Text 4. The Process of Segmentation

The first step in this process is to conduct research which analyses the market in order to identify groups of buyers within the overall market who share similar needs and have certain behavioral characteristics in common, which distinguish them from other groups of customers.

Once these groups of buyers or market segments have been isolated, firms can then decide which segments are likely to contain the most buyers, or the most profitable buyers (who may well be quite a small segment), for their pro­ducts or services. It is important to remember that the concept of market segmentation is equally applicable to companies providing services. For exam­ple, British Airways now treats each class of travel in the same way as manufac­turing companies treat their products. In recent years, British Airways has redesigned its Concorde, First Class, Club, Business, Shuttle and Economy Class services to cater for different groups of customers.

Identifying market segments enables firms to establish the position of their products or services in the market relative to those of competitors. For example, The Sun has a different market positioning to The Guardian. Kwik-Save ‘no nonsense’ food stores are clearly positioned further 'down-market' than Sainsbury's or Tesco. In the personal toiletries market, the Body Shop occupies a very different positioning to Boots.

The analysis could also reveal a segment of potential buyers with needs which are not being catered for as yet by products or services currently on the market. The success of Golden Wonder's entry into the UK crisp market in 1960 pro­vides a classic example. Whereas Smiths had traditionally sold crisps through pubs and therefore mainly to men, Golden Wonder identified an undeveloped market segment - housewives buying crisps through grocery shops for domes­tic consumption. By concentrating its marketing effort on this segment instead (promoting the image of crisps as a nourishing snack food in its television advertisements, using its sales force to persuade more grocery shops to stock crisps and so on), Golden Wonder was successful in penetrating the market. In the process it was responsible for the UK crisp market, worth £40 million in 1960, increasing to £80 million in just five years.

However, although it would present an ideal marketing opportunity, finding such an unexploited 'gap' in the market is becoming increasingly difficult. Nevertheless, it can still be done. The Next empire started from the standpoint that there was a dissatisfied consumer group too old for the boutique but not wild about moving on to Marks and Spencer.

Identifying the most potentially profitable segments means that the mar­keting effort can be aimed by means of a 'rifle shot' approach directly at the segments selected as worth pursuing. These segments are designated as the firm's target markets. This rifle-shot approach is far more effective in reaching buyers and is a less wasteful use of resources than the 'shotgun' approach which scatters the marketing effort across all buyers at random.

Within the car market there are various segments of buyers including those on a budget who buy small cars as well as those who buy family estate cars, company fleet cars, prestige executive cars and so on. A segmented marketing approach could be directed, for instance, at buyers of family estate cars and more specifically at buyers of family estate cars who want a car with a good safety record and even more specifically at such buyers who want a car with a low petrol consumption which is economic to run. This sort of detailed breakdown of the market allows very precise targeting.

However, there is a danger that markets which are segmented ever more finely will, in time, become subdivided to the point where companies may find it uneconomic to cater for such small segments. This fragmentation often occurs in crowded markets with many competitors who are all trying to dif­ferentiate their products or services from the rest.

Read text 5 and enumerate the advantages of segmentation.