“High growth companies succeed by identifying and meeting the needs of certain kinds of customer, not all customers, for special kinds of products and service, not all products and services. Business academics call this market segmentation Entrepreneurs call it common sense.”
There are two types of segmentation variables. Basic customers characteristics, are widely used because of the ease with which information can be obtained, and measured. These basic customer characteristics are Demographics, Socio-Economics, Geographical location and personality, motives and lifestyles. Product related behavioural characteristics are purchase behaviour, which may be based on brand loyalty or on the basis of price. Purchase occasion this is the need for the item i.e. the need for accommodation at 11pm at night there is less chance that you would bargain on price or shop around. Benefits sought, customers seek different benefit for example 3*, 4*, and 5* hotels depending on disposable income and wants. Consumption behaviour and user status, examining consumption patterns can indicate where organisations should be concentrating their efforts. Attitude towards product are different as customers have different perceptions and tastes for product/services offered.
There are three main methods of segmentation. Consumer market segmentation is carried out to find the needs of customers in the market, it consists first of informal interviews and focus groups identifying what benefits customers seek and the extent of differences between expectations. The next stage is using a formal questionnaire to a large number of customers and quantifying the information find to the requirements of customers. Often the market will be divided into quality, service performance and economy orientated segments. The next stage is to seek to link these differences to profilers or consumers characteristics. The questionnaire should have collected data on both the needs sough and the characteristics of respondents. The most common profilers used in consumer market segmentation are Geographical, Demographical, psychographics and behavioural.
Organisational market segmentation is where management have to segment the market by benefits sought, describing the characteristics of these customers. The needs of the organisations customers depend upon their strategy, their operating environments and the personal characteristics and relationships of the individual buyers within the organisation. Managers often make the mistake that all customers are the same, in their desire for the lowest price – this is wrong and a costly mistake. Customers normally divide into three segments. Price sensitive buyers, service segment buyers are those and commitment-focused customers. This type of segmentation offers real opportunities to increase sales, achieve better profit margins and encouraging the business into more attractive markets.
Multilevel segmentation is where there are many buyers whose needs may differ not just a single buyer. Opportunities are there for the seller to target a specific person within any decision-making unit. Each individual often has different buying criteria and roles in the buying decision. Organisations can often gain advantage by innovative strategies to target specific members of the decision-making unit. Decision making units and buying processes are even more complex, offering great opportunities for creative marketing. Typically a minimum of three parties can be involved, the companies buyers, technical department and senior management.
Meeting customer’s needs and providing customer value require market segmentation. This is not simple. They entail an understanding in depth of the customer’s decision and what are the specific needs of each group. Finally the supplier needs to have the skills to communicate the benefits to the desired personnel within the buying centre.
The benefits of segmentation are many. Through the use of customer analysis a better understanding of customers needs and wants can be achieved. This will enable personal, situational and behavioural factors to be considered leading to higher levels of satisfaction if all changes are made and implemented. This will also improve communication. Therefore small changes in segments can be responded to quickly.
Competitor’s analysis allows for competitors to be identified and understood. It is important to be aware of who your competitors are, knowing what they are doing better than your organisation so that you can compete against them. This will assist in the decision making process and help your organisation to identify competitive advantage. Considering markets in different ways from competitors once you know what they are offering can help an organisation to target the appropriate market perhaps one, which has not been identified.
All organisations have limited amount of resources for an organisation to target a whole market would be unrealistic and out of reach. With the use of effective resource allocation ensuring that personnel and material resources are focused, it will assist in maximum effectiveness being achieved.
Strategic marketing planning divides markets helping marketers to develop plans, which suit the particular needs and requirements of customers in different segments. Time scales, which are developed from the use of strategic plans, can also be structured accordingly.
Segmentation can help to enhance profits; this is a major benefit to all organisations and is extremely achievable. Prices can be varied to suit segments this benefits the organisation and customers and is an all round better solution. Prices can be varied to suit segments ensures a better solution to the organisation and customer. People are more likely to buy when they are interested in what the organisation has to offer. As Ellis, 2003 quotes:
“Return on investment is significantly higher when likely buyers are targeted”
Finally segmentation benefits company’s as it enhances opportunities for growth building on sales growth and profit. For example the Hotels accommodate for both luxury and budget accommodation each targeting a different segment i.e. The Ramada Hotel in Belfast and the Holiday Inn are part of one company. The Ramada provides 4* accommodation of a more luxurious class while the Holiday Inn attracts the budget travellers.
