Segmentation in Marketing

        

 

This article explains basic concept of marketing segmentation and different type of segmentation commonly used by companies in today’s market. Article explains each type of segmentation with example to give more understanding of each area.

              Success in marketing in the world today is dependent on a strategy of market segmentation. Market segmentation is the way in which the marketing system maximizes the alternatives available to consumers of products and services. It does so by recognizing that the total market is made up of smaller submarkets called segments of consumers who have needs that are homogenous in many geographic, demographic, economic, cultural and psychological ways. A market segmentation strategy attempts to find such a market and penetrate it to the greatest extent possible by customizing products, services and, the marketing efforts to fit its needs. For example car manufacturers such as Toyota and Ford manufacture cars for different segments of population, giving consumers what they want. Market segmentation is the basis for developing targeted and effective marketing plans.            

             Market segmentation can be categorized into four levels: segment marketing, niche marketing, local marketing and individual marketing.In segment marketing, segments are identified into homogenous groups of customers, each of them reacting differently to promotion, communication, pricing and other variables of the marketing mix. There are a huge number of variables that could be used for market segmentation in theory. They comprise easy to determine demographic factors as well as variables on user behavior or customer preferences. Market segments should be formed in that way that differences between buyers within each segment are as small as possible. Thus, every segment can be addressed with an individually targeted marketing mix.            

             Niche marketing is targeting a product or service to a small portion of a market that is not being readily served by the mainstream product or service marketers. Almost every business-fast food chain, convenience stores was begun to fill perceived voids in the marketing place. Market niches can be geographic areas, a specific industry, ethic or age groups or any other particular group of people. Some of niche markets and products are, organic vegetables: consumers wanting vegetables grown without pesticides, SUV: for drivers desiring a vehicle with room, power and strength, pasteurized goat milk: consumers allergic to cow milk. Niche marketing serves a portion of a unique market or portion of a common market not already served. 

             Another form of segmentation is local marketing – reaching individual communities with specialized messages. The latest trend is to bring marketing down to the neighborhood level and make it personal to the customer. Some marketing experts, advocates targeting your marketing efforts to specific neighborhoods, “making sure your message is delivered only to people most likely to be your customers — those within 10 miles or 10 minutes of your door.” It is all about thinking small and keeping your marketing local. Local marketing offers several advantages; it allows businesses to tap the potential of greatest profit opportunity within their trading area – the customer base that is right in their back yard. Businesses, schools, churches, community events and even fellow retailers can become promotional allies in building cost-effective programs to capture consumer dollars right within reach. Local marketing is face-time marketing. The local marketing approach eschews institutional “exposure” advertising. 

             Today customer is very well aware about what it needs to buy and more focus on its liking and preferences. Therefore companies are more focused towards individual marketing or customization. Individual marketing is traditional form of marketing, offering products and services on individual basis. Many online companies are offering customers a choice based option interactive system that allows online user to design their own products from pool of options available with suppliers. Customizing its products, services, and messages on a one to one basis, customizes a company when it is able to respond to individual customers. However it is not possible for every company to customize its products such as automobile manufacturing companies.

             A segment-orientated marketing approach generally offers a range of advantages for both, businesses and customers. It is possible to satisfy a variety of customer needs with a limited product range by using different forms, bundles, incentives and promotional activities. It is often difficult to increase prices for the whole market. Nevertheless, it is possible to develop premium segments in which customers accept a higher price level. Such segments could be distinguished from the mass market by features like additional services, exclusive points of sale, product variations and the like. By segmenting markets, organizations can create their own ‘niche products’ and thus attract additional customer groups. Organizations that serve different segments along a customer’s life cycle can guide their customers from stage to stage by always offering them a special solution for their particular needs.  

Marketing research

            The dynamic nature of marketing activities requires manufactures and retailers to make continuous decision on variety of problems and opportunities. Large amount of investment depend on correct decisions being made by marketing managers who must be able to make intelligent appraisals of alternatives and the consequences of their actions. The decision-making relies on the use of information about environment, customers, competitors, and the activities of organization. The role of market research is to obtain and analyze this information and aid-marketing managers to form intelligent appraisals. Marketing research is systematic gathering, recording, and analyzing of data about problems relayed to the marketing of goods and services.

