2023-01-27 | 437 Print PDF
Before we discuss the types of market segmentation I would like us to touch on the market analysis used to build marketing strategies, in which we have market segmentation as part of the marketing process. Now, for a business to strive against its competition in the market, there is a need to execute market analysis that focuses on the internal and external environmental factors, but in all determine the conducive market environment for a business one must execute a practical market analysis as a fundamental input to the process of strategy formulation and strategic decision making.
This is because the nature and behavior of markets determine or constrain both the choice of strategies and the means by which they are to be implemented. The market analysis process comprises market research, the assessment of business risk sales and market forecasting, and the study of consumer and buyer behavior with market segmentation.
PORTER‘S FIVE FORCES MODEL FOR INDUSTRY ANALYSIS.
Harvard professor Michael E. Porter propelled the concept of industry environment into the foreground of strategic thought and business planning. The cornerstone of Porter‘s work first appeared in the Harvard Business Review, in which he explains the five forces that shape competition in an industry. Porter‘s well-defined analytic framework helps strategic managers to link remote factors to their effects on a firm‘s industry environment.
To know a market implies segmenting that market. In marketing, Market segmentation can be defined as the analysis of a particular market demand into its constituent parts, so that sets of buyers can be differentiated and targeted. Having carried out the process of market analysis described immediately above, the enterprise can segment and analyze its target markets.
It will use the results of its market research, the analysis of consumer or buyer behavior, and the forecasts it has made in order to produce detailed descriptions of its chosen market components and their likely behavior over the planning period in view.
This means identifying the characteristics of different sets of buyers within the market. These sets of consumers or buyers need to be differentiated so that:
What then follows is that the enterprise needs to choose a method of segmenting the market that most effectively allows it to understand the market and its customer needs.
Usually, there are two main sets of criteria by which a market can be segmented or analyzed. If we don‘t segment the market, we will not be able to target a particular group of people. These two criteria are (i) the characteristics of the consumer or user; and (ii) product or benefit segmentation. Each is analyzed below, based on the analysis of Morder (2007):
Consumer or user characteristics - customer segments are differentiated by such criteria as:
• geographic distribution or location.
• consumption or usage rate.
• customer size.
• industry classification
Product or benefit segmentation - this focuses on how consumers or buyers themselves perceive, differentiate, and group together the available products or services.
This technique is used where people:
• seek the benefits that the product provides, rather than the product itself (e.g. analgesics or proprietary pain-killers for the relief of headaches or pain); or
• consider the available alternatives from the viewpoint (i) of the usage context with which they have experience, or (ii) of the specific application that they are considering. For instance, business travel may be looked at primarily in terms of convenience, speed, and frequency of service. This may imply frequent high-speed rail or air-shuttle services in which ticket price is a secondary consideration.
Recommended Read: How to Use Market Segmentation in Target Marketing.
Product or benefit segments can be differentiated by such criteria as:- the principal benefit sought within the perceived usage context. vendor requirements, that is the usage requirements of the customers of the organization being supplied. contribution per unit of limiting factor, such as square meters of retail floor space.
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