MARKET SEGMENTATION

Definition
Dividing a market into distinct groups of buyers who have distinct needs,
characteristics, or behaviour and who might require separate products or
marketing mixes (Armstrong and Kotler, 2005: 54).

THE PROCESS OF MARKET SEGMENTATION

SEGMENTING > TARGETING > POSITIONING

SEGMENTING
Basic Market Segmentation-strategies
1. DEMOGRAPHIC
The demographic segmentation divides customers into segments based on
demographic values such as age, gender, family size, family life cycle, income,
occupation, education, religion, race, generation, social class and nationality
(Armstrong and Kotler, 2005: 187).
The demographic segmentation is often used in market segmentation for the
reason that the variables are easy to identify and measure. Furthermore the
demographic variables are associated with sale of many products and services
and finally they provide a description of the target customers so media buyers
and others can target a desired target market.
Each of the variable are useful knowledge when segmenting markets and some
of the above mentioned variables will be elaborated in the following (Gunter and
Furnham, 1992: 9).

A. Age and life-cycle segmentation

The consumers needs and wants change with age. Therefore some companies
use age andlife-cycle segmentation, where age and the life-cycle determine the

marketing approach. (Armstrong and Kotler, 2005: 188)

B. Gender Segmentation
Gender segmentation is used to differentiate the needs and wants between men
and women due to the fact that men and women have different attitudes toward
a product. The gender segmentation has long been applied in connection with
clothing, hairstyling, cosmetics and magazines. Furthermore it must be taken
into consideration that metro sexuality has become a common gender-factor
and thus the marketers must not only define a product as being masculine or
feminine (Kotler and Keller, 2009: 257).
C. Income Segmentation
Income segmentation divides the market into different income groups. It is used
in automobiles, clothing, cosmetics, financial services and travel. Many
companies within the mentioned categories seek to target the high-income
customers. Others seek to target the customers with a lower income in order to
gain consumer loyalty and lessen the competitive pressures. However,
companies must consider the fact that the income does not always predict the
most suitable customers for a given product due to the fact that some
customers may have other preferences and prioritize their money different
(Kotler and Keller, 2009: 258).
D. Generation Segmentation
Each generation is influenced by the times in which they grow up i.e. the music,
the movies, politics and other significant events characteristic of that period.
Marketers therefore market to a generation by using icons and images that is
relatable according to the generation (Kotler and Keller, 2009: 259).
E. Social Class Segmentation
Social class segmentation divides the customers according to their preferences
in cars, clothing, home furnishings, leisure activities, reading habits and
retailers. However, although the
tastes of social classes changes, many
companies design products for specific social classes (Kotler and Keller, 2009:
260).

2. GEOGRAPHIC
The geographic segmentation divides customers into segments based on
geographical areas such as nations, states, regions, counties, cities or
neighbourhoods. A company can target one or more areas and must be aware of
the fact that data according to geographic segmentation may vary due to

population shift (Pickton and Broderick, 2005: 376).

It is important to segment according to geographic, due to the fact that the
purchasing behaviour of the customers are influenced on where they live, work
etc. (Gunter and Furnham, 1992: 5).
Therefore many companies customize their products, advertising, promotion and
sales efforts to fit the needs of the geographical variables (Armstrong and Kotler,
2005: 186).

3. PSYCHOGRAPHIC
Psychographic segmentation therefore divides people according to their
attitudes, values, lifestyles, interests and opinions (Pickton and Broderick, 2005:
377).
The psychological variables derive from two principal types of customer;
personality profiles and lifestyle profiles (psychographics). Psychological profiles
are often used as a supplement to geographic and demographics when these
does not provide a sufficient view of the customer behaviour. While the
traditional geographical and demographical bases (sex, age, income etc.)
provide the marketer with accessibility to customer segments, the psychological
variables provide additional information about these and enhance the
understanding of the behaviour of present and potential target markets (Gunter
and Furnham, 1992: 26).
Furthermore some marketers have used personality variables to segment the
markets, for example the landline telephone is outdated (Appendix 1) and a
commercial could appear to target elder people whereas the actual purpose is
that the commercial is aimed at a much broader personality group (Armstrong
and Kotler, 2005: 190).

