Market segmentation pdf

This is exactly what happened and the three product lines were represented in the marketing function by product managers. The product management teams not only liaised with the manufacturing plant on product specifications and production volumes, they also drove the promotional campaigns of the business and set the sales targets, though only for their products.

This was perfectly acceptable, of course, because the market, on the whole, bought these three product types at different times of the year. There were even products specifically manufactured for each of these two sectors, distinct services offered to each of them, and dedicated specialist advisers based at headquarters. Despite this, the thrust of the business was based around product lines, each of which eventually fell under the control of its own Business Team.

Lying over this split was the sales force, divided, for management purposes, into geographical territories. Their sales targets were, as already mentioned, presented to them along product lines, and any sales support literature was similarly divided, as all the budgets were allocated along product lines.

This organisational structure has been in place for over sixty years. The Bank Some years ago, the Customer Service Representative of one of the big five banks was being interviewed on the radio. The main area of discussion centred around opening times and the limited number of tellers on duty during the peak, lunch-time period.

The reason given for the opening times was that the public forgot that the transactions which the bank undertook on their behalf took time, and if they were open to the public 9. The bank's public hours were the most it could offer when their staff worked 9. With regard to the lunch-time queues, the reasons for this were equally straight-forward and reasonable. The bank's tellers also had to have lunch breaks!

These issues, rather than humbling the customer into acceptance, fuelled the growth of the building societies. They had found a gold mine waiting to be developed.

Unlike many businesses, banks clearly know who their customers are. The switching costs for these customers is high when compared to other industries. Here, therefore, was a great opportunity for developing financial products and selling the variety of services available from the bank into a known customer base.

Here, also, was the opportunity to develop products suited to the different stages of life and progressively put them in front of the customer as they travelled through life's highway. The large, in-house data bases could also be profiled by matching them up against externally held databases containing psychographic information. This would help in the better targeting of new product offers into the banks' own customer base, and enable the banks to specify target customer profiles from externally held lists when prospecting for new customers.

Inevitably complex segmentation structures were devised and numerous new products developed, and the banks became portrayed more as centres for financial services. However, the purpose of these segments was to find ways of selling internally or competitively defined products, these segments being variable according to the different projects for which they were devised.

The majority of banks still opened at the times the customers were in work and the tellers still went to lunch during the peak period. If anyone wanted to talk about any of the new services, the unmanned enquiry desk always had a welcome to them, once someone had responded to the bell! The Burton Group Despite its recent turbulent history, largely related to the tabloid-hitting headlines of a past chairman, excessive compensation packages for senior managers and the financial drain of an unfortunate foray into property development, the Burton Group is a prime example of an organisation that has structured itself around its chosen segments.

The different high street brands of the Group such as Evans, Top Shop, and Principles are targeted into specific segments and are not just fronts. Behind each lies a complete infrastructure with its own marketing group, buyers, financial controllers, administration and so on, all focused into the survival of the brand in its segment. Admittedly, some brands appear to be tiring, but this is due, in part, to the restricted capital investment programmes the company has had to live with, as well as 'time out' being called on the segment.

At the same time, however, their financial squeeze has not stopped the introduction of new brands to exploit the opportunities available in newly emerging segments, such as, for example 'is', launched in Discussion These cases are presented as illustrations of the potential alignment of the organisation to market segments. They are subjective accounts drawn from the researchers' contact with, and knowledge of these organisations.

The purpose of presenting these mini-cases is to determine how they may clarify and extend our understanding of segmentation processes. In The International Airline, segmentation is driven by internal structures and processes. The power of the territory manager defines the way the organisation aligns itself to the market. This perspective does not begin with the customer, but with the structure of the sales organisation.

This view of the market is also limited to particular functions and activities within the organisation and does not appear to operate across functions or at a strategic level. In contrast, The Chemical Company represents an organisation whose entire structure and mode of operation represents a particular view of the market. This view is clearly process or product led and is not a customer driven view of the market place.

In contrast to The International Airline it is a view which is embedded throughout the organisation. The Bank presents a different type of situation. Here, the organisation has a customer based approach as to how it segments the market place. This view is, however, restricted to the functional marketing activities of the organisation. It does not permeate the way the organisation, as a whole, sees the external world and does not appear to influence many of the processes and procedures which do impact on the customer.

