Marketers may approach target markets in their aggregate and heterogeneous form or as smaller, more homogeneous segments. The following section will discuss these two alternatives.
A market aggregation strategy means, in effect, that little if any subdivision of the market is applied. With this approach, a firm would produce a single product and offer it to all consumers with a single marketing program. Although the marketer recognizes that not everyone will buy the product, a number sufficient for profitable operations are expected to be attracted. This approach has also been described as mass marketing, undifferentiated marketing, and product differentiation.
The reasoning behind market aggregation is that although consumers may differ, they are sufficiently alike to approach as a homogeneous group in for the product under consideration. Market aggregation, therefore, presents a standard product that differs little if any from competition, makes heavy use of mass promotion, and attempts to distinguish the product as being superior. By so doing it seeks to have demand conform to what manufacturers are willing to supply.
The stereotype of a single, homogeneous market is a fiction that no longer exists. The mass market became fragmented in the 1980s and is now dissolving into particles. Today’s marketplace is characterized as the age of diversity in which consumers demand and get tremendous variety in the products and services they buy – 300 different types of cars and light trucks, 400 brands of beer, and 21,000 products in the average supermarket. Firms are now employing a strategy of segmentation, viewing the market as being made up of small segments, each more homogeneous than the total in important characteristics. Market segmentation is the process of participating the heterogeneous market into segments. The various segments identified should be homogeneous within themselves, but heterogeneous without (i.e. different from other segments). The goal is to facilitate development of unique marketing programs that will be most effective for these specific segments.
Companies employing market segmentation typically select several market segments to appeal to with different products, using different promotional efforts and prices, and perhaps selling through different distribution outlets. Many companies fit this description, such as General Motors with its various car divisions and Procter & Gamble, which produces several brands of detergents to meet different consumers’ needs (at least as they are perceived by purchasers of these brands).
Benefits and Costs of market segmentation: Clearly, market segmentation conforms supply to what consumers demand. In addition, because the segments contain fewer and more similar consumer, the marketer is able to obtain more detailed knowledge about their characteristics.
The result of understanding and relating to an increasingly fragmented marketplace is termed “micromarketing”. It illustrates why General Motors ships more plain, midsized cars to New England more front wheel drive cars to the snow belt, more muscle cars to California and more cars with alarm systems to New York City. The company is savvy to the diverse needs of various consumer sub segments. So are the food companies. For example, Campbell Soup varies the recipes of its soups sent to different regions. Media also have adopted micromarketing. Among magazines, a marketer could select one for a region, a city, a hobby, an age group, or a combination, making the choices as diverse as the customers they serve.
Marketers have increasingly adopted database marketing techniques to reach this fragmented marketplace. Table offers advice on building an effective marketing database. Database marketing involves development of huge lists of names and addresses of potential customers who are then courted directly. They become customers, their buying patterns are tracked an their brand loyalty is strengthened with special offers ultimately converting the buyer to an enthusiastic salesperson for the company. Its success however is based on development of large, detailed, sophisticated databases containing market by market information that can be used to understand consumers and their purchases.
Although market segmentation produces benefits fro the firm, it also boosts costs. Typically, manufacturing costs can be higher because of shorter production runs: research costs are higher because of the need to investigate more segments, promotion cost are higher when quantity media discounts are lost; and overlapping market coverage may result in some “cannibalization” s one product steals sales from another in the same company’s line. Thus, market segmentation can result in greater sales for a company, but at higher costs. Of course, the goal is to increase revenue more than costs, thus raising profits.