Market Segmentation

Question 1

Segmentation Definition

Answer 1

Segmentation is a marketing term that can be summarised as the identification of groups of consumers (segments) with similar needs, allowing the organisation to create individual marketing strategies to address the needs of each group.

Question 2

Advantages

Answer 2

The main advantage is that it focuses the marketer on the needs of the customer segments chosen. Consider Pep clothing stores. Pep targets the lower- income levels of the South African population offering excellent value. By understanding its customers well, Pep has been able to tailor its whole retail offering and endeavourss to meeting the needs and preferences of this chosen segment – its decor, layout, pricing, communication, in-store music are all chosen to please this segment – even if it may make some higher-income consumers uncomfortable.
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Question 3

Disadvantages

Answer 3

One possible disadvantage is the cost. It is more expensive to try to develop products and marketing mix offers for a number of segments than only one segment. Woolworths, in our example above, has a number of price points which it uses, and products that reflect those price points. An example of this is the Woolies women’s clothing range, which includes the W collection, as well as the higher-priced Tenery range. This is costlier than the strategy followed by Pep, which aims at one segment, as explained above.
Another major disadvantage is that if an organisation differentiates too much as a result of segmentation, there is a chance that the company could “cannibalise” its own products. When this happens, too many of the organisation’s own products compete against each other, thus reducing overall sales.

Question 4

Prerequisites for effective market segmentation as follows:

Answer 4

Market segmentation must be:
• measurable
• large enough
• accessible
• actionable
• differentiable

Question 5

Measurable.

Answer 5

This is necessary because the marketer needs to compare the segments to see where to allocate the scarce marketing resources to best achieve the marketing objectives.

Question 6

• Large enough.

Answer 6

This ensures that the segment is large enough to achieve the profitability
objectives. Even a small segment may be profitable.

Question 7

• Accessible.

Answer 7

The marketer has to be able to reach the market somehow to be able to
communicate and distribute its products and services. The rural market is often deemed to be as difficult to reach, but with modern technology and social media such as cell phones and Facebook, this gap can now be bridged.

Question 8

Actionable.

Answer 8

This means the company has to be able to put together separate offerings that would be attractive to the different segments. Note that this also increases the costs of segmentation.

Question 9

Differentiable.

Answer 9

This means that the segments respond differently to the specific offers, in that they have different needs. If the segments respond in the same way, the marketer should perhaps reconsider the segmentation and look at combining segments.

Question 10

The four bases for segmenting consumer markets.

Answer 10

Geographic
Demographic
Psychographic
Behavioural

Question 11

Geographic

Answer 11

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Question 12

Demographic

Answer 12

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Question 13

Psycographic

Answer 13

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Question 14

Behavioural

Answer 14

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Question 15

The bases for segmenting industrial markets are similar in a way to consumer markets, but reflect the specific characteristics of industrial markets in how they buy products/ services and what the typical industrial organisations use the products for. These bases are:

Answer 15

• demographic variables
• operating variables
• purchasing approaches
• situational factors
• personal characteristics