Idea 33 - Market segmentation (50 Management ideas you really need to know)

Idea 33 -  Market segmentation

There's much blog-talk of the death of the mass market these days. In which case, it has been a long time a-dying. The mass media, cardiograms of the mass market, have been losing viewers and readers since the 1970s - at least in the US, where the mass market was invented. It's true, none the less, that a proliferation of new media has forced the pace of its decline in recent years. And the zoom factor of market segmentation, the opposite of mass marketing, has been closing in on individual consumers with the persistence of a spy satellite.
The mass market was created by American companies like Sears Roebuck, DuPont and General Electric, hand in hand with the march of the railroads and the telegraph. It grew rapidly between the 1880s and the 1920s. Mass marketing, on the other hand, only got into its stride from 1920 onwards with the spread of 'sound-receiving devices' - the radio. Television arrived shortly before the Second! World War and by the 1960s an advertiser could reach 80% of American women with a TV commercial aired simultaneously on ABC, CBS and NBC.
Early mass marketing was not subtle, but it was egalitarian. It beamed the same message and sold the same products to everyone. Segmentation, however, says that people are not all the same and have different needs and aspirations. That they also have different wallets was recognized by General Motors' Alfred P. Sloan as early as 1924, when he offered the public 'a car for every purse and purpose'. GM was pioneering segmentation, by income.
'Differing preferences' it was not until 1956 that Wendell Smith formalized this idea with an essay, 'Product differentiation and market segmentation as alternative marketing strategies', in the Journal of Marketing. He wrote: 'Market segmentation involves viewing a heterogeneous market as a number of smaller homogeneous markets, in response to differing preferences, attributable to the desires of consumers for more precise satisfaction of their varying wants.' Smith was head of market research at RCA, maker of radio and TV sets, so his interest was not entirely academic.

Segmentation has drilled down into many more layers of customer detail since Smith's time, as consumers have evolved from wanting what their neighbors had to wanting to be special. In 1963, William Lazar introduced the concept of 'lifestyles' to marketing, as a system of attitudes and values, opinions and interests - of either a group or an individual. In search of carefully defined and, it's hoped, suitably receptive customers, classic segmentation first divides the total market into consumer and industrial segments. The consumer market is then broken down into more helpful characteristics via four broad prisms:
Demographics - including age, gender, family size and lifecycle, social class, education, income, occupation and religion;
Geography - region, country, urban or rural, and climate;
Psychographics - lifestyle, values, opinions and attitude;
Behavior – what benefits do they seek, brand loyalty and who makes the buying decision?
Apply those to business customers and you get a comparable list, including location, business type, size, usage rate, who makes the buying decisions and how. Once you have defined a segment, you need to be sure it's worth the time and effort to continue by defining a marketing mix. It should tick the following boxes: sufficiently different, potentially profitable, accessible and likely to be responsive. Segmentation overkill can be expensive.
So pervasive is the philosophy of segmentation that it is hard to find a company that admits to being in the mass market any more, even among those that once personified it. Procter & Gamble, who’s Tide has been America's biggest-selling laundry detergent for more than half a century, claims it has no mass market brands - everyone is targeted. McDonald's, likewise, is not a mass marketer, though it admits to being a 'big' marketer. It is more ironic than one could hope for that one of the few companies still calling itself a 'mass market manufacturer' is ... RCA.

'Pull' marketing towards you as the focus tightens, 'mass customization' allows customers to choose from a range of variants to a standard product. Not all companies have had happy experiences with this strategy, but Dell has used it to good effect in the personal computer industry. Land's End, the catalogue retailer, now tailors certain individual items of clothing customer- supplied measurements. 'Micromarketing' sometimes calls itself 'one-to-one' - as opposed to 'one-to-many' - marketing, using email and the Web to connect with individual preferences. The website that announces 'People who bought [what you just bought] also bought  ....' is doing micromarketing, So are RSS Web feeds that allow you to 'pull' marketing towards you, by specifying the diet of information on which you want regularly to be fed. The Web has given niche brand a platform from which to compete on more or less equal terms with mass brands, as they develop cozy relationship with communities of Web users.

'Paid search' is another form of self-selecting marketing and the fastest- growing form of online advertising. These are the 'sponsored links' or ads that beckon - or not - when you use a search engine. The highest-bidding advertiser sits at the top of the list, where it gets more clicks, and pays the search engine every time someone clicks through to their site - 'pay per click'. Google was forecast to take the biggest single share of UK advertising revenues in 2007, a spectral indicator for mass marketing, not to mention UK commercial television. A well-worn ad agency parable is the one about the marketing manager who said he knew he wasted 50% of his advertising budget - he just didn't know which 50%. Wherever he is, he must love digital Internet advertising, which tells him just how effectively his money is being spent, as well as bringing him all that precious information that customers are obligingly tap-tapping into his database. Persuasion is becoming more of a science than the art it used to be.

Reference: 50 Management Ideas You Really Need to Know

Book by Edward Russell-Walling

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