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Identifying Market Segments and Targets

As the phenomenon of globalization is becoming popular throughout the world, organizations, whether small and large, are being forced to shift their focus to choose adaptive strategy of market segmentation. “Market Segmentation” is a process of dividing the market into smaller segments on the basis of similar or homogeneous needs and wants of customers. The basic purpose of segmentation is selecting only those specific market groups which better suit organization’s resources and which can be exploited with the development of specific marketing mixes that are adaptive  to particular market need and wants.  Firms often try to choose those segments where they can easily gain competitive edge and sometimes first mover advantage. Some smaller firms try to build niches and choose smaller market segments, as they cannot compete in the large segments.  These niches then become blue oceans for smaller companies to grow until the niche also becomes red ocean consisting cut throat competitive forces.

The market segmentation strategy helps organization in developing competitive scope to gain competitive advantage by configuring the value chain (Porter, 1985, p. 53). This adaptive strategy of segmentations also assists companies to determine in which industry or segment they can compete better and build sustainable competitive advantages by creating solid hurdles between segments (Porter, 1985).   As firms develop marketing mixes in order to higher value to customers through the application of market segmentation strategy, they in fact try in economic terms to create monopolistic or oligopolistic markets. This leads to price war and price discrimination that is an expanded application of the microeconomic theory (Ferstman, C., & Muller, E., 1993). This micro economic theory is quite useful, when firm is consumer Product Company that has to face the cut throat competition from new entrants. However, it is also quite effective in large market segments where companies focus on value preferences to gain competitive advantage.

Over the past few decades, the phenomenon of mass marketing has become much popular in relation to segmentation. As mass marketing focuses on standardization of products or services, it helps companies to cut costs and achieve greater economies of scale in order to beat the competition. We can observe the sustained growth of China where low cost producers are applying mass marketing and exporting their products throughout the world. The fruits of applying this strategy of mass marketing are increasing at present scenario of the world market where the strong and multinational brands are becoming similar.

Segment identification:

The process of segmentation identification is the first stage of market analysis as market groups give clear picture when studied as a whole rather than individual parts or factor of a market segment. Over the years, the market research analysts have developed different sets of criteria or variables for segmenting the market. These criteria or variables could be consumer’s characteristics, benefits sought, and certain behavioral measures of the consumer (Wilkie, 1990). One must also note that these criteria or variable present a large number of options for organizations for selecting various segmentation approaches that have different directions for each chosen strategy. However, researchers have suggested using multiple segmentation approaches in order to gain greater benefits of segmenting the market ((Porter, 1985; Gunter, 1992).  

Segmentation variable include geographic, demographic, psychographic and behavioristic characteristics and certain other customers’ measures. However, selection of the basis for segmenting the market various from company to company even in the same industry as these measures are chosen in a very broader perspective keeping in view the potential demand from the target market segment. Hence, it is highly recommended to truly identify the segment variables as through these variables, organizations conceive directions to which products, services and buyer differ.  They also force organizations to make certain structural adjustments and also adapt it value chain in order to sit on the competitive edge in the targeted segment of the market. Moreover, it has been observed over the years that when firms try to apply different approach of segmenting involving entirely different variable factor, this segmentation brings more opportunities of creating competitive advantage (Porter, 1985).

After selecting segmentation variables and data collection, it is important to choose a statistical process to identify the segments.   There are various techniques of segmentation such as factor analysis, cluster analysis, discriminant

analysis, and multiple regressions. However, selection of the segmentation technique is determined by the type of data and the kind of dependence (Cooper D. & Emory, W., 1995). It is interesting to note that some of the emergent techniques such as chisquared automatic  detection(CHAID), LOGIT and Log Linear Modeling are becoming much popular in the emerging markets of the world(Magidson,J., 1990).

Targeting

 Targeting is process of choosing those segments of from the segmentation clusters identified that can better mach company’s core competences and where company can exploit the market opportunities by holding a competitive position. once an organization has dividing the market into smaller segments of customers having similar needs,  it is necessary to evaluate these segments on the basis of following dimensions such as; measurable, substantial, accessible, differentiable and actionable. However, some other elements such as simplicity and potential adaptability of the segmentation structure across national boundaries should also be considered while choosing the segment to target. Moreover, it is also important to note the segment potential growth, its structural attractiveness, company’s core competencies and objectives when selecting segments to market (Kotler, 1990).

once companies identify its target market, it try to create specific market mixes to serve the customer’s needs and wants while fulfilling the other market conditions and factors (Kotler, 1994).  This stage of creation of specific market mix is known as the third stage of the market segmentation process. However, some authors think that market segmentation is limited to the process of market identification thus due importance is not given to other stages such as product positioning and mix development (Sarabia, 1996).

Some of the market segmentation researches recommend organizations to choose a generic competitive strategy after selecting a market segment. It is also essential for firms to timely review and make necessary changes in the chosen generic strategy for adapting it to the market segment and exploring further approaches. It is important to note fact that, companies may often find counter-segmentation strategy application in some cases. However, when firms develop different market mixes for different targeted segments, this approach helps them to identify some prevalent inconsistencies and evaluate the targeted segments. Differentiation strategy that is a competitive strategy is often found sustainable generic strategy in a target market. It creates a niche market which often remain unexplored and unidentified segments by big MNC’s and global companies. In relation to this strategy of, to be low cost producer as an alternative strategy does not look sustainable in a segmented market as it works well in larger market where greater economies of scale could be achieved with  standardization of products and services(Kotler, 1994).

REFERENCES:

·         Janet Hoek, Philip Gendall, Don Esslemont,(1996), “Market segmentation:A search for the Holy Grail?”, Journal of Marketing Practice: Applied Marketing Science, 2(1), pp. 25-34, Emeraldinsight [Online], Available at:http://www.emeraldinsight.com.ezproxy.scu.edu.au/journals.htm?issn=1355-2538&volume=2&issue=1&articleid=857889&show=html(Accessed: 23November, 2010)

·         Robert P. Hamlin, (2000), “A systematic procedure for targeting market research”, European Journal of Marketing, 34(9/10), pp. 1038-1052, Emeraldinsight [Online], Available at:http://www.emeraldinsight.com.ezproxy.scu.edu.au/journals.htm?issn=0309-0566&volume=34&issue=9/10&articleid=853689&show=html(Accessed: 23November, 2010)

·         Malcolm Wright, (1996), “The dubious assumptions of segmentation and targeting”, Management Decision, 34(1), pp. 18-24, Emeraldinsight [Online], Available at:http://www.emeraldinsight.com.ezproxy.scu.edu.au/journals.htm?issn=0025-1747&volume=34&issue=1&articleid=864815&show=htmlAccessed: 24 November, 2010)

·         Raj Singh Minhas, Everett M. Jacobs,(1996), “Benefit segmentation by factor analysis: an improved method of targeting customers for financial services”, International Journal of Bank Marketing, 14(3), pp. 3-13, Emeraldinsight [Online], Available at: http://www.emeraldinsight.com.ezproxy.scu.edu.au/journals.htm?issn=0265-2323&volume=14&issue=3&articleid=854896&show=htmlAccessed: 25 November, 2010)

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