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Overview of why market segmentation is an essential tool for any firm

Updated on June 28, 2017

Introduction

Over the past century the aspect of marketing has vastly increased in importance however companies have had to adapt greatly to the way they broadcast their services and their products to compete in an ever expanding global market. Due to increasingly complex needs of customers and the choices offered by modern life the marketing department of any company needs to use their budget as efficiently as possible to reach the specific niche of customers most likely to buy their goods or services.

Marketing Mix

Market segmentation is the use of different Marketing Mixes to different niches as opposed to marketing one set to the entire market. Marketing segmentation is significantly more efficient and cost effective than having no specific aim when selling products. The marketing mix comprises of “4P’s”; product, place, promotion and price which all contribute to the customer’s decision to buy or not to buy from one company. However in recent times many companies include a 5thP; People, which implies they are swaying more towards “the customer is always right” ethic as compared to Henry Ford’s mass production approach; “any customer can have a car painted any colour that he wants so long as it’s black”.

Internal and External Conditions

The success of a marketing campaign is governed by two main forces. Internal (within institution) which the company can be in complete control of if it is willing to put up the financial means to do so or External (Environmental Conditions) which a company has almost no control over. For example if a team marketing skiing holidays in the Alps put together a strong marketing mix they may have good cause to be optimistic. However, despite clean, crisp advertising, well marketed to middle class individuals there may be events that are completely out of the product provider’s control. For example, previous visitors may have experienced a season without any snow or conversely if a sudden avalanche occurred this could be catastrophic and see demands disappear overnight. In this example the marketing mix used has been efficient but not effective.

Four Individual Segmentation Techniques

To determine a market niche marketing departments look at four main factors that are factors that remain similar within its areas of the market but differ from other groups. These are: Geographic, Demographic, Psychological and Behavioural Segmentation.

Geographical Segmentation

Geographical segmentation is the decision to market products to a particular country or region based upon variables such as population density and climate. For instance it would be very foolish to assume that marketing ice cream to the inhabitants of Antarctica would yield any interest at all. This is because the product is unsuited to the cold climate and the expense of trying to provoke interest in very small populations would greatly outweigh the profit and be both Ineffective and Inefficient. On the other hand if the same product was marketed on the beaches of Spain during the summer holiday season you would be marketing in a different climate to a significantly different demographic with more expendable income, a more relaxed attitudes to luxury expenses due to being on vacation leading to a higher profit. One product that shows price variables throughout different regions is the price of a pint of beer. This is usually to do with the average expendable income of the inhabitants. If a city has a high student population (with very low income)alcoholic beverages are often sold at prices as little as £1 a pint at events where the organisers are sure a large amount of customers are likely to gather to buy their product.

Demographical Segmentation

Demographic segmentation is based upon factors such as age, gender, family and lifestyle choices. Demographic segmentation is arguably the widest method of selection. e.g. by analysing that a middle aged business man living in central London with a wife, two children and no garage facilities is not likely to buyan expensive two-seater sports car they reduce the risk of wasted advertising expenses. At the same time a younger male (17-25) with fewer responsibilities and also with a parking space would also have a low probability to purchase the same car due to financial restrictions. This shows how specific the marketing mix has to be to the customer if the product is in a very narrow niche.

It also shows the impact of developing technology. Examples of intelligent demographic marketing include the introduction of Sainsbury’s nectar card in which the spending habits of customers can be passed to “third parties”. In turn they allocate specific marketing and rewards in correlation to spending patterns when customers buy products from them or their supporting brands. This benefits the company because instead of shopping at other competitors customers wanted to save points to receive luxuries. In recent times the scheme has initiated a “double value points” regime on rewards to promote brands customers would not usually consider buying.

Psychographic Segmentation

Psychographic segmentation is centred on values and attitudes and income. The most commonly evaluated factor is income which is placed on a socio-economic scale ranging from A (Managerial or Professional) down to E (State Pensioner). This is used to determine the price function in comparison to the needs of the consumer in correlation to expendable income. The other main factor is Lifestyle governed by the Cross Cultural Consumer Characterisation (4C’s) which defines seven specific groups within the community based upon their values and ambitions. These include; Resigned, Struggler, Mainstreamer, Aspirer, Succeeder, Explorer and Reformer (Mainstreamer being the largest of the classifications).By identifying which group is most likely to invest their money into the company’s products they can produce a set of previously successful marketing schemes that they can re-use when they are marketing to the same group in the future.

Behavioral Segmentation

Behavioural segmentation is based on variables such as price sensitivity, brand loyalty and usage rate. In comparison to demographic and geological segmentation research into Behavioural segmentation is much more personal to the company as data received has to be taken from previous custom and sales. Factors such as brand loyalty and usage rates have become much easier to regulate and record with the introduction of credit and debit cards throughout the majority of customers. In some services the ownership of a credit card could be a deciding factor to market towards. E.g. a holiday company marketing away from individuals without a credit card as trading in large quantities of cash is not as socially acceptable.

Targeting

Once the marketing team have compiled this information and taken into account the benefits and drawbacks of introducing their product or service to different demographics they can begin the process of targeting. Targeting is the process of selecting one of these market segments and analysing the components of its campaign (marketing mix) in correlation to the needs of the customers. By doing this the company ensures their product is in context with its surroundings for when it becomes available. There are several types of targeting; Undifferentiated (broad targeting), Differentiated, Concentrated and Micromarketing (One on one marketing). Ordinarily the price of product or service being offered increases in direct correlation with the accuracy of the targeting being offered to the client. Segmentation of the market leads to Differentiated marketing.

Advances in Modern Marketing

In the past decade an intelligent and powerful medium for marketing has taken a huge amount of western civilisation by storm. A transition has occurred from traditional marketing such as newspaper, radio and billboards into complex social media marketing made available through the internet. This new and evolved format is more specific than ever with the use of a middleman. The prime example for this would be Facebook. Now an almost invaluable tool for social communications throughout the more technologically dependant generation, information displayed on it reaches more customers without them having to leave their homes. This medium is so powerful that within a very short space of time the recipient of the marketing can click a couple of buttons and complete a purchase in under a few minutes. Through the use of evaluating customer’s preferences through interactions with each other and online groups, Facebook (working as a middle man) takes individual companies advertising and using algorithms to determine the likelihood that each individual member will be interested in the product matches the preference specifically with the product. This tool is perceived to be cheaper and these days all significant companies have some form of online interaction with its customers.

Conclusion

In Conclusion companies use a range of information to maximise interaction with the right kind of consumer for their services and products. Where they once may not have required marketing, globalisation of the markets have forced increased competition and companies need to seek out their own differentiator to distinguish them from competition. This is due to an understanding that it is not always possible for each and every dealer to satisfy the needs of each and every customer. Companies target segments because they are unlikely to compete across the whole market. There are exceptions to this but in the main the barriers to entry are high and outside the reach of most companies as their resources are limited.


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