4. BEHAVIORAL
Behavioural segmentation is based on the customers attitude toward, use of, or
response to a product. Many marketers believe that the behavioural variables
such as occasions, benefits, user status, usage rate, buyer-readiness stage,
loyalty status and attitude are the best starting points for constructing market
segments and thus these variables will be described further in the following
(Kotler and Keller, 2009: 263).

Occasions
Occasions are when the customers are divided into segments based on the time
of day, week, month and year (Kotler and Keller, 2009: 263). People is therefore
being grouped according to the time (occasions) on which they get the idea to
buy, make their purchase or use the purchased item (Armstrong and Kotler,
2005: 191).
This can for example be during the time around holidays such as Christmas. A
company may choose one kind of marketing strategy around Christmas and
another at Valentines Day in February and thus being able to target as many
desired target customers as possible.
Benefits
Benefit segmentation divides the customers according to the different benefits
they may seek from a product. Benefit segmentation seeks to find the benefits
people look for in a certain product, the kinds of people who look for each
benefit and the brands that deliver each benefit (Armstrong and Kotler, 2005,
194).
Furthermore the benefit segmentation identifies market segments by casual
factors rather than descriptive factors such as e.g. demographics.
User status
By segmenting according to nonusers, ex-users, potential users, first-time users
and regular users of a product a company can customize its marketing for each
group (Armstrong and Kotler, 2005: 194).
Where regular users of a certain product request one kind of marketing
approach, potential users may request another kind of marketing approach, and
thus it is necessary to divide the customers into different segments and target
them in different ways.
Usage rate
The usage rate segmentation divides the customers according to how much
they use a product. They are divided into groups of non-users, light, medium
and heavy product users and companies often seek to target one heavy user
rather than several light users (Armstrong and Kotler, 2005: 194). This is due to
the fact that the heavy users constitute a small percentage of the market but
account for a high percentage of the total buying (Gunter and Furnham, 1992:
20). Thus a company should seek to adapt their marketing strategy according to
these customers. However, it should be mentioned that it is of certain

importance not to exclude the non-users, light users and medium users due to
the fact that these users may provide a positive prospect for future expansions.
Buyer-Readiness stage
Buyer-readiness stage refers to peoples awareness and interest of the product.
Some people are unaware of the product, some are aware, some are informed,
some are interested, some desire the product and some intend to buy (Kotler
and Keller, 2009: 264).
The purpose is to lead the customer along so he or she will purchase the product
in the end.
Thus the company should seek to design their marketing strategy according to
these factors. For example, people from the USA may have limited knowledge
about a product from the UK. So in order for the product to be successful in the
USA, the company should adapt their marketing strategy according to the
limited knowledge an American may have.
Loyalty status
A market can also be segmented according to the loyalty of the customers. It is
assumed that customers are always loyal by buying the same product. These
customers are referred to as hard-core loyals. Other people that are loyal toward
two or three brands and buy these on a random basis are referred to as being
split loyals. A third group of people are those who shift from one brand to
another and staying with that brand for a period of time until they shift to
another brand. These customers are referred to as shifting loyals. The fourth and
final group of loyals are those who do not show loyalty or preference towards
one particular brand, but rather buy a product or brand that is on sale or
available at the time of the occasion. These customers are referred to as
switchers (Kotler and Keller, 2009: 264).
Attitude
As a final variable to the behavioural segmentation is attitude toward a product.
People can be divided into segments based on whether they have an
enthusiastic, positive, indifferent, negative or hostile attitude toward a product.
By considering the customers attitudes toward a brand or product the company
will get a wide-ranging view of the market and its segments (Kotler and Keller,
2009: 265).

TARGETING
In the segmentation process the second stage is market targeting. Once the

marketer has identified the segments it must be decided how many and which
customer groups/segments to target. With respect to the decision to which
customer groups or segments to target the company may choose one or a
combination of the following marketing strategies; mass marketing strategy
(undifferentiated marketing), single segment strategy (differentiated marketing)
or multi-segment strategy (concentrated marketing) (Dibb and Simkin, 1996: 1516).

Undifferentiated marketing

With undifferentiated marketing a company does not consider the differences

between each segment and chooses to target the market with one offer.
Thereby the company focuses on the similar needs of the customers rather than
the differences. However, when using undifferentiated marketing, it is not
possible to meet every customers needs and thus it is not possible to satisfy all
customers. Furthermore companies may meet hard competition from companies
using e.g. concentrated marketing (see below).

