Marketers have acknowledged that the target audience of a particualar product is not all alike. They differ in terms of demographics, attitudes, needs, position, and social relationships. Most markets are made up of dissimilar individual consumers, sub-markets or segments. Segmentation and targeting of customers allow the marketer to supply a product within the target audience needs and wants (Kotabe and Helsen, 2014). It is essential to establish the needs and values of the target customers within each segment, in order for companies to promote their products, brands or services appropriately. The landline telephones have during the past ten-fifteen years met a hard competition from the mobile telephones and therefore it can be argued that the landline telephones have to be marketed in a different way than the mobile telephone. Within the Zimbabwean market, landlines are now predominantly used by businesses. The ordinary individual finds mobile phone more cheaper and convenient. Especially with other communicating applications such as Whatsapp and Facebook now the popular norm. In order for marketers to design the right marketing strategy, it is necessary for the marketer to have a great knowledge about the needs and wants. By following the segmentation process the marketer will achieve the necessary knowledge and thereby be able to design a persuasive and appropriate marketing strategy.
Consumers’ satisfaction is the perceived fulfillment of consumers’ desires after utilizing a company’s product. Such satisfaction may be measured by the degree of the direct survey. Consumer’s satisfaction is so important that many organizations allocate a large portion of their resources to segment a market. One of the ways to achieve consumer’s satisfaction is through effective market segmenting strategies which are developed around the identification of consumers’ expectations using such dimensions as a product, price, place, promotion along with organization’s distinctive competence (Aaker, 2012). Virtually everything the marketers do is done with the ultimate aim of getting or attracting the potential consumers. Marketers are eager to know what these expectations are in order to satisfy them adequately. They allocate a huge amount of resources on strategies toward consumers’ satisfaction in other to attract, retain and sustain consumers’ loyalty and increase demands for their products.
Stephen Show, as cited by Aaker (2012) in his study that in general, customers are willing to pay a premium for a product that meets their needs more specifically than does a competing product. Thus marketers who successfully segment the overall market and adapt their products to the needs of one or more smaller segments stand to gain in terms of increased profit margins and reduced competitive pressures. Small businesses, in particular, may find market segmentation to be a key in enabling them to compete with larger firms. Many management consulting firms offer assistance with market segmentation to small businesses. But the potential gains offered by market segmentation must be measured against the costs, which—in addition to the market research required to segment a market may include increased production and marketing expenses. Markets and the customers who make up those markets are not homogeneous (Kotabe and Helsen, 2014). Aaker (2012) suggested that segmentation, the division of a market into groups of customers who share certain characteristics or propensities toward a product or service, might be an effective way for an organization to manage diversity within a market.
Ashley and Tuten (2016) stated that market segmentation can be defined as a subgroup of people or organization, sharing one or more characteristics that cause them to have similar product needs. The market segmentation is mentioned as being one of the key elements of modern marketing and is, as mentioned, the process of dividing the market into several groups and/or segment(s) based on factors such as demographic, geographic, psychological and behavioral factors. By doing so the marketers will have a better understanding of their target audience and thereby make their marketing more effective (Piercy, 2016). This is due to the fact that by using the analytical process that puts customers first, the marketer will get more satisfied customers and thereby gain a great advantage over competitors (Piercy, 2016). Market segments can be characterized in different ways on way is to characterize the preferences of the target customers; homogeneous preferences, referring to customers that roughly have the same preferences. Secondly, there are diffused preferences which mean that the customers vary in their preferences and finally clustered preferences which mean that the natural market segments emerge from groups of consumers with shared preferences (Aaker, 2012).
Hestad (2016) also defines market segmentation as the segmentation of customer markets into homogenous groups of customers, each of them reacting differently to promotion, communication, pricing and other variables of the marketing mix. Ideally, relevant differences between buyers within each segment are as small as possible. Thus, every segment can be addressed with an individually targeted marketing mix. Thomas (1980) as cited by Piercy (2016) argued that any proposed segmentation should pass four tests, namely with reference to measurability, accessibility, stability, and substantiality. A group of individuals or organizations having similar characteristics causing them to also take on a similar product or service need is called a market segment. This term applies to consumers who are classified into groups according to the use of a similar product or service. Market segmentation involves the grouping of customers together with the aim of better satisfying their needs whilst maintaining economies of scale. It consists of three stages and if properly executed should deliver more satisfied customers.
