MARKET SEGMENTATION
MARKET
SEGMENTATION
Concept
of Market : Unless you know the
exact market(s) to which your organization wants to cater, your focusing will
be wrong and your planning will be faulty and you will fail to develop an
appropriate marketing strategy or effort to meet the needs of your target
market. To identify the target market let us first define the term `market'.
The term market has more than one meaning:
-
It can be used in
respect of the network of institutions like wholesalers and brokers dealing in
a product;
-
It can also be used to
refer to the nature of demand for the product, as when we speak of the market
for soap;
-
The two meanings are
related but are physically distinct. Related because without the wholesalers
and other institutions, it will be difficult to serve customers (demand).
We
are concerned with a `market for' a product. The market for a product relates to
the function(s) served by the product.
THE CONCEPT OF A SEGMENT
Different
buyers have different evaluative criteria about what constitutes the right choice
for performing the function of a product. As a consequence different offerings
will attract different buyers.
To illustrate, all brands of coloured
television sets will appeal to some degree to those in the market for a
coloured TV but some brands will appeal to some groups more than others. But,
if there were only one brand of coloured TV set, there will be no choice for
the buyers. But as the market develops, manufacturers seek to cater more
closely to some groups than to others and buyer choice widens as a result.
At
the most detailed level every buyer is a market in himself for every buyer's ‘want'
is probably distinct in some way. But on the basis of similarities and differences,
such unique wants can be grouped into sub-classes. What it means is that wants
within a sub-class are more related to each other than wants between
sub-classes.
Based
on the above discussion we can now attempt to explain market segments and the process of market segmentation.
Market segments refer to the
sub-classes of the market reflecting sub-classes of wants and the process of
conceptually distinguishing segments is known as the process of market segmentation.
Relationship of a segment to a
market :
To
put it differently a market segment consists of buyers who seek (occasionally
or often) the same aspects of a product. And the concept of a market as a set
and a segment as a subset is the basis on which the process of segmentation is
carried out.
But
the relationship of a segment to a market is also one of means to goals.
The implications of this relationship are:
-
Since means for
accomplishing goals can be varied, different segments of a market may demand
radically different substitutes (for example, electric razor for a safety
razor)
-
Since the function
distinguishing a market is a means to some higher-level function that can be
served by a variety of markets, there can be mobility of buyers among the
several markets which may result in instability in any individual market (for
example from `movie' of the film industry to `entertainment' where TV competes
with the film industry)
-
Since choice is
exercised by people within the context of what is available, the buyers are not
necessarily satisfied with what they buy meaning thereby that a possibility
always remains of designing an attributes mix better suited to the segment.
We
can say that buyers within a segment are more homogeneous in their market wants
when compared to those who are in the market at large, but differences will
always remain in wants among those within a segment notwithstanding this
similarity. What it means is this that a marketer can always achieve additional
homogeneity by subdividing the original set of segments further until,
theoretically speaking, we have segments to which only one buyer belongs.
The
question that arises is how far the process is carried towards this end. The
answer will depend on:
- the commercial
viability of small segments, and
- the competitive
practices of rivals.
Now
what a marketer should do? He may ignore the differences and treat the segment
as a homogeneous segment, or he may, take account of some of the
differences in product variety, promotion and distribution and segment the
market on that basis.
So
segments will be distinguishable on the basis of such differences, In other
words one will be able to distinguish one segment from another on the basis of
what segment members have in common in respect of what they seek from a
product. However, since consumer wants keep on changing with the passage of
time, segment wants would also change in time necessitating the manufacturer to
adapt his offering without necessarily affecting the definition of the core
want.
MARKET SEGMENTATION VS PRODUCT
DIFFERENTITION
We
hope you have now understood what we mean by market segmentation. Let us define
it also.
Market segmentation may be defined as the
division of a market into groups of segments having similar wants. But wants must be interpreted very broadly, in terms far
broader than product characteristics only. Segments may differ also in their
needs for information, reassurance, technical support, service, promotion,
distribution, and a host of other `non-product' benefits that are part of their
purchase. They may also differ in their capacity to pay for these differences.
Economists
view a product as differentiated if it is preferred by some buyers to similarly
priced rival brands on the ground of differences in the following:
-
physical aspects of
the product
-
services offered
-
convenience in using
or buying the product
-
image projected.
If
you analyse the above view put forward by economists you will reach the
conclusion that all segmentation except segmentation involving price alone
entails differentiation.
But
it does not mean that the two are the same. For segmentation involves more than
what is achieved through product differentiation. In market segmentation the
aim is not merely to divide the market into sub-classes based on product
differentiation but to distinguish want-categories that correspond to the
distinct demands of various groups in the market.
So
we can say that in product
differentiation the marketer produces
two or more products that are different in terms of features, styles, quality,
sizes and so on. The objective here is to offer variety to buyers rather than
to appeal to different market segments.
BENEFITS AND DOUBTS ABOUT SEGMENTATION
We
will now try to describe both the benefits and the doubts that arise from the
strategy of market segmentation.
First,
we will highlight the benefits from segmentation and these are:
-
Segmentation helps a
company to exploit its market better by selecting market niches (suitable segments)
that are compatible with its resources
-
Segmentation helps in
focusing strategies more sharply on target groups
-
Segmentation is more
likely to result in instilling customer `loyalty' since the firm's
offering is better matched to those in the segment.
Doubts about effectiveness of
segmentation :
The
discussion that follows concentrates on the doubts which have been expressed on
the effectiveness of segmentation.
Are segments mutually exclusive
groups?
