Patterns of market segmentation and Procedure

PATTERNS OF MARKET SEGMENTATION

Market segments can be build up in many ways, one way is to identify preference segments. For example cookies buyers are asked how much they value sweetness and saltiness in biscuits as two product attributes. Three different patterns can emerge.

1.         Homogeneous Preferences: shows a market where all the consumers have roughly the same preferences. The market shows no natural segments. We would predict that existing brands would be similar and cluster around the middle of the scale in both sweetness & saltiness.

2.     Diffused Preferences: At the other extreme, consumer preferences maybe scattered throughout the space, indicating that customers vary greatly in their preferences. The first brand to enter the market is likely to position in the center to appeal to the most people

3.   Clustered Preferences: The market might reveal distinct preference clusters, called natural market segments. The first firm in this market has three options. It might position in the center, hoping to appeal to all groups. It might position in the largest market segment (concentrated marketing). It might develop several brands, each positioned in a different segment. If the first firm developed only one brand, competitors would enter and introduce brands in the other segments. 

 MARKET SEGMENTATION PRECEDURE

How can we identify market segments? One approach would be to classify consumers demographically. A bank, for example, may decide to group its customers by wealth, annual income, and age. Suppose it distinguishes five wealth classes, seven income classes, and six age classes. This alone would create 210 market segments (5 × 6 ×7). But consumers in any one group do not really have same needs, attitudes and preferences.

Roger Best proposed the seven-step approach to advocate the needs-based segmentation approach 

   

Description                   1.        Needs-Based Segmentation        Group customers into segments based on similar needs and benefits sought by customer in solving a particular consumption problem.                   2.       Segment Identification                  For each needs-based segment, determine which demographics, lifestyles, and usage behaviors make the segment distinct and identifiable (actionable). 3.     Segment Attractiveness                Using predetermined segment attractiveness criteria (such market growth, competitive intensity, and market access), determine the overall attractiveness of each segment. 4.     Segment Profitability                     Determine segment profitability. 5.     Segment positioning                     For each segment; create a “value proposition” and product-price positioning strategy based on that segment’s unique customer needs and characteristics.                   6.      Segment “Acid Test”                     Create “segment storyboards” to test the attractiveness of each segment’s positioning strategy. 7.     Marketing-mix strategy                 Expand segment positioning strategy to include all aspects of the marketing mix: product, price, promotion and place.

EFFECTIVE SEGMENTATION

Not all segmentation is useful. For example, table salt buyers could be divided into  blond and brunette customers, but hair color is not relevant to the purchase of salt. Furthermore, if all salt buyers buy the same amount of salt each month, believe all salt is the same, and would pay only one price for salt, this market would be minimally segmentable from a marketing point of view.

To be useful, market segment must be:

·               Measurable: The size, purchasing power, and characteristics of the segment can be measured. 

·               Substantial: The segments are large and profitable enough to serve. A segment should be the largest possible homogeneous group worth going after with a tailored marketing program. It would not pay, for example, for an automobile manufacturer to develop cars for people who are under four feet tall.

·               Accessible: The segments can be effectively reached and served.

·               Differentiable: The segments are conceptually distinguishable and respond differently to different marketing-mix elements and programs. If married and unmarried women respond similarly to a sale on perfume, they do not constitute separate segments.

·               Actionable: Effective programs can be formulated for attracting and serving the segments.