EXPLAIN WHY IT IS IMPORTANT FOR MARKETERS TO UNDERSTAND THE CONCEPTS OF MARKET SEGMENTATION AND TARGET MARKETING. DISCUSS IN DETAIL DIFFERENT METHODS MARKET SEGMENTATION AND TARGET MARKETING STRATEGIES AVAILABLE TO USE BY MARKETERS. PROVIDE EXAMPLES TO SUPPORT YOUR ANSWERS ON THE BASIS OF EITHER A SINGLE CASE COMPANY OR SEVERAL COMPANIES FROM ANY INDUSTRY OF YOUR CHOICE. ? Table of Contents TITLE PAGE1 TABLE OF CONTENTS2 INTRODUCTION3 MARKET SEGMENTATION3 TARGET MARKETING6 ONLINE NETWORKING SITES7 CONCLUSION8 REFERENCE LIST9 ? INTRODUCTION Market segmentation and target marketing are the two key components of marketing strategy.
The importance of understanding them cannot be underestimated by the marketers in order to be successful. This essay will enlighten the value of segmentation process and the choice of target markets. It consists of two parts. The first one familiarises the reader with a concept of market segmentation. Then examines the various methods and bases of market segmentation, highlighting the benefits of successful approach and bringing to the attention the risks of poor application. The second part explores the strategies of target marketing available for the marketers. It clearly shows the advantages and disadvantages of each of the tactics.
Various theories will be introduced, aiming to show that the area is still not clarified and evolving. The work compares and contrasts different views and shows the development of the techniques and methods used in the contemporary world. The author will demonstrate the connexion of these two processes in context of creating the marketing strategy. The online networking sites – Facebook and LinkedIn will be used as examples. The reader will see how these giants of the networking industry have successfully identified the relevant segments and applied the individual strategies for their target markets.
It will also be explained how the other businesses are able to conduct the process of segmentation and identify their target market using networking websites. Finally it will summarize the argument, by highlighting the major parts and the significance of this knowledge for the marketers. MARKET SEGMENTATION Market segmentation can be defined as a process of recognising the most useful bases for dividing a market, classifying the customers in diverse segments and developing segments descriptions (Hooley et al. 2012).
Market segmentation is the foundation for the selection of target markets – the segments of the market that company is deciding to serve. This fundamental step allows marketers fully and in-depth understand and appreciate the requirements of a segment and tailor a marketing mix package that matches their needs. The process of marketing segmentation helps to develop the differential marketing strategies. By dividing market into sub-markets a company may discriminate its offerings among segments and also differentiate from its competitors (Jobber 2010).
Hooley et al. (2012) argues that there are three requirements that underpin market segmentation. First the segments must differ from one another, providing therefore useful differences between the potential customers. Secondly segments have to be identified by measurable characteristics, enabling estimation of the value of the market and allowing identification of the market. Finally chosen segments supposed to be isolated from the rest of the market, permitting them to be targeted with individual offering. Market can be segmented in many ways.
When it comes to consumer markets, however there are three broad groups of segmentation criteria: behavioural, psychographic and profile variables. According to Jobber (2010), behavioural variables distinguish between the differences in consumer behaviour. A benefits sought measure is useful when people seek different benefits from a product in the market. Benefit segmentation method is essential because the objective or marketing is to offer consumers the benefits they value. Another segment – purchase occasion, can be applied according to the occasions when the product is being purchased, e. g. special occasions.
Based on the differences in purchase behaviour marketers can recognise the innovator segment of the market – people willing to buy the product soon after launch. The level of brand loyalty is also important, by helping to recognise the shopping habits of the consumers. The next method is created on the basis of usage, dividing users into three groups: heavy users, light users and non-users of a product category. According to Brassington et al. (2006, p. 195), “it is generally a better investment to make a concessions in order to cultivate a relationship with a single heavy user than to try a number of light users”.
The final variables of Jobber’s (2010) behavioural method are perceptions, beliefs and values of the customers. This is a powerful segmentation method as it allows to group people based on what is important for them in life. Deeply entrenched beliefs and values are fairly consistent and influence behaviour. Pierce (1997) notes another variable – based on relationship-seeking characteristics. Groups looking for a close, long-term relationship with the supplier have been defined as relationship seeker, while short-term preferences of relationships characterize relationship exploiters.
Loyal buyers are interested in the long-term relationship at a distance, whereas arm’s length-transaction customers do not look for any kind of relationship apart from getting the best deal. In addition to already described behavioural characteristics Hooley et al. (2012, p. 199) adds communication behaviour variable. “It is a degree of communication with others about the product of interest. ” Opinion leaders are in this instance especially important, as information-seeking customers are heavily influenced by their information content.