The purpose of market segmentation is viewing the heterogeneous market as a number of smaller, more homogeneous market segments which have internally similar product preferences and externally different product preferences, which allows companies to satisfy their customers’ wants with more precision, in comparison with trying to satisfy the wants of the market as a whole. This means that by adjusting marketing effort to the requirements and wants of particular consumer groups companies can secure product demand of the target market (Keller, 2016). This is commonly referred to as differentiating or positioning the product, which is an essential successor of the segmentation process (Keller 2016; Aaker, 2012). The connection between market segmentation and differentiation can be explained further in terms of preference functions and distributions of product characteristics (Aaker, 2012). Theoretically, products can be viewed as a bundle of a limited number of product characteristics. When consumers make purchasing decisions they evaluate the benefits that they associate with each characteristic of the products and the diminishing effects of prices and transaction cost and choose the product that maximizes their utility, i.e. value (Ashley and Tuten, 2015).
The Importance of Market Segments
Successful companies almost all have a significant market share; it is rare for more than three or four companies to be truly successful in any segment of the market. It is not unusual for one company to dominate with every other company trying to catch up. Consider some examples. There are around three really successful supermarkets in Zimbabwe, with OK dominating, followed by Pick and Pay and then Foodworld. Software around the world is dominated by Microsoft and Google. BMW, Mercedes, and Audi dominate the market for executive cars, even in third world country such as Zimbabwe. For many years the US car market was dominated by just Ford and General Motors with American Motors trailing Market segments are important because they allow any company to take a high share of a segment or niche (Ashley and Tuten, 2015).
A question that may be asked by a business is, do we need to segment the Market? Marketing may be based on broad markets or small sub-segments. Mass marketing is the process or strategy to use the same marketing channels for all consumers without identifying the needs of a specific group of people. Mass marketing strategy employs mass promotion, mass production, and mass distribution in the same way for mass consumers. In the past, companies have used mass marketing to achieve the economies of scale. However, times have changed, and it is almost impossible to create products to appeal to the entire market. Pursuing this strategy, several companies have lost their market leadership or a considerable chunk of their market share. An example would be Ford Motors when they offered T Model to all buyers “in any color as long as it is black.” This is why there is a need for a market strategy based on specific groups of customers as buyers’ needs are different; they cannot be satisfied the same way (Piercy, 2016). The division of markets into various subgroups on the basis of several variables will more closely match the particular needs of a particular group of consumers.
Hestad (2016) states that companies must work harder to ensure that their marketing has the greatest impact possible. Increasing competition makes it difficult for a mass marketing strategy to succeed. Customers are becoming more diversified and firms are constantly differentiating their products relative to competitors. When the focus is on segmented markets, the company’s marketing can better match the needs of that group. Market segmentation allows firms to focus their resources more effectively, and with a greater chance of success. Marketing, product and brand managers are continuously being asked to increase their return on investment. They are constantly searching for new information about their markets, and new ways to approach them. This is where market segmentation comes in.
Piercy (2016) stated that companies will not survive if the marketing strategy is dependent upon targeting an entire mass market. The importance of market segmentation is that it allows a business to precisely reach a consumer with specific needs and wants. In the long run, this benefits the company because they are able to use their corporate resources more effectively and make better strategic marketing decisions.
Bases for Market Segmentation
Markets may be divided into several sub-markets into several bases. We will discuss the most general and popular variables here.
A market segmented into sub-markets on the basis of geographic location is known as Geographic Segmentation. Examples of such division are nations, states, regions, provinces, districts, counties, cities or even neighborhoods. An international firm may divide its market on the basis of nations and then move further down to the level of cities and neighborhoods. A national company may start with at the level of counties/regions and move down to cities and other sub-levels. Geographic segmentation is important as there are many factors contributing to the varying needs of consumers across different regions of the world. What is considered as a need in the US may be a luxury in Zimbabwe. What is a luxury in Zimbabwe may be something redundant or useless in the UK. The customer needs and wants, the ways and means to satisfy them may be entirely different in one country from those who in another (Hestad, 2016).
