WEEK 8

Market Segmentation and Targeting

Although business firms are concerned with the needs of individual consumers
and organizations, their long-range concern is really satisfying the needs of the
aggregate group called market. This is so because it is only through serving a sufficient
number of people or organizations that economy in operations and profits become
possible.

What is a Market?

The term "market” has been defined in many ways, all depending on whose point
of view is referred to. Improvements in the definition of "market” happened as the
economics, management, and marketing disciplines developed. Economics is the
mother discipline of management, which in turn, gave "birth” to marketing

Writers define "market almost similarly. They differ only on which point each
would want to emphasize. For instance, the place is stressed with the definition "market
is a place where sellers and buyers exchange goods (or services) upon an agreed
price.

Another definition emphasized the buyers with "market as a group of people or

organizations that buy a particular good, service, or concept.”

Another definition of market stressed opportunity with the statement "market is

any mechanism that enables buyers and sellers to strike bargains and to transact.”

The foregoing definitions, are helpful but not useful enough to make it easier for
the firm (or the individual marketer) to achieve its (or his) objectives.

A very useful definition is this one: "a market is composed of people with needs
to satisfy, the money to spend, and the willingness to spend.” His view includes present
and potential buyers with purchasing power and the resolve to buy. This provides us
with useful framework for analyzing market opportunities.
 The marketer, however, will not and must not just grab any market it could find. It
must be determined if the prospective market has the potential to satisfy the
requirements of the firm, i.e., the attainment of the objectives. To satisfy this end,
"market" must be defined as:

A market is composed of people with needs to satisfy, the money to spend, the
willingness to spend, and the ability to satisfy the objectives of the seller.

Types of Market

Markets may be classified according to: (1) type of institution; and (2) form.

Markets According to Type of Institution

There are three general types of markets according to type of institution: (1)
consumer markets; (2) organizational markets; and (3) international markets. a product
or service constitute the consumer market. This market "the real estate market" which
refers to the aggregate demand of services market" instance, he may, all at the same
time, be a part of the entertainment.

Consumer Markets. Buyers who intend to directly consume type may be

classified further into product-related groupings like buyers of houses and lots. Another
example is "the educational services market”.

An individual may belong to various consumer markets, For instance, he may, all
at the same time, be a part of the entertainment market, the drug market, the dry goods
market, or the food market.

Organizational Markets. This second general type of market constitutes buyers

of products or services whose intention is to produce another product or service. This
market type is discussed in Chapter 3.

International Markets. This refers to all types of buyers found abroad including
consumers and organizations. Car producers in Japan, for example, consider
Americans, Asians, and Europeans as their international markets.
Markets According to Form

Markets may also be classified according to form. These are (1) the primary; and
(2) the secondary markets.

Primary Markets. This is the type of market that is formed when a firm
introduces a new product class in response to latent demand or needs.

Latent demand refers to customer demand that is unarticulated or abstract. It is

without reference to a particular product or service. An example may be provided as
follows:

Before the introduction of the tri-bike in the market and as late as the 1960s,
people travel by other means like walking, riding in bicycles, buses, or rigs. Travelers
during this period are unable to articulate their need for an economical and convenient
means of transportation. One firm recognized this and translated this latent need into a
particular product form which is the tri-bike, a human muscle-powered transport
equipment. The potential customers of the tri-bike constitute the primary market.

Secondary Markets. This type is an offshoot of the primary market and it is

formed when customers develop specific needs or preferences.

After the commuters became familiar with tri-bikes and have developed
convenience needs, they could specify more easily how the product might be changed
to perform better. In the case of the tri-bike, customers may express their secondary
needs, winch refers to speed. This is so because tri-bikes are human muscle-powered
and they do not move fast enough. In response, the marketer installed engines in the tri-
bikes and improved their body structures. Tri-bikes became motorbikes or motorized
tricycles and the secondary market was created.

Market Segmentation
 Markets consist of various segments. The market for books, for instance, may be
subdivided into the following segments: (1) students; (2) teachers; and (3) the general
public.

A market segment is a sub-group of a particular market which is composed of

units with more or less similar characteristics. People may have similar wants, financial
resources, geographic locations, buying attitudes, and buying patterns. These variables
may be used individually to segment a market.

Catering to only one segment may be more rewarding than serving more than
one segment. At times, however, a company may find selling to its target market as a
whole as more profitable than dealing with only one, or two segments.

It is a must for marketers to determine first if market segmentation would improve

sales and profits. If so, the next move would be to determine the most useful
segmentation approach that will facilitate the accomplishment of the firm's marketing
objectives.

Market segmentation may be defined as the process of identifying the various

segments of a company s particular market.

The Advantages of Market Segmentation

Market segmentation offers the following advantages to the marketer:

1. Segmentation forces the marketer to be aware of realities in the market

2. Segmentation provides clues in the design of products and marketing programs that
will reach the prospective customers.

3. Segmentation can help identify opportunities for new product development.

4. Segmentation can help improve the strategic allocation of marketing resources.

Segmentation Strategies
 In serving the target market, the company or the marketer may opt to adapt any
of the following: (1) concentration or single-segment strategy, and (2) multi-segment
strategy.

Concentration or single-segment strategy refers to that long term decision of

the company to deal only with a particular segment of the market. A book publisher, for
instance, may consider only college students and consequently, publish only college
textbooks.

The multi-segment strategy calls for providing products or services to two or

more segments of the target market. The company may even serve the entire target
market. Rex Book Store, for instance, is a multi-segment marketer, in the sense that it
publishes and sells college, high school, and elementary books. In addition, they also
handle books for adults who no longer go to school.

The Process of Segmenting Markets

In segmenting markets, the following steps are necessary:

1. Identification of market segments in terms of characteristics of prospective

customers they contain. Exhibit 1 shows an attempt to segment the motorcycle
market in a city.

Segmenting the Motorcycle Market in a City

Segmen Need Dimension Customer-related Nickname of

t (benefit sought) Characteristics Product-market
Number
Travel convenience; Young (18 to 21 years old)
1 distinctive ownership - unmarried, active, fun- The fun lover
of asset loving
Older and more mature (21
Steady source of to 50 years old)
2 The bread-winner
income; Economy - low income and less
education
Older and more mature (21
Travel convenience; to 40 years old) The salaried
3
Job security - income from salary; employee
- Higher education
 Retired (50 years old and
Source of addition –
4 above) The retiree
all income
- Income from pension

2. Determination of whether and to what extent there are differences in the needs
or benefits sought by customers in the various segments. If there are no
significant differences in the needs of customers in the various segments
segmentation is not an option.

Evaluation of the present and future attractiveness of each segment. Important

indicators of attractiveness are sales growth, competition, and profitability. There is
no point in segmenting if attractiveness is not established.

Activity – Week 7

1. Based on the explanation in this module and based on our previous discussions,
what does it mean when we say “market”?
2. Explain the different meaning of the term “market” in accordance to different
fields.
3. How important is market segmentation in marketing?