Wednesday, 10 August 2011

Understanding Market Segmentation

Perhaps the most important marketing decision a firm makes is the selection of one or more market segments on which to focus. A market segment is a portion of larger market whose needs differ somewhat from the larger market.
Since a market segment has unique needs, a firm that develops a total product focused solely on the needs of that segment will be able to meet the segment's desires better than a firm whose produce or service attempts to meet the needs of multiple segments.

To be viable, a segment must be large enough to be served profitably. To some extent, each individual or household has unique needs for most products. The smaller the segment, the closer the total product can be to that segment's desires. Historically, the smaller the segment, the more it costs to serve the segment. Thus, a tailor-made suit costs more than a mass-produced suit.

However, flexible manufacturing and customized media are making it increasingly cost effective to develop products and communications for small segments or even individual consumers.

Market Segmentation is the process of dividing a large and heterogeneous market into relatively homogenous segments that can be reached with a distinct marketing mix. For example, an aircraft firm may segment its market into commercial, military and private markets/customers. Mobile phone users are divided into" low-end, middle and high-end users.

Segmentation offers:
  • A better understanding of customers.
  • A better understanding of competitors.
  • More effective targeting of resources.
Market Aggregation is the opposite of market segmentation. Market aggregation is the strategy where by an organization treats its total market as a whole. The firm then develops a Single marketing mix to reach as many customers as possible in the aggregate market.

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