A

REPORT

ON

“SEGMENTATION STRATEGIES”

By

AMIT RAMPURE (5)

ABHSHEK GOYAL (22)

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Index

1. Introduction………………………………..………………03

2. 3-STEP Process………………………………….…..…...04

3. Types of strategies …………………………………..…05

4. Selecting strategy……………………………………….09

5. Major benefits………………………………………….…18

6. Bibliography……………………..………………………...33

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1. INTRODUCTION

To compete successfully in today’s volatile and competitive business markets, mass marketing is no longer a viable option for most companies. Marketers must attack niche markets that exhibit unique needs & wants. Market segmentation is the process of partitioning markets into groups of potential customers with similar needs or characteristics who are likely to exhibit similar purchase behavior.

The overall objective of using a market segmentation strategy is to improve your company’s competitive position and better serve the needs of your customers. Some specific objectives may include increased sales, improved market share and enhanced image.

A Strategy is a special kind of plan formulated in order to meet the challenges of the policies of competition.

Segmentation outlines the company’s opportunities, but target marketing is where the marketing manager makes his or her money. Turning the segmentation opportunities into real markets is the focus of developing new strategies. Strategies for evaluating and focusing the market segments are the various levels of targeting: undifferentiated or mass marketing; differentiated marketing; concentrated marketing; and micromarketing.

Choosing the target marketing strategy is described as dependent on many variables, such as company resources, how variable the product is, and the stage of the product life cycle etc.

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2. 3-STEP PROCESS

A three-step process is used to develop a market segmentation strategy:

Segment Identification — determining a given number of homogeneous market segments based on selected segmentation variables and criteria. Segments should be customer-focused, a justifiable size, distinguishable, accessible, accountable & profitable.

Market Selection — selecting one or more groups to target for marketing activity. It is impossible to pursue every market opportunity so you must make strategic choices based on customer needs, competitive opportunities, corporate objectives, and your firm’s financial, technical & marketing resources.

Positioning— carving out a market niche for your firm. This may be accomplished by searching out unique marketing advantages, seeking new market segments that competitors are not cultivating, or developing new approaches to old problems. Your positioning should be based on a real (e.g., lower cost, superior quality) or intangible (e.g., company reputation) competitive advantage.

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3. TYPES OF STRATEGIES

There are Four major types of strategies:

1. Undifferentiated(Mass)2. Differentiated (Multi-segment)3. Concentration (Niche)4. Product differentiated/Customized

1. UNDIFFERENCIATED STRATEGY

Sometimes referred to as mass marketing the firm may decide to aim its resources at the entire market with one particular product. a firm might decide to ignore market segment differences and target the whole market with one offer. This strategy focuses on what is common in the needs of consumers, rather than on what is different.

Coca Colas original marketing strategy was based on this form. One product aimed at the mass market in the hope that a sufficient amount of buyers would be attracted., although there are now changes in their product line to cater for growing dietary and caffeine free needs of consumers.

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ADVANTAGES

Economies in production and marketing. Due to focus on large mass segment, the production is in large scale which the lower cost. And the marketing expenses will be much lower as compared to the more segments. There will be only one marketing unit with people having specialize knowledge of consumers in segment.

Appealing to Everybody. The products are developed which will appeals to broad spectrum of people. This increases the consumer base. The concentration on development of only one product as well as marketing of same is much higher.

DISADVANTAGES

× Threat from Strong Competitor. The entry of strong competitor or the competitor with different range of products may hamper the business. Therefore , the vulnerability to competitors offering more differentiated products and services to market sub segments.

× Consumers with variable needs and wants. This strategy is effective when most consumers have similar needs and wants. This is practically difficult. The product which will satisfy or even attract complete market is difficult.

× One market mix to serve complete market is difficult, therefore it is difficult to find precise market mix. This is inefficient method as to serve the complete market.

M

MM

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2. DIFFERENCIATED STRATEGY

Using differentiated or segmented marketing, a firm decides to target several market segments and designs separate offers for each. Companies hope for higher sales and a stronger position within each market segment. This could yield more total sales than undifferentiated marketing across all segments. Differentiated marketing can also increase costs, however. So, companies must weigh increased sales against increased costs when deciding on a differentiated marketing strategy.

This strategy is appropriate when consumers are choosing among well-known brands with distinctive images and it is possible to identify one or more segments with distinct needs for different types of products

An example of this would be airline companies offering first, business (segment 1) or economy class tickets (segment 2) , with separate marketing programmes to attract the different groups.

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ADVANTAGES

Minimizes risks, as losses in one segment can be made up for in others.

The Precision and efficiency of this technique is much higher as it concentrate on small segments. The company can serve the segments more efficiently.

Unique marketing mix features allow for higher prices. The Focus on each segment is mush higher , therefore the customer needs and wants are taken care which will allow to get higher price.

