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Strategic Use of Target Market Segmentation

Market Segmentation Is Most Effective in Fast Changing Markets

By

a stack of Greek dice

Don't Gamble On Consumer Choice - Build Scientific Segmentation Strategies

Courtesy, Chrissi Nerantzi, Photographer. © February 15, 2005 Stock.xchng

Target market segmentation was custom made for fast changing market environments. When market changes are fast and loose, the possibility of niche market formation is enhanced. In today’s competitive markets, addressing the distinct needs of niche markets can be the path to an enviable market position. The idea of providing services to only one niche market can give way to select portfolio of market segments. The capacity of a company to build a valuable portfolio of targeted segments is largely dependent on its ability to generate flexible, fluid, and fast segmentation strategies.

As with any research, posing questions early in the research process is a best practice. Five important and related questions define market segmentation research. The questions are as follows: (1)Does it make sense to segment the market under consideration? (2) How can the market best be segmented? (3) What segments emerge and which segments will be targeted? (4) What is the best configuration for allocating resources to the target segments? (5) Is the segmentation strategy selected implementable? (Wind & Thomas, 1994).

What Managerial Guidelines Are Available for Segmentation Decisions?

Market segmentation is based on business strategy. Strategic target market segmentation:

  • Marketing Resources Variables: These factors are derived from the marketing mix variables and the marketing plan. Marketing resources variables are familiar to many marketers as the Four “Ps” – Price, Product, Place (distribution), and Promotion.
  • Marketing Segmentation Variables: The attributes that are used to describe, characterize, and group potential consumers with a targeted market are the segmentation variables. Within this variable set are the many attributes of consumers that must be sorted and weighted to begin the process of establishing a consumer “type” which will be further refined into a consumer profile. This set of variables will be considered in light of the marketing resource variables in the process of honing in on the key drivers of segmentation.
  • Market Response Variables: These factors define the collections of attributes that are the basis for assigning potential consumers into relatively homogeneous groups. Consumer portraits or profiles are based on an analysis of these market response variables.

Within the marketing, advertising, and publishing arenas, creative approaches to target market identification can help to establish a competitive advantage. The Blue Ocean strategic approach is an excellent example of this phenomenon. Not only is the Blue Oceanapproach itself creative, but its premise is that a novel, creative approach to enterprise value-add is the way to extraordinary competitive advantage..

What Are the Research Approaches for Conducting Market Segmentation?

Market segmentation decisions can be difficult. Taking a multistage approach can help to clarify the decision-making process. It is useful to frame market segments in terms of macrosegments and microsegments.

In an article in The New York Times titled Psst, You in Aisle 5, Charles Duhigg tells the story of how market research scientists tackled the market segmentation challenge that they faced with their product, Frebreze. The market researchers realized that the target macrosegment for Frebreze was really two microsegments. One microsegment consisted of people who tended not to detect unpleasant aromas in their own homes. The second microsegment consisted of people who were a bit on the overachieving end of their housekeeping duties. For this second microsegment, the market researchers found it effective to embed the use of Frebreze in a psychologically significant way – the ritual spraying of Frebreze as a final act of celebration when the act of cleaning a room was completed.

The assessment and implementation of creative segmentation strategies requires coordinated effort, and this is more than a nod to the fifth "P" (People) in the new model of marketing mix that argues for Five "Ps." A strategic segmentation plan will need to include consideration of the best ways to implement given the classic challenges presented by a group of stakeholders that may have competing interests. McKinsey & Co. has contributed seven “Ss” to the strategy literature. They are as follows: Strategy, structure, systems, shared values, skills, staff, and style (Peters & Waterman, 1982). A carefully designed implementation plan can be as important to the development of a strategic market segmentation plan as the research considerations outlined in here.

Sources:

Peters, T; J. and Waterman, R. H., Jr. (1982). In Search of Excellence: Lessons From America's Best Run Companies. New York, NY: Harper & Row.

Wind, Y. and Thomas, R. J. (1994). Segmenting industrial markets. Advances in Business Marketing and Purchasing, 6, 59-82. ISBN 1-5538-735-1

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