Differentiated marketing

Differentiated marketing is a marketing strategy where a company target many

market segments with offers specially designed for each segment. Thereby the
company may have a higher sale and thus stronger position within each market
segment. However, differentiated marketing also means increased costs of
doing business due to the separate marketing plans for each segment. Therefore
companies must consider increased sales against increased costs when using
differentiated marketing strategy.

Concentrated marketing

Concentrated marketing, also referred to as niche marketing, involves going

after a larger share of one or a few segments. By using niche marketing the
company can market more effectively due to a strong position and great
knowledge of the customers needs within each segment. Although
concentrated marketing can be highly profitable it also involves a high risk due
to the fact that the company rely on one or a few segments for their whole
business and will suffer greatly if the segment turns sour (Armstrong and Kotler,
2005: 200-202).

Positioning
The third and final step in the market segmentation process deals with
positioning. Once the company has identified the segments and chosen which
segment or segments to target the final step is to decide on, what position it
wants to occupy in those segments. Positioning is concerned with how the
customers perceive the products and how it is defined by the customers in order
to maximize the potential benefit to the company. The result is a persuasive
reason why the target market should buy the product or products (Kotler and
Keller, 2009: 308).

PRODUCT LINE POLICY

What is Product?
A product is something that is produced by a firm or factory or industry and sold
in the market. When it is sold easily or automatically, there is no problem. But
there are thousands of products, several kinds of the same products, and
millions of buyers of products actual and potential.
What is Product Policy?
Product policy is concerned with defining the type, volume and timing of
products a company offers for sale. The product policies are general rules set up
by the management itself in making product decisions. Good product policies
are the basis on which the right products are produced and marketed
successfully. Product policies are the objectives and guide lines which determine
the nature of the product or services to be marketed.

What is Product line?

The product line is a group of products that are closely related either because
they satisfy a class of need or are used together or sold to the same customer
groups or marketed through the same type of outlets or fall within given price
ranges.
According to Stanton, A broad group of products intended for essentially similar

uses and possessing similar physical characteristics constitutes a product line.

For example, Bajaj Electricals turns out fans, electric lamps, cables, electric
irons, heaters, transformers and so on.

What is Product (Brand) Manager?

The product manager is assigned to a brand (or product) and is responsible for
planning, establishing objectives, developing a marketing strategy, and ensuring
that plans are properly executed. Problem: product managers have a great deal
of responsibility and little authority. After all, a big company may have dozens of
brands. All the product managers in the firm have to work with the sales force,
advertising department, and marketing research department.

The important advantages are:

(a) It provides for fuller utilization of productive capacity.
(b) It facilitates entry into new items without extra marketing expenses.
(c) It enables the marketer to consolidate his advertising and promotional
strategy.
(d) It promotes consumer satisfaction.
(e) It acts as a deterrent to competitors who try to step in.
(f) It increases the profitability of the company.
(g) It also satisfies the dealers.
(h) It reduces the risk.
(i) It avoids seasonal fluctuations in sales.
Product Line Decisions:
In fact, decision about adding a new product is not different from other
managerial decisions. Taking decision of the product line depends upon a
number of factors:
(a) Companys objectives
(b) Product specialisation

(c) Product influences

(d) Elimination of unsought goods
(e) Marketing influences
(f) Buying habits
(g) Changes in market demand
(h) The distribution net-work
(i) The companys cost structure
(j) The availability of raw material

Product Line Decisions:

The major product line decisions are
a. Product line length
b. Product line stretching
c. Product line filling
d. Product line pruning

a. Product line length: The number of items in the product line is called the
product line length. Company should decide whether it requires longer chain or
shorter length. The decision depends upon the objective of the company,
competitive environment and profitability. If the chain is short company can add
new products and if it is lengthy company can reduce the number of products.

b. Product line stretching: Company lengthens its product line either by

stretching upwards or downwards or both ways. Line stretching decision
depends on three situations i. Company which operates in high end market may come up with mid class or
low class targeted products.
ii. The company which operates in lower end of market may come up with high
end market products.

iii. If the company operates in mid segment and comes out with low end product
as well as high end product then it is stretching both ways.

c. Product line filling: Adding more items in the present product line. For
example, in the year 2000 Maruti Suzuki launched Alto. This product was
between Maruti 800 and Maruti Zen. Here company was trying to fill the gap
existing in the segment by introducing ALTO, i.e. line filling.

d. Product line pruning: Removing the unprofitable products form the product
line. Toyota Kirloskar phased out their well known brand Quails when they
thought the brand was not adding value to the product line.