A market split into sub-segments on the basis of variables such as age, gender, sex, family, income, education, religion, culture, occupation, profession, ethnicity etc is known as demographic segmentation. To make it simpler, it is the division of the market on the basis of demographics. We will discuss each variable briefly here.
This is one of the most effective ways of demographic segmentation. Modern firms use this as a very useful marketing tactic to create and retain their customers right from birth to death. At the age of 1 to 2, the firm shall try to offer stuff like nappies for newborn (Farai diapers), baby cream (Johnsons), anti-colic, baby clothes etc. With the passage of time, these may change to toys ( a lot of sub-division) then bikes, balls, sport, jeans, school, then college, then University, car, insurance, employment, then retirement, pension and even death from funeral houses such as Nyaradzo (Hestad, 2016)
Aaker (2012) states that McDonald’s different ads and media campaigns target people of different ages such as children, teens, adults, and senior citizen. This is catching on in the Zimbabwean market with Chicken Inn for example, offering kids boxed meals. Insurance companies announce special packages and offer for people over a certain age. Theme Parks offer kids and infants deals.
The multi-cultural societies’ potential customers may all be located in the same geographic location but their needs and wants and ways to satisfy these needs and wants are different. Companies have successfully segmented their markets on ethnic basis all over the world in areas where the demand needs to be met that way. HFA (Halal Monitoring Authority) in the UK makes sure that Muslim consumers are provided Halal foods (food that is processed, or meat that is obtained and sold in the market per Islamic regulations of slaughtering). HMC (the Halal Monitoring Committee) in the UK even goes a step further by providing halal meat only to specific grocery stores after these shops meet very strict and stringent. Indian restaurants and clothes shops around Europe and America are some of the best examples of Market Segmentation based on ethnic grounds (Piercy, 2016).
Gender segmentation is another powerful and successful segmentation and can be seen in areas like clothing, cosmetics, beauty products, hairstyles, careers, cars, insurance and now even education. Perfume companies target men and women separately with their various model and brands. Sheila’s Insurance provides insurance only to women while other companies specifically target only the young drivers (who may have just recently passed their driving tests). Girls like pink bags while boys may go for blues or blacks. Subtleties do make difference. There are several separate male and female schools. Again in Europe, schools for girls only have successfully targeted the part of the ethnic population who are averse to co-education. Car designers know that subtleties make difference, so Nissan’s Micra and Mini Cooper have special attractions for ladies (Aaker, 2012).
Lifestyle, social class, and personality may the basis for psychographic segmenting of markets. Examples of lifestyles segments would be people drinking decaf coffee or tea, weight watchers, seekers of less fatty food. Products based on lifestyles may be highly customized to appeal to a particular way of life. Younger people’s lifestyle requirements may be a great deal different than those who are above their age group. Examples of social class segments are holidays, hotels and air travel tickets targeting people of a particular class. The consumer in psychographic segmentation may have the same income level and gender but they may have different inclinations and a unique style of living. They may have different personalities determining their likes and dislikes for a particular class of products (Helstad, 2016).
Behavioral segmentation is based on the variables of the actual behavior of the consumer. For instance, some users may be classed as heavy users while others as light users. Some may be just first time user while other are occasional users only. To summarise the behavioral segment may consist of the following variables: User status, usage rate, benefits sought, occasions, brand loyalty, attitude towards a product, readiness to buy.
Marketers have even further dug the subject and provided some other variables. Briefly, these are Distribution segmentation, Media segmentation, and Time segmentation.
Advantages and Benefits of Market Segmentation
Following are some of the benefits as cited in leading marketing books.