Psychographic segmentation contains grouping people according to their lifestyle and personality features. Lifestyle relates to the way people live and the way they spend their time. Hooley et al. points out three main areas of lifestyle characteristics: activities, interaction with others and opinions. For example Facebook (2011a) successfully identified segment of people interested in online entertainment, introducing ‘apps’ like events, photos or games. Personality characteristics are hard to measure as to identify them, multiple questions must be asked with comprehensive analysis techniques.
It is a useful knowledge though, as sometimes people match their personality by choosing the brand that corresponds to their personal image, creating a form of self-expression. Profile segmentation variables permit to classify consumer groups via communications media. Demographic segmentation provides measurable criteria like age, sex, race, income, occupation, socioeconomic status and family structure. For instance LinkedIn’s (2011a) core segments are business professionals. Socio-economic variables include social class, terminal education age and income. Also LinkedIn (Allen 2011) recently started to target a new segment – students.
Marketers can also use geographic differences for the process of segmentation, as the traditions, norms and preferences are influenced by the geodemographics. Different segmentation methods are being used when it comes to the organizational markets. The two major categories are macrosegmentation and microsegmentation. The macrosegmentation criteria include organizational size, industry and geographic location. Organizational size is a valuable variable as large organizations differ from medium and small organizations in having different management processes and needs.
Large organizations have a greater order potential and therefore may require volume discounts. Different industries may have unique requirements from products. By understanding the unique needs of the each industry, a more effective marketing mix can be designed. The ways of purchasing and anticipations of companies can be divided based on geographic location. Likely companies in Far East will differ from Western Europe. Business structures may be different as well as applied practices. Microsegmentation is a process of dividing further each macrosegment.
The bases are buyer’s choice criteria, decision-making unit structure, decision-making process, buy class, purchasing organization and organizational innovativeness. Main choice criteria used by purchasers when evaluating supplier offering will be different. Some will value price, others productivity, while some will be focused on the service. By recognising those triggers salespeople can be more efficient by emphasising different benefits when talking to customers in each segment. Decision making unit structure and size may vary between organizations. One segment can comprise large and complex DMUs, while the other only a single person.
Decision making processes is closely related to the DMU composition. Large units usually will take long time before making a final decision, what affects the time of finalizing the sale. Buy class is divided into straight rebuy, modified rebuy and new task. Purchasing organization can be classified into decentralised and centralized. Centralized relates to purchasers who are experts in a certain range of products and are specialists in a given area. Decentralised buyers lack expertise and will be less specific when buying the product. According to the level of the innovativeness of potential buyers companies can distinguish another segment.
Marketers need to recognize the precise characteristics of innovator segment, as those firms should be targeted first (Jobber 2010). It is imperative to understand the importance of flexibility when combining the segmentation variables. Creativity is the key quality when it comes to the successful segmentation analysis. Brassington et al. (2006, p. 211) suggests multivariable segmentation – “an approach defining a portfolio of relevant segmentation variables some of which will be prosaic and descriptive while others will tend towards the psychographic, depending on the product and the market in question”.
Major developments in the era of digital media revolutionised the process of segmentation. With new information technologies, new analytical techniques a changing commercial environment the customers are being treated in new ways (Turow 2006). Hereby it is vital for marketers to understand the process of segmentation to match the service or product more thoroughly to the needs of the target market. This allows building resilient competitive position, a crucial factor in the age of the internet, where the rivalry is big and mixed.
By failing in the process of market segmentation, marketers can lose the competitive advantage to competitors and the overall strategy pursued might not be accurate to the demands of the market. According to Dibb (1998) the analysis of customer and competitors, during segmentation allows the business to become more in tune with the behaviour of both. Successful analysis will result in better understanding of customers’ needs, permitting superior responsiveness in terms of the product on offer.
Moreover, a segmentation approach can add clarity to the process of marketing planning, by stressing the marketing plan necessities of specific customer groups. A well applied segmentation approach, contributes to the comprehensive understanding of the market. It allows predicting the behaviour accurately and increases the chances for discovering new market opportunities. A poorly applied segmentation approach, on the contrary, may result in failing to recognize the relevant groups, implementation problems and a waste of resources when the business tailors its marketing mix to the incorrect segment (Tuma 2011).
TARGET MARKETING Target marketing is the choice of specific segments to serve. It is a key element in creating marketing strategy. When company evaluate market segments, two factors should be taken in consideration: market attractiveness and the company capability to compete in the segment. Marketers must take into consideration market features, competitive, political, social and environmental factors. At the same time internal resources must be evalueted . (Jobber 2010). As selecting target markets follows directly after the process of market segmentation, therefore is inevitably linked with each other.
