market segmentation targeting and positioning 02 28 2013 why segment markets a business firm segments its markets so it can respond more effectively to the groups of potential buyers and thus increase its sales and profits non for profit organizations also segment the clients they serve to satisfy client needs more effectively while achieving organizational goals what market segmentation means market segmentation o involves aggregating prospective buyers into groups that have common needs will respond similarly to marketing action market segments o the relatively homogenous groups of prospective buyers that result from the market segmentation process each market segment consists of people who are relatively similar to each other in terms of their consumption behavior product differentiation o this strategy involves a firm using different marketing mix activities such as product features and advertising to help consumers perceive the product as being different and better than competing products segmentation linking needs to actions the process of segmenting a market and selecting specific segments as targets is the link between various buyers needs and the organizations marketing program market segmentation is only a means to an end o it leads to tangible marketing actions that can increase sales and profitability marketing segmentation stresses the importance of grouping people or organizations in a market according to the similarity of their needs and benefits they are looking for in making a purchase o such needs and benefits must be related to specific marketing actions that the organization can take using market product grids market product grid o a framework to relate the market segments of potential buyers to products offered or potential marketing actions when and how to segment markets a business goes to the trouble and expense of segmenting its markets when it expects that this will increase sales profit and return on investment o when expenses are greater than the potentially increased sales from segmentation a firm should not attempt to segment its market three specific segmentation strategies o one product and multiple markets segments o multiple products and multiple market segments o segments of one or mass customization one product and multiple segments when an organization produces only a single product or service and attempts to sell it to two or more market segments it avoids the extra cost of developing and producing additional versions of the product multiple products and multiple market segments this strategy is very effective if it meets customers needs better o this doesn t reduce quality or increase price segments of one mass customization each customer has a unique needs and wants and desires special tender loving care economies of scale in manufacturing and marketing during the past century made mass produced goods so affordable that most customers were willing to compromise their individual tastes and settle for standardized products o todays internet ordering and flexible manufacturing and marketing processes have made mass customization possible which means tailoring goods services to the tastes of individual customers on a high volume scale this system falls a bit short to total mass customization because customers do not have unlimited number of features from which to choose the segmentation trade off synergies versus cannibalization the key to successful product differentiation and market segmentation strategies is finding the ideal balance between satisfying a customers individual wants and achieving organizational synergy o the increased customer value achieved through performing organizational functions such as marketing or manufacturing more efficiently the ultimate criterion for an organizations marketing success is that customers should be better off as a result of the increased synergies many firms now offer different variations of the same basic offering to high end and low end segments o the lines between customer segments can often blur and lead to problems steps in segmenting and targeting markets segmenting a market requires both detailed analysis and large doses of common sense and managerial judgment step 1 group potential buyers into segments its not always a good idea to segment a market grouping potential buyers into meaningful segments involves meeting some specific criteria that answer o would segmentation be worth doing o Is it possible Criteria to use in forming segments A marketing manager should develop segments that meet five essential criteria to segments o Simplicity and cost effectiveness of assigning potential buyers A marketing manager must be able to put a market segmentation plan into effect This means identifying the characteristics of potential buyers in a market and then cost effectively assigning them into a segment o Potential for increased profit The best segment approach is the one that maximizes the opportunity for future profit and return on investment If this potential is maximized without segmentation don t segment o Similarity of needs of potential buyers within a segment Potential buyers within a segment should be similar in terms of common needs that in turn lead to a common marketing action o Differences of needs of buyers among segments If the needs of the various segment aren t very different combine then into fewer segments A different segment usually requires a different marketing action that in turn means greater costs If increased sales don t offset extra costs combine segments and reduce the number of marketing actions o Potential of a marketing action to reach a segment Reaching a segment requires a simple but effective marketing action If no such action exists don t segment Ways to segment consumer markets Four segmentation bases o Geographical segmentation Based on where prospective customers live or work o Demographic segmentation Based on some objective physical measurable or other classification of prospective customers o Psychographic segmentation Based on subjective mental or emotional attributes aspiration or needs of prospective customers o Behavioral segmentation Based on some observable actions or attitudes by prospective customers Such as what they buy what benefits they seek how frequently they buy and why they buy Usage rate Is the quantity consumed or patronage Store visits during a specific time o Varies among different customer groups Patronage Usage rate is sometimes referred