             A company can conduct its own marketing research or hire third party firm. Large companies can have their own marketing research departments where as others have option to buy data from third party firm or engage outside vendor exclusively for its operation. There are mainly three types of marketing research firms: syndicated service research firms, custom marketing research firms and specialty-line marking research firms. Syndicate service firm collects information designed to fit the needs of many users. For example, F.W Dodge makes syndicated monthly reports to the building trades, collecting information form about 165,000 architects, engineers, contractors, public officials, and others associated with the building trades. These syndicated reports are available for a fee and generally covers an industry sector. Many manufactures of food and drug products subscribe to one or more syndicated services on continuing basis. Several companies appoint third party firm to conduct marketing research for their products and services. These firms work with companies to design and devolve marking research plans exclusive for their products. Data collected in this case remains confidential to firm and exclusively supplied to the company. Some firms provide specialized marketing research services such as panel interviews, field survey, store/warehouse audits and independent-sample survey. For example, Starch magazine advertisement readership selects a new sample each time and through interviews elicits answers to a set of questions. Market Research Corporation of America is specialized in gathering information through its established panels of individuals. Some specialized firms provide help in technical areas ranging from design of samples to computer programming and data processing.

             Market research can be conducted by several different ways; can be less expensive and more creative. Some companies have tie up with universities and colleges for project work and work with professors and students to conduct market research. Hiring summer trainees from management institutes to conduct study is very common among companies. This approach offers innovative and low cost solution to companies. Another handy approach is to research published information available on Internet, in newspapers, industry reports. Many websites offers various survey reports at nominal charges. Some companies sell household and business directories prepared by various types of surveys. Another cost effective approach is to study business behavior of competitors by visiting their facilities, studying theirs products, getting information from people who do business with competitors.  

             Starting with less expensive market research approach will give owner an overall idea about craft market. It will also help owner to decide whether it is worth investing in custom market research or conduct any specialize market research.  

Comparative intelligence

            

            Today, information has become an integral part of every organization. However, there is need to effectively manage this information and gain benefit from information systems. Businesses must leverage the vast quantities of collected information in order to make effective decisions, achieve a strategic competitive advantage and achieve increased employee productivity. Competitive intelligence embodies a systematic and ethical program for gathering, analyzing and managing external information that can affect an organization’s plan and decisions. Competitive intelligent system can be use to monitor competitor’s activities, national and internal market trends, customer needs, existing and emerging technologies and regulatory trends. Competitive intelligence is the ongoing process of monitoring environment in order to identify the opportunities to act on or threats to avoid. Many companies use readily available software tools to implement competitive intelligent system. 

            There are four main steps involved in designing and implementing competitive intelligent system. Very first step is setting up system, this step involves defining goals, identifying clients, output, management’s role, decision this system will support, assigning personnel resources, leveraging internal resources, creating networks, creating process which will match with organization culture. One can also define operating procedures and communication methods at this step. Existing software tools allow highly customized configuration and can be configured to analyze competitor’s strategies, strengths and weaknesses at granular level. There are third party firms who can also provide consulting services to setup such systems. Companies like Strategy software and Cipher systems offers range of cost effective products to implement competitive intelligent system.

            Next step in building competitive intelligent system is to collect and feed data into system. Data can be collected from various sources and feed into system using EDI or data can be automatically loaded periodically from vendor’s website. In large organization, company collects field data from sales/marketing teams, suppliers, and regional offices, from customer feedback and field surveys. Another way of collecting data is from over Internet. Many websites such as Bloomberg, provides various operational and financial information on companies operating in various sectors. Today, software tools are intelligent enough to interpret data from agencies like Reuter and Bloomberg. Companies can subscribe to these data agency’s services for regular data availability. There are firms, which are specialized in providing competitive data for a particular business sector.

           Next step in this process is validating and analyzing data. Data validation can be done at source of collection or after data is in the system. There are various tools available to mine data. Most business intelligent system software have inbuilt data mining capabilities and they use expert system algorithms to analyze data. These tools are highly customizable and users can organize data as per their need. These tools are capable of producing complex analytical reports based on requirement and defined rules. Once data is analyzed, reports can be available on intranet or sent to corresponding individuals.  These reports can provide information about particular sector, competitive analysis of top competitors, various market trends and patterns. Feedback mechanism can be incorporated to get feedback from end user to constantly update and change system. 

             In applying competitive environment information helps company to back their strategies, increase sales revenue, focus on marketing programs and improve negotiation outcomes. It helps to manage a wide range of information and analysis from many sources about your own competitive environment to turn it into useful intelligence easily used by people planning executive strategy and by others in sales, marketing, negotiations, contracting and other critical areas.