CUSTOMER POLICY

Definition:
An agreement between a commercial entity and it's clients which states the
intended relationship between said entity and said clients. It is often non
verbally binding upon purchase with the entity. It often includes things such as
the entity's view on refunds, employee and client standards, and the entity's
goals as a commercial business.

Benefits:
The potential benefits to a business from providing a consistently high level of
customer service include:
Increased sales more likely to try out other products/services too
Customer loyalty more likely to be a source of repeat business and to
recommend the business to friends and family
Enhanced public image helps build a brand and provides protection if there is
a slip-up in customer service

 More effective workforce satisfied customers help create a positive working

environment
Purpose:
To establish programs and procedures for developing, implementing and
enforcing accessibility standards in order to achieve accessibility for customers
with respect to the goods and services provided by the company.

VERTICAL INTEGRATION

Production Processes

The production process is concerned with transforming a range of inputs into

those outputs that are required by the market.
This involves two main sets of resources - the transforming resources, and the
transformed resources.
The transforming resources include the buildings, machinery, computers, and
people that carry out the transforming processes. The transformed resources are
the raw materials and components that are transformed into end products.

Types of Processes

Projects- carry out small, unique production. Each item or task is done by
hand, one at a time. There's very little, or no, standardization.

Batch production occurs when parts of a project or product are processed

together to increase efficiency. This is still a lower-volume process, but it can
handle more than the project.

Mass Production-When volume continues to increase, an assembly line

is set up. Each worker has a specific role, or task, to complete.

Continuous Production- When volume is extremely high and the range

of products is extremely small, continuous flow is set up. Continuous flow means
that production never stops. This approach is used primarily in factories.

Product technology refers to the terms of reference of a product: the

requirement the product has to fulfil. In practise, the specification or terms of
reference for the product are generally a combination of requirements set by
different interested parties: the end users, the designers, the
engineers/consultants for particular aspects of the product and managers.
Production Technology is the specification of the production process technology
is partly determined by the terms of reference of the product.

Technology Choice

Producers aim at minimizing production costs. This is important in most

industries, but certainly in the ones
with heavy competition. Production technology choice influences production
costs considerably. In particular
when economics of scale apply. This means that the cost per product reduces
with a growing production
volume. In these industries the production capacity should be large enough to
minimise production costs.
However producers should be concerned if the market volume and their market
share are large enough to
make the best of the production capacity. Due to inefficiencies, an under-utilised
equipment plant may result
in higher production costs than a small and completely utilised production
plant.Large companies producing various products may be able to use the same
production technology and increase the utilisation degree of
the technology.Clearly the multi-purpose specifications increase the need for a
quick adaptable production technology

Decentralized organizational structures often have several individuals

responsible for making business decisions and running the business.
Decentralized organizations rely on a team environment at different levels in the
business. Individuals at each level in the business may have some autonomy to
make business decisions.

Advantage:
Decentralized organizations utilize individuals with a variety of expertise and
knowledge for running various business operations. A broad-based management
team helps to ensure the company has knowledgeable directors or managers to
handle various types of business situations.

Automation or automatic control, is the use of various control system for

operating equipment such as machinery, processes in factories, boilers and heat
treating ovens, switching in telephone networks, steering and stabilization of
ships, aircraft and other applications with minimal or reduced human
intervention. Some processes have been completely automated.

Limitation
Current technology is unable to automate all the desired tasks.
Many operations using automation have large amounts of invested capital and
produce high volumes of product, making malfunctions extremely costly and
potentially hazardous. Therefore, some personnel are needed to insure that the
entire system functions properly and that safety and product quality are
maintained.
As a process becomes increasingly automated, there is less and less labor to
be saved or quality improvement to be gained. This is an example of both
diminishing returnsand the logistic function.
As more and more processes become automated, there are fewer remaining
non-automated processes. This is an example of exhaustion of opportunities.
New technological paradigms may however set new limits that surpass the
previous limits.
PRODUCTION CAPACITY

Dealing with high capacity utilisation

If a firm is struggling to keep up with demand, it could use the following
approaches:

Extra shifts or longer opening hours - using extra labour in the form of
staff overtime or additional staff. This is how many firms address short term
increases in demand, for example if one very large order is required. As long
as it doesnt go on for too long, staff may welcome the extra pay which is
usually at a higher rate.

