Levels of market segmentation


The starting point for discussing segmentation is mass marketing. In mass marketing, the seller engages in the mass production, mass distribution, and mass promotion of one product for all buyers.

Henry Ford epitomized this strategy when he offered the Model-T Ford in one color, black, Coca-Cola also practiced mass marketing when is sold only one kind of Coke in a 6.5-once bottle.

The argument for mass marketing is that it creates the largest potential market, which leads to the lowest costs, which in turn can lead to lower prices or higher margins. However, many critics point to the increasing splintering of the market, which makes mass marketing more difficult.

The proliferation of advertising media and distribution channels is making it difficult and increasingly expensive to reach a mass audience. Some claim that mass marketing is dying. Most companies are turning to micromarketing at one of four level segments, niches, local areas, and individual.

Segment Marketing:

A market segment consists of a group of customers who share a similar set of needs and wants. Thus we distinguish between car buyers who are primarily seeking low cost basic transportation, those seeking a luxurious driving experience, and those seeking driving thrills and performance. We must be careful not to confuse a segment and a sector. A car company might say that it will target young, middle-income car buyers. The problem is that young, middle-income car buyers will differ about what they want in a car. Some will want a low-cost car and others will want an expensive car. Young, middle-income car buyers are a sector, not a segment.

The marketer does not create the segments; the marketer’s task is to identify the segments and decide which one(s) to target. Segment marketing offers key benefits over mass marketing. The company can presumably better design, price, disclose and deliver the product or service to satisfy the target market. The company also can fine-tune the marketing program and activities to better reflect competitors’ marketing.

However, even segment is partly a fiction, in that not everyone wants exactly the same thing. Anderson and Narus have urged marketers to present flexible market offerings to all members of a segment.

A flexible market offering consists of two parts: a naked solution containing the product and service elements that all segment members prefer and discretionary option that some segment members like. Each option might carry an additional charge.

For example, Delta Airlines offers all economy passengers a seat and soft drinks. It charges economy passengers extra for alcoholic beverages. Siemens Electrical Apparatus Division sells metal-clad boxes to small manufacturers whose price includes free delivery and a warranty, but also offers installation, tests, and communication peripherals as extra-cost options.

Market segments can be defined in many different ways. One way to carve up a market is to identify preference segment. Suppose ice cream buyers are asked how much they value sweetness and creaminess as two product attributes. Three different patterns can emerge.

1. Homogeneous preferences—A market where all the consumers have roughly the same preferences. The market shows no natural segment. We would predict that existing brands would be similar and cluster around the middle of the scale in both sweetness and creaminess.

2. Diffused preferences — at the other extreme, consumer preferences may be scattered throughout the space, indicating that consumers vary greatly in their preferences. The first brand to enter the market is likely to position itself to appeal to the most people. A second competitor could locate next to the first brand and fight for market share, or it could locate in a corner to attract a customer group that was not satisfied with the center brand. If several brands are in the market, they are likely to position themselves throughout the space and show real differences to match differences in consumer preference.

3. Clustered preferences—Market might reveal distinct preference clusters, called natural market segments. The first firm in this market has three options. It might position in the center, hoping to appeal to all groups. It might position in the largest market segment (concentrated marketing). It might develop several brands, each positioned in a different segment. If the first firm developed only one brand, competitors would enter and introduce brands in the other segments.