This form of segmentation is deeply embedded in the operations and perspective of the employees as it forms the basis for the organisational structure. All of the above examples reflect differing approaches as to how an organisation may align itself to the segments within the market place.

The purpose of the case studies has been to illustrate potential divergence which differentiate these examples. The constructs which explain this divergence may provide further insights into the process aspects of how different organisations may segment their markets. It is suggested that there are two principle dimensions which differentiate between these examples.

Customer Driven The examples of The Bank and the Burton Group are both approaches which are clearly centred on the customer. In these situations, a market and its segments are clearly customer groups as defined by Kotler [2] and others. In the case of The Bank, the customer focus is limited to particular initiatives which are task and function specific. In the case of The Burton Group, customer focus permeates and defines the separate business units. This is not to imply that at some point in time they were not customer driven.

The issue is that these approaches for defining and segmenting the market no longer begin with the customer. They have become internalised and are thereby driven by internal factors such as sales force territories, budgets and organisational structures. These are implicit views of the market place which have become part of the organisation's culture and perspective on its environment.

The way in which the market is segmented is the domain of particular groups, or functions within the organisation. In these situations, segmentation is very much an operational, as opposed to a strategic process.

It is concerned with a particular media campaign or for establishing particular sales objectives. Outside these particular groups, these segments are not understood or recognised. In these situations, segmentation is not just a way of targeting potential customers, but an intrinsic part of the structure and culture of the organisation. All parts of the organisation recognise that the market is segmented in this particular way, these segments providing a strategic basis for how the organisation understands its interaction with the business environment.

Classifying Market Segmentation in Organisations These two constructs for considering the organisational aspects of segmentation; customer driven and organisational integration, can be incorporated into a matrix Figure 1. This matrix provides a basis for discriminating between the segmentation process in the organisations illustrated in the four case studies.

Insert Figure 1 about here Figure 1: Market Segmentation Archetypes The first cell, Sales Based Segmentation, describes an organisational archetype where the market is segmented on the basis of sales areas or structures, which do not necessarily reflect clusters of particular customer characteristics or needs.

In addition, these approaches are relatively superficial, and they are not embedded in the way the organisation, as a whole, is structured, or the way it operates. The International Airline is taken as an exemplar of this particular archetype. Here, the approach to segmentation operates at a territory level where some adjustment of the offer is permitted use of local menus and cabin staff.

However, this view of the market is not embedded in the way the organisation is driven as a whole. The organisational priorities are represented by the need to maximise the capacity of the fleet of aircraft and the fact that this capacity resource is allocated through the management of routes rather than particular territories. The International Airline, therefore, provides an example of an approach to segmentation which is internally sales territories , as opposed to being externally customer driven and which does not reflect the priorities and focus of the organisation as a whole.

The second cell, Structural Segmentation, represents a further archetype where there is little emphasis on segments as groups of customers. Segments are defined by sales areas or structures. However, in contrast to the sales based archetype, this approach to the market is deeply embedded in the organisation as a whole.

The Chemical Company provides an exemplar of this situation. The organisation described in this case uses product management teams, who are responsible for marketing activity at both the strategic and operational levels.

These groups are also working with sales territories which are allocated on a geographic basis. At this level, therefore, the segmentation is not explicitly customer driven, although the sales territories may reflect differing patterns of agriculture, and the different product types may be applied at different times of the year.

However, the product divisions which are fronted by the product management teams are embedded in the structure and nature of the organisation. The requirements of a complex and capital intensive process producing nitrogen from ammonia has meant that the product divisions which represent differing aspects of this process are highly integrated into the fabric of the organisation.

This cell, therefore, presents an approach which is both production and sales driven and which is embedded in all the structures and processes of the organisation. The third cell, Bolt on Segmentation, presents an archetype where a high level of customer focus is brought into the defining of market segments. In contrast to the previous archetypes, this segmentation approach is driven by the information held on the customer base as opposed to the structure of sales operations.

However, this archetype is close to Sales Based Segmentation, as it is limited to a number of functional areas within the organisation and is not integrated into the organisation as a whole.

In this case, the purpose of the segmentation exercise is to assist in selling existing products and targeting advertising campaigns, which are essentially operational, as opposed to strategic issues.

In this archetype the segmentation framework does not guide new product development, nor does it affect the core processes and power base of the business. The Bank is presented as an exemplar of this particular archetype. In this example, a high level of customer information already exists within the business.

