Other topics

Share this topic

In this topic

In this video, Professor McDonald demystifies this most difficult of marketing processes. Market segmentation is without doubt the very foundation of successful marketing, yet in spite of over fifty years of research, there is still much confusion about the organisational level at which it should be implemented, the processes to be used and how it should be implemented. This is really a MUST for all involved in marketing practitioners, students and academics. Watch it, do it and benefit from it.

Course expert

Market segmentation is a fundamental concept in marketing that influences the whole marketing process. Despite its importance though, cases of poor marketing segmentation are encountered frequently and represent the reason why many new launched products fail. Why these things still happen despite many years of experience and research? First of all, the criteria that we use for market segmentation such as social and economic factors or demographics are not very efficient for a precise differentiation. Successful segmentation comes from a detailed understanding of the market so if customers are treated as a homogenous group and the same service or product is offered to all clients without identifying their differing needs and behaviour, the results will be far from the ones expected.

Considering any product just a commodity without adding value or other means of differentiation is a huge mistake marketers make even when this applies to raw material like fertilizer as the next video presents us. One of the main causes of the commodity trap is the belief that people take only price into account when it comes to choosing between similar products. The reality tells us exactly the opposite, people actually choose according to their needs. In terms of market segmentation, only 10% of the people on the market decide to buy a product by considering only its price, the other large segments of people usually choose a product based on its general appearance or its technological advantages.

The market segmentation process should ideally stand at the beginning of the marketing process not at the end of it as it usually happens. Key elements of world class marketing include the profound understanding of the market place and the creative segmentation and selection of the market as being the most important ones. How our market works, what is our position on the market against the competitors, what are the segments of the market; these are all questions we should answer first before developing a brand strategy. The market segmentation process has three major stages: mapping the market, establishing customers and transactions and segmenting the market. As we can see in the video, market mapping helps us determine the groups of customers that have similar needs and preferences and elaborate the distribution chain between suppliers and final consumers by marking transactional stages as junctions and finally identify those junctions where market segmentation should occur. Stage two and three imply further development of micro-segments by taking into account what people buy, where do they buy it from, when do they buy it, thus identifying key discriminating features that customers consider when choosing between products. Who buys these products is also an important question and helps us outline the profile of buyers. At the end, we have to make sure the identified segments are sufficiently large and sufficiently differentiated in order to become necessary to develop different products.

Product life cycle describes the stages that a product goes through from the moment it is launched into the market until it eventually declines and it is withdrawn. This material presents the research done by Everett Rogers on new products and how they get adopted over time. We start with the moment of launch when there is a percent of consumers in every market that Everett Rogers calls innovators. These are individuals with high financial backgrounds which gives them the opportunity to take risks. Also, they are in close contact with technological resources and other innovators, a fact that exposes them to a product in its initial phase on the market. This category can be ignored because they tend to be off the map, they generally buy anything just because it is new. The next category is represented by early adopters- totally independent, high educated individuals who are opinion leaders and usually the first to adopt new products or services whether it is technology, sports or fashion. They are the ones who give a market credibility so usually when a product curve reaches a high percent on this particular group, the following stages of product life cycle happen automatically. That is when the early majority group plays an important part. They are also well educated and financially stable individuals who eventually follow early adopters after a varying degree of time and sustain the growth of the market. As we move on, fewer new people will come into the market so the growth rate will start to decline and finally the product reaches to the late majority that is a lower economic group for which price tends to be important. These are individuals with a lower status and lower financial means and are usually skeptical about innovation and change. Finally, the last to adopt a new product are laggards. These individuals are usually more advanced in age and have an aversion to change, being more focused on traditional values and products.The most important conclusion of this analysis is the fact that usually when launching a new product, companies tend to focus their efforts across the whole market when it is obvious that certain segments of it are not ready yet to use this product and therefore will show no interest in it. The group they should focus most of their efforts on is represented by the early adopters or the opinion leaders, using different strategies to draw the profile of these early buyers. This way we could better control the product life cycle and influence its course.

Continuing with product life cycle, the video presents the main development phases of a product. First of all we have the technological base which is necessary to create and develop the product. Then, there is usually more demand than supply so production plays an important part. Rapid growth leads to increase in sales until we reach a point when there is more supply than demand and margins start going down and so ratio measures are applied by accounting departments such as reduction of selling and advertising costs. Next on the list are fads which are temporary manners of conduct and strategie that ultimately fail if they do not correlate with efficient market segmentation. Further examples are provided by positioning different brand of cars on specific segments of the market. Companies that are located in the middle market and reach the point of maturity usually start dropping their price which is not a successful strategy.

We cannot have a corporate strategy if we don’t understand the market and its segments. Market segmentation provides a structure for the defined market which clearly identifies the different requirements that customers need to be satisfied because not all customers in a broadly defined market have the same needs. Taking into account these different requirements, alternative strategies can be developed to better access these segments and to position the product to the right segment. As we have seen in the previous videos, market segmentation has a few steps. First of all we need to establish the market scope, to define and size the market we want to segment. The second step is market mapping which means determining how the market works and who the decision makers are. From the product life cycle experience, segmentation starts when the product reaches early majority. Further on, a representative sample of decision makers can be identified, based on differences perceived as key and afterwards these segments can be sized. Once we understand their real need (why they buy and what benefits they seek) we can search for groups with similar needs and offer them the product that corresponds to their needs.

Back to top