The concept of segmentation and its process

Market segmentation is a strategy that involves dividing a larger market into subsets of customers who have common needs and applications for the goods and services offered in the market.

The concept of segmentation

Market segmentation is the process of segmenting a market into a subgroup of organizations or people that have similar needs. For example if you are marketing a Calcium supplements for women’s bones or an Ant ageing Cream, It will attract older generation rather than the younger generation. So company has to target that particular group for better results.

What is the segmentation process?

Once a company has gathered information from these segmentation bases, it must decide how to divide the market, bearing in mind that market segmentation seeks to minimize the differences within a segment and maximize the differences among segments. Hence, depending on the product or service to be marketed, simple sections along age, gender, or geographic lines alone may yield segments that are too vague to be of use. Instead, marketers may have to consider several characteristics or bunch of characteristics in order to divide the market into useful segments. When regarding Fast food consumption, for marketers must look at both age and gender: the majority of fast food eaters are more young people than the old people.

Therefore, to begin segmenting the market, marketing managers must select the segmentation bases they will use to develop the segments, depending on the products or services to be marketed. Marketers may select a few segmentation bases they believe are the most relevant at the outset and develop market segments using them. On the other hand, they may compile a large array of information using all the segmentation bases and use this information to group consumers in various segments.

Next, marketers conduct any primary market analysis they may need, by preparing questionnaires and samples and by assessing the response to them. Using this information, marketers try to determine the most fruitful segments-the ones with greatest similarities within them. Because this process can be labor-intensive and require advanced knowledge of statistics, companies often rely on outside firms or artificial intelligence technology to produce meaningful market segments.

Once significant, stable, reachable, profitable market segments are launched, marketers can target the segments they believe will offer the best opportunities for growth given their products and resources and the ones they believe that remark to the products being marketed the best. Finally, marketers can develop and launch sales campaigns that appeal to the various segments.

Companies incline to pick out the largest segments, while the segments with the most purchasers are not always the most profitable and usually have the most competition. Accordingly, marketers might reward from considering targeting smaller segments or segments ignored by challengers, such as low-income consumers, which are frequently referred to as “niche marketing.”

Market Segmentation Strategies

Market segmentation is widely prominent as being a complex process consisting in two main phases:

Identification of broad, wide markets

Segmentation of these markets in order to select the most set aside target markets and develops Marketing mixes depending on it.

Everyone within the Marketing world knows and speaks of segmentation yet not many truly understand its underlying mechanics, hence failure is just around the corner. Why do this happen? It has been documented that most marketers fail the segmentation exam and start with a narrow mind and a bunch of misconceptions such as “all teenagers are rebels”, “all elderly women buy the same cosmetics brands” and so on. There are many dimensions to be considered, and uncovering them is certainly an exercise of creativity.

The most widely employed model of market segmentation comprises 7 steps, each of them designed to encourage the marketer to come with a creative approach.

How a market is segmented is based on variables used for segmentation; behavioral, demographic, psychographic and geographical differences.

Behavioral Segmentation: Behavioral segmentation is based on the customer’s needs and subsequent reaction to those needs or toward the purchase of intended products and/or services. This study is conducted on all variables that are closely related to the product itself, like loyalty to a particular brand, cost effectiveness in terms of benefits and usage, circumstances responsible for the purchase, whether the customer is a regular, a first timer or and has the potential to become a customer, and whether the readiness to buy is linked to status.

Demographic Segmentation: Demographic segmentation refers to a wide study of the potential customers. While marketing a product many variables like age, gender, education, income, size of the family, occupation, socioeconomic status, culture and religion, language and nationality are taken into account. There are many instances where such a segmentation has worked very profitably, toys and clothes for every age group, certain food products that do well in certain counties and don’t in some, either due to cultural or religious reasons. Demographic segmentation plays a vital role in determining whether a product can be bulk marketed or designed for specific group of people.

