Importance:

• Increase sales and profitability
• Helps identify a common characteristics among a group customers, which helps predict how they will react to marketing strategies
• Help look for new product opportunities
• Help identify areas that may be receptive to existing product repositioning (use info about segments to develop specific elements of marketing mix and decide which segments to focus on)
• Help create advertising messages by gaining a better understanding of customers ( decide on which basis for segmenting groups of customers may not be most effective for predicting their behaviour)

Demographic: Divides the market into segments based on Variables

• Age , Gender, Family size & Life cycle, Income, Education, Religion, Race

Psychographic: Divides a market into different segments based on - Social Class, Lifestyle, Personality-based

Behavioural - occasions, benefits, uses, buyer readiness stages, attitudes

Why use bases:

• Helps marketers improve customer welfare - serve them better
• Helps marketers improve profits - repeat purchase

Some fundamental issues: (Palmer & Miler, 2004)

• Some information needed for segmentation may not be relevant or available
• The way the market was segmented some time ago could have become dated over time to changing marketing environment

1. Product criteria vs distinctive customer needs

• Marketers believe that it will be more appropriate for not using the above bases when the market decision may be based on product criteria, rather than distinctive customer needs
• These customers groups may not have homogenous needs and buying behaviour within groups, therefore easier to divide the market by the types of products they want
  Therefore:
  Sectored view: Based on product criteria, follows industry norms
  Segmented view: Based on customers needs

Intuition and Planning
What is intuition: "Compressed expertise i which people arrive at an answer without understanding all the steps that led up to it"

Why do somer marketers use intuition rather than planning?

• Every segmentation model is itself an approximation of reality
• Rational approaches (normative approach) may be arbitrary even planned
• Segmentation may be undertaken by intuition:
• segments may also be developed on an unsystematic basis, through marketers intuition and as a result of customer requests
• Segments may be developed as the ease of implementation

3. Validity of segmentation (Dibb and Stern, 1995)
   3 main problems:

• The market and its boundaries may be pre-defined by the marketer and this may not reflect reality
• Segments may not be stable with respect to time or competitor activity
• The process of segmentation itself may change the market's response to the dimensions of the segmentation techniques (market stability)

4. Process Led (Quinn et al., 2007)

• Company should not focus purely on what bases distinguish different segments
• NEED to consider why is this the case and how changes in the marketing may diminish the validity of segmentation
  Examples:
• A company's structure, distribution systems and sales force may limit the use of market segmentation
• Industry norms may limit the use of market segmentation (companies likely to follow other competitors strategies)
• Sales force may take into account the operational considerations (may have to take into account the operational considerations, may have divided the segments by areas)
• Changes in lifestyle, income, ethnic groups, changes in consumption patterns)

5. Questioning the substantially criterion: (Pires, Stanton and Stanton, 2011)

• They argue that the issue of segmentation is the strategic advantage in segmentation and how it affects the company's long-term competitive position
• Company need to study a segmenting opportunity, it can be studied in 5 ways

1. Sales potential
2. Fit with the company's existing resources
3. Cost of segmenting
4. Competition and growth

• 2 key elements regarding substantiality of the segment

1. To have a sufficient number of consumers to purchase the product
2. To have the profit outweigh the cost of focusing on this segment

6. Problems with geographic segmentation

• Some specific problems relating to geographic segmentation:

1. Does not work if customers can buy in one market and sell in another (personal arbitrage)
   
   

How do marketers respond to the situation?

• Use local language to market the product in different regions
• No warranties offered for product which are bough outside from geographical territories

Requirements for effective segmentation

1. Measurable
2. Accessible (segments should be effectively reached and served)
3. Substantial ( Large or profitable enough)
4. Differential (must respond differently to different marketing mix elements & actions)
5. Actionable (Must be able to attract and serve the segment)