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)

Management of Marketing Department and Function

Marketing Management Revision Article Series

In the 13th Edition Kotler explained this topic under the chapter heading 'Managing A Holistic Marketing Organization for the Long Run"


While CEO is the ultimate head of all departments, there is a Chief Marketing Officer to provide full time attention to the management of marketing department as well as marketing function.

Marketing is a function of business and many persons of the organization participate in marketing activities. But there is a department termed as marketing department that has specialists whose main focus is marketing. While CEO is the ultimate head of all departments, there is a Chief Marketing Officer to provide full time attention to the management of marketing department as well as marketing function.

Marketing Management Department Organization

There are various types of organizations in existence. Functional organization, geographical area organization, product based organization, customer segment based organization and some form of hybrids can be observed.

Functional marketing organization: The important functional areas can be marketing research, new product marketing, advertising and sales promotion, sales management, physical distribution (marketing logistics), and marketing administration. As organizations become big more specialized functions within marketing can be organized as independent sections.

Geographical Area Based Organization: Companies selling across the nation generally set up branch sales offices and regional sales offices.

Product Based Organization (Brand Management): In product based organization each product or brand has a manager who looks after its marketing activities. The sales staff can be common staff and they report to a sales manager.

Coordination Between Marketing and Other Departments

Kotler highlighted the fact that each business function has a potential impact on customer satisfaction. All departments need to think of customer satisfaction and work together to fulfill customer needs and expectations. The chief marketing man in the organization has two tasks: One is to manage the marketing department and other is to coordinate marketing specialist activities with marketing related activities of operations, finance, and other functions in the organization.

Research and Development and Marketing

R&D and marketing have to coordinate their activities for successful market-oriented research, development and new product introduction. Gupta,Raj,and Wilemon in their paper "A Model for Studying R&D-Marketing Interface in the Product Innovation Process" (Journal of Marketing, April 1986, pp. 7-17) found that R&D-Marketing coordination had a strong correlation with innovation success.

Engineering and Marketing

Engineering is responsible for details of design and manufacturing that provide the products with quality and profit potential. Marketing is also concerned with profits for the company. The view points of marketing and engineering are to be coordinated with good engineering economy analysis combined with demand analysis of marketers.

Manufacturing and Marketing

Balance and harmony in the company demand that manufacturing and marketing jointly determine what is in the company's best interests whenever a dispute arises between the departments. Solutions include joint seminars of issues of common interest and joint analytical problem solving. Company profitability is greatly affected by marketing-manufacturing coordination which is another name for customer service - profit analysis. Marketing can't take credit for revenue and blame manufacturing for costs. Marketing itself may be responsible for the costs and it may be recovering lower prices from customers. This is bad marketing decision making.

Finance and Marketing

Finance persons have to concur with economic analysis of marketing persons. The long term implications of marketing expenditures may not be understood by finance persons. Both finance and marketing department personnel need cross training and joining training to develop common or share understanding.

Marketing Practices and Management Practice Innovations and Developments

Many new developments in management were embraced by practitioners.

Reengineering
Outsourcing
Benchmarking
Supplier partnering
Customer partnering
Mergers and Acquisitions
Globalizing
Flat organization
Agile organization
Lean organization
Empowerment

Marketing departments also implemented these concepts.

Industrial Engineering of Marketing System

Marketing System Efficiency Engineering

Companies today are striving to make their marketing operations more efficient and their return on marketing investment more measurable. Marketing costs can amount to as much as a quarter of a company’s total operating budget. Marketers need better templates for marketing processes, better management of marketing assets, and better allocation of marketing resources.

More Details on marketing system efficiency engineering

Evaluation and Control of Marketing Activities, Investments and Expenditures


Originally posted by me in
Knol Number  3388

Updated 2018 - 24 February
 14 Mar 2016, 12 Nov 2012

Developing Lean Leaders and Managers

DEVELOPING LEADER SKILLS
Published on February 7, 2018 on Linkedin
George Trachilis, P.Eng.
CEO and co-Founder (with Jeff Liker) at Lean Leadership Institute
https://www.linkedin.com/pulse/developing-leader-skills-george-trachilis-p-eng-/


Leadership Skills at Different Levels within a Lean Organization
https://pomsmeetings.org/ConfPapers/011/011-0035.pdf


Developing Lean Leaders at All Levels - Chapter 1 - Jeff Liker
LeanGurus
Published on 14 Jul 2016

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Videos on other chapters 

https://www.youtube.com/watch?v=23wbTgSQxdI

The Nature of Organizing - Review Notes

Principles of Management Revision/Review Articles - List

Shortcoming of Management Theory in the Area of Organization

I would like to mention right at the start that Henri Fayol clearly wrote that material organization and people organization are to be be set up by managers after the planning function is completed for a project or a period. But in his brief note, Fayol discussed only people organization. Authors subsequent to Fayol have not progressed further. The development of material organization was not attempted by authors of books on management and principles of management. It is a big shortcoming in the theory of management and somebody has to fill it.

