Market Segmentation in European Markets

Table of Contents

1. Introduction

2. Subsumption and Integration of Market Segmentation
2.1. Into the Marketing Strategy Conception
2.2. Into the European Environment
2.3. Into the Historical Context

3. Motives for Market Segmentation

4. Attributes of Effective Market Segmentation

5. Levels of Market Segmentation
5.1. Mass Marketing
5.2. Segment Marketing
5.3. Niche Marketing
5.4. Local Marketing
5.5. Individual Marketing

6. Bases for Segmenting Consumer Markets
6.1. Geographic Segmentation
6.2. Demographic Segmentation
6.3. Psychographic Segmentation
6.4. Behavioural Segmentation

7. Bases for Segmenting Industrial Markets

8. Common Failures of Market Segmentation Approaches

9. The Key to Success

10. Conclusion

11. References

12. Appendices
Appendix 1.: New Commission Report
Appendix 2.: Customer Portrait®
Appendix 3.: The VALSTM
Appendix 4.: Sinus-Meta-Milieus®

"Marketing is not the art of finding clever ways to dispose of what you make. It is the art

of creating genuine customer value." ¹

Philip Kotler

1. Introduction

Marketing is onmipresent. The contemporary human being is permanently confronted with marketing in all its expressions. Today’s consumers are persistently faced with a downright overflow of advertisement, sales promotion, commercials in all media channels, real and virtual, with conscious and unconscious stimuli.

However, the ability of every targeted customer to perceive information is very limited. But even a smaller percentage of advertising messages can be recognized and considered as being relevant. Therefore consumers often feel harassed by the quantity and quality of advertising and react protective, especially when they don’t belong to the target group of the advertised product or service. Budget waste and damage to the brand image can be a disastrous result.

But what does really make a customer a buyer? What are the trigger factors that motivate the customer to shop and convince him to purchase a product again and again? This is a question every single company in every single industry on today’s globalised market is confronted with.

And the answer seems to be so simple: the right marketing strategy together with its proper implementation lead a business to success and market shares to growth.

One of the most important tools of strategic marketing is market segmentation.²

In this Term Paper I would like to emphasize the significant relevance of market segmentation in the European and global markets.

At the beginning the position of market segmentation within the strategic management is determined. As the environment in which marketing occurs is crucial it is amplified in the following chapter. Further on market segmentation is defined and set into the historical and modern frame of strategic management and marketing. Finally, functionality, the common failures and problems in the use of that strategic instrument are particularized and possible solutions are offered.

2. Subsumption and Integration of Market Segmentation

2.1. Into the Marketing Strategy Conception

In the modern theory of strategic marketing the famous Four P concept (product, price, placement, and promotion), well known as the Marketing Mix is not only extended by more P’s (people, process, physical evidence).³ According to Kotler market segmentation and identification of target markets are the basis for determining any particular marketing mix and can be described as STP marketing, which stands for Segmenting, Targeting and Positioning.⁴

illustration not visible in this excerpt

Figure1.: STP as marketing strategy⁵

Market Segmentation is a part of the classical (marketing) management process with its four steps: Analysis, Planning, Implementation and Control (APIC)⁶.

2.2. Into the European Environment

Basically a marketing environment consists of the operating or task environment with all companies, competitors, suppliers, distributors, dealers customers and the other stakeholders⁷ and the remote or broad environment, consisting of six components: Demographic, economic, physcal, technological, political–legal and social–cultural powers which can have enormous influence on a company.⁸

The contemporary European environment is characterized by contradiction and change in every single component.

This complex system of unified sovereign and democratic states is strongly affected by poverty amidst plenty, a partially medieval infrastructure versus amazing technological development, different ethnic conflicts, an unprecedented stock fluctuation and the ongoing financial crises across the globe.⁹

But despite all geographic, cultural, lingual, social, infrastructural and economic diversity the European Union with its 27 member states and over 450 Million people has become and defended its position of the world’s largest single market and it is number one in the world’s trade arena.¹⁰

The Europe-wide segmentation approach is called Pan-European segmentation.¹¹

Pan-European marketing literally means viewing Europe as a distinct geographic segment to be treated in a uniform, standardized way within Europe but differently from other global regions. Thus, a Pan-European segmentation strategy views Europe as one of several global segments, which should be approached by a uniform strategy.

