As most companies cannot compete in
an entire market, they usually break down it down into smaller markets. This
process of market segmentation affords the opportunity to focus selling
products in one, or a few, defined areas. It helps to create focus and
effective use of marketing resources to maximize return on investment.
Effectiveness is seen as dollars spent and dollars earned.
As companies gain resources and knowledge,
they begin to use market research to develop complex and effective marketing
strategies. The process of evaluating a market segment helps in developing
strategies that further create efficiency in target marketing (Kutkut,
2012). Target marketing is the chosen focal point of the products/services,
advertisements, and related efforts. As the
skill level of managers rises, so does the success of reaching and influencing
the target market.
There are generally four levels of
market segmentation that include (Finch, 2012):
Mass
Marketing: The firm makes no effort to
break up a market and instead puts energy into all of it. Only certain products
that have wide appeal (i.e. cars) do well with this approach.
Market
Segmentation: The process of breaking down the
market into segments. This works well with products that have specific appeal
to certain groups (i.e. camping equipment). In many cases, these are larger
market segments.
Niche
Marketing: Narrowly defined group that many
large companies have a hard time marketing (i.e. hobby farm heirloom seeds).
This includes the selling of products in smaller groups and in very specific
venues.
Customized
Marketing: This is the smallest market
segmentation whereby individual concerns are taken into account (i.e. yahts and
houses). Generally, these are big-ticket items and focused on maximizing
returns on individual products.
A company can segment the market in many
ways. This may include geography, psychological profiles, behavioral profiles, industry,
previous spending habits, etc… These
segments rely on research and analysis that further helps the company find ways
to reach those customers most motivated to purchase their products. As
competition becomes fierce companies may offer sales, discounts and promotions
to enhance customer motivation.
Once researchers have determined the
nature and scope of a segment they need to determine how profitable that
segment will be and whether or not it will sustain the growth needs of the
organizations. Companies that seek to maintain a competitive edge continually
seek to develop new and exciting products/services that create “buzz” while
seeding markets for the future. It is a
process of finding and exploiting opportunities.
As organizations become more global, the
market segments can become large and complex. Companies that sell international
products and services should take into account the cultural values of new
target markets (Agarwal, 2010). Failure to consider the perspective of other
cultures can lead to costly mistakes that can wipe away sunk costs and
investments. These human elements and soft skills become mixed into the
marketing strategy.
At its root, marketing is a process of
communication while marketing strategy is the process the company uses to
communicate the value of products and services. Market segmentation affords the
opportunity to better match communication to customer needs. To do this well
requires the ability to research and understand the characteristics of a
company’s most profitable customers. It is a process that if done well can help
an organization reach new heights or cause it to shrink into oblivion.
Agarawal, J.
Malhortra, N. and Bolton, R. (2010). A cross-national and cross-cultural
approach to global market segmentation: an application using consumers
perceived service quality. Journal of
International Marketing, 18 (3).
Finch, J. (2012). Managerial marketing. San Diego,
CA: Bridgepoint Education, Inc.
Kutkut, N. (2012). Formal and informal target market
selection in new ventures: a factor analysis. Journal of Academic Business & Economics, 12 (1).
