Text 3.

Is Segmentation Necessary?

It was in the 1920s when Henry Ford made his famous statement that customers could have any color of car they wanted - as long as it was black. From Ford's point of view it probably seemed perfectly logical to dismiss customer preferences. This was the era when demand exceeded supply - his cars were being snapped up as fast as he could turn them out. Why, then, should he bother to offer customers any choice?

The assembly line method of mass production which he had pioneered in 1913 for the Model T Ford meant that production costs were lowered to the point where a car could be afforded by almost anyone - no longer just the very rich. In the space of the next two decades 15 million Model Ts were sold, creating one of the first mass market products.

Yet despite having the distinct early advantage of being the lowest cost pro­ducer, it was Henry Ford's unwillingness to offer anything other than one model in one colour which allowed the company to fall behind. Ford's domi­nant position as market leader was eventually overtaken by General Motors (GM), whose policy of providing 'A car for every purse and every purpose', was an early example of market segmentation.

GM had realized that customers have different needs and requirements and therefore want different benefits from a car. Their five models, starting from the basic Chevrolet to the top of the range Cadillac, offered a variety of styles, sizes and levels of luxury to suit a range of tastes and pockets.

Although this strategy made their cars more expensive it enabled GM to gain a market lead which has been maintained to this day. It also established the principle that companies which recognize and cater for different consumer needs will inevitably gain a competitive edge over rival firms who have not segmented their markets and who regard their customers as an identical mass.

Certainly today all car manufacturers cater for consumer wishes to an extent that Henry Ford could never have foreseen. Those buying a new car can choose from a wide range of models and decide not only the color but also the type of upholstery and whether to have sports wheels, power steering, anti-lock brakes, a sun roof and so on. With the help of sophisticated IT systems, Volvo can now offer something like 20 000 variations on its cars to suit the needs of different customers. At the 'luxury' end of the market some customers ordering a new Porsche have even been known to ask the paint-shop to match the color of their favorite lipstick!

Clearly, market demand no longer exceeds supply as it did when Henry Ford first brought out his Model T. The production orientation he demonstrated, where firms produce what they want to make, has been replaced by a marketing orientation where firms produce what customers want to buy. It follows from this that firms today recognize that it is unrealistic to presume that one product or service will be suitable for all customers as the groups of people which make up a market all have different needs.

In his book “The Third Wave”, Alvin Toffler has argued that the mass-market society created by the industrial revolution is splintering more and more into a 'de-massified' society. According to Toffler, the mass-market has split into ever-multiplying, ever-changing sets of mini-markets that demand a continually expanding range of options, models, types, sizes, colors and customizations'.

So who are these different groups? Certain easily recognized groups have, of course, always been given evocative, if rather imprecise, labels by the popular press. The YUPPIES (Young Urban Professionals) with their designer clothes, mobile phones and obligatory Filofax achieved almost cult status a while back. Since then, new groups such as the GREENS (conservationists) and GREYS (over fifties) have been recognized, not to mention DINKIES (Dual Income, No Kids), WOOPIES (Well Off Older People) and DUMPIES (Desperately Underfinanced Mortgage Paupers).

Though such labels might be a convenient shorthand in the advertising agency world, marketers generally define groups of buyers rather more precisely! Classifications can be based on demographic factors such as people's age, income and social class, and on the type of geographical area they live in. More recently, classifications have distinguished between the kind of lifestyle they lead and attitudes they hold. Increasingly, classifications based on a com­bination of these factors are being used to discriminate more finely between groups of consumers.

Read text 4 and explain the notions: market segments, market positioning, target market and market fragmentation.