In this connection I appreciate the following definitions/explanations of public administration.

Felix A. Nigro - “Administration is the organisation and use of men and materials to accomplish a purpose”.

J.M. Pfiffner and R. Presthus - “Administration is the organisation and direction of human and material resources to achieve desired ends”.

We need to study the full descriptions of administration by Nigro and Pfiffner-Presthus to understand organization of material resources.

The Nature of Organizing - Explanation by Koontz and O'Donnel 

Koontz and O'Donnel explain organizing as (1) the identification and classification of required activities. (2) the grouping of activities necessary to attain objectives, (3) the assignment of each grouping to a manager with the authority (delegation) necessary to supervise it, and (4) the provision of coordination horizontally (on the same organizational level) and vertically( departments with headquarters etc.)

The first step identification and classification of required activities is based on the technology or techniques employed. One has to first create one person equivalent jobs from the total activities needed to be done by the organization. This one person equivalent jobs are to be created so that each person is effective and efficient (that is he able to produce the required product feature or service feature to the specification and he is able to have high productivity). Only when this stage is done that the second stage of grouping of the activities or people into units to be put under managers can be attempted.  A single person cannot do all the managing activities for all the activities to be done in an organization. So middle managers are necessary between a CEO (chief manager in more general terms) and actual operators who are predominantly technical people. Managers have business skills, people skills and training skills in the technical activities that they manage. As it has been stated at the starting management texts ignored the process involved in the first step totally.

Organization implies a formalized intentional structure of roles or positions.  Intentional structure means each person in the structure has a certain specified role designed to ensure that required activities to fulfill the objectives of the organization are carried out effectively and efficiently in groups.

While organization implies a formalized intentional structure of roles which is the formal organization built by managers, an informal organization comes into existence certain people help each other in their employment related work as well as personal work.

Formal organization

Formal organization must be flexible. There should be room for discretion, for advantageous utilization of creative talents, and also for adjusting roles based on individual likes and dislikes. Yet efforts of all individuals must be channeled toward group and organization goals.

Informal organization

Chester Barnard recognized informational organization.

Span of control or management

Span of control refers to the number of subordinates a person can supervise. This number is usually four to eight at top levels and eight to fifteen at lower levels.

Delegation

Logic of organizing



13th Edition by Heinz Weirich, Mark V. Cannice and Harold Koontz

They explain the process or logic or organizing in the following steps:

1. Establishing enterprise objectives.
2.Formulating supporting objectives, policies, and plans.
3. Identifying, analyzing, and classifying the activities necessary to accomplish these objectives. (Technology adopted is a major determinant of activities and then the capital equipment and raw materials also play a role in the activities necessary. Human resource requirement is arrived at on the basis of technology, capital equipment and raw material inputs)
4. Grouping these activities in light of the human and material resources available and the best way under the circumstances of using them.
5. Delegating to the head of each group the authority necessary to perform the activities.
6. Tying the groups together horizontally and vertically, through authority relationships and information flows.

The steps three and four are important steps but have not received attention and have not been developed in basic management theory.

3. Identifying, analyzing, and classifying the activities necessary to accomplish these objectives.

4. Grouping these activities in light of the human and material resources available and the best way under the circumstances of using them.

In the step 3 activities required to accomplish the objectives have to be identified. This requires identification various technologies, required equipment,  energy sources and materials. Even the feasibility of training personnel in the technology and use of materials has to be considered. An optimal combination that provides return on investment has to be identified. It is a complex and iterative process that needs to be developed and described for proper management practice.

4. Grouping these activities in light of the human and material resources available and the best way under the circumstances of using them.

Note that step 4 brings the material resources into picture to group activities. Hence organization process assumes that material resource decisions are taken before hand. But where and when in the management process. This aspect was not specified. This is the drawback that I am referred in the current theory of management.

Basic Questions for Effective Organizing of Human Resources

1. What determines the span of management and hence, levels of organization?
2. What determines the basic framework of departmentation, and what are the strengths and weaknesses of the basic forms?
3. What kinds of authority relationships exist in organizations?
4. How should authority be dispersed throughout the organization structure, and what determines this dispersion?
5. How should the manager make organization theory work in practice?


Please give your comments and suggestions on issues to be added to this short revision notes. Also please inform the recent research in this area.

Updated 2018 - 1 February,

  1 Feb 2016,   2 Feb 2015,  5 Jan 2015, 28 July 2014, 12 Dec 2011


MBA Core Management Knowledge - One Year Revision Schedule


Related topics

Related topics

The Nature and Purpose of Planning
The Nature of Organizing
Resourcing - A Function of Management
Leading - Introduction
Planning and Execution - Theory and Practice
The System and Process of Controlling