BUS305: Small Business Management

Key Points

• The two major segmentation strategies followed by marketing organizations are concentration strategy and multi-segment strategy.
• Segmentation of a market to reach a target consumer base can be done by defining consumers in terms of geographic, demographic, psychographic, and behavioral characteristics.
• An ideal market segment is possible to measure, large enough to earn profit, stable, possible to reach, internally homogeneous, externally heterogeneous, consistent in response to a market stimulus, reachable in a cost-effective manner, and useful in determining marketing mix.

Terms

• Psychographic segmentation: The division of the market into subsets according to consumers' lifestyle, personality, values, and social class
• Marketing mix: A business tool used in marketing products; often crucial when determining a product or brand's unique selling point. Often synonymous with the four Ps: price, product, promotion, and place.
• Market segment: Market segmentation is a marketing strategy that involves dividing a broad target market into subsets of consumers who have common needs and desires and common applications for the relevant goods and services.
• Psychographic: The science of using psychology and demographics to better understand consumers.

Example

What is a concentration strategy? The manufacturer of Rolex watches has chosen to concentrate on the luxury segment of the watch market. This allows them to focus all of their efforts on a single segment. If Rolex chose to use a multi-segment strategy, they would be marketing to every watch user, and thus their brand value would diminish. Their use of the concentration strategy has helped define themselves as a luxury brand.

Criteria for Segmenting

An ideal market segment meets all of the following criteria:

• It is possible to measure.
• It must be large enough to earn a profit.
• It must be stable enough that it does not vanish after some time.
• It is possible to reach potential customers via the organization's promotion and distribution channel.
• It is internally homogeneous (potential customers in the same segment prefer the same product qualities).
• It is externally heterogeneous. In other words, potential customers from different segments have different quality preferences.
• It responds consistently to a given market stimulus.
• It can be reached by market intervention in a cost-effective manner.
• It is useful in deciding on the marketing mix.

Segmentation Strategies

There are two major segmentation strategies followed by marketing organizations: a concentration strategy and a multi-segment strategy.

In the concentration strategy, a company chooses to focus its marketing efforts on only one market segment. Only one marketing mix is developed. This strategy is advantageous because it enables the organization to analyze the needs and wants of only one segment and then focus all its efforts on that segment. The primary disadvantage of concentration is that if demand in the segment declines, the organization's financial position will also decline.

In the multi-segment strategy, a company focuses its marketing efforts on two or more distinct market segments. The organization does so by developing a distinct marketing mix for each segment. They then develop marketing programs tailored to each of these segments. This strategy is advantageous because it can increase total sales since more marketing programs are focused on more customers. The disadvantage of this strategy is the higher costs stemming from the need for multiple marketing programs.

Segmenting Methods

Segmentation of a market to define a target consumer base can be done in a variety of methods such as:

Geographic Segmentation

Geographic criteria – nations, states, regions, countries, cities, neighborhoods, or zip codes--define the market segments. The geo-cluster approach combines demographic data with geographic data to create a more accurate profile of a specific consumer. In areas prone to rain, you can sell things like raincoats, umbrellas, and gumboots. You can sell summer wear in hot regions, while in cold regions, you can sell warm clothes.

Demographic Segmentation

This consists of dividing the market into groups based on age, gender, family size, income, occupation, education, religion, race, and nationality. Demographic segmentation variables are among the most popular bases for segmenting customer groups because customer wants are closely linked to variables such as income and age and because there is a plethora of demographic data available.

Psychographic Segmentation

In psychographic segmentation, consumers are divided according to their lifestyle, personality, values, and social class. Foreigners within the same demographic group can exhibit very different psychographic profiles.

Behavioral Segmentation

Consumers are divided into groups according to their knowledge of, attitude toward, use of, or response to a product. It is actually based on the behavior of the consumer.

Occasions

Companies can segment the market according to the occasions of use, such as whether the product will be used alone or in a group, or whether it is being purchased as a present or for personal use.

Benefits

Companies can segment the market according to the benefits sought by the consumer.

Source: Boundless
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