Segmentation (Market and Business) Essay Sample
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Segmentation (Market and Business) Essay Sample
A market segment is a sub-set of a market made up of people or organizations with one or more characteristics that cause them to demand similar product and/or services based on qualities of those products such as price or function. A true market segment meets all of the following criteria: it is distinct from other segments (different segments have different needs), it is homogeneous within the segment (exhibits common needs); it responds similarly to a market stimulus, and it can be reached by a market intervention. The term is also used when consumers with identical product and/or service needs are divided up into groups so they can be charged different amounts for the services. The people in a given segment are supposed to be similar in terms of criteria by which they are segmented and different from other segments in terms of these criteria. These can be broadly viewed as ‘positive’ and ‘negative’ applications of the same idea, splitting up the market into smaller groups. Examples of characteristics used for segmentation:
* Size of Household
A tourism market consists of all those people with sufficient motivation, ability and opportunity to visit a destination or attraction. Market segmentation is a consumer-led technique that involves dividing the market into groups of like-minded people with similar needs, and behavioural characteristics and who therefore require similar tourism marketing mixes.
“Positive” market segmentation
Market segmenting is dividing the market into groups of individual markets with similar wants or needs that a company divides into distinct groups which have distinct needs, wants, behavior or which might want different products & services. Broadly, markets can be divided according to a number of general criteria, such as by industry or public versus private. Although industrial market segmentation is quite different from consumer market segmentation, both have similar objectives. All of these methods of segmentation are merely proxies for true segments, which don’t always fit into convenient demographic boundaries. Consumer-based market segmentation can be performed on a product specific basis, to provide a close match between specific products and individuals. However, a number of generic market segment systems also exist, e.g. the system provides a broad segmentation of the population of the United States based on the statistical analysis of household and geodemographic data.
The process of segmentation is distinct from positioning (designing an appropriate marketing mix for each segment). The overall intent is to identify groups of similar customers and potential customers; to prioritize the groups to address; to understand their behavior; and to respond with appropriate marketing strategies that satisfy the different preferences of each chosen segment. Revenues are thus improved. Improved segmentation can lead to significantly improved marketing effectiveness. Distinct segments can have different industry structures and thus have higher or lower attractiveness. Once a market segment has been identified (via segmentation), and targeted (in which the viability of servicing the market intended), the segment is then subject to positioning. Positioning involves ascertaining how a product or a company is perceived in the minds of consumers. This part of the segmentation process consists of drawing up a perceptual map, which highlights rival goods within one’s industry according to perceived quality and price. After the perceptual map has been devised, a firm would consider the marketing communications mix best suited to the product in question.
Classic segmentation techniques
GeographicalAt a basic level, defines tourist consumers according to their geographic location on the assumption that behaviour is influenced by where people live.| DemographicAttempts to define tourist consumers’ behaviour in relation to age, sex, family lifecycle stage, social class, income and other such criteria.| PsychographicAssumes that tourist’s purchasing behaviour is related to their personality or lifestyle.| BehaviouristicFocuses on tourist’s behaviour in relation to a particular tourism product, and attempts to segment the market based on differences in behaviour, for example the benefits sought, buying patterns and trends, or degree of loyalty.
Psychographic or lifestyle segmentation attempts to group people according to their lifestyle and personality characteristics. Back in 1998 Susan Horner and John Swarbrooke referred to psychographic segmentation as ‘fashionable but too difficult to implement’. This is because it involves correlating intangible personality and lifestyle variables such as the beliefs, interests, opinions, attitudes and aspirations of potential visitors or tourism consumers. Predicting tourists’ behaviour using a psychographic approach has evolved in response to the weaknesses and limitations of the segmentation methods outlined above in helping marketing decision-makers to ‘get inside the mind’ of their tourist consumers and to understand more clearly the factors that drive their behaviour.
