Table of Contents
- Concepts and Methods of Market Segmentation and Target Marketing
- Different Methods of Market segmentations
- Demographic Segmentation
- Age and Life-Cycle Segmentation
- Gender Segmentation
- Income Segmentation
- Generation segmentation
- Social Class Segmentations
- Geographical Segmentation
- Psychographic Segmentation
- Behavioral Segmentation
- Market Targeting
- Positioning Marketing
- Case study: The Block Hotel
- Introduction and background
- Use of Market Segmentation
- Related Marketing essays
Market segmentation has been well defined as the division of any given market into unique parts of customers based on their needs. The needs will determine the final products that will be made for them. This has been regarded as the key element to modern marketing and helps businesses to flourish. Segmentation can be done demographically narrowing it further to age and life-cycle segmentation, gender segmentation, social class segmentations, generation segmentation and income segmentation. Other type of segmentation includes geographical segmentation, psychographic segmentation, and behavioral segmentation.
Market targeting follows market segmentation and this has been done as undifferentiated marketing, differentiated marketing and concentrated marketing. After this we have the market positioning which is important as the marketer now asserts the position in the market.
Block Hotels employed market segmentation and targeting at the birth of the concept but later on deviated causing the hotel to crumple. They employed the niche marketing which targeted snowboarders but the concept became overcrowded drifting from being centered to snowboarders to other groups which were not the initial targets.
The Block hotel began its process by identifying and understanding the targeted segment. Smith who was an experienced hotelier and Montotya a renowned snowboarder brought their skills and experience together and worked on identifying the market segment to target, worked on understanding this segment then laid down strategies for effective marketing of their concept. This they did with diligence since they managed to build a successful empire for the five years they operated.
Concepts and Methods of Market Segmentation and Target Marketing
Marketing methods philosophy was developed in 1960’s. By then, the concepts were referred to as marketing concepts and dictated the consumer based marketing strategies. This allows consumer preferences to dictate the products, position place and making decision on prices.
Segmentation refers to “dividing a market into distinct groups of buyers who have distinct needs, characteristics, or behavior and who might require separate products of market mixes” (Armstrong and Kotler 2005, p. 54). This is one of the key elements of modern marketing which makes marketing more effective (Grunter and Furnham 1992, p. 1). Market segmentation is an analytical process that ensures that a marker runs a customer centered business thereby satisfying customer while helping the marker to have advantage over competitors.
There are three areas of marketing a product are eminent in marketing segmentation. These are product differentiated marketing, mass marketing, and target marketing. Mass marketing deals with mass production, mass distribution and mass promotions to all buyers. Product differentiation marketing allows production of two or more products that displays different features, styles and quality whereas target marketing sees customers in terms of segments and decides on which group to develop products for (Grunter and Furnham 1992, p. 3).
Target customers for different products differ in terms of demographics, needs and social affiliations. This allows the segmentation and targeting of customers to deliver the required products to the target audience needs and wants (Pickton and Broderick 2005, p. 373). For companies to effectively promote their products and services, they have to clearly establish the needs of their target customers in each segment.
For any business to break even it must be effective in communicating its messages. The message should be tailored towards the needs of their target audience (customers) (Kotler and Keller 2009, p. 253). However, it is not possible for any company to effectively meet the needs of all customers. Therefore, it would be important for them to divide customers into groups or segments, and decide on which segment to concentrate on. In doing this they strive to answer questions like who are the customers? Where are they situated? What is their buying behaviour? (Kotler and Keller, 2009, p.247).
Different Methods of Market segmentations
This divides buyers based on values such as age, gender, income, occupation, religion, and race among other (Armstrong and Kotler 2005, p. 187)
Age and Life-Cycle Segmentation
Armstrong and Kotler (2005) state that market segmentation could be done based on age and life cycles (p. 188). This looks at a marketing approach that easily changes depending on the age of a given target group. It is associated with behavioural characteristics and buying patterns of customers in a given age group. For example Gunter and Furhan (1992) concludes that “single people have a tendency of buying new fashionable items because they lack other economic obligation compared to married counterparts who are loaded with economic obligations” (p.11). Therefore, if anyone one wishes to target a group of married people their must be varied factors to consider. Without such consideration, the segment targeting may become disillusionment and eventual crumple of the business empire.
