Market Segmentation and Selection of Target Segments

Marketing Management Revision Article Series

Buyers for a generic product constitute a market. Market can be segmented in a number of ways.
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Target Market

Buyers for a generic product constitute a market. But different buyers may have different preferences for attributes of a generic product. A marketer may have to focus on a particular group of potential buyers for a product with specific attributes. This focus is termed as targeting. Market segmentation is the effort to isolate groups of potential buyers having similar preferences for attributes of a product. Instead of mass marketing a single product, segmented marketing is done at four levels: segments, niches, local areas and individuals and companies if they want to, offer different products for different segments.

Targeted marketing also referred to as differentiated marketing. It means that the firm  may differentiate some aspect of marketing (offering, promotion, price) for different groups of customers selected. Mass marketing, or undifferentiated marketing involves selling the same product to everybody. Automaker Henry Ford was very successful at mass production and mass marketing. Ford pioneered the  assembly line early in the twentieth century, which helped him to produce large number of identical Model T automobiles and allowed him to realize cost reduction year after year. They came in only one color: black. “Any customer can have a car painted any color he wants, so long as it is black,” Ford used to joke. The affordable Ford car, was bought by large number of Amercans. By 1918, half of all cars on America’s roads were Model Ts.

Then Alfred P. Sloan, the head of General Motors (GM) changed the game. Sloan began to segment consumers in the automobile market—and find the prices different groups of customers wanted to pay and the different cars they wanted to buy. The idea was to offer different car for every target market as per their desires. His efforts were successful, Ford had problems and in the 1950s, GM overtook Ford as the nation’s top automaker.

Markets can be segmented in a number of ways.

Market Segmentation

Two broad groups of variables are used to segment consumer markets. One group of variables is consumer characteristics. The other group of variables is behavioral characteristics. Behavior is consumer response in terms of  benefits sought or  occasions when the product is used.

Consumer characteristics used for market segmentation include geographic, demographic and psychographic characteristics.

Geographic segmentation

Geographic segmentation divides the market into different geographic units such as nations, states, regions, cities and neighbor hood etc.

Demographic segmentation

In this segmentation approach, 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, or social class.

Psychographic segmentation

In this approach to segmentation, buyers are divided into different groups on the basis of lifestyle and/or personality.

Lifestyle

Active lifestyle, country lifestyle, latenighters etc. are some of the segments under this classification

Personality

Markets are being segmented on the basis of personality. Personality is a group of traits exhibited persistently by a person. For example, Ford buyers were identified as independent, impulsive, masculine, alert to change, and self confident, while Chevrolet owners were conservative, thrifty, prestige conscious, less masculine, and seeking to avoid extremes.

Behavioral segmentation

In this approach buyers are classified into groups on the basis of their knowledge of, attitude toward, use of, or response to a product. Some behavioral variables can be usage rate, readiness for buying the product, attitude toward the product, loyalty to the product, and occasions on which the product is used etc.

Multi-attribute segmentation (Geoclustering)

Some marketers are using multiple variables to define target groups. For example using socioeconomic status and lifestyle variables may be combined and market segmentation is done.

Effective Segmentation

To be useful, market segments identified in a segmentation exercise have to be:

• Differentiable: the segments must have a conceptual basis and they have to respond differently to different marketing mix variable and attribute mix of the product.
• Measurable: The size and purchasing power of the segments have to be measurable.
• Substantial: The segments have  to be large enough to serve them with a separate market mix profitably.
• Accessible: The segments must be accessible to the marketer.
• Actionable: The company in consideration must be able to create marketing programs for the segments.

Market Targeting

After the doing the market segmentation, the firm has to evaluate the segments for their market potential. Then the company has to decide which and how many segments to serve and how to serve them. The decision alternatives available to the firm are:

Single segment concentration

In the simplest case, the company selects a single segment.

Selective specialization

The firm selects a number of segments, each objectively attractive and appropriate, for the firms objectives and resources. There may be little or no synergy among the segments, but each segment is a money maker on its own.

Full market cover

The firm may attempt to serve all customer groups

Philip Kotler, Marketing Management , Ninth Edition (Main text for revision articles)

http://open.lib.umn.edu/principlesmarketing/part/chapter-5-market-segmenting-targeting-and-positioning/

Marketing Management Online Text Book by Tanner and Raymond - Principles of Marketing

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Migration from Knol

Marketing articles are available under the label http://nraomtr.blogspot.com/search/label/Marketing%20Management
Article on differentiating and positioning http://nraomtr.blogspot.com/2011/11/marketing-strategy-differentiating-and.html

Planned Revision schedule for marketing chapters is in February and March

Originally posted by me in Knol
http://knol.google.com/k/market-segmentation-and-selection-of-target-segments#

Updated 2018 - 27 February 2018
26 February 2017, 3 December 2011 (First posted in the blog)