As there are benefits of segmentation there are also drawbacks such as discouraging additional costs of producing multiple rather than simple marketing offerings. Segments provides smaller potential markets, ineffective segmentation can result in missed opportunities and inappropriate investment. Competition in segmentation organisation is best suited to be very intense because if you are targeting unsuitable segments you are wasting time and money this may result in dissatisfaction. It’s difficult to move into new segments after success in others for example if your original target market is fast food customers, it may be hard to compete for fine dining. Segmentation may be lacking in some basic components such as measurability, it is difficult to identify and measure. The Substantial ness of segmentation may not profitable enough to justify marketing efforts in the long term. The accessibility of segmentation may not be stable as there maybe a gap which is not researchable for example it may not be long term or the time available for efforts to work may not be sufficient. Segmentation may not be stable long term or long enough time for efforts to work. The usefulness of segmentation may be varied it may not mean anything to the organisations overall objectives.
The development of targeting decisions is the stage that follows. Kolter et al, 2003 as, define marketing Targeting
“The process of evaluating each market segments attractiveness and selecting one or more segments to enter.”
Targeting is the choice of specific segments to serve. Before choosing which targeting strategy to adopt an organisation needs to consider the market attractiveness. They need to consider market potential, the level of competition, size and growth rate and factors that may depress profitability. Factors, which decrease profitability, are intense competition, easy entry for new competitors, price sensitivity and high levels of bargaining power. An example of this is budget travel where Easy Jet and Ryan Air sell flights at low cost British Airways had a low cost airline call ‘Go’ which they had to sell of in the year 2000 because competition was so high and profits so low.
The company needs to know what its capabilities are can they do what they propose? Are they fit to meet their target or is it too extreme? Will meeting their target make them shine? The organisation needs to use its strengths to help set targets and meet them. In developing targeting decisions the organisation needs to be consistent with image & overall vision. The marketing team need to work with the capabilities of the organisation and the management team without their commitment the marketing segment will fail from neglect.
Targeting decisions can be divided in undifferentiated, differentiated, focused and customised. Undifferentiated refers to a single marketing mix for the entire market. Segmentation is absent. It occurs as a default and there is a lack of customer knowledge. However it is more convenient to managers and sales personnel because they only have to develop a single product saving them trouble and expense. Differentiated is marketing directed at two or more segments. With specific marketing mixes for each segment, it demands a greater number of resources, as customer groups are distinct. Focused targeting decisions are aimed at single markets and are suitable for those with limited resources. The expenditure is concentrated and managerial activities are devoted. Research and development of the segment ensures the best result. It enables specialisation. Customised is designing of discrete marketing mix for each customer. The product/service offered varies on customer basis requirements are discussed directly. There are close relationships between suppliers and customers giving rise to customer relationship management (CRM).
Marketing positioning as defined by Dibb et al 2001
“Positioning is not what is done to the product – it is what is created in the minds of the target customers; the product is positioned in the minds of these customers is given as an image.”
Strategies for positioning identify product attributes, key benefits offered, highlight user groups, associate activities, influences of personalities, emphasis on origin, adopt head to head positioning against competitors and dissociate from direct competitors. The final state is to develop and establish a platform for effective communication. The position statement is:
“A plausible memorable image-enhancing written summation of a products or brands desired statute.”
Target customers needs are demonstrated by striking a cord with their targeted customers.
There are four key strategies for positioning developed by Jobber et al 2003:
Firstly clarity the idea must be perfectly clear and memorable not complicated. It needs to be consistent and measurable. It needs to credible in people minds target customers consider image. Competitiveness needs to provide something of value for the customer something, which the competitor does not have.
Strategies for re-positioning which can be resultant in changes of tastes poor sales and performance. Product and market remain the same and change image. Market remains the same and product is modified. The Product remains the same but there is a change in the market an example of this is when Lucozade changed it image form Lucozade being for people who were sick and in hospital. Now it’s the energy drink and the target market is people in sports. A change in product and market.
Market research is vital if an organisation is to understand the current market situation. For an organisation to be able to trade successfully, a business must endeavour to satisfy its target customers in away, which rivals its competitors giving it competitive edge. The segmentation process requires strict management if it is to be effective. It is a creative process and is regarded as one of the key elements of modern marketing. It has been devised to help satisfy customers in doing so creating competitive advantage for the organisation, which it has been implemented in. It is defined by the customers needs not the companies. Segmentation, targeting and positioning should be reviewed regularly and adapted as and when necessary. It is available to all organisations.
“No longer the exclusive domain of large companies with supercomputers and massive marketing budgets, segmentation tools are now available to virtually any company with customer data and desire to maximise marketing return on investment.” Ellis 2003