This is a segmentation that focused on differentiating the needs and wants of women and men. It is majorly seen in areas of clothing, hairstyle, cosmetics and magazines (Kotler and Keller 2009, p. 257). Marketers may decide to target a specific product to a particular gender, say female. For example, the print media has successfully used this segmentation with much success. They have magazine specifically written for men or women. Such segmentations require a thorough research to enable the investor to maximize the profits
This allows marketers to divide the market based on the levels of incomes. It is majorly used in automobiles, clothing, financial services and travel. A company may decide to target high-income buyers or low-income buyers. This segmentation is sometimes tricky since customer behaviors can merely not be determining income (Kotler and Keller 2009, p.258). Many a time not all people with money have a predisposition of spending the money. Rich people might not be interested in the products that are designed for that class. They opt to live a humble and simple life despite the high income they earn.
Each generation is unique and only influenced by the times in which it grows. Generation segmentation groups specific generation. Its marketing is conducted using icons that identify with the target generation (Kotler and Keller 2009, p. 258). This marketing is important since it the marketer to understand the needs of such generation and use familiar aspects marketing products and services to them.
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Social Class Segmentations
This is based on the buyers’ preferences at that particular time and season. Kotler and Keller (2009) advise that this should be done with great care as preferences are as unpredictable as the wind. A customer’s preference today may not be the same one week later (p. 260). It is always tricky to assume that what is preferred on market today is what will be preferred next year. This kind of segmentation should not be the main method of segmentation because it is not very viable at all times.
This grouping puts customers in categories like nations, states, counties, cities or neighborhoods. A business may decide to target a given area. However, it must be informed of possible population shif (Pickton and Broderick 2005, p.376). This is important where products are to be marketed in different locations. When targeting a country or a county, one needs to address the wider spectrum of customers’ needs which might be tricky for a new business. Geographical segmentation works well for well established companies that can afford to produce a variety of products for their target groups,
Psychological profiles of customers come as a supplement to the demographic and geographic segmentation. This seeks to divide people along their attitudes, values, interest and opinions (Pickton and Broderick 2005, p. 377). Psychological segmentation simply helps when it is considered alongside other segmentation method as it is not very easy to know the attitudes of people to be able to tailor your product towards such attributes.
This grouping is based on the customers’ attitude towards or response to a product. It is assumed to be the best place to start market segmentation given that one has to consider behavioral variables such as status, usage rate, buyer readiness etc (Kotler and Keller, 2009, p. 263). Behavior is learned and can change within a short period of time without any warning. Any segmentation that is based on behavior does not stand out as the stronger and most viable method to use in marketing.
Once segmentation is performed, second step is the market targeting. A company may decide to target one segment or several depending on the marketing strategies they wish to employ. Targeting is one of the most critical steps in marketing. When wrong choice of target group is made then the success of that product would be zero. In market targeting one may employ mass marketing strategy (un-differential marketing), single segment strategy (differential marketing) or multi-segment strategy (concentrated marketing) (Dibb and Simkin 1996 p. 15-16).
a) Undifferentiated Marketing
Here a company disregards the segments and decides to target a market with one offer focusing on similar needs instead of their differences. This kind of strategy does not satisfy the needs of every customer.
b) Differentiated Marketing
This type of marketing allows the marketer to target each segment with offers specifically designed for that segment. Companies employing differentiated marketing realise higher sales, but incurs increased costs of operating business. Considerations and evaluations of sales against costs should be made for a given segment.
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c) Concentrated Marketing
Concentrated marketing is preferably referred to as niche marketing. It entails sellers targeting lager share of one or few segments. This allows the company to market effectively given the knowledge they have about the needs of the buyers and their strong position in the market. Niche marketing is believed to be highly profitable for companies as they target fewer segments for all their business. However, the risk of doing business in such segments is high. This is owed to the fact that if the segments crumble then the entire business would crumples (Armstrong and Kotler 2005, p. 200-202).
The type of marketing strategy a company employs is determined by the market, product and competitive factors. Most companies consider these factors and make a decision on the viability of a given segment and apportion resources (Dibb and Simkin 1996, p. 16).
