets good results.
Example 2: repositioning the Yorkie bar
The confectionery brand Yorkie was originally positioned as a masculine chocolate bar, established where the brand was launched in 1976 using a lorry driver as a symbolic representation of masculine values. However, this association became outdated and lacked relevance with contemporary consumers, and the brand was losing market penetration.
Considerable market research was undertaken to understand how society viewed general issues, especially at a time when the media were promoting stories about increased femini success at school, university, and at work. The impact of this , at a time when being politically cored (PC) was gaining momentum, was to emphasize the rise of feminism and to decrease the perceived role of men.
A new campaign was required to reposition the brand. At the time some brands were using masculinity to position themselves and this was seen as a useful indicator to continue using the men only orientation. In the alcohol market, for example, Vinnie Jones was fronting the Bacardi campaign, Smirnoff Ice used a ‘cheeky chappie’, and WKD have continued to convey a rogue identity appeal.
The ‘not for girls’ campaign was developed out of this background and used TV, press, posters,online, sponsorship idents, and PR. The campaign received a vast amount of coverage and featured in all the major newspapers and radio stations. There were over 50 newspaper articles about the campaign and over 40 radio pieces. This coverage was helped following an incident at Liverpool railway station. A sampling team refused to give bars to passing women and as a result Yorkie was branded as sexist and promptly banned.
The result of the ‘not for girls’ compaign was that Yorkie’s market share increased by over 40 per cent during the advertised period and over the longer term base sales have increased by an average of 20 per cent.
Some limitations of market segmentation
While market segmentation is a useful tool for company to win competition, it is not a perfect process. Market segmentation has been criticized for the following reasons:
l Compared to customized approach, it can’t meet every customer completely.
l Although the product differentiation concept is linked to the need to develop competing offerings, market segmentation hasn’t stressed the need to segment on the basis of differentiating the offering from competitors.
l How to measure the effectiveness of market segmentation processes are not ye available.
Market segmentation is a good way to win in intense competition nowadays. To identify customers’ characteristics from all aspects is the key step in market segmentation, then using the data collected, we can target markets and determine targeting approaches for products, and finally we can position a brand, brand strategy is the way to the target market. And repositioning is important, since market changes consistently due to technology and tastes and competitors etc. certainly market segmentation is not a perfect approach and it needs further developments.
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