Whereas psychographic segmentation was considered to be ‘less scientific’ than other forms of segmentation, technological developments now mean that this ‘softer’ or more subtle segmentation approach is recognized as being more appropriate for the tourism sector. Indeed, the increased sophistication of psychographic segmentation is now providing detailed consumer insights to enable tourist destinations to take control of their visitor economy and actively design and create destination experiences to suit the needs of multiple visitor segments simultaneously. Geodemographic systems, such as CAMEO which incorporate some lifestyle variables, have been used in this capacity by destinations like Portsmouth. Behaviouristic segmentation
The segmentation categories discussed above are specifically focused on the tourist consumer or visitor. As such they result in the production of the most usable, reliable and detailed visitor profiles as possible. However, they do not consider the visitor’s relationship with the destination or tourism product. As it’s very likely that people with similar geodemographic and/or psychographic profiles may have different interactions with the same destination or other tourism product, it is also necessary to focus on tourists’ behaviour in relation to a particular tourism or destination product. This form of segmentation has several dimensions but, in general, it aims to group consumers in terms of their relationship with the destination product, for example, whether they are first-time or regular visitors, the purpose of their visit, loyalty and their attitudes to the destination before segmenting on the basis of behaviour or benefits sought. The commercial models considered above do not sufficiently facilitate this segmentation approach. Multivariable segmentation
Having briefly considered the four classic segmentation bases it is clear that in practice, most successful destinations and tourism organizations have started to adopt a multivariable segmentation approach. This method involves defining a portfolio of relevant characteristics drawn from all four categories in line with the tourist market being considered. Indeed, as the commercial geodemographic systems have evolved they have in effect become multivariable ‘packages’ through the incorporation of geographic, demographic and psychographic variables to divide the market into useful and actionable groups. As with all segmentation approaches, a multivariable segmentation strategy requires that tourist consumers are clustered according to their background, needs and wants.
To determine whether the visitor market has been properly segmented, the following criteria should be considered. * Effective and distinctive – tourist consumers in each identified segment must possess relatively homogenous needs which are also significantly different from those in other segments. * Measurability – identifying and understanding customers and their characteristics and behaviour patterns, and accurately quantifying the potential of each segment to ensure that it is commercially viable. * Accessibility – the destination or tourism organisation must be able to reach the segment with specifically formulated and cost-effective marketing programme. * Actionable – the destination management organisation must have the resources to exploit identified marketing opportunities that emerge from the segmentation process.
The marketing mix is a business tool used in marketing products. The marketing mix is often synonymous with the ‘four Ps’: ‘price’, ‘promotion’, ‘product’, and ‘place’. However, in recent times, the ‘four Ps’ have been expanded to the ‘seven Ps’ with the addition of ‘process’, ‘physical evidence’ and ‘people’. The ‘four Ps’ consist of the following:
* Product – A product is seen as an item that satisfies what a consumer needs or wants. It is a tangible good or an intangible service. Intangible products are service based like the tourism industry & the hotel industry or codes-based products like cell phone load and credits. Tangible products are those that can be felt physically. Typical examples of mass-produced, tangible objects are the motor car and the disposable razor. A less obvious but ubiquitous mass produced service is a computer operating system. Every product is subject to a life-cycle including a growth phase followed by a maturity phase and finally an eventual period of decline as sales falls. Marketers must do careful research on how long the life cycle of the product they are marketing is likely to be and focus their attention on different challenges that arise as the product moves through each stage. The marketer must also consider the product mix. Marketers can expand the current product mix by increasing a certain product line’s depth or by increase the number of product lines.
Marketers should consider how to position the product, how to exploit the brand, how to exploit the company’s resources and how to configure the product mix so that each product complements the other. The marketer must also consider product development strategies. * Price – The price is the amount a customer pays for the product. The price is very important as it determines the company’s profit and hence, survival. Adjusting the price has a profound impaction the marketing strategy, and depending on the price elasticity of the product, often; it will affect the demand and sales as well. The marketer should set a price that complements the other elements of the marketing mix. When setting a price, the marketer must be aware of the customer perceived value for the product. Three basic pricing strategies are: market skimming pricing, marketing penetration pricing and neutral pricing. The ‘reference value’ (where the consumer refers to the prices of competing products) and the ‘differential value’ (the consumer’s view of this product’s attributes versus the attributes of other products) must be taken into account. * Promotion – represents all of the methods of communication that a marketer may use to provide information to different parties about the product. Promotion comprises elements such as: advertising, public relations, personal selling and sales promotion.
Advertising covers any communication that is paid for, from cinema commercials, radio and Internet advertisements through print media and billboards. Public relations is where the communication is not directly paid for and includes press releases, sponsorship deals, exhibitions, conferences, seminars or trade fairs and events. Word-of-mouth is any apparently informal communication about the product by ordinary individuals, satisfied customers or people specifically engaged to create word of mouth momentum. Sales staff often plays an important role in word of mouth and public relations (see ‘product’ above). * Place – refers to providing the product at a place which is convenient for consumers to access. Place is synonymous with distribution. Various strategies such as intensive distribution, selective distribution, exclusive distribution, franchising can be used by the marketer to complement the other aspects of the marketing mix.
