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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