Psychographic Segmentation: Segmenting people according to their lifestyles and values, and how they translate into consumption or purchases of products of services is what psychographic segmentation is all about. How one’s interest, opinions, values, attitude and the activities they perform, all affects how and why a group of people would lean towards one product more than others. A high status would translate into an expensive flying habit, while a thrift value will translate into an economy flight.

Geographical Segmentation: Geographical segmentation is done by dividing people (markets) into different geographical locations. The country, state, or neighborhood, the king of gentry, climate, size of a place segmented into size of its age wise population, etc. all play a role in devising market strategies. This helps the producer and the marketers to understand what will sell and what won’t, for example, a market for winter wear would definitely not work in warm regions

A successful market strategy strives to understand different segments and its different needs; works on the exhibited common wants; and responds immediately.

STEP 1: Identify and name the broad market

You have to have figured out by this moment what broad market your business aims at. If your company is already on a market, this can be a starting point; more options are available for a new business but resources would normally be a little limited.

The biggest challenge is to find the right balance for your business: use your experience, knowledge and common sense to estimate if the market you have just identified earlier is not too narrow or too broad for you.

STEP 2: Identify and make an inventory of potential customers’ needs

This step pushes the creativity challenge even farther, since it can be compared to a brainstorming session.

What you have to figure out is what needs the consumers from the broad market identified earlier might have. The more possible needs you can come up with, the better.

Got yourself stuck in this stage of segmentation? Try to put yourself into the shoes of your potential customers: why would they buy your product, what could possibly trigger a buying decision? Answering these questions can help you list most needs of potential customers on a given product market.

STEP 3: Formulate narrower markets

There is no exact formula on how to form narrow markets: use your best judgment and experience. Do not avoid asking opinions even from non-Marketing professionals, as different people can have different opinions and you can usually count on at least those items most people agree on.

STEP 4: Identify the determining dimensions 

carefully review the list resulted from the previous step. You should have by now a list of need dimensions for each market segment: try to identify those that carry a determining power.

Reviewing the needs and attitudes of those you included within each market segment can help you figure out the determining dimensions.

STEP 5: Name possible segment markets 

you have identified the determining dimensions of your market segments, now review them one by one and give them an appropriate name.

A good way of naming these markets is to rely on the most important determining dimension.

STEP 6: Evaluate the behavior of market segments

Once you are done naming each market segment, allow time to consider what other aspects you know about them. It is important for a marketer to understand market behavior and what triggers it. You might notice that, while most segments have similar needs, they’re still different needs: understanding the difference and acting upon it is the key to achieve success using competitive offerings.

STEP 7: Estimate the size of each market segment

Each segment identified, named and studied during the previous stages should finally be given an estimate size, even if, for lack of data, it is only a rough estimate.

Estimates of market segments will come in handy later, by offering a support for sales forecasts and help plan the Marketing mix: the more data we can gather at this moment, the easier further planning and strategy will be.

These were the steps to segment a market, briefly presented. If performed correctly and thoroughly, you should now be able to have a glimpse of how to build Marketing mixes for each market segment.

Why market segmentation is important?

Market Segmentation is important because without it the business will not find the correct target audience.

There are several important reasons why businesses should attempt to segment their markets carefully. These are summarized below

Better matching of customer needs

Customer needs differ. Creating separate offers for each segment makes sense and provides customers with a better solution

Enhanced profits for business

Customers have different disposable income. They are, therefore, different in how sensitive they are to price. By segmenting markets, businesses can raise average prices and subsequently enhance profits

Better opportunities for growth

Market segmentation can build sales. For example, customers can be encouraged to “trade-up” after being introduced to a particular product with an introductory, lower-priced product

Retain more customers

Customer circumstances change, for example they grow older, form families, change jobs or get promoted, change their buying patterns. By marketing products that appeal to customers at different stages of their life (“life-cycle”), a business can retain customers who might otherwise switch to competing products and brands