It is easier to understand the exact needs of the customer and target the marketing strategy at a particular group. It is much easier and more successful to create and promote specific and customized products and services. Aaker (2012) states that it is possible to satisfy a variety of customer needs with a limited product range by using different forms, bundles, incentives, and promotional activities. The pricing models of many pay tv services are a good example. They often include a free plan to attract undecided first-time customers meant to reduce uncertainty and concerns, initiation customer lock-in. Kwese TV offered a virtually free month to its customers in the first month of them sign up. In addition, there normally is a moderately priced plan for light users as well as a more expensive plan for heavy users. DSTV has numerous bouquets for its users to choose according to their budget and/or preferred content. The paid plans include more features and functions as well as higher service levels. The above example of pay tv services with different pricing plans illustrates that market segments enable businesses to target their customers according to their lifecycle phase. As users get used to the service and grow their business, they can easily change to the next higher plan or to supplementary services. The service bundle evolves across the customer journey. Thus, segment-specific product bundles increase chances for up-selling and cross-selling. The underlying product or service is basically one and the same. It is only slightly adjusted to meet the needs of very different market segments.
Mass marketing is a strategy of the past. Target marketing and positioning create new potential customers and new ideas for new products and services. Companies can create better products and hence maximize their potential profit.
Segmenting the markets creates further opportunities for business growth. Specific groups require specific products. 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 (Keller, 2016). Moreover, a segmentation strategy that is based on customer loyalty (see loyalty ladder model below) offers the chance to attract new customers with starter products and to move these customers on to premium products.
Market Segmentation is a great way to retain customers. Firms can establish a life-long relationship with their consumers by formulating an effective market segmenting strategy (Keller, 2016).
Right Target Market
Keller (2016) states that the company’s resources are utilized for producing the right product for the right customer. It is necessary to communicate in a segment-specific way even if product features and brand identity are identical in all market segments. Such targeted communication allows highlighting those criteria that are most relevant for each particular segment.
Segmenting business and consumer markets is important to maintain existing market share and expand it. A successful company needs to gain a competitive advantage by looking closely at the specific needs of customers and devising strategies to provide maximum benefit and value (Aaker, 2012). The above points have already highlighted that market segmentation is an ideas basis for pursuing additional growth opportunities. This translates in higher market shares in many cases.
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.
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. A typical segment-based price variation is by region. The generally higher price level in big cities is evidence for this.
When differentiating prices by segments, organizations have to take care that there is no chance for cannibalization between high-priced products with high margins and budget offers in different segments. This risk is the higher, the less distinguished the segments are.
The theoretical concept behind this price differentiation is price elasticity. In mass markets, businesses often compete mainly on price. This is because the products are comparable and may have a high level of price elasticity. A thorough knowledge of customers’ preferences enables businesses to develop more distinguishable offers for particular market segments. Demand for differentiated products that offer a particular (and perceivable) value to customers often has a lower level of price elasticity. Hence, such products can sustain a higher price level and higher margins.
Globally, the need for market segmentation arises as markets are becoming increasingly diverse and it is rare for mass marketing to be a profitable strategy. Market segmentation, therefore, enables more accurate and effective communication of benefits in relation to needs (Keller, 2016). Market segmentation also helps to identify growth opportunities for the bank. Market segmentation leads to better understanding of the customers and competitors, more effective allocation of resources, and capitalization on the opportunities (i.e. niche markets). Research has shown that companies that implement formal, research-based segmentation strategies receive higher revenues and market share than competitors (Aaker, 2012; Keller, 2016; Ashley and Tuten, 2015).
Market segmentation can bring about many benefits for companies such as the following; Better communications with an understanding of customers‟ needs and wants. Improved design of products and services which better fit the needs of the segment. Gaining a reputation for expertise and quality in serving specific segments of the market. Enabling the most profitable customer groups to be given special attention thus improving loyalty and retention, also more efficient use of company resources. Segmentation aids clearer identification of market opportunities. It also generates more positive responses to the product and service offer. Ultimately, segmentation leads to customer satisfaction (Kotabe and Helsen, 2014).
Aaker, D. A. (2012). Building strong brands. Simon and Schuster.
Ashley, C., & Tuten, T. (2015). Creative strategies in social media marketing: An exploratory study of branded social content and consumer engagement. Psychology & Marketing, 32(1), 15-27.
Hestad, M. (2016). Branding and product design: an integrated perspective. Routledge.
Keller, K.L., 2016. Reflections on customer-based brand equity: perspectives, progress, and priorities. AMS review, 6(1-2), pp.1-16.
Kotabe, M. and Helsen, K., 2014. Global marketing management.
Piercy, N.F., 2016. Market-led strategic change: Transforming the process of going to market. Routledge.