Introduction to Marketing Unit 4

 

SEGMENTATION AND TARGETING MARKETING

Segmentation is the process of classifying customers into groups which share some common characteristics. Marketers choose among four basic segmentation alternatives; mass marketing, market segmentation, niche marketing and direct (one-on-one or individual) marketing. Depending on the size of the organization and the resources available, an organization may employ several of these alternatives at one time.

Mass marketing

Under this, an organization implements one basic marketing strategy to appeal to a broad range of consumers. It does not address any distinct characteristics among the consumers. The nature of the product or service in this case is such that it enjoys widespread acceptance.

Market segmentation

This is the division of a large market (mass market) into smaller homogenous markets (segments or targets) on the basis of common needs and/or similar lifestyles. When utilizing segmentation, a company specializes by concentrating on segments of the population. A combination of demographic, psychographic, geographic, and behaviour information is commonly used to segment a market.

Niche marketing

Focuses on subgroups within a market segment. The subgroup has unique and identifiable characteristics, and even though the subgroup is small, it presents sufficient opportunity and profit potential. This strategy is ideal for small companies that have limited resources and large companies wanting to target specific sub-segment with specialized products. Often the sub-segment pursued is quite small, so the key to success is in finding opportunities that do not require large economies of scale in production and distribution. An organization using a niche strategy finds opportunity to customize products and services to the narrow interests of each niche. Niches start out small in size or narrowly defined, but niches become larger in scope as more mainstream consumers are attracted to them.

Direct marketing

This refers to a situation in which unique marketing programs are designed specifically to meet the needs and preferences of individual customers. Advancing technology encourages and enables such a definite marketing practice. Marketers are empowered by more detailed consumer data that allow for a much higher degree of intimacy and frequency of contact with consumers.

Types of segmentation

Demographic segmentation is defined as the division of a large market into smaller segments on the basis of combinations of age, gender, income, education, occupation, marital status, household information, and ethnic background. Marketers analyze demographic characteristics and what emerges is a target-market profile embracing those characteristics judged to be relevant for the purpose of developing a marketing strategy.

Psychographic segmentation is market segmentation on the basis of the attitudes, interests, opinions, values and activities (the lifestyle) of consumers. It is multidimensional. It considers a variety of factors that affect a person’s purchase decision. Such information is advantageous to marketers because it tells them not only who buys, but also why they buy. When this information is combined with demographic information, a more complete portrait of a target market emerges.

Geographic segmentation refers to the division of a large geographic market into smaller geographic or regional units. Geographic considerations used in conjunction with demographics and psychographics provide the marketer with a clear description of the target market, and from this description marketing strategies can be developed.

Geodemographic segmentation combines demographic characteristics with geographic characteristics and refers to the isolation of dwelling areas (e.g., areas within a city) based on the assumption that people seek out residential neighbourhoods that include their lifestyle peers.

Behaviour response segmentation involves dividing buyers into groups according to their occasions for use of product, the benefits they require in a product, the frequency with which they use it, and their degree of brand loyalty.

Segmentation involves three steps;

  1. Identifying market segments
  2. Selecting the market segments that offer the most potential
  • Positioning the product so that it appeals to the target market

Once these steps have been taken, an organization shifts its attention to developing a marketing mix strategy. Typically, a company pursues those target markets that offer the greatest profit potential. When identifying target markets, an organization must consider the various social and demographic trends.

Advantages of Segmentation

  1. The process of breaking up a homogeneous market into heterogeneous segments forces the marketer to analyse and consider both the needs of the market and the company’s ability to competently serve those needs – thereby making the company better informed about its customers
  2. Competitor offerings and marketing positioning must also be analysed in this context so the company must consider what its competitive advantages and disadvantages are, helping it to clarify its own positioning strategy
  3. Limited resources are used to best advantage, targeted at those segments that offer the best potential.

Requirements for Effective Segmentation

Measurable: Size, purchasing power, profiles of segments can be measured.

Accessible: Segments can be effectively reached and served.

Substantial: Segments are large or profitable enough to serve.

Differential: Segments must respond differently to different marketing mix elements & programs.

Actionable: Effective programs can be designed to attract and serve the segments.

 

Targeting

Targeting involves the process of evaluating each segments attractiveness and selecting one or more segments to enter.

A target market is a group of people toward whom a firm markets its goods, services, or ideas with a strategy designed to satisfy their specific needs and preferences.

Behavioural Targeting

Behavioural targeting is a database-driven marketing system that tracks a consumer’s behaviour to determine his or her interests and then serves ads to that person relevant to those interests. For example, if someone spent time on a financial website looking up mortgage rates it could be inferred that that person is in the market for a new home. He or she could receive ads from a mortgage company or real estate company on whatever webpages he or she views.

Behavioural targeting has forced marketers to rethink their media strategies. They are shifting away from traditional media (television, radio, newspapers, magazines, and outdoor) that reach a mass audience and toward media that reach consumers directly and more efficiently – media such as the internet, direct mail, and text and video messaging via smartphones.

Market Targeting Techniques

Geo-targeting is the practice of customizing an advertisement for a product or service to a specific market based on the geographic location of potential buyers. It allows a marketer to specify where ads will or will not be shown on a website based on the searcher’s location. Such technology allows local marketers and smaller marketers with limited financial means to compete more effectively with larger marketers who have far greater resources.

Location-based targeting is an effort to integrate consumers’ location information to their marketing strategy.

Mass customization refers to a marketing system that can produce products and personalize messages to a target audience of one. This concept is not new to marketing, but its potential use by so many marketing organizations is a dramatic change from the past. Tailor shops, for example, have always offered readymade suits while also providing made-to-measure suits for customers seeking the perfect fit and better quality. Mass customization is an extension of this way of doing business.

Positioning

Once a target market has been identified and a product developed to meet the needs of the target, the next step is to position the product. Positioning refers to the place a product occupies in the customer’s mind in relation to competing products. It involves:

  1. Designing and marketing a product to meet the needs of a target market, and
  2. Creating the appropriate appeals to make the product stand out from the competition in the minds of the target market (through marketing mix activities).

Types of Positioning

Head-on positioning: in this, one brand is presented as an alternative equal to or better than another brand. It may not be the market leader but it wants ti instill that thought in the customer’s mind. The strategy is usually initiated by a brand challenger, typically the number-two brand in the market. This requires financial commitment, because the market leader is likely to react with increased marketing spending.

Brand leadership positioning: brand that are market leaders can use their large market share to help position themselves in the minds of customers. Their marketing communications are designed to state clearly that the product is successful, a market leader, and highly acceptable to majority of users.

Product differentiation positioning: product differentiation is a strategy that focuses squarely on the unique attributes of a product – those features that distinguish one brand from another.

Technical innovation positioning: technical innovation is often more important for a company as a whole than for individual products. Innovative companies seeking to project an image of continued technical leadership will use this strategy to position themselves as representing the leading edge of technology.

Lifestyle positioning: in crowded markets where competing product attributes are perceived to be similar by the target market, firms must look for alternative ways of positioning their products. The addition of psychographic information has allowed marketers to develop marketing communications on the basis of the lifestyle of the target market. Essentially, the product is positioned to “fit in” or match the lifestyle of the user, or to appeal to potential users on the basis of satisfying esteem needs.

Steps in Segmentation, Targeting, and Positioning

Bases for Segmenting Business Markets

  • Personal characteristics
  • Demographics
  • Situational factors
  • Operating characteristics
  • Purchasing approaches

Bases for Segmenting International Markets

  • Geographic
  • Economic
  • Political/Legal
  • Cultural
  • Intermarket
 
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