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Segmentation and Market Driven Strategy

Segmentation and Market Driven Strategy

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Published by: haseela on Apr 12, 2010
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Segmentation and Market driven strategy

This is the first of three lessons based upon SEGMENT - TARGET - POSITION. To get a product or service to the right person or company, a marketer would firstly segment the market, then target a single segment or series of segments, and finally position within the segment Market Segmentation is the process of placing of subsets of buyers within a market that share similar needs and demonstrate similar buyer behavior. The world is made up of billions of buyers with their own sets of needs and behavior. Segmentation aims to match groups of purchasers with the same set of needs and buyer behavior. Such a group is known as a 'segment Segmentations identifies customer groups within a product –market, each containing buyers with similar value requirement’s concerning specific products /brands attributes. A segment is a possible market target for an organization competing in the market. Segmentation offers a company an opportunity to better match its products and its capabilities to buyer’s value requirements. Customer satisfaction providing a value offering that matches the value proposition considered important by the buyers in a segment.

Segmentation is a form of critical evaluation rather than a prescribed process or system, and hence no two markets are defined and segmented in the same way. However there are a number of underpinning criteria that assist us with segmentation:
• • •

Is the segment viable? Can we make a profit from it? Is the segment accessible? How easy is it for us to get into the segment? Is the segment measurable? Can we obtain realistic data to consider its potential?

There are many ways that a segment can be considered. For example, the auto market could be segmented by: driver age, engine size, model type, cost, and so on. However the more general bases include:
• • • •

By By By By

geography - such as where in the world was the product bought. psychographics - such as lifestyle or beliefs. socio-cultural factors - such as class. demography - such as age, sex, and so on.

A company will evaluate each segment based upon potential business success. Opportunities will depend upon factors such as: the potential growth of the segment the state of competitive rivalry within the segment how much profit the segment will deliver how big the segment is how the segment fits with the current direction of the company and its vision.

Market Driven strategy
Firm's policy or strategy guided by market trends and customer needs instead of the firm's productive capacity or current products. Process:1. Segments 2. Value opportunities 3. Capabilities/segment match 4. Target 5. Positioning

Creating New Market Space
Market analysis may identify segments which are not recognized or served effectively by the competitors. There may be opportunities to tap into new areas and create a unique space in the market. For example, in France Accor has established the highly successful formula 1 hotel chain by building a new market segment in between the traditional strategic groups in the hotel market. In general one –star hotels offer low prices; on the other hand two-star hotels offer more amenities and charge higher prices. Accor analysis of customer need found that customer choose the one star hotel because it is cheap, but trade up from the one star hotel to the two star hotel for the “sleeping environment “that is clean ,quiet rooms with more comfortable beds – not all the other amenities that are offered. While formula 1 provides the superior “sleeping environment” of the two star hotel, but not the other facilities, which allows it to offer this at the price of the one star hotel. Formula1 had built a market share larger than sum of the next five largest competitors.

Matching value opportunities and capabilities
Broad competitive comparisons can be made for the entire product-market, more penetrating insights about competitive advantage and market opportunity result from market segment analyses. Examining specific market segments helps identify how to -: 1. Attain a closer match between buyer’s value preference’s and the organization’s capabilities. 2. Compare the organizations strengths and weakness to the key competitors in that particular segment. For example –Atlas air Inc. ., a transportation company that offers outsourcing freight services for global air carriers which came up in 1992, the founder identifies an emerging customer need because carriers were replacing older aircrafts with fuel efficient planes having half the cargo space of those being replaced. Atlas customers include British airways, china airlines, KLM Lufthansa, Swissair, and SAS, all attracted by low cost and reliable services. Atlas carriers’ flowers and shoes from Amsterdam to Singapore for KLM and fish cattle, and horses from Taipei to Europe for china air.

Market targeting and strategic positioning There was a time when finding the best customers were like throwing darts in the dark. Target marketing changed all that. Today’s savvy marketers know that finding their best prospects and customers hinges on well thought out targeted marketing strategies. Defining a target market requires market segmentation, the process of pulling apart the entire market as a whole and separating it into manageable, disparate units based on demographics. Target market is a business term meaning the market segment to which a particular good or service is marketed. It is mainly defined by age, gender, geography, socio-economic grouping, or any other combination of demographics. It is generally studied and mapped by an organization through lists and reports containing demographic information that may have an effect on the marketing of key products or services. Target Marketing involves breaking a market into segments and then concentrating your marketing efforts on one or a few key segments.

Target marketing can be the key to a small business’s success. The beauty of target marketing is that it makes the promotion, pricing and distribution of your products and/or services easier and more cost-effective. Target marketing provides a focus to all of your marketing activities. Market targeting simply means choosing one’s target market. It needs to be clarified at the onset that marketing targeting is not synonymous with market. Through segmentation, a firm divides the market into many segments. But all these segments need not form its target market. Target market signifies only those segments that it wants to adopt as its market. A selection is thus involved in it. In choosing target market, a firm basically carries out an evaluation of the various segments and selects those segments that are most appropriate to it. As we know that the segments must be relevant, accessible, sizable and profitable. The evaluation of the different segments has to be actually based on these criteria and only on the basis of such an evaluation should the target segments be selected.

Positioning involves implementing our targeting. For example, Apple Computer has chosen to position itself as a maker of user-friendly computers. Thus, Apple has done a lot through its advertising to promote itself. They iterate that any brand is valued by the perception it carries in the prospect or customer's mind. Each brand has thus to be 'Positioned' in a particular class or segment. Example: Mercedes is positioned for luxury segment, Volvo is positioned for safety. The position of a product is the sum of those attributes normally ascribed to it by the consumers – its standing, its quality, the type of people who use it, its strengths, its weaknesses, any other unusual or memorable characteristics it may possess, its price and the value it represents.

Although there are different definitions of Positioning, probably the most common is: “A product's position is how potential buyers see the product", and is expressed relative to the position of competitors. Positioning is a platform for the brand. It facilitates the brand to get through to the mind of the target consumer .The position of the brand has thus to be carefully maintained and managed. Example: When Marlboro cut down its prices, its sales dropped immediately, as it began being associated with the generic segment. Watches like Rolex are positioned as luxury segment watches, thus they being one of the most expensive have become a symbol for accomplishment in life. If Rolex reduces its prices, it loses its perceived image and hence is in danger of losing its customers.

Selecting the Market to be Segmented
Market segmentation may occur at any of the product –market levels . Genric level segmentation by segmenting supermarket buyers based on sjopper types eg.limited shopping time . Product type segmentation is shown by the diffrences in price, quality and features of shving equipment.Product variant segmentation considers the segments within a category such as electric razors. An important consideration in defining the market to be segmented is estimating the variation in buyers needs and requirements at the different product market – levels and identifying the types of buyers included in the market.

Example-the atlas air example ,management definede the product market to be segmented as air freight services for business organizations between major global airports.Segmenting the genric product market for air freight services was too broad in scope. In contemporary markets, boundaries and definations can change rapidly, underlining the strategicc importance of market defination and selection , and the need for frequent reevaluation.

Market segmentation activities and decisions
The process of segmenting a market involves many activities and decision beginning with defining the market to segmented .it is important to decide how to segment the market, which involves selecting the variables to use as the basis for identifying segments. Next ,method of forming segments is decided . this may consist of managers using judgement and experience to divide the market into segments .Segments can also formed by using statistical analysis.The availability of customer purchase behaviour informationin CRM systems.Part of forming segments is deciding whether finer segments should be used. Finally,strategeic analysis is conducted on each segment to assist amanagement in deciding which segment to target.

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