* Consumer – shifting the focus to satisfying the consumer needs. * Cost – Many factors affect Cost, including but not limited to the customer’s cost to change or implement the new product or service and the customer’s cost for not selecting a competitor’s product or service. * Communication – includes advertising, public relations, personal selling, viral advertising, and any form of communication between the firm and the consumer. * Convenience – Convenience takes into account the ease of buying the product, finding the product, finding information about the product, and several other factors.
When an organization introduces a product into a market they must ask themselves a number of questions. 1. Who is the product aimed at?
2. What benefit will customers expect?
3. How does the firm plan to position the product within the market?
4. What differential advantage will the product offer over their competitors?
We must remember that Marketing is fundamentally about providing the correct bundle of benefits to the end user, hence the saying ‘Marketing is not about providing products or services it is essentially about providing changing benefits to the changing needs and demands of the customer’. Kotler suggested that a product should be viewed in three levels. Level 1: Core Product. What is the core benefit your product offers?. Customers who purchase a camera are buying more than just a camera they are purchasing memories. Level 2 Actual Product: All cameras capture memories. The aim is to ensure that your potential customers purchase your one. The strategy at this level involves organizations branding, adding features and benefits to ensure that their product offers a differential advantage from their competitors. Level 3: Augmented product: What additional non-tangible benefits can you offer? Competition at this level is based around after sales service, warranties, delivery and so on. John Lewis a retail departmental store offers free five year guarantee on purchases of their Television sets, this gives their `customers the additional benefit of peace of mind over the five years should their purchase develop a fault. Product Decisions
When placing a product within a market many factors and decisions have to be taken into consideration.
These include: Product Decision| Example|
Product design| Will the design be the selling point for the organization as we have seen with the iPad, the new VW Beetle or the Dyson Ball vacuum cleaner.| Product quality| Quality has to consistent with other elements of the marketing mix. A premium based pricing strategy has to reflect the quality a product offers| Product features| What features will you add that may increase the benefit offered to your target market? Will the organization use a discriminatory pricing policy for offering these additional benefits?| Product branding| One of the most important decisions a marketing manager can make is about branding. The value of brands in today’s environment is phenomenal. Brands have the power of instant sales; they convey a message of confidence, quality and reliability to their target market.|
Pricing is one of the most important elements of the marketing mix, as it is the only mix, which generates a turnover for the organization. The remaining 3p’s are the variable cost for the organization. It costs to produce and design a product; it costs to distribute a product and costs to promote it. Price must support these elements of the mix. Pricing is difficult and must reflect supply and demand relationship. Pricing a product too high or too low could mean a loss of sales for the organization. Pricing should take into account the following factors: 1. Fixed and variable costs.
3. Company objectives
4. Proposed positioning strategies.
5. Target group and willingness to pay.
A successful product or service means nothing unless the benefit of such a service can be communicated clearly to the target market. An organizations promotional mix strategy can consist of: Types of promotion| Explanation|
Advertising:| Any non personal paid form of communication using any form of mass media.| Public relations| Involves developing positive relationships with the organization media public. The art of good public relations is not only to obtain favorable publicity within the media, but it is also involves being able to handle successfully negative attention.| Sales promotion:| Commonly used to obtain an increase in sales short term. Could involve using money off coupons or special offers.| Personal selling:| Selling a product service one to one|
Direct Mail| Is the sending of publicity material to a named person within an organizationDirect mail allows an organization to use their resources more effectively by allowing them to send publicity material to a named person within their target segment. By personalizing advertising, response rates increase thus increasing the chance of improving sales. Listed below are links to organization who’s business involves direct mail.| Internet Marketing| Promoting and selling your services online using various forms of online marketing techniques such as banner advertisements, videos or social media.| Sponsorship| Where you pay an organization to use your brand or logo. This organisation usually has a high profile so that you know that your brand will be seen by a large audience. Most common use of sponsorship is with sporting events. The 2012 Olympics being held in London is being sponsored by a number of organizations such as McDonalds and Coca-Cola as the event will attract a worldwide audience that will run into hundreds of millions.