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Market Segmentation Essay, Research Paper

Market Segmentation

Market segmentation is the division of a market into distinct groups of buyers who might require different products or marketing mixes (Kotler et al, 1994). It is the division of a heterogeneous market consisting of buyers with different needs and wants, into homogeneous segments of buyers with similar needs and wants. Therefore, the segments are heterogeneous between (ie. all the segments are different, eg. one segment all males, one segment all females) themselves, but homogeneous within (eg. within the male segment, all buyers are male; within the female segment, all buyers are female).

Segmentation is important as buyers have unique needs and wants. In segmenting a market, marketers look for broad classes of buyers who differ in their needs. There is no one right way of segmenting markets. A marketer has several bases available to him/her for the segmentation of markets.

Bases for Segmenting Consumer Markets

1. Geographical segmentation

Segmenting markets on the basis of geography involves dividing the market into different geographical units, eg. states, regions, countries, where the company pays attention to geographical differences in needs and wants. For example, there may be a greater need for T-shirts in the Northern part of Australia all year round rather than in the Southern part.

2. Demographic segmentation

Demographic segmentation involves dividing the market into groups based on demographic variables such as age, family size and life cycle, occupation, etc. It is the most popular bases for segmenting consumer markets because consumer needs often vary closely with demographic variables, an also because of the ease of measurement of the variables. Even when other bases are used for segmentation, demographic variables are still used in the description of the segments. For example, you may divide a country into Northern, southern, Eastern and Western regions. But, you may still describe each of the regions in terms of the demographics of the buyers living there eg. age, income, sex, occupation, race, etc.

3. Psychographic segmentation

Using psychographics to segment markets divides buyers into groups based on socioeconomic status, lifestyle or personality characteristics. Example, dividing the Australian market into leisure-seekers, work-oriented, and family-oriented segments.

4. Behaviour segmentation

Behaviour segmentation is where buyers are divided into groups based on their product knowledge, usage, attitudes or responses. Within behaviour segmentation, of particular importance is a powerful form of segmentation, benefit segmentation, which groups buyers depending on the various benefits sought by buyers from the product class. For example, you could segment the cereal market based on the benefits sought by cereal buyers: brand (eg. Kellogg’s), nutrition and health (eg. Sultana bran), diet (eg. Special K), taste (eg. Cocopops for kids), price (eg. Kellogg’s cornflakes), etc. Notice how each segment has particular products or brand which caters for the needs of that particular segment?

Bases for Segmenting Industrial Markets

Many of the variables used in segmenting consumer markets can be applied to the segmentation of industrial markets.

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Requirements for Effective Segmentation

Useful market segments must demonstrate the following characteristics:

The size and purchasing power of the segments must be measurable.

It must be possible to reach and serve the segment.

The segments must be large or profitable enough.

The segments must be suitable for the design of effective marketing mix programs.

Target Marketing

Market segmentation conducted by the company would reveal the various segments the company’s market consists of. The company now has to select which segment(s) it wishes to target.

Evaluating Market Segments

The first step in evaluating market segments is where the company gathers data on sales, growth and expected profit for the various segments in order to select segments that have the right size and growth characteristics. Next, the company examines the structural attractiveness of the segments, including: current and potential competitors; substitute products; and power of buyer and suppliers (if you wish to read more on structural attractiveness, refer to Michael Porter’s Five Forces). Finally, the company must consider the segment with regards to its objectives and resources. If a segment is in line with company objectives, the company must still consider if it has the superior skills and resources in comparison with competition to succeed in that segment.

Target Market Selection

After evaluating the various market segments, a company must choose one or more of these segments to make up its target market. Therefore, a target market is a set of buyers with common characteristics which a company decides to serve. The company has three market-coverage strategies available to it in selecting target markets.

1. Undifferentiated marketing

A company adopting an undifferentiated marketing strategy would ignore differences between market segments, and approach the market as a whole with one market offer. This strategy focuses on common buyer needs rather than what is different, and is designed to appeal to the largest number of buyers. Such a strategy provides cost economies, but difficulties can arise in the development of a product or brand that can satisfy all buyers.

2. Differentiated marketing

A company utilising a differentiated marketing strategy targets several market segments, with separate marketing mixes for each segment. Differentiated marketing has become increasingly popular with companies eg. Coles Myer

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