Positioning is the final step in marketing. It is where the company after segmentations and pinpointing segments to target, it has to decide the position it wishes to occupy in those segments. Positioning is mainly concerned with the customers’ perceptions of products in order to maximize the profits (Kotler and Keller 2009, p.308).
Case study: The Block Hotel
Introduction and background
The block purchased as a 52 room courtyard motel in 2003 by Liko Smith who is regarded the founder. Smith was an experienced hotel manager identified the need for a hotel that would be tailored towards the needs of snowboarders.
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The bock is situated in Tahoe which is a national, “four seasons recreation destination with 12 ski resorts situated along the California Nevada border” (Ski Resort Industry 2008, p. 23). It had all kinds of varieties for skiers but very few for snowboarders. Snowboarders used to stay in kennels whenever they were around (Cova 2002, p. 10).
The Block hotel in south Tahoe started in 2004 when Smith brought on board celebrity snowboarder, Marc frank Montoya as a partner charged with promotional work among the snowboarders. To boost the hotel’s trade name and genuineness other famous snowboarders were encouraged stay for free or at a subsidized fee. The hotel management also concentrated in promoting snowboard events called “block parties” for celebrity entertainers and other professional snowboarders (Downs, 1995 p.32).
Use of Market Segmentation
Liko Smith decided to use marketing segmentation when he decided to start the Block hotel. Smith and the partner applied the generation segmentation which targeted only a specific people, the snowboarders. As mentioned earlier, generational segmentation is done for a specific generation and marketing is done using icons that identify with the target generation (Kotler and Keller, 2009, p. 258). The Block hotel targeted only the snowboarding that is why the designs, renovations and promotions were geared towards the targeted population. Smith went a step further after segmentation to identify and use the best market targeting for them, the niche marketing. Here they targeted one segment of the hoteliers.
This process began by identifying and understanding the targeted segment. Smith was an experienced hotelier and his partner Montotya a renowned snowboarder brought their skills together in identifying, understanding and laying down the strategy for effective marketing. They followed the three steps that are required in market segmentation and targeting.
Step One: The first step was dividing the market into segments. Smith’s decision to target the snowboarders was from experience and perspective but it still worked well as an idea that originated from research. The block hotel’s flourish was born from a deliberate decision to target a distinct segment of snowboarding (Miles, 2000, p.14). Smith and partner were a ware of the behavioral and lifestyle of their target consumer. According to Smith, the main customers would be “Echo boomers to baby boomer…any person that is enthusiastic about action sports and the casual mood of tomorrow’s lifestyle” (Ski Resort Industry 2008, p. 26).
Step two. This involves market targeting which requires the identification of the unmet needs. In Lake Tahoe there were so many hotels but none specifically designed for snowboarders. Smith saw that there were so many places that focused on skiers but he noted that snowboarders were not accommodated for. Hence the decision to come up with a unique design that specifically will meet target groups.
Step Three: This requires positioning by the marketer. The investors are required to do a thorough research on meaningful features and design the final product based on research. Montoya was instrumental; he is the design of the overall concept and in determining the amenities and features that will be most appealing to the snowboarders. From his professional experience he was able to come up with a package offer for that was appealing to the target customers. The rooms included X-box game counsels, a television set and adaptable stereo systems. Customers were given free beer whenever they checked in access to hot tub, barbeque, pools table and poker rooms (Miles, 2000, p. 19).
The blocks opened its doors in 2003 given attention in media sector. The success of the block hotels was evident and many other operators requested to be licensed to use the name and the concept. Smith and Montoya expanded the concept to new locations by expanding the Blocks until its sudden closure in 2009. The sudden closure was attributed to segment dilution where it spans into something totally different from what it was designed for. The Block hotel was become too much to too many people loosing focus.
It has been shown that the philosophy for marketing methods was first practiced in 1960’s and thereafter gained ground in business. The new concepts of marketing advocated for the consumer based strategies allowing consumer needs and wants to determine the type and size of products or services a company was to offer its customers.
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The approach to market segmentation since people are divided into unique groups, they share same values and buying characteristics hence assumed the most effect method of identifying the right market. The segmentation can be done demographically or geographically borrowing heavily from the psychological attributes as a supplement. After segmentation, market targeting is followed immediately with niche marketing taking a priority in targeting. If all these are done and the marketer assumes the rightful position in the market, then success is assured.