MARKETING SEGMENTATION.

1.1 Introduction
All consumers are not identical and therefore they do not have the same motivations, needs or
patterns of behavior. Due to this, it is common for organizations to attempt to divide their
markets into groups which may have particular attitudes or characteristics in common. Provided
that these characteristics are related to their buying behavior, it is then possible to develop
specific products and services and marketing campaigns which are tailored to the needs of these
different market segments.

Therefore, marketers today realize the fact that they cannot appeal to all customers in the market
place with one marketing programme. Buyers are now too numerous, too widely scattered and
too varied in their needs and wants or buying patterns. On the other hand, companies themselves
vary widely in their abilities to serve different segments of the market. Therefore, each company
has to identify which segments of the market it can best serve.

Market segmentation can be understood by distinguishing between mass and target marketing.

Mass Marketing

This is using the same marketing program to target the whole population (“Shot-gun” approach
or undifferentiated marketing). However, in mass marketing the seller engages in mass
production, distribution and promotion of one product for all the buyers.

The main argument for mass marketing is that it creates the largest potential market, which leads
to the lowest costs, which in turn translate into either lower prices or higher margins. However,
many factors have now made mass marketing difficult due to changing preferences and tastes,
technological, consumption patterns and advertising appeals among others. Therefore, most
companies are now moving away from mass marketing to a market segmentation and target
marketing.

1
Target Market

Here, the seller distinguishes major market segments, targets one or more and develops products
and programmes tailored towards each segment. That is, firms are focusing on the buyers who
have greater interest in the values they create (“Rifle” approach or differentiated marketing.

1.2 Levels of Market Segmentation

There are 4 levels namely: mass marketing, Segment marketing, Niche marketing and Micro-
marketing.

1.2.1 Mass Marketing

Up to 1990s, many companies practiced mass marketing and not target marketing. Most
consumer product companies practiced mass marketing (one-size-fits-all marketing). There was
therefore mass production, mass distribution and mass promotion of the products. For instance,
Henry Ford widely produced only one drink for the whole market, hoping it would appeal to
everyone.

1.2.2 Segment Marketing

The marketer isolates broad segments that make up a market and adapting the marketing strategy
to match the needs of one or more segments. Therefore, segment marketing consists of a large
identifiable group within a market.

A company that practices this type of marketing recognizes that buyers differ in their wants,
buying attitudes, purchasing power and many other characteristics.

1.2.3 Niche Marketing

A marketer focuses on sub segments or niches with distinctive traits that may seek a special
combination of benefits. Therefore, a niche is a more narrowly defined group, typically a small
market whose needs have not been well served. i.e schindler

Niche marketing can be carried out by dividing segments into sub segments, or defining a group
with a distinctive set of wants, who may seek special attributes of a product for example heavy
smokers segment consisting of heavy smokers who are overweight.

2
Niches are normally small markets which attract one or a few competitors. Most of the time, they
attract smaller companies and niche marketers understand their niches so well that their
customers are always willing to pay a higher price (premium). Niching offers smaller companies
an opportunity to compete by focusing their limited resources on serving niches that may be
unimportant to or overlooked by larger competitors. In many markets niching is the norm.

1.2.4 Micro-marketing
This is tailoring products and marketing programs to suit the tastes of specific individuals and
locations.

It includes Local Marketing and Individual Marketing.

Local Marketing

This is tailoring brands and promotions to the needs and wants of local customer groups (i. e.
cities, neighborhoods, specific stores, etc). Target marketing is increasingly taking on the
character of regional and local marketing programmes. For example, retailers e. g. Uchumi and
Nakumatt may customize their merchandise and promotions to match their specific clientele.

Local marketing may suffer certain drawbacks including:

i) Manufacturing and marketing costs may increase, reducing the economies of scale.
ii) Logistic problems may arise as companies try to meet the varied requirements of regional
and local markets.
iii) The brand’s overall image may be diluted if the product and message vary so much in
different localities.
Advantages of Local Marketing

i) It enables a company to market more effectively in the face of pronounced regional and
local differences in community demographics and lifestyle.
ii) Meets the needs of the company’s first-line customers: retailers who prefer more fine-
tuned product assortments for their neighborhoods.

