A Company Cannot Serve All Customers in a Brood Market Such As Computers Numerous and Diverse

Chapter 4 Identifying Market Segments and Selecting Target Markets

In this chapter, we will address the following questions:

■ How can a company identify the segments that make up a market?

■ What criteria can a company use to choose the most attractive target market?

A company cannot serve all customers in a brood market such as computers numerous and diverse in their buying requirements. A company needs to identify the market segments it can serve effectively. Here we will examine levels of segmentation, patterns of segmentation, market-segmentation procedures, and bases for segmenting consumer and business markets, and requirements for effective segmentation. Many companies are embracing target marketing. Here sellers distinguish the major market segments, target one or more of these segments, and develop products and marketing programs tailored to each. Instead of scattering their marketing effort (a "shotgun" approach), they focus on the buyers they have the greatest chance of satisfying (a "rifle" approach).

Target marketing requires marketers to take three major steps:

1 identify an profile distinct groups of buyers who differ in their needs and preferences (market segmentation)

2 select one or more market segments to enter (market targeting)

3 for each target segment establish and communicate the key distinctive benefit of the company’s market offering (market positioning).

This chapter will focus on the first two steps. In the next chapter, we discuss market positioning.

1. Levels and patterns of market segmentation

Level of market segmentation

The starting point for discussing segmentation is mass marketing in mass marketing, the seller engages in the mass production, mass distribution, and mass promotion of one product for all buyers. Henry Ford epitomized this marketing strategy when he offered the Model-T Ford "art any color, as long as it is black." Coca-Cola also practiced mass marketing when it sold orgy one kind of Coke in a 6.5-ounce bottle.

The proliferation of advertising media and distribution channels is making it difficult and increasingly expensive to reach a mass audience. Some claim that mass marketing is dying. Not surprisingly, many companies are turning to micromarketing at one of four levels: segments, niches, local areas, and individuals.

SEGMENT MARKETING a market segment consists of a group of customers who share a similar set of wants. Thus we would distinguish between car buyers who are primarily seeking tow-cost basic transportation and those seeking a luxurious driving experience. We must be careful not to confuse a segment and a sector. A car company might say that it will target young, middle-income car buyers The problem is that young, middle-income car buyers will differ about what they want in a car Some will want a low-cost car and others will want an expensive can Young, middle income car buyers is a sector, not a segment.

However, even a segment is partly a friction, in that not everyone wants exactly the same thing. Anderson and Narus have urged marketers to present flexible market offerings instead of a standard offering to all members of a segment. A flexible market offering consists of two parts: a naked Solution contouring the product and service elements that all segment member’s value and discretionary that some segment member’s value. Each option might carry an additional charge. For example, Della Airlines offers all economy passengers a seat, food, and soft &inks. It charges economy passengers extra for alcoholic beverages mid earphones. Siemens sees metal-cist boxes whose price includes free delivery and a warranty, but also offers installation, tests, and communication peripherals as extra-cost potholes.

NICHE MARKETING A niche is a more narrowly defined group seeking a distinctive mix of benefits. Marketers usually identify clichés by dividing a segment into subset meets. For example, tile segment of heavy smokers includes two niches: those who are trying to stop smelting and those who do not care.

An attractive itched is characterized as follows: The customers in the niche have a distinct set of needs; they will pay a plenum to the firm that best satisfies filer needs; the niche is not likely to attract other competitors; the Etcher gains certain economies through specialization; the niche has size, puffin and growth potential.

Whereas segments are fairly large and normally attract several competitors, niches are fairly small and normally attract only one or two. Larger companies, such as IBM, lose pieces of their market to Etchers: Dialogic and Lieu labeled this confrontation “guerrillas against coffles? Even some large companies have turned to niche marked son & Johnson, for example, consists of 170 affiliates (business units), mix), of which dominate niche markets. Here are some examples of large companies that have moved into niche marketing.

LOCAL MARKETING Target marketing is leading to marketing programs tailored to the needs and wants of local customer groups (trading areas, neighborhoods, even individual stores), Citibank provides different mixes of banking services in its branches, depending on neighborhood demographics. Kraft helps super market chains identify the cheese assortment and shelf positioning that will optimize cheese sales in low-, middle-, and high-income stores, and in different ethnic neighborhoods.