2.3. Into the Historical Context

In the International Dictionary of Management market segmentation is described as an “Analysis of the purchasers in a market by reference to such characteristics as buying behaviour, patterns, socio-economic status or age in order to divide the market into sectors or segments in each which the customers are of a similar nature and are influenced by similar buying motives.”¹²

Starting with Wendell R. Smith in the year 1956 who has announced segmentation as an “Alternative marketing strategy”, that was caused by the “developments on the demand of the market and represents a rational and more precise adjustment of product and marketing effort to consumer or user requirements”¹³ market segmentation gained in well-deserved importance. Smith determined in the July issue of the Journal of Marketing in1956 the emerge of formal recognition of the segmentation strategy.¹⁴

This development turned out to be a long-term trend. 1978 Yoram Wind has stated, that “Segmentation provides guidelines for a firm’s marketing strategy and resource allocation among markets and products.”¹⁵

Due to the globalization market segmentation has gained an international facet. It became a significant instrument in developing, positioning and selling products across national borders, as borders are continuously becoming less and less important for many industries. ¹⁶

Today companies from all over the world can gain a better return on their investment by using this consumer-led marketing technique rather than randomly marketing a product to the general population.

The trend in the global economy goes towards worldwide investment and production strategies, open economies, regional unifications, expansion of travel and a boundless worldwide convergence of lifestyles, tastes, purchasing power and advances in information and communication technologies.

So the companies have to ascertain, that groups of consumers in different countries have more in common with one another than with their neighbours. Regarding European market segmentation it is quite obvious that consumers for example in Paris have more in common with those in London or Berlin than with their compatriots in the Provence. Therefore, the companies choose a marketing strategy which crosses national borders and continents to serve the similar needs of customers with homogeneous attributes and analogical reactions on the same stimuli in different countries.¹⁷

3. Motives for Market Segmentation

Market Segmentation is regarded as the “Key to market success”.¹⁸ The classical tactic of divide and conquer offers a range of advantages for players, business and customers. A proper market segmentation can:¹⁹

- generate higher profits: when price increase for the whole market is problematical, it is possible to develop premium segments, where customers accept a higher price level (price differentiation);
- increase market shares through leadership in selected segments and an improved competitive position;
- facilitate a proper choice of target marketing and the marketing mix for different consumer groups;
- facilitate tapping of the market and adapting the offer to the target;
- help to make accurate forecasts of the likely reactions from each segment;

[...]

¹ Kotler in http://www.kotlermarketing.com/ as of 20.05.2009

² cf. Lamb, Hair, McDaniel (2008), P.232

³ cf. Weinstein (1998), P. 20

⁴ cf. Kotler (2009), P. 25

⁵ adapted from Kotler (2009), P. 25; Dibb (1998), P. 395

⁶ cf. Kotler (2009), P. 85

⁷ cf. Finlay (2000), P. 162

⁸ cf. Kotler (2009), P. 19

⁹ cf. Kotler (2009), P. 19

¹⁰ see New Commission Report in Appendix 1.

¹¹ cf. Doole, Lowe (2007), P. 114

¹² Johannsen, Page (1995), P. 194

¹³ Smith (1956), P. 3-8 in JoM; reprinted by Baker (2001), P. 285

¹⁴ Smith (1956), P. 3-8 in JoM; reprinted by Baker (2001), P. 289

¹⁵ Wind (1978), P. 317

¹⁶ cf. Steenkamp, Hofstede (2002), P. 185

¹⁷ cf. Hassan, Katsanis (1991), P. 17

¹⁸ Weinstein (1994), P. 2

¹⁹ cf. Dibb (1998), P. 394