Evaluating Market Segments
Segmentation involves classifying people into homogeneous groupings and determining which of these segments are viable target markets.
Illustrate the purpose and method of evaluating market segments
- Market segmentation involves dividing a broad target market into multiple subsets of consumers with common desires and common applications for the product. Marketing campaigns are designed and implemented to target these specific customer segments.
- This premise of segmentation holds that people can be most effectively approached by recognizing their differences and adjusting to them. By emphasizing a segmentation approach, the exchange process should be enhanced, since a company can more precisely match the needs and wants of the customer.
- A company following a concentration strategy focuses on one specific market segment, allowing it to understand the segment and focus on it fully, lowering costs. A multisegment strategy targets multiple segments and thus a larger market, but incurs higher marketing costs.
- market segmentation: The process of dividing a broad target market into subsets of consumers who have common needs or desires, as well as common applications for the relevant goods and services.
The Segmented Market
While product differentiation is an effective strategy to distinguish your brand from competitors, it also differentiates your own products from one another. For example, a company such as Franco-American Spaghetti has differentiated its basic product by offering various sizes, flavors, and shapes. The objective is to sell more product, to more people, more often. Kraft has done the same with their salad dressings; Xerox with its multitude of office products. The problem is not competition; the problem is the acknowledgment that people within markets are different and that successful marketers must respond to these differences (see for a recap of the different market approaches).
This premise of segmenting the market theorizes that people and/or organizations can be most effectively approached by recognizing their differences and adjusting accordingly. By emphasizing a segmentation approach, the exchange process should be enhanced, since a company can more precisely match the needs and wants of the customer. While it is relatively easy to identify segments of consumers, most firms do not have the capabilities or the need to effectively market their product to all of the segments that can be identified. Rather, one or more target markets (segments) must be selected. In reality, market segmentation is both a disaggregation and aggregation process. While the market is initially reduced to its smallest homogeneous components (perhaps a single individual), business in practice requires the marketer to find common dimensions that will allow him to view these individuals as larger, profitable segments. Thus, market segmentation is a twofold process that includes:
- Identifying and classifying people into homogeneous groupings, called segments, and;
- Determining which of these segments are viable target markets.
In essence, the marketing objectives of segmentation analysis are:
- To reduce risk in deciding where, when, how, and to whom a product, service, or brand will be marketed
- To increase marketing efficiency by directing effort specifically toward the designated segment in a manner consistent with that segment’s characteristics.
Criteria for Segmenting
Market segmentation involves dividing a broad target market into subsets of consumers who have common needs (and/or common desires) as well as common applications for the relevant goods and services. These subsets may be divided by criteria such as age and gender, or other distinctions, such as location or income. Marketing campaigns can then be designed and implemented to target these specific customer segments. An ideal market segment meets all of the following criteria:
- It is possible to measure.
- It must be large enough to earn profit.
- It must be stable enough that it does not vanish after some time.It is possible to reach potential customers via the organization’s promotion and distribution channel.
- It is internally homogeneous (potential customers in the same segment prefer the same product qualities ).
- It is externally heterogeneous, that is, potential customers from different segments have different quality preferences.
- It responds consistently to a given market stimulus.
- It can be reached by market intervention in a cost-effective manner.
- It is useful in deciding on the marketing mix.
There are two major segmentation strategies followed by marketing organizations: a concentration strategy and a multisegment strategy. An organization that adopts a concentration strategy chooses to focus its marketing efforts on only one market segment. Thus, only one marketing mix is developed. An organization that adopts a concentration strategy gains an advantage by being able to analyze the needs and wants of only one segment and then focusing all its efforts onthat segment. This can provide a differential advantage over other organizations that market to this segment but do not concentrate all their efforts on it. The primary disadvantage of concentration is related to the demand of the segment. As long as demand is strong, the organization’s financial position will be strong. If demand declines, the organization’s financial position will also decline.
The other segmentation strategy is a multisegment strategy. When an organization adopts this strategy, it focuses its marketing efforts on two or more distinct market segments. The organization does so by developing a distinct marketing mix for each segment. They then develop marketing programs tailored to each of thesesegments. Organizations that follow a multisegment strategy usually realize an increase in total sales as more marketing programs are focused at more customers. However, the organization will most likely experience higher costs because of the need for more than one marketing program.