Market Segmentation — Dividing Consumer Markets into Segments written by Maximilian Claessens 30th March Market Segmentation is the first step in designing a customer-driven marketing strategy. It is the initial stage of developing a marketing logic by which the firm can create customer value and build profitable customer relationships. Why do we need Market Segmentation?
Some people recommend against businesses offering many product lines to many segments, as this can sometimes soften their focus and stretch their resources too thinly. Figure 1 The advantage in attempting the above approach is that although it may not work at all times, it is a force for as much focus as practicable.
The one-to-many model ensures — in theory — that a business keeps its focus sharp and makes use of economies of scale at the supply end of the chain.
Examples are Coca-Cola and some of the General Electric businesses. The drawback is that the business would risk losing business as soon as a weakness in its supply chain or in its marketing forces it to withdraw from the market.
The trigger was a contamination scandal reported in the media. The many-to-one model also has its benefits and drawbacks. The problem is that a business would stretch its resources too thinly in order to serve just one or a few markets. However, there are many companies that have dedicated themselves to only one market segment, e.
Flowserve is a US-based supplier of many different types of pumps, valves, seals and other components — all dedicated to fluid motion and control. Among the above models, the most popular is the many-to-many version.
As companies constantly try to balance their risk in different technologies and markets, they are left with no choice but to enter into new markets with existing products or introduce new products into existing markets or even develop new products and launch them into new markets see figure 2.
This model is one of the most common methods applied in industrial markets today. It is sometimes extended into more complex models to include multi-step and three- and four-dimensional models. Macro-segmentation centres on the characteristics of the buying organisation [as whole companies or institutions], thus dividing the market by: However, it needs to be combined with other factors to draw a realistic picture.
Geographic location is equally as feasible as company size. It tells a company a lot about culture and communication requirements. For example, a company would adopt a different bidding strategy with an Asian customer than with an American customer.
Geographic location also relates to culture, language and business attitudes. For example, Middle Eastern, European, North American, South American and Asian companies will all have different sets of business standards and communication requirements.
SIC code standard industry classificationwhich originated in the US, can be a good indicator for application-based segmentation.
Examples are access control equipment, thermal spray coatings and uninterruptible power supply systems, non of which have been classified under the SIC. This is another relatively theoretical and unused criteria in real life. As a result of increased competition and globalisation in most established industries, companies tend to find focus in a small number of markets, get to know the market well and establish long-term relationship with customers.
The general belief is, it is cheaper to keep an existing customer than to find a new one. When this happens, the purchase criteria are more based on relationship, trust, technology and overall cost of purchase, which dilutes the importance of this criteria. This criterion can only apply to newcomers.
In cases of long-term relationship, which is usually the objective of most industrial businesses, the qualified supplier is normally aware of the purchase requirement, i.
Webster, For example, the access control industry markets the same products for two different value sets: Banks, factories and airports install them for security reasons, i.
Type of institution, Webster, e. Hospitals would require higher hygiene criteria while buying office equipment than utilities. And airport terminals would need different degrees of access control and security monitoring than shopping centres.
However, type of buying institution and the decision-making stage can only work on paper. As institutional buyers cut procurement costs, they are forced to reduce the number of suppliers, with whom they develop long-term relationships. This makes the buying institution already a highly experienced one and the suppliers are normally involved at the beginning of the decision-making process.
This eliminates the need to apply these two items as segmentation criteria. If he pursues a cost leadership strategy, then the company is more likely to be committed to high-volume manufacturing, thus requiring high-volume purchasing.
To the supplier, this means constant price pressure and precise delivery but relatively long-term business security, e. But if the company follows a differentiation strategy, then it is bound to offer customised products and services to its customers.
This would necessitate specialised high-quality products from the supplier, which are often purchased in low volumes, which mostly eliminates stark price competition, emphasises on functionality and requires relationship-based marketing mix.Propose segmentation criteria to be used for products in different markets?
Segmentation criteria- It is the process which could be used by Auto Trader Company for . This segmentation consists of dividing customers by how much of the product is used or consumed. In general, 20% of all customers generate 80% of the demand for a product or service.
propose segmentation criteria to be used for products in different markets. plan marketing mixes for two different segments inconsumer markets. illustrate differences in marketing products and services to businesses rather than consumers. Conducting a Segmentation.
a marketer may identify the manufacturing groups that represent potential users of the products it produces and sells.
takes the two digit classification and converts it to three-, four-, five-, and seven-digit codes. the problem is the acknowledgment that people within markets are different and that. BMW segmentation, targeting and positioning can be specified as the base of the marketing efforts of the company.
BMW, as well as, any other business entity has to divide population into different categories according to a set of certain criteria and develop products and services that are. Market segmentation is the division of a market into different groups of customers with distinctly similar needs and product/service requirements.
Or to put it another.