Evaluating and Selecting Market Segments
In evaluating market segments, the firm must look at two factors: the segment’s overall attractiveness and the company’s objectives and resources
How well does a potential segment score on the five criteria? Does it have characteristics that make it generally attractive, such as size, growth, profitability, scale economies, and low risk? Does investing in it make sense given the firm’s objectives, competencies, and resources?
Some attractive segments may not mesh with the company’s long-run objectives, or the company may lack one or more competencies necessary to offer superior value.
Translating segmentation into market decisions
Marketers have a range or continuum of possible levels of segmentation that can guide their target market decisions.
At one extreme is a mass market of essentially one segment; at the other extreme are individuals or segments of one person each. In between are multiple segments and single segments. We describe approaches to each of the four levels next.
versus One-to-One-marketing
Full Market Coverage
Here a firm attempts to serve all customer groups with all the products they might need.
Only very large firms such as Microsoft (software market) and Coca-Cola (nonalcoholic beverage market) can undertake a full market coverage strategy, through either differentiated or undifferentiated marketing.
Undifferentiated or mass marketing
In undifferentiated or mass marketing, the firm ignores segment differences and goes after the whole market with one offer. It designs a marketing program for a product with a superior image that can be sold to the broadest number of buyers via mass distribution and mass communications.
Undifferentiated marketing is appropriate when all consumers have roughly the same preferences and the market shows no natural segments.
Intrinsically identical products (such as gasoline, milk, packaged ice) that can be easily substituted by products from other suppliers. Such products complete only on the basis of price and availability, and require highlighted perceived differences to achieve differentiation.
The narrow product line keeps down the costs of research and development, production, inventory, transportation, marketing communication, and product management.
However, many critics point to the increasing splintering of the market and the proliferation of marketing channels and communication, which make it difficult and increasingly expensive to reach a mass audience.
Differentiated marketing
In differentiated marketing, the firm sells different products to all the different segments of the market.
One common strategy is to focus attention on different physical characteristics. For example, a food product may claim that it tastes better or uses better quality ingredients. Personal grooming products, such as shampoo, may claim that they lather better or leave your hair feeling cleaner.
Differentiated marketing typically creates more total sales than undifferentiated marketing. However, it also increases the costs of doing business. Because differentiated marketing leads to both higher sales and higher costs, no generalizations about its profitability are valid
Shown below are the differences in marketing approaches. Targeted marketing has more tools and approaches compared to mass-marketing. The final goal is maximizing the long term profitability in relationship to the characteristics of the product segment.
Multiple Segment Specialization
With selective specialization, a firm selects a subset of all the possible segments, each objectively attractive and appropriate. There may be little or no synergy among the segments, but each promises to be a moneymaker.
The multisegment strategy also has the advantage of diversifying the firm’s risk.
Keeping synergies in mind, companies can try to operate in super-segments rather than in isolated segments. A super-segment is a set of segments sharing some exploitable similarity. A firm can also attempt to achieve some synergy with product or market specialization.
With product specialization, the firm sells a certain product to several different market segments.
A microscope manufacturer, for instance, sells to university, government, and commercial laboratories, making different instruments for each and building a strong reputation in the specific product area.
The risk is that the product may be supplanted by an entirely new technology.
With market specialization, the firm concentrates on serving many needs of a particular customer group, such as by selling an assortment of products only to university laboratories.
The firm gains a strong reputation among this customer group and becomes a channel for additional products its members can use.
The risk is that the customer group may suffer budget cuts or shrink in size.
Single-Segment Concentration
With single-segment concentration, the firm markets to only one particular segment.
Through concentrated marketing, the firm gains deep knowledge of the segment’s needs and achieves a strong market presence. It also enjoys operating economies by specializing its production, distribution, and promotion. If it captures segment leadership, the firm can earn a high return on its investment
A niche is a more narrowly defined customer group seeking a distinctive mix of benefits within a segment.
Marketers usually identify niches by dividing a segment into subsegments. What does an attractive niche look like? Niche customers have a distinct set of needs; they will pay a premium to the firm that best satisfies them; the niche is fairly small but has size, profit, and growth potential and is unlikely to attract many competitors; and it gains certain economies through specialization. As marketing efficiency increases, niches that seemed too small may be-come more profitable.
Individual Marketing
The ultimate level of segmentation leads to “segments of one,” “customized marketing,” or “one-to-one marketing.”
As companies have grown proficient at gathering information about individual customers and business partners and as their factories are being designed more flexibly, they have increased their ability to individualize market offerings, messages, and media.
Mass customization is the ability of a company to meet each customer’s requirements—to prepare on a mass basis individually designed products, services, programs, and communications.
One-to-one marketing is not for every company. It works best for firms that normally collect a great deal of individual customer information and carry a lot of products that can be cross-sold, need periodic replacement or upgrading, and offer high value.
For others, the required investment in information collection, hardware, and software may exceed the payout. The cost of goods is raised beyond what the customer is willing to pay.
The advent of online commerce, made possible by technology and epitomized by Amazon.com, eBay, iTunes, and Netflix, has led to a shift in consumer buying patterns, according to Chris Anderson, author of The Long Tail.
In most markets, the distribution of product sales conforms to a curve weighted heavily to one side—the “head”—where the bulk of sales are generated by a few products.
The curve falls rapidly toward zero and hovers just above it far along the X-axis—the “long tail”—where the vast majority of products generate very little sales. The mass market traditionally focused on generating “hit” products that occupy the head.
Anderson says the Internet is shifting demand “down the tail, from hits to niches” in a number of product categories including music, books, clothing, and movies. His theory is based on three premises:
- Lower distribution costs make it economically easier to sell products without precise demand predictions;
- the more products available for sale, the greater the likelihood of tapping into latent demand for niche tastes unreachable through traditional retail channels; and
- if enough niche tastes are aggregated, a big new market can result.
Although some research supports this theory, other research finds very low share products may be so obscure that they disappear before they can be purchased frequently enough to justify their existence. For companies selling physical products, inventory, stocking, and handling costs can outweigh any financial benefits of such products.
Legal and Ethical Issues with Market Targets
Marketers must target carefully to avoid consumer backlash. Some consumers resist being labeled. Market targeting also can generate public controversy when marketers take unfair advantage of vulnerable groups (such as children) or disadvantaged groups (such as inner-city residents) or when they promote potentially harmful products.
A key area of concern for many consumer protection advocates today is the millions of kids who are online.
Not all attempts to target children, minorities, or other special segments draw criticism.
Colgate-Palmolive’s Colgate Junior toothpaste has special features designed to get children to brush longer and more often. Thus, the issue is not who is targeted, but how and for what purpose. Socially responsible marketing calls for targeting that serves not only the company’s interests but also the interests of those targeted.
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