Where there are differences in customer needs or wants, or in their attitudes and predispositions towards the offerings on the market, between groups or individuals in the market, then there are opportunities to segment the market (Hooley et al., 2017).
Market segmentation is the process by which customers in markets with some heterogeneity can be grouped into smaller, more similar or homogenous segments. This allows you to adjust market offerings in various ways to more closely meet the requirements of different customers (Smith, 1956). Once you have found your market segment, which is a segmented category of customers who have similar likes and dislikes, you are then able to market your product/service directly to these target segments.
Segmentation of a market is done by identifying the most productive bases for dividing a market, identifying the customers in different segments and developing segment descriptions, which will then provide a choice of target markets for the company. It then must evaluate the attractiveness of different market segments, parts of segments (niches) or groups of segments and choose which should be targets for its marketing campaigns (Hooley et al., 2017). For segments to be useable, however, they should be substantial, accessible, measurable, stable, useful (SAMSU).
The variables used in consumer and industrial/B2B market segmentation can be split into three main classes:
1. Background customer characteristics
These do not change from one purchase situation to another, and whilst they are customer specific they are not specifically related to their behaviour in the particular market of interest. Includes Demographic Characteristics (such as gender, age, subculture and geographic location), Socio-Economic Characteristics (such as income, occupation and social class), Consumer Life Cycle (bachelor, Newly Wed etc), Geo-Demographics (ACORN, affluent achievers etc), Personality (openness, agreeableness etc), Lifestyle (activities, self-perception etc)
2. Customer attitudes
These attempt to draw a causal link between customer characteristics and marketing behaviour. Includes Benefit Segmentation (rate of interest, convenience, style etc) and Perceptions and Preferences (individuals who view the products in a similar way and require similar features or benefits)
3. Customer behaviour
This is the most direct way of segmenting markets and is based on the behaviour of consumers in particular markets. Includes Purchase Behaviour (innovators, loyalty levels), Consumption Behaviour (usage patterns and consumption volume), Communication Behaviour (opinion leaders, formers, followers), Marketing Mix Response behaviour (deal sensitive groups, high advertising sensitivity), Relationship-Seeking Characteristics (those seeking transaction versus more collaborative relationships)
There are two types of segmentation approach a company can take, ‘A priori' (or off-the-shelf) methods and ‘Post-Hoc' methods. A priori methods are the easiest way of segmenting markets and can be split into both single variable and multiple variable methods. They use existing data such as demographic or socio demographic and ACORN, meaning most of the work is already done for the company. An added advantage is that consumer market studies enable managers to identify heavy users of a product group and relate this directly to their media usage and advertising strategy (Hooley et al., 2017), similarly data collected by organisations such as TGI Surveys can be used to help further segment markets. E.g. Lego
Post-hoc is undertaken with the aim of finding naturally existing segments, as opposed to pushing customers into predefined categories. This means the company has no knowledge of the segments that will emerge as a result of analysis and that data can be collected on anything in order to understand the make-up of their market, and how it might be meaningfully segmented, however the data collected must be valid and of value in splitting segments.
DISCUSS WHY THIS IS IMPORTANT TO STRATEGY AND HOW PROBLEMS MIGHT OCCUR IF THE PROCESS IS NOT EFFECTIVELY UNDERTAKEN (400)
The purpose of going through this analysis is to match company capabilities with market opportunities. A company can balance the attractiveness of a market segment against how good they are at meeting the need of that segment, for example if a company has particularly strong social media presence, it can choose a segment to target that frequently uses social channels and is interested in receiving marketing communications through social media.
After the company has chosen which target to segment, it can hone its product down to match exactly what the segment wants, as opposed to what the segments they are not targeting want. It enables larger companies to more accurately design and target particular products, thus building a stronger competitive position. This means companies avoid targeting standard products to customers who would prefer a tailored product, for example when Apple introduced the iPhone 5C, which came in a wide range of colours as opposed to its usual models which were only available in black, silver and gold.
It is crucial to strategy because if the company gets it right then it is matching the needs of its chosen segments exactly, whereas if it gets it wrong it will end up making a product that doesn't suit anybody in particular. An example of this would be if Marmite were to change its existing ingredients. As a company with a very niche target market, it would risk losing its current customers whilst still not appealing to the wider market, therefore leaving it with no customers at all.
Segmenting and targeting are helpful for firms with limited resources, who often have to make ‘trade-off' choices as they are unable to serve all the needs in the market. These choices are based a balance of internal strengths and external opportunities discovered through a SWOT analysis, by understanding merits of different market segments and the strengths of the firm being able to serve these segments. Waitrose faced this and as a result chose to target local geographic segments, by covering only Southern England until 2000, despite the wider geographical potential.
Competitive advantages can be lost to competitors if a company fails to take advantage of them, a company practising a mass market strategy in a clearly segmented market against competitors operating a focused strategy can find itself falling between many stools. There are substantial po (Hooley et al., 2017)
...(download the rest of the essay above)