Those favoring localizing a company's marketing see national advertising as waste full because it fails to address local needs. Those against local marketing argue that it drives up manufacturing and marketing costs by reducing economies of scale. Logistical problems become magnified when companies try to meet local requirements. A brand's overall image night be diluted if the product and message defter in different localities.

INDIVIDUAL CUSTOMER MARKETING the ultimate level of segmentation leads to “segments of one," "customized marketing," or "one-to-one marketing-'m Ultimately, every individual has a unique set of wants and preferences, In past centuries, producers customized their offerings to each customer: The tailor fitted a suit and a cobbler made shoes for each individual. The Industrial Revolution ushered in an era of mass-production: Now companies made standard goods in advance of orders and left it to individuals to fit into whatever was available. Producers moved from built-to-order marketing to build to-stock marketing. Today the information Revolution is enabling a growing number of companies to mass-customize their offerings. Mass-customization is the ability of a company to prepare on a mass basis individually designed products, services, programs, and communications, to meet each customer's requirements.

Patterns of market segmentation

Here we will consider segment-centered marketing. Market segments can be built up in many ways. One way is to identify preference segments. Suppose ice cream buyers are they value sweetness and creaminess as two product attributes. Three different patterns can emerge.1、homogeneous preferences 2、diffused preferences 3、clustered preferences.

Market-segmentation procedure

Market segmentation must be done periodically because segments change. At one Time the personal computer industry segmented its products purely on speed and power. Later, PC marketers recorded an emerging "Soho" market, named for "small Office and home office." Mail-order compares such as Dell and Gateway appealed to this market’s requirement for high performance coupled with low price and user Friendliness. Shortly thereafter, PC makers began to see Soho as comprised of smaller Segments.

Effective segmentation

To be useful, market segments must be:

1 Measurable: The size, purchasing power, and characteristics of the segments can be measured.

2 Substantial: The segments are large and profitable enough to serve A segment should be the largest possible homogeneous group worth going after with a tailored marketing program. It would not pay, for example, iron an automobile manufacturer to develop cars for people who are under four feet tall.

3 assessable: The segments can be effectively reached and served.

4 Differentiable: The segments are conceptually distinguishable and respond differently to different marketing mix elements and programs.

5 Actionable: Effective programs can be formulated for attracting and serving the segments.

2. Segmenting consumer and business markets

Bases for segmenting consumer markets

Two broad groups of variables are used to segment consumer markets. Some researchers try to form segments by looking at consumer characteristics: geographic, demographic, and psychographic, Thon they examine whether these customer segments exhibit different needs or product responses. For example, they might the differing attitudes of "professionals," "blue collars," and other groups toward, say, "safety" as a car benefit.

Other researchers try to form segments by looking at consumer responses to been fits, use occasions, or brands. Once the segments are formed, the researcher sees whether different characteristics are associated with each consumer-response segment.

GEOGRAPHIC SEGMENTATION Geographic segmentation calls for dividing the market into different geographical units such as nations, states, regions, counties, cities, or neighborhoods The company can operate in one or a few geographic areas, or operate in all but pay attention to local variations. For example, Hilton Hotels customizes room and lobbies according to the inaction of its hotels, Northeaster hotels are sleeker and more cosmopolitan. Southwestern hotels are more rustic. Take, for example, Campbell Soup, an experienced regional marketer since 1994, the company has marketed its Pace Planet sauce regionally. People m the Southwest do not need to be told that "plicate" is a cooking ingredient, whereas northerners confuse it with salsa. The packaging, communication, and marketing effort are more educational in the North, More and more regional marketing means marketing right down to a specific zip code?

DEMOGRAPHIC SEGMENTATION In demographic segmentation, the market is divided into groups on the basis of variables such as age, family size, family life cycle, gender, income, occupation, education, religion, race, generation, nationality, and social class Demographic variables are the most popular bases for distinguishing customer groups. One reason is that consumer wants, preferences, and usage rates am often associated with demographic variables. Another is that demographic variables are easier to measure. Even when the target market is described in non demographic terms (say, a personality type), the 1ink back to demographic characteristic is needed in order to estimate the size of the market and the media that should be used to react it efficiently.

