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When it comes to marketing strategies, most people spontaneously think about the 4 P (Product, Price, Place, Promotion) V maybe extended by three more Ps for marketing services (People, Processes, Physical Evidence). Market segmentation and the identification of target markets, however, are an important element of each marketing strategy. They are the basis for determining any particular marketing mix. Market segmentation as defined by Kotler, is the segmentation of markets into homogenous groups of customers, each of them reacting differently to promotion, communication, pricing and other variables of the marketing mix. Market segments should be formed in that way those differences between buyers within each segment are as small as possible. Thus, every segment can be addressed with an individually targeted marketing mix.
The importance of market segmentation results from the fact that the buyers of a product or service are no homogenous group. Actually, every buyer has individual needs, preferences, resources and behaviors. Since it is virtually impossible to cater for every customer's individual characteristics, marketers group customers to market segments by variables they have in common. These common characteristics allow developing a standardized marketing mix for all customers in this segment. There are a huge number of variables that could be used for market segmentation in theory. They comprise easy to determine demographic factors as well as variables on user behavior or customer preferences.
In addition, there are differences between individual customers and businesses. As already stated, segmentation is the basis for developing targeted and effective marketing plans. Furthermore, analysis of market segments enables decisions about intensity of marketing activities in particular segments. A segment-orientated marketing approach generally offers a range of advantages for both, businesses and customers. Better serving customers needs and wants It is possible to satisfy a variety of customers needs with a limited product range by using different forms, bundles, incentives and promotional activities. Higher Profits It is often difficult to increase prices for the whole shipping market.
Nevertheless, it is possible to develop premium segments in which customers accept a higher price level. Such segments could be distinguished from the mass market by features like additional services, product variations and the like. A typical segment-based price variation is by region. Opportunities for Growth Targeted marketing plans for particular segments allow to individually approach customer groups that otherwise would look out for specialized niche players.
By segmenting markets, organizations can create their own 'niche products' and thus attract additional customer groups. Moreover, a segmentation strategy that is based on customer loyalty (see loyalty ladder model) offers the chance to attract new customers with starter products and to move these customers on to premium products. Higher Market Shares In contrast to an undifferentiated marketing strategy, segmentation supports the development of niche strategies. Thus marketing activities can be targeted at highly attractive market segments in the beginning. Market leadership in selected segments improves the competitive position of the whole organization in its relationship with suppliers, channel partners and customers. It strengthens the brand and ensures profitability.
On that basis, organizations have better chances to increase their market shares in the overall market Market segmentation is not without its limitations. It is a more expensive approach than using a non-segmented approach. Careful planning and budgeting of resources is required to minimise the risks of failure. Conclusion Summarizing all the advantages, the need for market segmentation is closely related to strategic decisions: Market segmentation is the basis for customer orientation and differentiation. It is well known that suppliers in markets mostly compete on price. Demand for those products of services that are clearly differentiated from competition and that offer a particular value to customers do has a lower price elasticity; hence, only those products can sustain a higher price level and higher margins.
The precondition for providing such value added is detailed knowledge about customers' preferences. These preferences will probably diverse in the total market, but fairly homogenous within distinguishable segments. "Focus on attractive market segments is of special relevance in our fast moving times of Internet economy" Kalakota and Whinston says in their law of differentiation. Following that, Kalakota and Whinston perceive segmentation as the basis for offering superior value to particular customer groups and thus for developing a stable and profitable market position. The concept of positioning is often used together with the term segmentation and targeting.
Those three elements work together closely when determining which way to offer a product or a service in which markets to which target group. Once the organisation has decided which customer groups within which market segments to target, it has to determine how to present the product to this target audience. This allows to exactly addressing the needs and expectations of the target groups with a tangible marketing mix that consists of product characteristics, price, promotional activities and places to present the product. These statements about the relation to other elements of the marketing plan already point to an important element of positioning: customers' perception. Did et al define positioning as the process of creating an image for a product in the minds of target customers. Any offer has to have particular characteristics that set it apart from competition in the eyes of the customers.