There will be an increase in labour and other fixed costs such as extra heating and
lighting - and the firm might find there is insufficient time for maintenance and
training. It is nevertheless a suitable approach to meet increased demand while the
firm determines whether there will be a longer term need for extra capacity.
In some industries, local residents might object to additional noise and traffic
caused by night or weekend working.

Seasonal workers if the capacity shortage is seasonal, then temporary

staff may be taken on to meet the need. This is common in industries such as
retail at Christmas, and in leisure and farming in the summer. The main
problem is finding enough good temporary workers who have the right skills
to maintain the firms levels of service and quality.

Outsourcing or subcontracting this means passing one or more aspect of

the production process to another firm. For example an engineering firm

could send components to another specialist firm for plating and concentrate
itself on the other aspects of production. Motor manufacturers have
increasingly sourced bodywork panels and other components through
subcontractors, concentrating on assembly and finishing of vehicles.
This is a practical approach adopted by many firms that allows the firm to
concentrate on what it does best. The partner firm may be more efficient at the
outsourced operation. However, there are logistical challenges and costs associated
with this and it does depend on the reliability of the partner firms.
This approach is also used as a primary mode of expansion by many large
manufacturers. Apple, for example, very quickly out-sourced the manufacture of
iPods to Chinese firms and Dyson outsourced vacuum cleaner manufacture to Korea.

Expansion investment in larger or additional factories, new machinery,

further shops or offices. This will involve recruitment and training of new
employees. Although there is considerable expense involved, this may be an
appropriate strategy if demand is growing steadily and is expected to be
sustained.

Dealing with low capacity utilisation

If a firm cannot find enough orders, it will be suffering from increased fixed costs, or
overheads, per unit of production. Some possible solutions include:

New business - of course, the most obvious solution is to try and find new
business or change the marketing proposition so that the firms product or
service is more competitive!

However, if this is not successful, other measures may have to be taken to cut
overheads, such as:

Rationalisation or downsizing - this means shutting down or selling off

parts of the business. Staff may have to be made redundant, losing skilled
and trained staff, so long term expectations must be taken into account
before taking such drastic measures.

Short-time working cutting out a shift or reducing working hours. This will
mean either reducing the workforce, or asking them to accept reduced wages
and/or a loss of overtime. Obviously, this is likely to damage staff morale but
might be preferable to permanent job losses as long as there is the
possibility of an upturn in trade.

Laying off workers this will reduce labour costs but not other fixed costs
unless other actions are also taken.

Preventive Maintenance and Replacement Scheduling

Preventive maintenance is a broad term that encompasses a set of activities
aimed at improving the overall reliability and availability of a system. All types
of systems, from conveyors to cars to overhead cranes, have prescribed
maintenance schedules set forth by the manufacturer that aim to reduce the
risk of system failure.
Preventive maintenance activities generally consist of inspection, cleaning,
lubrication, adjustment, alignment, and/or replacement of sub-components that
wear-out. Regardless of the specific system in question, preventive maintenance
activities can be categorized in one of two ways, component maintenance or
component replacement. An example of component maintenance would be
maintaining proper air pressure in the tires of an automobile. Note that this
activity changes the aging characteristics of the tires and, if done correctly,
ultimately decreases their rate of occurrence of failure. An example of
component replacement would be simply replacing one or more of the tires with
new ones.
Obviously, preventive maintenance involves a basic trade-off between the costs
of conducting maintenance/replacement activities and the cost savings achieved
by reducing the overall rate of occurrence of system failures. Designers of
preventive maintenance schedules must weigh these individual costs in an
attempt to minimize the overall cost of system operation. They may also be
interested in maximizing the system reliability, subject to some sort of budget
constraint. Other criteria such as availability and demand satisfaction might be
considered as the objective functions, but they will not be studied in this
dissertation. The problem is to find the best sequence of maintenance actions
for each component in the system in each period over a planning horizon such
that overall costs are minimized subject to a constraint on reliability or the
reliability of the system is maximized subject to a constraint on budget.