Target marketing communications

Businesses need to deliver their marketing message to a relevant customer audience. If the target market is too broad, there is a strong risk that (1) the key customers are missed and (2) the cost of communicating to customers becomes too high / unprofitable. By segmenting markets, the target customer can be reached more often and at lower cost

Gain share of the market segment

Unless a business has a strong or leading share of a market, it is unlikely to be maximizing its profitability. Minor brands suffer from lack of scale economies in production and marketing, pressures from distributors and limited space on the shelves. Through careful segmentation and targeting, businesses can often achieve competitive production and marketing costs and become the preferred choice of customers and distributors. In other words, segmentation offers the opportunity for smaller firms to compete with bigger ones.

Effective Segmentation

1. Measurable: – it should be possible to determine the values of the variable used for the segmentation.

2. Relevant: – it should justify the expected profits and the growth potential.

3. Accessible: – the target customers must be reachable and servable for the organization.

4. Distinguishable: – the target audiences must be diverse and able to show different reactions to different marketing mix.

Advantages of market segmentation

a) Helps in better understanding of the customers’ needs and wants.

b) Better targeting and position of the product.

c) Encourages two-way communication among the potential buyer and the organization.

d) Maintaining effective relationship with the customers.

e) Retaining the existing customers and attracting new ones.

f) Improving service delivery standards.

g) Reducing cost / expenses on various marketing activities and increases market share; resulting in higher profits.

McDonald’s in India

McDonald’s is the world’s largest fast-food retailer “with more than 30,000 restaurants in119 countries serving 47 million customers each day.

McDonald’s entered India in 1996. McDonald’s India has a joint venture with Connaught Plaza Restaurants and Hard Castle Restaurants. Connaught Plaza Restaurants manages operations in North India whereas Hard Castle Restaurants operates restaurants in Western India.

Challenges in Entering Indian Markets

Re-organizing the menu – McDonald’s has continually adapted to the customer’s tastes, value systems, lifestyle, language and perception. Globally McDonald’s was known for its hamburgers, beef and pork burgers. Most Indians are barred by religion not to consume beef or pork. To survive, the company had to be responsive to the Indian sensitivities. So McDonald’s came up with chicken, lamb and fish burgers to suite the Indian palate.

The vegetarian customer – India has a huge population of vegetarians. To cater to this customer segment, the company came up with a completely new line of vegetarian items like McVeggie burger and McAlooTikki. The separation of vegetarian and non-vegetarian sections is maintained throughout the various stages.

Segmentation, Targeting and Positioning

McDonald’s uses demographic segmentation strategy with age as the parameter. The main target segments are children, youth and the young urban family. Kids reign supreme in related to food products.

“Mc Donald’s mein hai kuch baat” projects McDonald’s as a place for the whole family to enjoy. When McDonald’s entered in India it was mainly perceived as targeting the urban upper class people. Today it positions itself as an affordable place to eat without compromising on the quality of food, service and hygiene. The outlet ambience and mild background music highlight the comfort that McDonald’s promises in slogans like “You deserve a Break Today” & “Feed your inner child”. This commitment of quality of food and service in a clean, hygienic and relaxing atmosphere has ensured that McDonald’s maintains a positive relationship with the customers.

Demographic segmentation consists of dividing the market into groups based on variables such as age, gender family size, income, occupation, education, religion, race and nationality.

This is partly because customer wants are closely linked to variables such as income and age. Also, for practical reasons, there is often much more data available to help with the demographic segmentation process.

The main demographic segmentation variables are summaries as given below:

Age: Consumer needs and wants change with age although they may still wish to consumer the same types of product. So Marketers design, package and promote products differently to meet the wants of different age groups. So to attract children McDonalds has Happy Meal with which toys ranging from hot wheels to various Walt Disney characters are given (the latest in this range is the toys of the movie Madagascar). For this, they have a tie-up with Walt Disney. At several outlets, it also provides special facilities like ‘Play Place’ where children can play arcade games, air hockey, etc. This strategy is aimed at making McDonald’s a fun place to eat.

