Benefits of Market Segmentation

Market segmentation is a customer-oriented philosophy and thus is consistent with the marketing concept. We first identify the needs of customers within a submarket (segment) and then satisfy those needs.

By tailoring marketing programs to individual market segments, manage­ment can do a better marketing job and make more efficient use of marketing resources. A small firm with limited resources might compete very effectively in one or two market segments, whereas the same firm would be buried if it aimed for the total market. By employing the strategy of market segmenta­tion, a company can design products that really match market demands. Ad­vertising media can be used more effectively because promotional messages-^ and the media chosen to present them—can be aimed specifically toward each segment of the market.

By developing strong positions in specialized market segments, medium-sized firms can achieve a rapid growth rate. One glassmaker, AFC Industries of Irvine, California, makes 70 percent of the glass for microwave oven doors and 75 percent of the glass for shower stalls. The Oshkosh Truck Company in Wisconsin has become the world's largest producer of fire and rescue trucks for airports. Reynolds & Reynolds Company in Dayton, Ohio, has a 65 per­cent market share of standard paper forms for automobile dealers ²

Even very large companies with the resources to engage in mass market­ing supported by expensive national advertising campaigns are now abandoning mass marketing strategies. Instead these companies are embracing market segmentation as a more effective strategy to reach the fractured fragments that once constituted a mass, homogeneous market in the United States. Procter & Gamble's marketing program nicely illustrates these chang­ing conditions. Once the epitome of a mass marketer with innovative but utilitarian products, P&G advertised heavily on network television. But today it's a different ball game.

Fewer married women are at home to watch daytime television; the cost of advertising on network television is very high; and TV ads are often lost in the clutter of 15-second commercials. Therefore, P&G has developed a variety of marketing campaigns, each designed to target a spe­cific market segment. For example, the company now uses six different adver­tising campaigns for Crest toothpaste, each aimed at a different group such as mothers, kids, blacks, or Hispanics. To promote Tide detergent and Folgers coffee, the company sponsors racing cars. Jif peanut butter and Pringle's po­tato chips reach another market segment through sponsorship of hydroplane racing boats. In addition, P&G has identified teenagers, college students, physicians, and dentists as separate targets for specialized promotional cam­paigns featuring various products.³

Limitations of Market Segmentation
While market segmentation can provide a lot of marketing benefits to an organization, this strategy also has some drawbacks with respect to costs and market coverage. In the first place market segmentation can be an expensive proposition in both the production and marketing of products. In production it obviously is less expensive to produce mass quantities of one model and one color than it is to produce a variety of models, colors, and sizes.

Segmentation increases marketing expenses in several ways. Total inven­tory costs go up because adequate inventories of each style, color, and the like must be maintained. Advertising costs go up because different ads may be required for each market segment. Or some segments may be too small for the seller to make effective use of television or another advertising medium. Administrative expenses go up when management must plan and implement several different marketing programs.

^TABL AN ETHICAL DILEMMA?

For a fee of $15,000 to $600,000 per year, depending on the size of the company, The American Heart Association (AHA) offered to put its seal of approval on products that met its guidelines for fats, cholesterol, and sodium. Recognizing the large market segment of health- and diet-conscious consumers, over 100 brands of margarine crackers, and canned and frozen vegetables sought and were granted approval to display the AHA seal. Critics argued that such a seal might cause consumers to ignore the importance of a balanced diet. Is it ethical for the AHA to accept a fee in exchange for the use of the seal?
Conditions for Effective Segmentation

Ideally management's goal should be to segment markets in such a way that each segment responds in a homogeneous fashion to a given marketing pro­gram. Three conditions will help management move toward this goal.

• The basis for segmenting—that is, the characteristics used to categorize customers—must be measurable, and the data must be accessible. The "de­sire for ecologically compatible products" may be a characteristic that is useful in segmenting the market for a given product. But data on this characteristic are neither readily accessible nor easily quantified.

• The market segment itself should be accessible through existing marketing institutions—middlemen, advertising media, company sales force—with a minimum of cost and waste. To aid marketers in this regard some na­tional magazines, such as Time and Sports Illustrated, publish separate geo­graphical editions. This allows an advertiser to run an ad aimed at, say, a Western segment of the market, without having to pay for exposure in other, nonmarket areas.

• Each segment should be large enough to be profitable. In concept, manage­ment could treat each single customer as a separate segment. (Actually this situation may be normal in business markets, as when Boeing markets passenger airplanes to commercial airlines or when Citibank makes a loan to the government of Mexico or Argentina.) But in segmenting a consumer market, a firm must not develop too broad an array of styles, colors, sizes, and prices. Usually the diseconomies of scale in production and inventory will put reasonable limits on this type of over segmentation.