Remember,
segments are not mutually exclusive customer groups. What we are exactly
grouping is `anticipated orders' from buyers, not buyers themselves. To
assume that he or she is in one segment and one segment only, is to assume that
the circumstances are so constant that use-functions and generated functions
remain fixed. What we are really trying to emphasise is that the same consumer
may appear under different descriptions for different segments.
To illustrate: Pepsodent and Colgate
toothpastes differ and seem aimed at different segments, but the same people
may buy both of these. The fact that the same people buy both of these products
does not in itself imply the absence of meaningful segments. Products in
different segments of the market may be bought by the same buyer for different
family members, or for different occasions, or just for variety, etc.
Is segmentation merely on the basis
of different product forms?
It
is not right to say that segmentation is merely done on the basis of different
product forms. Although this is what usually happens. But segmentation can be
on other bases as well like distribution, price, promoted image, etc.
When insignificant differences
exist between brands-
What
happens in a situation where markets are not heavily segmented or where the
differences between products are marginal?
In
a situation like this, one can't help saying that not much purpose is served by
segmentation. In other words in a situation where insignificant differences exist
between brands segmentation is not a feasible strategy.
WHAT IS GROUPED IN FORMING
SEGMENTS?
One
of the problems involved in segmentation is to know what precisely is being
grouped to form segments. As far as consumers are concerned they are not mutually
exclusive categories, for people may buy cigarettes today and pipe tobacco
tomorrow. But since classes should be mutually exclusive by and large, what
precisely is that which we are grouping into segments? The answer is that we
are grouping buyers' probability
of purchasing different types of offering.
But
for effectiveness of the segmentation strategy it is necessary that a marketer
must describe its segments both in terms of what is wanted and who is likely to
buy it. In other words, we must define the configuration of benefits sought and also draw
up a profile of those in the segment that distinguishes them from the members
of other segments.
A
good, practical approach for gathering comprehensive knowledge about what is
wanted and who is likely to buy it is to ask yourself questions such as:
What
-
benefits does the
customer seek?
-
factors influence
demand?
-
functions does the
product perform for the customer?
-
are the important
buying criteria?
-
is the basis of
comparison with other products?
-
risks does the
customer perceive?
-
services do customers
expect?
How
-
do customers buy?
-
long does the buying
process last?
-
do various elements of
the marketing programme influence customers at each stage of the process?
-
do customers use the
product?
-
does the product fit
into their life style or operation?
-
much are they willing
to spend?
-
much do they buy?
Where
-
is the decision made
to buy?
-
do customers seek
information about the product?
-
do customers buy the
product?
When
-
is the first decision
to buy made?
-
is the product
repurchased?
Why
-
do customers buy?
-
do customers choose
one brand as opposed to another?
Who
-
are the occupants of
segments identified by previous questions?
-
buys our product, and
why?
-
buys our competitors'
products, and why?
When asking questions such as these you should keep in mind the
following points:
-
the list of questions
is only suggestive, you will have to review it to suit the specific situation;
-
you will have to
collect the necessary data to supply the answers.
You
will have to relate the answers to the decision at hand. To illustrate, it is not sufficient
to find out where the consumer buys this product? The answer will have to be
related to decisions that you have to take say with respect to channel,
advertising, packaging etc.
SELECTION OF SEGMENTS
Before
we conclude our discussion on market segmentation we should also discuss how a
company should select its segments. Both general factors which one uses to
evaluate any economic opportunity and the factors specific to the situation should be considered in evaluating segment options against these
criteria.
General factors
The
following are some important general factors and these you must consider:
Company thrust: The company that is segmenting its market needs to identify the
requirements for success in the concerned target market. Next, it must
determine what particular business system consisting of marketing, production,
finance, personnel, etc., will be needed to meet the requirements for success
in that segment. As far as possible the firms's thrust should be such that it
gives the company a critical advantage in that segment.
Size and growth potential: Not only the present size but also the future growth potential
of the concerned target market must be considered. The current market demand by
itself may prove misleading. The measurement might also create its own
problems.
Investment needed: Investment needed for
tapping that particular target market is another factor to consider and you
must take care to see that both entry costs and costs associated with building
market share have been included.
Profitability: The question of
profitability is associated with investment decision. To calculate it we have
to estimate both future sales and costs in the concerned segment. What must
also be considered is value-added to the product that is to be marketed in that
target segment, for a low value-added product makes profitability more
hazardous.
Risk: There are the usual
risks associated with the extent to which a particular target market would
respond. But these are not the only ones. Other risks like the new product
taking away part of the market share form the existing product(s) of the
company in that target market need also be considered.
Competition: The selection of
target market also implies selecting the competitors with whom the company will
compete. Another important point to note in this context is that segment may be
large but may already be will served by several well-entrenched competitors.
The question naturally would be whether one would like to enter such a segment.
Specific segmentation
factors :
The
specific segmentation factors that you need to consider are as follows:
Segment durability: Remember, segments based on fads and fashions are of a short
duration, that is their life cycles are ephemeral and your plans to tap such
segments must take this into account. Besides, you can't think of making
substantial investments in such ventures from the long-term point of view.
Mobility: Mobility means the
movement in and out of a segment of members of a target group. If the mobility
rate of target group members is high in respect of a certain product, say, hair
oils, the company in order to keep its sales stable would have to attract new
users to its product.
Visibility: Visibility refers to the
extent to which the want of a target market or segment is distinctive. If what
is sought by the members of that segment is perceived as very different, from
what is sought in other segments, the segment `loyalty' will be greater but
those in other segments may regard that offering as very different and
something which is not meant for them. Highly visible segments, however, are
likely to be more stable than other segments of. a market.
Accessibility: Those in the segment
or the target market should be directly reachable through established
communications and distribution channels. If that particular segment cannot be
reached the exercise in market segmentation will be futile.
0 comments:
Post a Comment