Text 5. The Advantages of Segmentation

By using a market segmentation strategy firms can:

Define their markets more precisely. Gain a better understanding of the needs and buying behavior of consumers who make up the markets in which they operate.

Devise effective strategies and plans. Meet and satisfy the particular needs of the market segments which are being targeted.

Analyze their main competitors. Assess their own strengths and weaknesses in relation to those of their competitors in order to identify any segments where the market leader is so dominant that it is not worth wasting resources in trying to compete.

Respond rapidly to changing market trends. Monitor the changing tastes and preferences within a small, precisely defined group. This can be done more easily for a small group than for the population as a whole. Closeness to the needs of their target markets means changes can be identified and acted on quickly.

Allocate their resources efficiently. Distribute resources so that they are concentrated on the particular groups of consumers who have been defined as forming the target markets. This is far better than wasting resources, such as the money spent on advertising or the efforts of the sales force, by spreading them over the entire market.

Identify gaps in the market. Discover areas of the market where customers' needs are not being catered for as yet.

In view of these advantages the majority of firms do, in fact, divide the overall market into segments in order to concentrate on the target groups which are likely to prove most worthwhile. However, a segmentation strategy is not worthwhile in three situations:

• where the heavy users account for such a high proportion of sales that they are the only segment worth targeting;

• where the dominant product or brand accounts for such a high proportion of sales that there is no point in segmenting the market any further;

• where the total market is in itself worth so little that it is not economic to pursue sales in smaller market segments.

Read text 6 and complete the sentences given after it.

Text 6. Market Positioning

Once a strategy has been chosen, the firm then has to decide what market posi­tion each of its products or services will occupy, relative to those of its com­petitors, within a particular market segment. Ideally, any product or service should stand out from the competition and thus occupy a unique position in the market by virtue of its better quality, design, performance, reliability or some other advantage. In other words, it should offer a unique selling proposi­tion (USP): an aspect or feature which sets it apart from the rest of the competition.

In reality, products which have been on the market for some time invariably become very similar to each other as each firm has time to find out exactly what features the market wants. Many products are now so similar in all important respects that they are essentially parity products, i.e. products that are 'at par' with each other. Brands of shampoo, for instance, are all basically the same apart from slight variations in additives. The differences lie more in the way each shampoo is packaged, priced and advertised. Yet these superficial changes are enough to give each brand a distinctive image in the minds of consumers.

This suggests that it probably does not matter too much if the features which distinguish a product from its competitors are real or merely perceived dif­ferences - providing the consumer believes the product is unique in some way. Nevertheless, as market segments become ever more crowded and competitive, the need for products to establish a unique position has never been greater.