DISADVANTAGES

Increased costs for differentiated products and marketing. The cost of manufacturing different range of products is much higher as compared to one product. The Marketing mix varies as per segment; which demands much more higher expenses as compared to single segment.

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M2M1

M3

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3. CONCENTRATED STRATEGIES

Where the organization concentrates its marketing effort on one particular segment. The firm will develop a product that caters for the needs of that particular group.

Concentrated or niche marketing is especially appealing when a company has limited resources. Instead of going after a small share of a large market, the firm goes after a large share of one or a few segments or niches. Niches are smaller than segments and may attract only one or a few competitors. A company can market more effectively by fine-tuning its products, prices, and programs to the needs of carefully defined segments.

For example Rolls Royce cars aim its vehicles at the premium segment, same as Harrods within the UK.

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ADVANTAGES

When small firm’s have limited resources , they can concentrate more on one segment. And can serve the customers more effectively.

As focus is on one single segment; the precise knowledge of supply and demand increases efficiency of organization.

Knowledge of consumers regarding their need and wants is much more reliable. The needs are specified and therefore it is easy to satisfy them and retain them for longer period.

cost of production is much lower, with high profitably. the efficiency of production is much higher.

DISADVANTAGES

× Focus on one sub-market, is much more risky-if any competitor comes with a different and better products then it will become difficult to retain the customer.

× If there is significant change in size or tastes of the segment, then it will lead to losing the complete business.

CONCENTRATED SEGMENT

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5. PRODCUT DIFFRENCIATED/CUSTOMIZED STRATEGY

Segments are so precisely defined that products are offered to exactly meet

the needs of each individual. Mass customization is a related approach in which a

company modifies a basic good to meet the needs of an individual.

Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of specific individuals and locations. It includes local marketing and individual marketing.

Local marketing entails tailoring brands and promotions to the needs and wants of local customer groups—cities, neighborhoods, and even specific stores. The drawbacks include that it can drive up manufacturing and marketing costs, and create logistics problems as companies try to meet the varied requirements of the different markets. A brand’s image may also be diluted and the message could vary too much. But, local marketing does help a company market more effectively to different segments.

individual marketing in the extreme—tailoring products and marketing programs to the needs and preferences of individual customers. Mass customization is the process through which firms interact one-on-one with masses of customers to design

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products and services made specifically to individual needs. The move towards individual marketing mirrors the trend in consumer self-marketing, in which consumers take more responsibility for determining what to buy.

ADVANAGES

Increases Customer base. Focus on all segments increases customer base which gives company an opportunity to attract the more customers. And in turn to increase the revenue of company.

Product diversification. The more number of products with different features increases chances of attracting customers as every customer have different need and wants. It also provides the customer no. of choices.

High Profits. The company focuses more on different products. The company can achieve the higher profits and also losses will be compensated by different products.

DISADVANTAGES

× Cost Economies. The cost of production and marketing is much higher as there is range of products.

× Resources required are much higher as compared to one product strategy.

× Duplication of activities. Resources and activities are duplicated as per different products. There are different marketing forces are required which will concentrates on the products and have the required knowledge of products.

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PRODUCT2PRODUCT1

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5. SELECTING STRATEGY

The selection of strategy is much more difficult and can not be same for the all firms. Depending on situations, segments, the customer behavior, size of firm etc the strategy should be selected. Majority of times the strategy will differ form firm to firm and will combine the different strategy with different degree of implementation.

Determinants for selecting Market Specific strategy

Company resources Which strategy to employ depends on company resources. The resources will define which segmentation strategy should be selected and implemented. Company's resources will always defines scope of operation of the firm. The number of customers company could satisfy with the available range of products is decided by the resources. When the firm’s resources are limited, concentrated marketing makes sense.

Product homogeneity/variability

In case of homogeneous products there is no as such need for concentrating on one segment. The undifferentiated strategy is good to choose. Undifferentiated marketing makes sense when product variability is low, such as in steel.

Stages of Product Life cycle

Market segmentation proves meaningless in the first and last stages of a products life cycle i.e. introduction and decline stages, it becomes necessary in other stages i.e. in growth and maturity stages.

Competitor's strategy.

It becomes necessary to fall in line with the activity of the competitor with regard to segmentation, for example it is difficult for an organizations be successful through undifferentiated marketing when competitors practicing active segmentation.

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Nature of Market

Segmentation becomes necessary when customers preference vary form group to group and not so when the market is of homogeneous nature.

6. MAJOR BENEFITS

• Designing responsive products to meet the needs of the marketplace.

• Developing effective and cost-efficient promotional tactics & campaigns.

• Gauging your company’s market position — how your company is perceived by its customers and potential customers relative to the competition.

• Fine-tuning current marketing strategies

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7. BIBILOGRAPHY

1. Basics of marketing by Dr. P.C. Pardesi.2. www.learnmarketing.net/targeting.htm3. www.atkinson.yorku.ca/~lripley/imUsegment.htm

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