This also helps McDonald’s to attract the young urban families wanting to spend some quality time while their children have fun at the outlet. To target the teenagers, McDonald’s has priced several products aggressively, keeping in mind the price sensitivity of this target customer. In addition, facilities like Wi-Fi are also provided to attract students to the outlets

Lifestyle: Marketers are increasingly interested in the effect of consumer “lifestyles” on demand. Unfortunately, there are many different lifestyle categorization systems, many of them designed by advertising and marketing agencies as a way of winning new marketing clients and campaigns!

Religion: At McDonalds in India they serve vegetarian and as well non vegetarian food for their customers. They use different oil for vegetarian food and non vegetarian food. Due to religious issues in India they only serve chicken and fish and in chicken also they only use “halal” meat they strictly avoid using beef and pork.

Income: McDonalds offers low price meal which suits every type of customers. Whether it is a school going teenage , a college going students or working class people. McDonalds punch line is ” Aapke zamane main apke baap ke zamane ke DAAM” McDonalds suits your pocket everywhere you go as it along with the affordable price it offers good ambiance n hygienic place to eat and have a nice time with your friends and family.

Occupation: McDonalds has meal for all sort of people from different occupations. Whether its teacher, student or a kid. In a very affordable price they offer you a hygienic and a tasty food as well with the great offers for your kids like free toys and also offer area to play around. McDonalds also offers a good verity range of beverages like coffee, floats etc. So if you are working and you had a tired long working day then you can come to McDonalds and have a coffee with a French fries and you will get refreshed for sure and while sitting in a nice ambiance you can have a nice food too.

Customer Perception and Customer Expectation

Customer perception is a key factor affecting a product’s success. Many potentially revolutionary products have failed simply because of their inability to build a healthy perception about themselves in the customers’ minds. McDonalds being an internationally renowned brand brings with it certain expectations for the customers.

McDonalds Marketing Mix (5 P’s)

After segmenting the market, finding the target segment and positioning itself, each company needs to come up with an offer. The 5 P’s used by McDonalds are:

1. Product

2. Place

3. Price

4. Promotion

5. People

Product: How should the company design, manufacture the product so that it

Enhances the customer experience?

Marketing—Sellable & Distributable

Product Success

Design-Useful & desirable

Product is the physical product or service offered to the consumer. Product includes certain aspects such as packaging, guarantee, looks etc. This includes both the tangible and the no tangible aspects of the product and service. McDonalds has intentionally kept its product depth and product width limited. McDonalds studied the behavior of the Indian customer and provided a totally different menu as compared to its International offering. It dropped ham, beef and mutton burgers from the menu. India is the only country where McDonalds serve vegetarian menu. Even the sauces and cheese used in India are 100% vegetarian. McDonalds continuously innovates its products according to the changing preferences and tastes of its customers. The recent example is the introduction of the Chicken Maharaja Mac. McDonalds bring with it a globally reputed brand, world class food quality and excellent customer specific product features.

Place: Where should be the product be available and the role of distribution

Channels?

The place mainly consists of the distribution channels. It is important so that the product is available to the customer at the right place, at the right time and in the right quantity. Nearly 50% of U.S.A is within a 3 minute drive from a McDonald’s outlet. There is a certain degree of fun and happiness that a customer feels each time he dines at McDonalds. There are certain value propositions that McDonalds offer to its customers based on their needs. McDonalds offers hygienic environment, good ambience and great service. Now McDonalds have also started giving internet facility at their centers and they have been playing music through radio instead of the normal music. There are certain dedicated areas for children where they can play while their parents can have some quality time together.

Price: What should be the pricing strategy?

Pricing includes the list price, the discount functions available, the financing options available etc. It should also take into the consideration the probable reaction from the competitor to the pricing strategy. This is the most important part of the marketing mix as this is the only part which generates revenue. All the other three are expenses incurred. The price must take into consideration the appropriate demand-supply equation. McDonald’s came up with a very catchy punch line “Aap ke zamane mein ,baap ke zamane ke daam”. This was to attract the middle and lower class consumers and the effect can clearly be seen in the consumer base McDonalds has now.

