When it comes to marketing strategies, most people spontaneously think about the 4P (Product, Price, Place, Promotion) ¡V maybe extended by three more Ps for marketing services (People, Processes, Physical Evidence).
Market segmentation and the identification of target markets, however, are an important element of each marketing strategy. They are the basis for determining any particular marketing mix.
Market segmentation as defined by Kotler, is the segmentation of markets into homogenous groups of customers, each of them reacting differently to promotion, communication, pricing and other variables of the marketing mix. Market segments should be formed in that way those differences between buyers within each segment are as small as possible. Thus, every segment can be addressed with an individually targeted marketing mix.
The importance of market segmentation results from the fact that the buyers of a product or service are no homogenous group. Actually, every buyer has individual needs, preferences, resources and behaviors. Since it is virtually impossible to cater for every customer's individual characteristics, marketers group customers to market segments by variables they have in common. These common characteristics allow developing a standardized marketing mix for all customers in this segment. 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. In addition, there are differences between individual customers and businesses.
As already stated, segmentation is the basis for developing targeted and effective marketing plans. Furthermore, analysis of market segments enables decisions about intensity of marketing activities in particular segments.
A segment-orientated marketing approach generally offers a range of advantages for both, businesses and customers.
Better serving customers needs and wants It is possible to satisfy a variety of customers needs with a limited product range by using different forms, bundles, incentives and promotional activities.
Higher Profits It is often difficult to increase prices for the whole shipping 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, product variations and the like. A typical segment-based price variation is by region.
Opportunities for Growth Targeted marketing plans for particular segments allow to individually approach customer groups that otherwise would look out for specialized niche players. By segmenting markets, organizations can create their own 'niche products' and thus attract additional customer groups.
Moreover, a segmentation strategy that is based on customer loyalty (see loyalty ladder model) offers the chance to attract new customers with starter products and to move these customers on to premium products.
Higher Market Shares In contrast to an undifferentiated marketing strategy, segmentation supports the development of niche strategies. Thus marketing activities can be targeted at highly attractive market segments in the beginning. Market leadership in selected segments improves the competitive position of the whole organization in its relationship with suppliers, channel partners and customers. It strengthens the brand and ensures profitability. On that basis, organizations have better chances to increase their market shares in the overall market Market segmentation is not without its limitations. It is a more expensive approach than using a non-segmented approach. Careful planning and budgeting of resources is required to minimise the risks of failure.
Conclusion Summarizing all the advantages, the need for market segmentation is closely related...