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Rediscovering Market Segmentation

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Introduction: Through this paper, the authors Daniel Yankelovich and David Meer direct the attention to the true purpose of Market Segmentation – “Discovering Customers whose behaviors can be changed or whose needs are not being met”. Through analysis the authors describe how the Segmentation, if properly applied, would guide companies in tailoring their products & services to the groups most likely to purchase them. Good segmentations identify the groups most worth pursuing – The Underserved, the dissatisfied and those likely to make first time purchase.

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Good Segmentations are “Dynamic” in the sense that they recognize that the 1st-time purchaser may become underserved or dissatisfied if his/her need changes. Historical Perspective – Pervasiveness of Psychographic Segmentations: By the 1970s, product innovation slowed down and products became less distinct. Creative departments in companies shifted their focus from products to customers. Instead of developing products that met intense unmet needs, companies made product refinements/enhancements and then tried to find customers who were already susceptible to their allure.

Since the attraction of products was based not on functionality but on things like status, Psychographic segmentations based on psychological variables such as attitudes, values, fears became pervasive. The drift away from “Functional” Segmentations and towards “Emotional” Segmentations was accelerated by advent and wide acceptance of programs like Values & Life Styles (VALS) program which classified individuals according to 9 enduring psychological types.

Pitfalls of Psychographic Segmentations: Psychographic Segmentations do little to enlighten companies about important questions – which markets to enter or what kind of offers to make, how products should be taken to market and how they should be priced. These segmentations can be used for brand reinforcement, but the attitudes that such ads invoke are not the drivers of commercial activity. Those tend to be things like purchasing history, product loyalty and a propensity to trade up, all of which are informed by attitudes and values that lead consumers to view particular offerings differently.

For example, the advertising campaign for Hummer tried to stress on sex appeal, increased status or similar emotional aspects and failed to generate a lot of sales. The company failed to identify a new breed of consumer that demands more functionality than appeal. In contrast, Toyota has been able to identify its customers’ needs so well that Toyota Customer are one of most loyal (80%) in the industry. However, GM’s focus on functionality of OnStar did help GM sell more cars in the last decade to the customers who wanted functions that were very intuitive and easy to use

Meaningful Segmentations: In order to construct segmentations that are both revealing and applicable, a lot of data collection and analysis is required in part of the company. Companies need to answer questions such as: Which features matter to customers? Which customers are willing to pay higher price or demand lower ones? Relative advantages and disadvantages customers identify in existing offerings? Emerging social trends?

Meaningful Segmentations will: -Reflect Company Startegy: Segmentations help a company meet its strategic challenges by identifying groups of potentially interested or susceptible customers sufficiently numerous and lucrative to justify pursuit. For example, McDonald’s recent profit increase has been due to its ability to determine new segment wanting healthier menu alternatives and strategizing accordingly. -Indicate sources of Profit/Revenue: Segmentations help a company understand what makes its best customers as profitable as they are and then seek new customers who share at least a couple of those characteristics.

In my opinion, Obama’s successful campaign was due to its ability to pursue young people (customers) via social networking. -Identify consumers’ values, attitudes and beliefs: Meaningful segmentations help companies identify changing needs of customers with customer’s values and environment and strategize accordingly. For example, Babies R Us’ decision to offer cleaning supplies was in response to identification of changing needs of its customers. Focus on Actual Customer behavior: Meaningful segmentations encompass the predictive power of actual purchase behavior – heaviness of use, brand switching, retail format or channel selection. When Apple decided to introduce iPhone with different purchase model it identified its customers need for change and Apple’s introduction of iPhone 3GS shows how keenly Apple analyzes its Customers’ behaviors -Make sense to top executives: Meaningful Segmentation will always make intuitive sense to senior managers. – Accommodate or nticipate changes in markets or behavior: Effective segmentations are dynamic since they concentrate of consumers’ needs, attitudes and behavior which can change quickly and they are reshaped by market conditions. The decision by many fresh food stores to offer Organic Produce was in response to changing consumer behavior. This strategy has helped these stores to capture a market segment that would have otherwise gone to Whole Foods for their needs. And the strategy of Whole Foods to display origin of produce was in response to needs of consumers who want to buy locally grown produce Gravity of decision” spectrum: This focuses on form of consumer behavior that should be of greatest interest to marketers – The relationship of consumers to a product or product category, not to their jobs, their friends, their family, or their community. Effective segmentation should take into account the gravity of a consumer’s buying decision. Knowing how important a product or service is to customers will help company decide which of the customers’ expectations are most likely to reveal their willingness to purchase the product. Shallowest Decisions: Segmentations should try to find out buying and usage behavior, willingness to pay premium for higher quality, degree of brand loyalty. -Middle-of-the-Spectrum decisions: Segmentation should try to find out Consumer’s needs, social status, self-image and lifestyle -Deepest Decisions – Segmentation should try to find out core values and beliefs related to buying decision. Conclusion: Organizations which employ effective Segmentation are able to respond more quickly and effectively to changing market conditions, develop insights into where & how to compete, and gain maximum benefit of scarce marketing resources.

Cite this Rediscovering Market Segmentation

Rediscovering Market Segmentation. (2018, Feb 17). Retrieved from https://graduateway.com/rediscovering-market-segmentation/

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