LITERATURE REVIEW

Segmentation is an identification of subset of buyers within a market who share similar sets of
needs and wants. Segmentation aims to match groups of purchasers (called ‘segment’) with the
same set of needs and wants. Segmentation is important for a Company, because enables the
Company to be more focus in allocating its resources.

By dividing the market into segments, the Company will obtain a clear outlook in determining
which segment will be served, viewing the map of competition, and determining the Company’s
current market position (Kotler, Kartajaya Huan dan Liu, 2003). Kotler and Keller (2006)
pointed to another approach to select the market segments can be defined in many different
ways, such as through:

Geographic: nations, states, regions, cities, or neighborhoods

Demographic: age, family size, gender, income, occupation, education, religion, nationality,
social class
Psychographic: psychological/personal traits, lifestyle, or values.
Behavioral segmentation: knowledge of, attitude toward, use of, or response to a product in. Here
we see again that segmenting the market, a Company needs to consider the effectiveness of the
segmentation. Requirements of an effective segmentation (Kotler, 2003) are.
Measurable. The market segment should help the Company in measuring the potential market,
consumer’s buying power, and the Company’s resources allocation.
Substantial. The market segment should be big and profitable to be served.
Accessible. The market segment should be reachable and serviceable.
Differentiable. The market segment has to be clearly distinguishable.
Actionable. The market segment should be accessible and serviceable with the existing
Company’s resources.
Segmentation is a rational and more precise approach to adjust the product message to the
requirements of the target market (Smith W.1956)34. Awareness should also be made of the
benefits of segmentation in terms of the immediate positive impact on a product campaign
(Kuenne & Choi, 2000)35.
A wide range of segmentation methodologies exists, but in the current marketing environment,
there is growing interest in complex, multi axial approach to segmentation, especially when these
include more subjective indicators such as attitude and life stage (Forsyth, Gupta, & Haldar.
1999)41.
The first step towards being closer to the market is to develop a deeper understanding of
customers, and market segmentation is the best route to attaining and leveraging this market
understanding (Cjorstens, 1991)46. If used effectively, market segmentation can provide a point
of consensus for all stakeholders and a more strong foundation for creating advantages that will
lead to increasing sales and improving overall marketing performance (MacLennan & Mac
Kenzie 2000)47.

After identifying the market segment opportunities, the Company should evaluate those
segments in order to decide which segment will be the target. Targeting is the process of
selecting the market segments that are most attractive for the Company.
services marketing mix have to be customized to fit with the customer needs in the
targeted segment (Kotler et al, 1999).
Armstrong and Kotler (2000) asserted the importance of targeting the right market to fit an
organization’s capabilities. Hudson (2008: 95) strong supported their point and stated: “there is
no area in the market plan that surpasses the selection of target markets in importance”.
Armstrong and Kotler (2000) pointed to the impossibility of an organization targeting a large
market if it suffers from lack of staff abilities to enable the company to serve this large
population of customers.

There are various assessment criteria which result in successfully targeting a market. McCabe
(2009) stated five characteristics which help marketers to designate the targeted market:
attainable; measurable; large enough; defendable; sustainable. Baines et al. (2008) pointed to
another approach to select the appropriate target market which builds on assessing the
attractiveness of each of several factors, such as: market growth; segment profitability; segment
size; competitive intensity within the segment; the cyclical nature of the industry (i.e. the
seasonality of the industry). Hudson (2008) highlighted different key criteria for the target
market: well defined; accessible; identifiable; homogeneous; networking; the same needs and
reasons for purchasing the service or product. Thus, the previous criteria for the target market
can be summarized as: identifiable; measurable; large enough; accessible; attainable; sustainable;
defendable; homogeneous (common criteria including common needs to purchase the product);
networking; profitable. The decision for adopting the previous characteristics relied on the
employed targeting approach in the organization. Armstrong and Kotler (2000) and Baines et al.
(2008) stated three main targeting approaches: undifferentiated marketing
(one marketing mix for the whole market); differentiated marketing (various marketing mixes for
various market segments); concentrated marketing (one marketing mix for various targeted
segments). The appropriateness of each of these approaches depends on the organization’s size,
financial resources and type of business.

Positioning is the act of designing the Company’s offering and image to occupy a distinctive
place in the mind of the target market (Kotler and Keller, 2006). Here we see also that
Positioning is the third phase of the STP process (Baines et al., 2008). McCabe (2009) clarified
how it should work. In this phase, the product will be adjusted according to the results of the
marketing research results, followed by creating an image fitting the targeted segments’ values
Hudson (2008). Furthermore, Hudson (2008) pointed to using this phase in achieving sustainable
advantage over competitors. McCabe (2009) and Hudson’s (2008) understanding of positioning
was clear in the Phoenix-based case in China which changed its original plan of building four
and five-star hotels to building 100 three-star hotels (Hudson, 2008).

There are different ways to achieve a good position in the market. Tapp (2005) and Coombe
(2006) pointed to differentiation. Additionally, Baines et al. (2008) named two ways to position
the brand: ‘functionally’ and ‘expressively’ (symbolically). By ‘functionally’ Baines et al. (2008)
emphasized the features and benefits. ‘Expressively’ reflected various elements: ego, social and
the hedonic satisfaction. Hudson (2008) was more specific and mentioned three steps to achieve
a good position in the market: product differentiation; prioritizing and selecting the competitive
advantage; communicating and delivering the position. Armstrong and Kotler (2000) reorder
these steps in strongly recommending identifying the right competitive advantage to differentiate
the product
in brief, a complete STP process should help marketers to achieve better.
In order to obtain elicit consumer insight, exploratory research using data collection methods of
in-depth interviews or focus group discussions and ethnography can be used. These methods
allow the company to obtain information beyond those visible on the surface.