Market Segmentation

In order to better manage the marketing effort and to satisfy the needs and wants of customers, many firms place consumers into groups, a process called market segmentation. In this process, potential customers are categorized based on different needs, characteristics, or behaviors. Market segments are evaluated as to their attractiveness or potential for generating revenue for the firm. Four factors are generally reviewed to determine the potential of a particular market segment. Effective segments are measurable, accessible, substantial, and actionable. Measurability is the degree to which a market segment's size and purchasing power can be measured. Accessibility refers to the degree to which a market segment can be reached and served. Substantiality refers to the size of the segment in term of profitability for the firm. Action ability refers to the degree to which a firm can design or develop a product to serve a particular market segment.
Consumer characteristics are used to segment markets into workable groups. Common characteristics used for consumer categorizations include demographic, geographic, psychographic, and behavioral segmentation. Demographic segmentation categorizes consumers based on such characteristics as age, gender, income level, and occupation. It is one of the most popular methods of segmenting potential customers because it makes it relatively easy to identify potential customers. Categorizing consumers according to their locations is called geographic segmentation. Consumers can be segmented geographically according to the nations, states, regions, cities, or neighborhoods in which they live, shop, and/or work. Psychographic segmentation uses consumers' activities, interests, and opinions to sort them into groups. Social class, lifestyle, or personality characteristics are psychographic variables used to categorize consumers into different groups. In behavioral segmentation, marketers divide consumers into groups based on their knowledge, attitudes, uses, or responses to a product.
Once the potential market has been segmented, firms need to station their products relative to similar products of other producers, a process called product positioning. Market positioning is the process of arranging a product so as to engage the minds of target consumers. Firm managers position their products in such a way as to distinguish it from those of competitors in order to gain a competitive advantage in the marketplace. The position of a product in the marketplace must be clear, distinctive, and desirable relative to those of its competitors in order for it to be effective.
Coverage Strategies
There are three basic market-coverage strategies used by marketing managers: undifferentiated, differentiated, and concentrated. An undifferentiated marketing strategy occurs when a firm focuses on the common needs of consumers rather than their different needs. When using this strategy, producers design products to appeal to the largest number of potential buyers. The benefit of an undifferentiated strategy is that it is cost-effective because a narrow product focus results in lower production, inventory, and transportation costs. A firm using a differentiated strategy makes a conscious decision to divide and target several different market segments, with a different product geared to each segment. Thus, a different marketing plan is needed for each segment in order to maximize sales and, as a result, increase firm profits. With a differentiated marketing strategy, firms create more total sales because of broader appeal across market segments and stronger position within each segment. The last market coverage strategy is known as the concentrated marketing strategy. The concentrated strategy, which aims to serve a large share of one or a very few markets, is best suited for firms with limited resources. This approach allows firms to obtain a much stronger position in the segments it targets because of the greater emphasis on these targeted segments. This greater emphasis ultimately leads to a better understanding of the needs of the targeted segments.