Hooley et al. (2012) emphasizes the need of selection of segments to serve. Successful marketers appreciate the importance of this key step in developing a healthy and complete marketing strategy. Targets must be clearly identified and analysed to make marketing mix decisions easier and to develop strong competitive positioning. The classic approach of targeting strategies has been suggested by Kotler (2008). He suggested three approaches an organization can take. An undifferentiated method is aiming to appeal to all segments by producing a single product.
Differentiated approach proposes offering a distinct product to each targeted segment of the market. Focused tactic is aiming to achieve excellence in a chosen market by concentrating all efforts on a few selected markets. Undifferentiated marketing is used in the absence of segmentation. If there is no significant differences in customer characteristics company may decide to develop a single marketing mix for the whole market. This approach allows saving costs. However Jobber (2010, p. 281) warns “companies that lack the marketing orientation may practise undifferentiated marketing through the lack of customer knowledge”.
Differentiated marketing is applied when market segmentation exposes numerous possible targets. In such circumstances explicit marketing mix can be developed to appeal to the particular segments. For example LinkedIn (2011b) offers different kinds of premium accounts, distinguishing between business networkers, job seekers, talent finders and recruiters. Concentrated (focused) approach leads to very thorough knowledge of the target segment needs and wants. With such benefit, the organisation is perceived as a specialist, therefore having an advantage over its more mass-market opponents.
However being a niche specialist can be a constraint when a company is looking to diversify in other segments. It might be because of lack of expertise and familiarity or through difficulties of approval arising from being acknowledged with the original niche (Brassington et al. 2006). Jobber (2010) adds to the classic approach, a customized strategy. It occurs when a separate marketing mix is designed for each customer. Nowadays many service providers differentiate their offerings on a customer to customer basis. This allows building a close relationship between supplier and customer.
The introduction of mass customization allowed customers to specify orders before placing the order, what requires form marketers individual approach and input. ONLINE NETWORKING SITES Internet became the core development site for mass customization, supporting activities aimed at treating customers differently (Turow 2006). Successful marketers recognize that change and use it to their advantage. For example Facebook (2011b) introducing News Feed encourages users themselves to personalize the sort of stories and information they get. When user indicates preferences for certain content, the website tracks these preferences.
Moreover the firms are tracking user movements through site pages. Created in such way databases are often sold, helping other businesses gather the invaluable knowledge about their potential customer’s background, interests, attitudes and behaviour. Again Facebook (Forde 2011), as recently as in September this year decided to make a move into a social music direction, by introducing Spotify platform for the European users and planning to expand further in the US. In the long run it will allow the companies to understand more about the customer behaviour of its users – a priceless information for the music-industry marketers.
Baker (2008) indicated in 2008 that Facebook as a mass social networking site was limited in ability to target audience with relevant ads from brand advertisers. However, three years later we can see, that Facebook is doing extremely well in that respect. By using an advanced tracking systems and customized profiles they are able to target customers with relevant ads based on their interests. Online networking sites are more are more often used these days to connect with a target market by businesses. It shortens a period of time than they would go through face-to face meeting, phone calls or e-mails (Luke 2009).
Facebook allows reaching target audience by creating personal profile, business page of a relevant group. LinkedIn, being a niche site, allows connecting with a target market by using the network of contacts and joining the relevant groups. On the contrary, according to a recent Firefly Millard Brown social-media qualitative study (Hooper 2011) has shown that when it comes to using the social media by other businesses to reach their target audience it is still a preliminary stage. The companies recognize the potential and the value of social media but are not sure with the rules of engagement. CONCLUSION
Market segmentation and target marketing are the essential parts of creating a robust marketing strategy. Marketers must be proficient and up to date with new developments to stay on the top of the game. We have seen that the methods of segmentation are different for individual and organizational markets. There are multiple bases available for marketers, allowing them to distinguish the segments. Successful segmentation allows matching customer needs closely with the available resources as well as it simplifies the choice of target markets. This decision should be carefully made and thoroughly analysed upfront.
Subsequently, the business has to decide how it will serve the chosen segment. Applied strategies vary from the specifics of the market and the competencies of the business. The available strategies range between undifferentiated to customized. Recently, the developments of technology allowed the expansion of the customized strategy. The choice of the relevant tactic by marketers is vital in the overall success of the business. It requires a profound knowledge of the selected markets, however currently this is imperative in the present extremely competitive environement.
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