In many situations this is applied simply to target mail shots or other promotions, aimed at selling existing products. These segments do not provide a focus for redefining the business processes, a basis for new service concepts or the removal of existing products. A customer focus exists, but this does not permeate the whole operation of the business, as it is not considered at a strategic level.

The fourth cell, Strategic Segmentation, combines both a customer focus and a high level of organisational integration. In this cell, the organisation is able to apply customer based data in order to develop a set of defined segments. In contrast to the Bolt on Segmentation approach, the organisation has integrated these segments across the key functional activities. They provide a basis, not only for the promotional activity, but also for strategic decision making and internal marketing; in the case of the latter, this clarity of particular market segments provide a powerful basis for bringing the customer into the organisation [32].

They also provide a focus for the entire processes and operations of the organisation on these market segments. The Burton Group is suggested as an exemplar for this cell. The Burton Group have a set of retailing concepts which are driven by clearly defined market segments.

In this case, all those in the organisation can picture the target segment and have a basic appreciation of how the segment can be most effectively served. Implications for the Research Agenda The purpose of this study has been to introduce a series of concrete examples into the largely conceptual discussion on market segmentation. In doing so, a number of questions are raised as to the status and implications of the framework shown in Figure 1. Firstly, there is an implication that all organisations should aim to be in the Strategic Segmentation cell.

It must surely be better to be more customer focused and organisationally committed to a particular form of segmentation? Our position is that this framework is a working hypothesis which is exploratory and descriptive, rather than diagnostic and prescriptive.

It should not, therefore, be assumed that certain cells are more desirable than others, in spite of what subsequently happened to the organisations in question. The airline concerned made massive losses for a sustained period and was eventually acquired.

The international chemical company sustained such crippling losses during the late s that it, too, was forced to close. Likewise, banks made substantial losses. Nonetheless, the aim of this framework is merely to provide a basis for beginning to assess segmentation, not only as an external clustering of customers, but also in terms of the strategic and internal implications for an organisation.

The first section of this paper raised a number of issues concerning the existing published work on segmentation. The dominant perspective in segmentation research has been to extend and develop the work of the analysis of market segments, the implication being that more complex analysis will provide more effective segmentation. This paper has clarified, through four organisational archetypes, the potential for integrating organisational characteristics as a component part of segment definition.

This extends the strategic work of Abell [16] and Day [17] to consider segmentation in a similar light to market definition. It also explicitly raises the question of the link between organisational structure and the way the organisation relates to the market place. These issues generate research questions relating to the responsiveness and commitment of organisations relating to specific segments of the market. This redirects attention away from the need to establish ever-more complex forms of analysis to a consideration of the linkage between customer groups and organisational capabilities.

The role of the archetypes has been to clarify the potential variation in the linkage between the organisational and the market place. This linkage is central to many of the popular themes in the marketing literature as identified by Piercy [32]. Themes such as relationship marketing, pursuit of excellence and market-driven processes, are all concerned with managing the linkage between the organisation and market segments.

The research agenda which emerges from the discussion is one which embraces the development of a social sciences approach to segmentation. The linkage between segments served and organisational configuration and sense making is the basis for this agenda. The link between strategy and structure has been well considered in the literature. The implications of the structural segmentation archetype is that the link between segments and structure may also be an insightful perspective in explaining performance and adaption to the market.

The idea that markets and segments are 'enacted' by the organisation has already been raised. But how do cultures sustain segments and thereby potentially create inertia to change. This study has considered one case in four, quite distinct industries. This question concerns whether there is an industry mindset which creates segments. Perhaps this is determined by the way in which industry data is gathered rather than identifying homogeneous groups of customer needs.

What is the impact of the organisation who redefines the segments? For example, British Airways segmenting business travel in the s. These key areas suggest that segmentation research needs as in the case here to be exploratory rather than prescriptive. Many questions remain from the consideration of these archetypes which need to be explored empirically in order to clarify the nature of the linkage between the organisation and market segments.

The role of industry characteristics and life cycle stages may have major implications for particular approaches to segmentation. The lack of a customer focus in the examples of the Airline and the Chemical Company is not necessarily an artefact of inept management, but may be driven by the capital intensity of the processes and operations, as a required priority at a particular stage in the industry life cycle.

