Market Segmentation Process - Assignment

European Journal of Business and Management www.iiste.org
ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)
Vol.7, No.11, 2015
132
The Impact of Market Segmentation on the Sales Volume of a
Company’s Product or Service
Sule Maina
Department of Marketing, Ramat Polytechnic Maiduguri, Born State, Nigeria
[e-mail]
Abstract
The study investigated the impact of market on the sales volume of a company products or services. Market
Segmentation is essential and necessary for any organization trying to survive in the global market. Consumer
demands are diverse and all demands have to be met as effectively as possible. Therefore organizations that sell
a product or service has to know who their various target markets and segment their product in a way that suits
each segment identified. This study looks at the segmentation process and how segmentation can be effectively
utilized to improve the sales volume of an organizations goods or services. Both primary and secondary sources
of data collection were used and analyzed by trend analysis. The research revealed that once products or services
were tailored to suit various types of consumer segments, then requirements will be me; thus satisfaction,
therefore increasing the level of demand of that product or service. The research concludes that effective
consumer segmentation can increase the level of demand of a product or service, of an organization. It has also
been recommended that profit making organization should always work around segmenting customers of their
product or service if they want to increase sales in their organization.
Keywords: Market Segmentation, Sales Volume, Product, and Services
1. Introduction
The division of a market into different homogenous groups of consumers is known as market segmentation. The
marketing concept calls for understanding customers and satisfying their needs. But different customers have
different needs, and it rarely is possible to satisfy all customers by treating them alike. One of the main reasons
for engaging in market segmentation is to help the company understand the needs of the customer base. Often
the task of segregating consumers by specific criteria will help the company identify other applications for their
products that may or may not have been self evident before. Uncovering these other ideas for use of goods and
services may help the company target a large audience in that same demographic classification and thus increase
market share among a specific sub-market base.
While there may be theoretically ‘ideal’ market segments, in reality every organization engaged in a
market will develop different ways of imagining market segments, and create product differentiation strategies to
exploit these segments. The market segmentation and corresponding product differentiation strategy can give a
firm a temporary commercial advantage, which is essential to its existence.
2. Objectives of the Study
The objectives of the study are to:
1. Determine if segmenting the market of a product or service increases sales.
2. Evaluate the elements necessary for effective segmentation to be effective.
3. Know how to segment and select a potential segmented market that will increase sales of an
organization.
3. Conceptual Framework
Kotler and Keller, (2005) a market segment is a subgroup of people or organizations sharing one or more
characteristics that cause them to have similar product and/or service needs. A true market segment meets all of
the following criteria: it is distinct from other segments (different segments have different needs), it is
homogeneous within the segment (exhibits common needs); it responds similarly to a market stimulus, and it can
be reached by a market intervention. The term is also used when consumers with identical product and/or
service needs are divided up into groups so they can be charged different amounts. These can broadly be viewed
as 'positive' and 'negative' applications of the same idea. Ayuba ( 2005) noted that Nigeria companies marketing
effort lack the knowledge and skills of basic marketing ingredients - marketing research, marketing planning and
effective distribution network. The outcome of this is poor quality products, unawareness of competitors, poor
promotion, poor distribution, and poor pricing methods. In a developing country like ours with low income and
high level of poverty, the need for effective marketing segmentation of product is very imperative if an
organization hope to achieve any success.

European Journal of Business and Management www.iiste.org
ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)
Vol.7, No.11, 2015
133
4. Segment Marketing
(Kotler, 2004) A market segment consists of a group of customers who share a similar set of wants. Thus we
would distinguish between car buyers who are primarily seeking low-cost basic transportation and those seeking
luxurious driving experience. We must not confuse a segment and a sector. A car company may say that it will
target young, middle-income car buyers. The problem is that young middle-income car buyers will differ about
what they want in a car. Some will want a low-cost car and others will want an expensive car. Young, middle-
income car buyers is a sector, not a segment.
The Marketer does not create the segments, the marketer’s task is to identify the segment and decide
which one(s) to target. Segment marketing offers several benefits over mass marketing, which includes;
• The company can create a more fine-tuned product or service offering and price it appropriately for the
target segment.
• The company can more easily select the best distribution and communication channels.
• It will also have a clearer picture of its competitors, which are the companies going after the same
segment.
A flexible market offering consists of two parts; a naked solution containing the product and service elements
that all segment members’ value, and discretionary options that some segment members’ value.
5. Market Segmentation Procedure
(Kotler, 2004) Market Segments can be identified by classifying consumers demographically. A bank for
example, may decide to group its customers by wealth, annual income, and age. Suppose it distinguishes five (5)
wealth classes, seven (7) income classes and six (6) age classes. This alone would create 210 market segments
(5 x 7 x 6). The real question however is whether the customer in any one segment really has the same needs,
attitudes, and preferences. This has led market researchers to advocate a needs-based market segmentation
approach. Roger Best proposed the seven-step approach shown below;
SEGMENT PROCCESS DESCRIPTION
1. Needs Based Segmentation Group customers into segments based on similar needs and benefits
sought by customers in solving a particular consumption problem.
2. Segment Identification
For each needs-based segment, determine which demographics,
lifestyles, and usage behaviours make the segment distinct and
identifiable (actionable).
3. Segment Attractiveness
Using predetermined segment attractiveness criteria (such as market
growth, competitive intensity, and market access), determine the
overall attractiveness of each segment.
4. Segment Profitability Determine segment profitability.
5. Segment Positioning
For each segment, create a ‘value proposition’ and product-price
positioning strategy based on that segment’s unique customer needs
and characteristics.
6. Segment ‘Acid Test’ Create ‘segment storyboards’ to test the attractiveness of each segments
positioning strategy.
7. Marketing-Mix Strategy Expand segment positioning strategy to include all aspects of the
marketing mix: product, price, promotion, and place.
Market segmentation must be done periodically because segments change. At one time the personal
computer industry segmented its products purely on speed and power. Later, PC marketers recognized an
emerging ‘Soho’ market, named for small office and home office. Mail-order companies such as Dell and
Gateway appealed to this markets requirement for high performance coupled with low price and user-
friendliness. Shortly thereafter, PC makers began to see Soho as comprised of smaller segments. ‘Small-office
needs might be very different from home-office needs, says one ‘Dell’ Executive.
One way to discover new segments is to investigate the hierarchy of attributes consumers examine in
choosing a brand. This process is called market partitioning. Years ago, buyers first decided on the
manufacturer and then on one of its car divisions (brand-dominant hierarchy). Today many buyers decide first on
the nation from which they want to buy a car (nation-dominant hierarchy). Companies must monitor potential
shifts in the consumers’ hierarchy of attributes and adjust to changing priorities.
The hierarchy of attributes can reveal customer segments. Buyers who first decide on price are price
dominant; those who first decide on the type of car are (e.g., sports, passenger, station wagon) are type dominant;
those who first decide on the car brand are brand dominant. One can identify those who are type/price/brand
dominant as making up a segment; those who are quality/ service/ type dominant as making up another segment.
Each segment may have distinct demographics, psychographics, and media-graphics.