PSYCHOORAPHIO SEGMENTATION In psychographic segmentation, buyers is divided into different groups on the basis of lifestyle or personality or values. People within the same demographic group can exhibit very different psychographic profiles.

BEHAVIORAL SEGMENTATION In behavioral segmentation, buyers is divided to groups on the basis of their knowledge, of attitude toward, use of, or response to a product. Many marketers believe that behavioral variables occasions, benefits, user status, usage rate, loyalty status, buyer readiness stage, and attitude are the best starting points for constructing market segments.

MULTIATTRIBUTE SEGMENTATION (GEOCLUSTERING) Marketers no longer talk about the average or even limit their analysis to only a few market segments. Rather, they are increasingly combing several variables in an effort to identify smaller, better defined target groups. Thus a bank may not only identify a group of wealthy retired adults, but within that group distinguish several segments depending on current income, assets, savings, and risk preferences.

TARGETING MULTIPLE SEGMENT Very often, companies start marke0ng to one segment, then expand to others.

Many consumers are cross-shoppers and cannot be neatly pigeonholed into one segment, consider the person who buys an expensive Bill Blass suit but shops at Wal-Mart for underwear; or the one who eats a Healthy Choice frozen dimmer followed by Ben &Jerry's ice cream for dessert. It is dangerous to interpret segment membership by observing only one purchase. Segmentation ignores the whole customer profile, which becomes clear only with individual profiling.

Bases for segmenting business markets

Business markets can be segmented with some of the same variables used in consumer market segmentation, such as geography, benefits sought, and usage rate, but business marketers also use other variables. Bonoma and Shapiro proposed segmenting the business market with the variables shown in Table 10.3. The demographic variables are the most important, followed by the operating variables--down to the personal characters-tics of the buyer.

3. Market targeting

Evaluating and selecting the market segments

In evaluating different market segments, the firm must look at two factors: the segment's overall attractiveness and the company's objectives and resources. Does a potential segment have characteristics that make it generally attractive, such as size, growth, profitability, scale economies, and low risk? Does investing in the segment make sense given the firm's objectives, competences, and resources? Some attractive segments may not mesh with the company's long-run objectives, or the company may lack one or more necessary competencies to offer superior value.

SINGLE-SEGMENT CONCENTRATION Volkswagen concentrates on the small-car market and Porsche on the sports car market. Through concentrated marketing, the firm gains a strong knowledge of the segment's needs and achieves a strong market presence, Furthermore, the firm enjoys operating economies through specializing its production, distribution, and promotion. If ft captures segment leadership, the firm can earn a high return on its investment.

However, concentrated marketing involves risks A particular market segment can turn sour. When young women suddenly stopped buying sportswear, Bobble Brooks's earnings fell sharply; or a competitor may invade the segment. For these reasons, many companies prefer to operate in more than one segment.

SELECTIVE SPECIALIZATION The firm selects a number of segments, each objectively attractive and appropriate. There may be little or no synergy among the segments, but each promises to be a moneymaker. This multi-segment strategy has the advantage of diversifying the firm's risk.

PRODUCT SPECIALIZATION The firm makes a certain product that it sells to several segments. An example would be a microscope manufacturer who sells to university, government, and commercial laboratories; the firm makes different microscopes for the different customer groups and builds a strong reputation in the specific product area. The downside risk is that the product may be supplanted by an entirely new technology.

MARKET SPECIALIZATION The firm concentrates on serving many needs of particular customer group. An example would be a firm that sells an assortment of products only to university laboratories. The firm gains a strong reputation fix serving this customer group and becomes a channel for additional products the customer group can use, the downside risk is that the customer group may suffer budget cuts.

FULL MARKET COVERAGE The firm attempts to see all customer groups with all the products they might need. Only very large firms such as IBM (computer market), General Motors (vehicle market), and Coca-Cola (drink market) can undertake a full market coverage strategy. Large firms can cover a whole market in two broad ways: through undifferentiated marketing or differentiated marketing.

Additional considerations

Four other considerations must be taken into account in evaluating and selecting segments: ethical choice of market targets, segment interrelationships and super segments, segment-by-segment invasion plans, and inter-segment cooperation.