BUS203: Principles of Marketing

While product differentiation is an effective strategy to distinguish your brand from competitors, it also differentiates your own products from one another. For example, a company such as Franco-American Spaghetti has differentiated its basic product by offering various sizes, flavors, and shapes. The objective is to sell more product, to more people, more often. Kraft has done the same with their salad dressings; Xerox with its multitude of office products. The problem is not competition; the problem is the acknowledgment that people within markets are different and that successful marketers must respond to these differences (see for a recap of the different market approaches).

This premise of segmenting the market theorizes that people and/or organizations can be most effectively approached by recognizing their differences and adjusting accordingly. By emphasizing a segmentation approach, the exchange process should be enhanced, since a company can more precisely match the needs and wants of the customer.

While it is relatively easy to identify segments of consumers, most firms do not have the capabilities or the need to effectively market their product to all of the segments that can be identified. Rather, one or more target markets (segments) must be selected. In reality, market segmentation is both a disaggregation and aggregation process. While the market is initially reduced to its smallest homogeneous components (perhaps a single individual), business in practice requires the marketer to find common dimensions that will allow him to view these individuals as larger, profitable segments. Thus, market segmentation is a twofold process that includes: (1) Identifying and classifying people into homogeneous groupings, called segments, and (2) Determining which of these segments are viable target markets. In essence, the marketing objectives of segmentation analysis are:

1. To reduce risk in deciding where, when, how, and to whom a product, service, or brand will be marketed
2. To increase marketing efficiency by directing effort specifically toward the designated segment in a manner consistent with that segment's characteristics.

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