European Journal of Business and Management www.iiste.org
ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)
Vol.7, No.11, 2015
134
6. Segmentation by Demographic Characteristics
(Boon & Kurtz, 2004) says that ‘As with consumer markets, demographic characteristics define useful
segmentation criteria for business markets’. This includes:
1. Segmentation by Customer Type
Another useful segmentation approach groups prospects according to type of customer. Marketer can
apply this concept in several ways. They can group customers by broad categories; manufacturers,
service provider, government agency, non-profit organization, wholesaler, or retailer, and industry.
2. Segmentation by End-Use Application
This focuses on the precise way in which a business purchaser will use a product. For example a
printing equipment manufacturer may serve markets ranging from a local utility to a bicycle
manufacturer to the Department of Defence. Each end user may dictate unique specifications for
performance, design, and price. Many small and medium sized companies also segment markets
according to end use application. Instead of competing in markets dominated by large firms, they
concentrate on specific end use market segments.
3. Segmentation by Purchasing Situation
Yet another approach to dividing business markets centres on the purchasing situation. Organizations
use a more complicated purchasing procedure than those of consumers. Firms also structure their
purchasing functions in specific ways, and for some business marketers, this may be the best way to
segment the market. Each of these structures results in different buying behaviour.
Effective Segmentation
(Kotler, 2004) For segmentation to be useful, it has to be:
• Measurable: The size, purchasing power, and characteristics of the segments can be measured.
• Substantial: The segments should be large and profitable enough to serve. A segment should be the largest
possible homogenous group worth going after with a tailored marketing program.
• Accessible: The segments can be effectively reached and served.
• Differentiable: The segments are conceptually distinguishable and respond differently to different
marketing-mix elements and programs.
• Actionable: Effective programs can be formulated for attracting and serving the segments.
Evaluating and Selecting the Market Segments
(Kotler 2004) In evaluating the market segment, the firm must look at two factors: the segments overall
attractiveness and the company’s objectives and resources. Does a potential segment have characteristics that
make it generally attractive, such as size, growth, profitability, scale economies, and low risk? Does investing in
the segment make sense given the firms objectives, competencies, and resources? Some attractive segments may
not mesh with the company’s long-run objectives, or the company may lack one or more necessary competencies
to offer superior value. Having evaluated different segments, a company can consider five (5) patterns of target
market selection, which includes;
• Single Segment Concentration: Volkswagen concentrates on the small-car market and Porsche on the
sports car market. Through concentrated marketing, the firm gains a strong knowledge of the segments
needs and achieves a strong market presence. Furthermore, the firm enjoys operating economies
through specializing its production, distribution, and promotion. If it captures segment leadership, the
firm can earn a high return on its investment.
• Selective Specialization: the firm selects a number of segments, each objectively attractive and
appropriate. There may be little or no synergy among the segments, but each promises to be a money-
maker. This multi-segment strategy has an advantage of diversifying the firm’s risk.
• Product Specialization: the firm makes a certain product that it sells to several segments. An example
would be a microscope manufacturer who sells to university, government, and commercial laboratories.
The firm makes different microscopes for the different customer groups and building a strong
reputation in the specific product area.
• Market Specialization: the firm concentrates on serving many needs of a particular customer group.
An example would be a firm that sells an assortment of products only to university laboratories. The
firm gains a strong reputation is serving this customer group and becomes a channel for additional
products the customer group can use.
• Full Market Specialization: the firm attempts to serve all customer groups with all the products they
might need. Only very large firms such as IBM (computer market), General Motors (vehicle market),
and Coca-Cola (drink market) can undertake a full market coverage strategy. Large firms can cover a
whole market in two broad ways: through undifferentiated marketing or differentiated marketing. In
undifferentiated marketing, the firm ignores segment differences and goes after the whole market with