2.8: The strategy of market segmentation

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During the last two decades, a more complete and concise understanding of market segmentation has emerged. This is not to say that there are not still unsettled issues, measurement problems, and other issues to consider. The most severe problem remains the difficulty of defining precisely the basis for segmentation. A great deal of knowledge about the market and considerable experience with it are highly desirable. Research into consumer motivation is essential. This does not mean that historical, descriptive data about consumers are no longer important. Nevertheless, the ultimate purpose of going through the process of delineating market segments is to select a target market or markets: otherwise, the segmentation process is worthless.

The segmental approach will be described throughout the text in greater detail. At this point, it is sufficient to know that the segmentation strategy is the primary marketing approach used by a majority of producers. Combined with product differentiation, it is the essence of a contemporary marketing strategy. The activity of selecting a target market involves five steps:

• Identify relevant person/organization and purchase situation variables beyond the core product variable. (For Minolta's Maxxum SLR Camera, the core product variable would be fool-proof photographs, and other relevant variables might be age, income, family composition, occasion for use, and photographic experience.).

• Collect and analyze other related data about potential segments (e.g. characteristics of neophyte camera users, price perceptions of these potential users, size of group, trends, minimum product features).

• Apply criteria of a good segment.

• Select one or more segments as target markets (e.g. neophyte photographers, frustrated with necessary adjustments for a 35mm camera, income of USD 35,000 or more, family, between 25-45 years of age, male).

• Develop appropriate action programs to reach target segment(s) (e.g. price at USD 350; distribute through discount stores, camera stores, and department stores; promote through TV and magazine ads). This type of effective action program is demonstrated in the Newsline that follows.

Newsline: Youth segments

It takes more than just traditional advertising to appeal to the ever elusive teenage market. One company that has discovered the right formula to reach this group is High Frequency Marketing (HFM), a youth marketing firm founded by Ron Vos. Since its inception in 1995, HFM has grown significantly in terms of cross-industry reach, marketing network, and revenue (which has tripled in the past two years). Vos attributes the company's success to its unconventional promotional campaigns.

As a youth marketing start-up, Vos's energies were initially focused on the music industry. He appealed to his target market of 12 to 26 year-olds by using grassroots marketing efforts and specializing in "takin' it to the streets". Back in 1995, street marketing had not become the cliche that it is now. Yet, Vos's key to success is the adaptability of his firm to youth culture and technology. As he likes to say, "As soon as a marketing concept becomes mainstream, it's history."

When asked to pinpoint a breakthrough campaign for his company, Vos immediately mentions The Wedding Singer. Hired by New Line Cinema in 1998 to promote the film, HFM developed the concept of a "karaoke jam contest" in the malls of 24 cities The campaign was immensely successful, opening doors for HFM to the whole entertainment industry.

Another successful campaign took place in 2000, when Food.com approached HFM with the concept of partnering with Second Harvest (a national food bank) to sponsor a national food drive on college campuses, using the incentive of awarding the campus that collected the most food at a big concert. HFM had to go back to the company and say that "you can put a carrot on the end of a stick, but the stick can't be too long". In other words, Food.com needed a more tangible campaign, something with instant feedback to "show (the students) that it is real, that it is there.” Vos and his creative marketing team came up with a compilation CD entitled "Music 4 Food", which was distributed free of charge to students who donated food (they also received a ticket to a nearby concert).[1]

The concept of positioning

Both product differentiation and market segmentation result in a perceived position for the company or organization. From the intelligent marketing organization, there should be an attempt to create the desired position, rather than wait for it to be created by customers, the public, or even competitors. Positioning is defined as the act of designing the company's offering and image to occupy a distinctive place in the target market's mind. The end result of positioning is the successful creation of a market-focused value proposition, a cogent reason why the target market should buy the product.

Since positioning is a strategy that starts with the product, we expand our discussion of positioning in the Product chapter.

The future of the marketplace

As the spread of the global marketplace continues, aided by satellites, the World Wide Web, and universal problems, it will also become increasingly difficult to effectively assess the market. In fact, there is solid evidence that the market will often consist of a single person or company. Customized product design, relationship marketing, and one-on-one marketing suggests that marketing has gone full circle. Like the first half of the twentieth century, when the corner grocer knew all of his customers personally, marketing in the rest of the twenty-first century may look very similar.

Capsule 5: Review

• Bases of segmentation

(a) ultimate consumers

i. geographic

ii. demographics

iii. usage

iv.psychological

(b) organizations

i. type of customer

ii. end uses

iii. common buying factors

iv. size and geography

(d) qualify people into segments

i. clarity of identification

ii. actual or potential need

iii. effective demand

iv. economic accessibility

v. positive response

segmentation process

The Wall Street Journal (wsj.com)

In practice

What is the market? It depends on your product but, generally, all markets possess similar, basic characteristics. The market is people, either individuals or groups, businesses or institutions. The market is also a place, as in marketplace, where transactions take place. Finally, the market is an economic entity, influenced by financial pressures and government regulations.

In order to sell a product, marketers must know their market and know it well. Four primary markets exist, but they are not mutually exclusive. Consumer, industrial, institutional, and reseller markets all have characteristics specific to their consumers, but they also overlap in many instances. As a result, most successful companies segment their markets. By segmenting markets, a company can match the needs and wants of consumers to its product.

Print magazines and their online counterparts are excellent examples of market segmenting. The Interactive Journal targets the business community, while Outside Magazine (www.outsidemag.com). clearly targets outdoor enthusiasts.

You are able to customize the Interactive Journal to your personal preferences. On the Front Section, click on Personal Journal on the main menu. From here you will be directed to the Setup Center. Here, you can create folders in three separate areas:

1. News

2. Favorites

3. Portfolio

In the News section, you can search for news items in the Interactive Journal using key words, company names, and industry type. Articles meeting the criteria you specify will be listed automatically on a daily basis. Set up your own News folder now.

In the Favorites section, you can track regularly running columns and features in the major sections such as Marketplace and Tech Center. Create your own Favorites folder now.

In the Portfolio section, you can track your purchases and sales of specific stocks.

Deliverable

Identify three to five companies with segmented markets. Visit their websites for specific information about the companies and their products. Also search the Interactive Journal for more information about the companies you have identified. For each company, identify the segmented market and list specific characteristics about that market.

1. [1]Sources: Debra Goldman. "S&SI Markets the Tried and True to Teen Boys: Misogyny," Adweek, May 15, 2000, p. 24; Jinnefer Gilbert, "New Teen Obsession," Advertising Age, February 14, 2000, p. 38; Chritstina Merrill, "The Ripple Effect Reaches Gen Y." American Demographics, November 1999, pp. 15-16; Lauren Goldstein, ''The Alpha Teenager," Fortune, December 20, 1999, pp. 201-203.