The role of these archetypes may, therefore, be specific to particular industries where relative positions can be assessed in the context of industry structure and stage in the life cycle. A further issue is that the nature of environmental dynamics and organisational change may re-focus this analysis to movement around the framework, as opposed to the consideration of static positions.

Market segments are not clearly defined and fixed entities. The automobile market was traditionally segmented on the basis of engine size, which was considered to approximate to particular customer groups. This is no longer the case.

Many manufacturers are now taking a concept-based approach to new product development in order to meet the needs of more specific segments. A new model, whilst maintaining the same mechanical layout, may have many different body styles to target differing segments of the market. The ability of an organisation to move through the various archetypes may be central to their reconfiguration in response to environmental change.

One potential problem for the Strategic Segmentation and Structural Segmentation archetypes may be the difficulty of changing embedded organisations and systems quickly enough to match new developments in customer demand. This study has attempted to refocus segmentation theory to account for the implicit and organisational aspects of market segmentation.

This paper is intended to provide a contribution to this re-orientation. By acknowledging the inherently internal realities concerning the processes of how organisations segment their markets, it is hoped that researchers can begin to close the gap between theory and practice in this fundamental area of marketing.

Smith, W. Kotler, P. Tynan, A. Wind, Y. Moriarty, R. Collins, M. Lunn, T. Downham Eds. Van Nostrand Reinhold, New York, , pp. Moorcroft, S. Kale, S. Please understand this, not every problem is worth fighting, not every game is worth playing, and not every segment is worthy to be a meaningful segment. The same holds true in life, not every man is, a husband material as well as not every woman is a wife material.

Do you understand me? If you get this point, even in life, then you will not fight aimlessly. But what are these conditions which must exist for a segment to become meaningful? A marketer must determine whether the market is heterogeneous.

There must be some logical basis to identify and divide the population in relatively distinct homogeneous groups, having common needs or characteristics and who will respond to a marketing program. The total market should be divided in such a manner that comparison of estimated sales potential, costs and profits of each segment can be estimated. One or more segments must have enough profit potential that would justify developing and maintaining a marketing program. It must be possible to reach the target segment effectively.

For instance, in some rural areas in Cameroon, there are no means to reach the targeted groups. Of course it is a very critical thing. Take for example, do you know small car producers might segment the market on the basis of income but they probably would not segment it on the basis of political beliefs or religion? True or True? That is not enough, I want you to know that the segmentation variable, must also be measurable to segment the market accurately.

For example, segmenting the market on the basis of intelligence would be difficult because this characteristic cannot be measured accurately. Hope you agree with me? Marketers can use one or more variables to segment the market. Different variables are used to segment consumer markets. They are discussed in following subsections.

The location of consumers does help the company in planning its marketing offer. These geographic units may be nations, states, regions, areas of certain climatic conditions, urban and rural divide. The assumption is that consumers in a particular geographic area have identical preferences and consumption behavior. You know what I mean, Right? Factors such as age, sex, education, income, marital status, family size and social class etc. Shaving products for women are based on the demographic variable of gender.

Toy manufacturers segment the market on the basis of age of children. Auto manufacturers segment the market by considering income as an important variable. Producers of refrigerators, washing machines, microwave ovens etc. Consumers have a certain self-image and this describes their personality. There are people who are ambitious, confident, aggressive, impulsive, modern, conservative, gregarious, loners, extrovert, or introvert etc.

What people do in their spare time is often a good indicator of their lifestyle. Consumers in different countries and cultures may have different characteristic regarding lifestyles figure 4. Figure 4. But that is not all. AIO inventories are a useful addition to demographic data but marketers have found the original AIO inventories as being too narrow.

This approach segmented consumers according to their values and lifestyles in USA. Innovators formerly actualizes : This segment is small in size compared to other seven but may be the most attractive market because of their high incomes and they are the leading edge of change. These people are successful, sophisticated, active, and with high self-esteem. They are interested in growth and development; they explore, and express themselves in many different ways. They prefer premium products to show their success to others.

Thinkers formerly fulfilled : Thinkers are motivated by ideals and exhibit behavior according to the views of how the world is or should be. They are mature in their outlook, satisfied, comfortable, are well-educated, reflective people who value order, knowledge and responsibility. They are open-minded about new ideas and accept social change. They purchase products for their durability, functionality, and value. Believers: Like thinkers, believers are also motivated by ideals; their basic approach to decision-making is rational.

