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The innovator’s dilemma: when new technologies cause great firms to fail

Market segmentation consists of taking the total heterogeneous market for a product and dividing it into several sub-markets or segments, each of which tends to be homogeneous in all significant aspects.[59]

Purposes[edit]

Market segmentation is conducted for two main purposes, including:

  • A better allocation of a firm’s finite resources
  • To better serve the more diversified tastes of contemporary consumers

A firm only possesses a certain amount of resources. Accordingly, it must make choices (and appreciate the related costs) in servicing specific groups of consumers.

Moreover, with more diversity in the tastes of modern consumers, firms are noting the benefit of servicing a multiplicity of new markets.

Overview[edit]

Market segmentation can be defined in terms of the STP acronym, meaning Segment, Target, Position.

Segment[edit]

Segmentation involves the initial splitting up of consumers into persons of like needs/wants/tastes.

Four commonly used criteria are used for segmentation, which include:

  • Geographical (a country, region, city, town, etc.)
  • Psychographic (e.g. personality traits or lifestyle traits which influence consumer behaviour)
  • Demographic (e.g. age, gender, socio-economic class, education, etc.)
  • Behavioural (e.g. brand loyalty, usage rate, etc.)

Target[edit]

Once a segment has been identified, a firm must ascertain whether the segment is beneficial for them to service.

The DAMP acronym (meaning Discernable, Accessible, Measurable and Profitable) are used as criteria to gauge the viability of a target market. The elements of DAMP are:

  • Discernable – how a segment can be differentiated from other segments.
  • Accessible – how a segment can be accessed via Marketing Communications produced by a firm
  • Measurable – can the segment be quantified and its size determined?
  • Profitable – can a sufficient return on investment be attained from a segment’s servicing?

The next step in the targeting process is the level of differentiation involved in a segment serving. Three modes of differentiation exist, which are commonly applied by firms. These are:

  • Undifferentiated – where a company produces a like product for all of a market segment
  • Differentiated – in which a firm produced slight modifications of a product within a segment
  • Niche – in which an organisation forges a product to satisfy a specialised target market

Position[edit]

Positioning concerns how to position a product in the minds of consumers and inform what attributes differentiate it from the competitor’s products.

A firm often performs this by producing a perceptual map, which denotes similar products produced in the same industry according to how consumers perceive their price and quality. From a product’s placing on the map, a firm would tailor its marketing communications to suit meld with the product’s perception among consumers, and its position among competitors’ offering.