3
Individual Marketing

This is the ultimate level of marketing segmentation and the micro-marketing becomes
individual marketing where the companies tailor-make products and marketing programs to suit
the needs and preferences of individual customers. It has been labeled one-to-one marketing,
customized marketing and markets-of-one marketing.

NOTE: Consumer markets are now experimenting with systems of providing custom-made
products for example textbooks, cosmetics, cars, etc.

1.3 Basics for Segmenting Consumer Markets

1.3.1 Geographic Segmentation
This calls for dividing the market into different geographical units particularly the nations, areas,
regions, neighborhoods, etc. The company can decide to operate in one or more segments but
adapt to local variations in terms of tastes and preferences.

1.3.2 Demographic Segmentation

The market is divided on the basis of demographic variables e. g. age, family size, gender,
income, religion, race, generation, nationality and social class.

1.3.3 Psychographic Segmentation

Buyers are divided into groups on the basis of lifestyles and/or personality e. g. opinions,
attitudes, perceptions, etc.

1.3.4 Behaviouristic Segmentation

Buyers are divided into groups on the basis of knowledge of, attitude towards, use of or response
to a particular product. Many marketers believe that behavioral variables like occasions, loyalty
status, buyer readiness, benefit, usage rate and attitude are the best starting points for segmenting
markets. For example:

 Occasions: Regular or special occasions

 Benefits: quality, services, speed, etc.
 User status: users, potential, regulars, first timers, etc.
 Usage rate: non-users, medium and strong users, etc.
 Buyer readiness: unawareness, aware, informed, desirous, intending to buy, etc
4
  Attitude towards: enthusiastic, positive, negative, indifferent, hostile, etc.

1.4 Basis of Segmenting Business Markets

1.4.1 Demographic Factors
i) Industry - Which industries should we serve?
ii) Company size – Which size of the company should we target/serve?
iii) Location – Which geographical or regional areas should we target?
1.4.2 Operating Variables
i) Technology – What kind of technology are consumers interested in?
ii) User or non-user status
iii) Customer capabilities – What is the customer capable of?
1.4.3 Purchasing Approaches
i) Purchasing function organization structure – Whether centralized or decentralized.
ii) Power structure – Marketer should identify the key people in the organization and
find out how much power they have. They can easily influence a purchase decision.
iii) Nature of existing relationship – Strong relationship or most desirable companies.
iv) General purchase policies – Companies that prefer leasing contracts or sealed biding
or tendering.
1.4.4 Situational Factors
i) Agency – Some customers will require quick and sudden delivery system.
ii) Specific application – We have certain specific products being applied for separately
or an application for all products.
iii) Size of order – in small or large quantities.
1.4.5 Personal Characteristics
i) Buyer – seller similarity – Organizations find it easy to access customers with similar
values.
ii) Attitudes towards risks – Whether the decision makers are risk-takers, avoiders,
neutral or averse.
iii) Loyalty status – Look at a company that shows high loyalty to you as a supplier or
marketer.

5
 1.5 Requirements for Effective Segmentation
(a) Measurable: In terms of size, purchasing power and characteristics of the segments.
(b) Sustainable: Larger and profitable enough to serve or be served, i. e. the largest possible
homogenous group worth going after with a tailored marketing program.
(c) Accessible: The market should be accessible and served effectively.
(d) Differentiable: Distinguishable and respond differently to different marketing mix
elements.
(e) Actionable: Worth a strategy/programme.

1.6 Benefits of Market Segmentation

(i) Leads to efficient use of resources and enables companies to build profitable segments.
(ii) Helps in designing the marketing strategies
(iii) Helps in product development
(iv) Encourages flexibility and leads to differential pricing. It also enables marketers to
review the activities of their segments and make adjustments.
(v) Leads to confidence in terms of specialization i. e. makes selling easier.
(vi) Encourages training of customers and staff.
(vii) Products are fine-tuned to suit various market segments and knowledge of consumer
behavior to relationship marketing hence accuracy in dealing with a target market.

1.7 Conclusion
Today market segmentation is becoming an important and an essential approach to be adopted by
firms across the board. Its prime function is to identify and group customers with similar
characteristics and similar needs as far as the goods and services are concerned. The
identification of market segments and the categorization of consumers across those segments
provides the basis not only for the development of the products and services which are better
tailored to the needs of consumer; it also provides valuable information which can be used in
developing efficient and effective promotional campaign.