Evaluation Positioning is relevant to beat the competition and win the battle for recognition in an overcrowded, media-blitzed marketplace (Al Ries and Jack Trout). With this approach, a company creates a 'position' in the prospect's mind, one that reflects the company's strengths and weaknesses as well as those of its competitors. Without identifying what areas of business we want to be involved in, we run the risk of not being acceptable to a sufficiently high volume of customers. Without positioning, there is a heightened risk of incompatible market segments being accommodated simultaneously. Michael Porter provided a framework that models an industry as being influenced by five forces. The strategic business manager seeking to develop an edge over rival firms can use this model to better understand the industry context in which the firm operates hence enforces better competitive positioning.
The fundamental idea behind positioning is the idea of competitive advantage. When two forces meet, the overwhelming force wins. But even small differences in force create strong advantages. Allowing an extra player on the football field marks an increase of resources of only 9 %. But that difference leads to a lopsided advantage. The same is true in competitive strategy.
MISC specialises in Liquefied Natural Gas transportation. With its recent acquisition of a number of LNG shipping companies and its assets, MISC is set to be a major player in the global industry. Apart from attaining dominant status in the rationalisation of the nation's LNG carriage services, the expansion in capacity will position MISC to take advantage and exploit opportunities in the LNG business. These acquisitions has enabled MISC, as the country's leading ship owner, to achieve the strategic critical mass and place it in a better position to complete with other international shipping companies. MISC has other subsidiaries like the warehousing, trucking and other services to add value to enhance the deliverables of overall services. Treacy and Wiersema's Three Generic Strategies can be used as a positioning framework too.
It consists of: - "h Operational Excellence & for; { No-hassle, speedy service and low price & for; { AT& T Universal card, Federal Express, Hertz # 1 Club Gold, McDonald's, Southwest Air, WalMart. "h Product Leadership & for; { Product performance or uniqueness & for; { Intel Corporation, 3 M, Nike "h Customer Intimacy & for; { Personalised service and advice, commitment to total solution & for; { Airborne Express, Nordstrom This generally refers the fact that positioning is not just about finding the right market or the right locality but instead which traits of business are to focus on. Strengths of positioning includes better being able to determine how many of each type of customer or business you need to achieve profitability and therefore have a measure of control over your decision making and market planning. Effective positioning minimises the risk of not adequately satisfying particular market segment needs be it value added services, covering more routes to certain countries to meet customer's expectations. Thus should result in higher levels of repeat patronage. A 'must' for effective marketing and profitability.
Positioning is based on customers' perceptions according to Al Ries and Jack Trout and it is only partly within the control of marketers. External developments could change the way customers think about a product. This can be so diverse things like for instance changes in price or characteristics of competing products and substitutes, tests by independent magazines and institutions, new legal requirements, or changes in customers' preferences. Operating in a niche market like the shipping industry limits the boundaries of positioning. With many players and few large clients, extensive research and evaluation is required to strategically position and whether it is even worth while penetrating the market at this stage. Using the basis of a product life cycle, positioning here can be tricky, as the risks involved are subjective.
Markets are vulnerable to external environment, which affects the development of the product. For example in MISC's case, shipping is a cyclical business and prone to circumstantial fluctuations. Positioning may be imperative to the business but it is also unpredictable and results are not guaranteed. Another interesting area is line extension. Line extension tends to be a company's first thought when they want to grow. Unfortunately, it can be the company's road to failure if not properly assessed.
While product marketing may cover the full range of the Service/Product Positioning Model, convenience and cost are not significant factors in the decision-making process of service clients. Those wishing to gain a competitive advantage in service markets would, therefore concentrate on issues of functionality and reliability.
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Research essay sample on Market Segmentation Market Segments
