The exploration on market segmentation and market modeling is voluminous. Market segmentation is a process that companies use to divide large heterogenous or various markets into small markets that can be reached more efficiently and effectively with products and services that match their unique needs. Muyers and Tauber(1997) provide a review on segmentation research and market segmentation is done for two major reasons. First is to look for new product opportunities or areas which may be receptive to current product repositioning. Secondly to create improved advertising messages by gaining a better understanding of one's customers. According to Kotler(1980), useful segments must possess the following characteristic included measurability, accessibility, substantiality, differentiability and actionability. A segment must be easy to measure in order to determine its size, location and content. Segment also must be accessible through some kind of marketing vehicle, and finally the segment must be substantial size to warrant attention. Company also needs to create value for targeted customers which are segmentation, targeting, differentiation, and positioning. In segmentations, company divides the local market onto smaller segments. Differentiation is to differentiate the market offering to increase superior customer value. Then, targeting is to select the segment or segments to enter. Meanwhile positioning is to position the market offering in the minds of target customers. Market segmentation divides into four major bases which are geographic, demographic, psychographic, and behavioral. Geographic segmentation is the simplest area to understand. When a market is segmented geographically, consumer needs have different variety geographically. This can mean by region of a country, population density, climate, nations, states, countries or cities. For example in United States, consumers in Northeastern and Midwestern regions have more beer breweries than other part of US. Meanwhile, consumption of menthol cigarettes is greater than any other countries. Demographic segmentation appears to be the most prevalent form of market segmentation because consumer is placed on definite sales of measurement which are easily understood. Common demographic variables are age, sex, size, type of family, income, educational level, race, and nationality. Combinations of these variables are sometimes used depending on the degree of specificity required in the segment construction. Some examples of demographic segmentation reflected in consumer products are Kotex sanitary pads that marketed toward women, Appeton vitamins that depending on age and sex and disposable diapers who for age of infant.
Psychographic or life-style segmentation a little more difficult to explain because Ziff(1971) looks at psychographics as a way to segment the over-the-counter drug market. Four segments are developed and described such as age, sex, marital status, personality characteristics, values and beliefs, and life style. This type of research analyses consumers first and then applies the product to them in hopes of discovering different usage patterns by submitting a questionnaire to a random sample of people. The questionnaire would ask for levels of agreement to statements about everyday living and the answers can be derived through cluster analysis or another form of multivariate analysis.
Kotler's fourth and final group of segmentation variables are behaviouristic ones. This includess areas as purchase occasion, benefits sought, user status, degree of usage, degree of loyalty, readiness stage, and marketing factor sensitivity. In general, consumers are segmented based on knowledge of the product, attitude, or response to the product.
The company now has to evaluate and select target segments by using undifferentiated or mass marketing, differentiated or segmented marketing, concentrated niche marketing, and micromarketing...