Believers are not well-educated and the moral code of conduct is deeply rooted in their psyche and is inflexible. Their routines are established and largely influenced by home, family, religion, and social organization. They have goal-oriented life-styles and a deep commitment to career and family. They are more resourceful and active. Achievers are inclined to seek recognition and self-identity through achievement at work and in their personal lives.

Strivers: They are trendy and fun-loving and are motivated by achievement. They are dependent on others to indicate what they should be and do. They believe money represents success and never seem to have enough of it. Their self-definition is based on approval and opinion of others around them. They are impulsive by nature, get easily bored, are unsure of themselves, and low on economic, social, and psychological resources.

Strivers try to mask the lack of enough rewards from their work and family, and to conceal this, they attempt to appear stylish. They try to emulate those with higher incomes and possessions, generally beyond their reach. Strivers are active consumers, shopping to them is both a social activity and an opportunity to show their peers their ability to buy. They read less but prefer to watch television. Survivors formerly strugglers : They have narrow interests; their aspirations and actions are constrained by low level of resources.

Survivors are comfortable with the familiar and are basically concerned with safety and security. They are ill-educated, with strong social bonds, low- skilled, and are poor. They feel powerless and unable to have any impact or influence on events and feel the world is changing too quickly. Experiencers: They are young, full of vitality, enthusiastic, impulsive and rebellious and motivated by self-expression. They are avid consumers and spend, high proportion of their income on fashion, entertainment and socializing.

They are college-educated and much of their income is disposable. They have an abstract disregard for conformity and authority. Makers: Their motivation is self-expression.

They like to be self-sufficient, have sufficient income and skills to accomplish their desired goals. Makers are energetic, like to experience the world, build a house, have families, raise children, and have sufficient skills backed with income to accomplish their projects.

They are practical people and have constructive skills and energy to carry out their projects successfully. User status, such as non-users, potential users, or first-time users can be used to segment the market. Markets can also be segmented into light, medium or heavy users of a product. There are consumers who are very loyal to cigarette brands, beer and even toothpaste. Markets may also be divided by considering level of product awareness such as unaware of the product, aware, interested, desirous or contemplating to purchase the product.

Based on attitude, consumers may be enthusiastic, indifferent or hostile towards the product and these differences can be used to segment the market. Benefit Segmentation: By purchasing and using products, consumers are trying to satisfy specific needs and wants.

In essence, they look for products that provide specific benefits to them. Identifying consumer groups looking for specific benefits from the use of a product or service is known as benefit segmentation and is widely used by marketers. For example: There are distinct groups of auto buyers. One group might be more interested in economy, the other in safety and still another in status etc.

Demographic-psychographics information is particularly useful in creating consumer profiles and audience profiles. Combined demographic-psychographic profiles reveal important information for segmenting mass markets, provide meaningful direction as to which type of promotional appeals are best suited and selecting the right kind of advertising media that is most likely to reach the target market.

For example: Cosmetics companies first divide the market on the basis of gender, then age and then according to their lifestyle, they target people with different brands. We could even have examples from the dresses we wear. The manufacturer first segments based on gender and after that based on age, size and height. Geo- demographic segmentation is particularly useful when a marketer is capable of isolating its prospects with similar personalities, goals, interests and in terms of where they live.

For products and services used by a wide cross-section of society, this approach may not be suitable. For example, North West traditional attire for men and North West traditional attire for Women best justifies a geo-demographic segmentation. It should, however, be realized that all segments do not represent equally attractive opportunities for a company. Before making the final decision of choosing the market segment, it is necessary to examine that the segment is at least strongly positive on one of the two dimensions of market attractiveness and business strength and is at least moderately positive on the other.

There are three basic targeting strategies: 1. Undifferentiated Mass Marketing. Differentiated Multiple Segment Marketing. Single Segment Specialization or Niche Marketing. Undifferentiated Mass Marketing: This strategy involves ignoring any differences among consumers and offer one product or service to the entire market.

This strategy of mass marketing focuses on what is common in the needs of consumers rather than what is different. Example: For more than 90 years, Coca-Cola offered only one product version to the whole market and hoped that it would appeal to everyone. Undifferentiated marketing provides cost economies. Differentiated Multiple Segment Marketing: The marketer decides to enter several market segments and develops separate offers for each.