Exploring the Construct of Segmentation Effectiveness

Exploring the Construct of Segmentation Effectiveness

1. Smith, 1956. Proposed market segmentation as an alternative to mass marketing

   • In place of mass markets, goods would "find their markets of maximum potential as a result of recognition of differences in the requirements of market segments".

2. Importance of international market segmentation

   • Due to economic and political worldwide developments as manifiested in an accelerating trend towards global market convergence and within-country fragmentation of consumer needs
   • Literature on international market segmentation is frequently conceptual or normative in nature. ¿How segmentation should be conducted?

3. Literature background

   • Market segmentation: Process of subdividing a market into distinct subsets of customers that behave in the same way or have similar needs.
     • Central tenet: recognizing user´s differences leads to an increased understanding of customer needs and decision criteria, subsequently helps to match better consumer requirements with the company´s product or service.
   • Market segment: A group of present or potential customers with some common characteristic which is relevant in explaining their reponse to a supplier´s marketing stimuli.
   • International context: Firms operating internationally face markets that are more diverse than domestic markets.
     • Identify homogeneus segments that trascend national boundaries (or cultural groups) based on:
       • Determining similarities across national borders
       • Assessing domestic differences existing within a country
   • Segmentation process
     • ->>> Market definition ->> Segmentation base selection ->> Segmentation method decision ->> Segment formation and profiling ->> Evaluation ->>Final selection of target segments
     • Different bases (variables)
       • Geographic, demographic, psychographic, behavioural
     • Methodologies
       • Cluster analisys, factor analisys, mixture models

4. Segmentation effectiveness

   • Conceptualization through the "Goal model" in which marketing effectiveness= the marketing organization´s ability to attain its intended goals
     • Managers are assumed to have a number of objectives in mind that reflect the various benefits that a company can reap by using a segmentation strategy. Potential benefits:
       • Identifying differences and similarities among sutomers (customer market differentiation)
       • Better understanding customer needs and characteristics
       • Improve customer relationship management
       • Identify new market opportunities (cutomer potencials/niches)
       • Market development
       • Better planning
       • Benefits of standarization
       • Better resource allocation
       • More precise setting of marketing objectives
       • Product development
       • Better insights into competitive situation
     • In conceptualizing it is very important to identify different dimensions (later evaluated and linked to theintended benefits of segmentation).
       • Taken together literature insights + findings from depth interviews = four broad areas/dimensions
         • Targeting performance
           • Made up of those elements which focus on matching company offerings and mkt programmes to the needs of specific customer groups
             • Tailor-making products to cutomer needs
             • Offering better products
             • Better customer targeting
             • High customer retention
             • Tailor-making mkt programmes
         • Positioning performance
           • Represented by those elements which aim at successfully placing and communicating a postition of the firm and its offerings in the mind of the consumers, which is superior to competitors and their offers
             • Better positioning
             • Supporting a global brand image
             • Increasing brand awareness
         • Cost reductions
           • Represented by those elements of segmentation effectiveness that relate to savings that can be achieved because segmentation practices have been carried out
             • Reduction of marketing mix costs
             • Determining the extent of standardization
             • Reducing costs of serving international consumer segments
             • Better meeting budget constraints
         • Increase adaptability to environmental changes
           • Comprises elements associated with anticipating and eacting to changes and opportunities in consumer preferences and the company envronment (for instance in terms of competitor´s actions).
             • Better reaction to environmental changes/competitor´s actions
             • Cross selling and add-on services

5. The impact of any particular strategy (including segmentation decisions) on the performance of a firm is difficult to isolate with traditional bottom-line measures (market share/net profit) because the success of any given strategy will depend on:

   • The choice of strategy
   • The firm´s ability to implement the strategy
   • Issues like: the firm´s market position, product quality or industry structure

6. The notion of segmentation effectiveness has received relatively little attention in the literature

   • Besides this findings it is important to consider for future research the contextual influences (organizational, managerial, environmental) impacting on firm´s segmentation practices.