McDonalds has certain value pricing and bundling strategies such as happy meal, combo meal, family meal etc to increase overall sales volumes.

Promotion: What is the suitable strategy and channels for promotion of the

product?

Pricing includes the list price, the discount functions available, the financing options available etc. It should also take into the consideration the probable reaction from the competitor to the pricing strategy. This is the most important part of the marketing mix as this is the only part which generates revenue. All the other three are expenses incurred. The price must take into consideration the appropriate demand-supply equation. McDonald’s came up with a very catchy punch line “Aap ke zamane mein ,baap ke zamane ke daam”. This was to attract the middle and lower class consumers and the effect can clearly be seen in the consumer base McDonalds has now. McDonalds has certain value pricing and bundling strategies such as happy meal, combo meal, family meal etc to increase overall sales volumes.

Promotion: What is the suitable strategy and channels for promotion of the

product?

The various promotion channels being used by McDonald’s to effectively communicate the product information are given above. A clear understanding of the customer value helps decide whether the cost of promotion is worth spending. There are three main objectives of advertising for McDonald’s are to make people aware of an item, feel positive about it and remember it. The right message has to be communicated to the right audience through the right media. McDonald’s does its promotion through television, hoardings and bus shelters. They use print ads and the television programmers are also an important marketing medium for promotion.

Some of the most famous marketing campaigns of McDonald’s are:

“You Deserve a break today, so get up and get away- To McDonald’s”

“Aap ke zamane mein ,baap ke zamane ke daam”.

“Food, Folks, and Fun”

“I’m loving it”.

People: How to converge the benefits of internal and external marketing?

McDonald’s understands the value of both its employees and its customers. It understands the fact that a happy employee can serve well and result in a happy customer. McDonald continuously does Internal Marketing. This is important as it must precede external marketing. This includes hiring, training and motivating able employees. This way they serve customers well and the final result is a happy customer.

McDonald’s in United Kingdom

The world’s leading fast food restaurant chain McDonald’s Corporation in the UK. McDonald’s entered the UK in 1974 with its first restaurant in Woolwich in south-east London. Since then, McDonald’s had been expanding steadily in the UK by providing quality, service, and value to its customers. As of 2009, McDonald’s managed about 1200 restaurants in the UK including 700 drive-through outlets. For McDonald’s, the UK was one of the challenging markets but as of 2009, it was one of the most promising markets for the fast food chain.

In 2003, McDonald’s adopted the ‘Plan to Win’ strategy in the UK market in order to increase sales. As part of the ‘Plan to Win’ strategy, McDonald’s offered variety and value, tastier food, and improved service to customers. To cater to the health-conscious customers in the UK, McDonald’s introduced healthier options such as salads and provided nutritional information about its products on food packages

One of the major problems was consumers’ perceptions about McDonald’s as a promoter of obesity. The chain drew criticism from consumers as its products were considered to be high in fat content and hence detrimental to health. Critics alleged that McDonald’s promoted unhealthy food

Issues faced by McDonalds in United Kingdom

In 2009, the CEO of McDonald’s, UK Steve Easterbrook has said, everyone will make their own decision on what suits them and their family and their lifestyle. But it’s good-quality food at affordable prices and if that works for families then they’ll keep on coming back. On average, our customers come three times a month. So out of 90 meals a month, three will be at McDonald’s. I’m perfectly comfortable with that fitting in to anyone’s diet.

» Study and analyze the entry and expansion strategies of McDonald’s in UK.

» Evaluate McDonald’s operational strategy in UK.

» Study how McDonald’s overcame some of the challenges faced by it in the UK and the reasons for its success.

» Examine the further challenges that the fast food chain faced in UK.

» Explore future strategies that McDonald’s can adopt in UK.

Overcoming Challenges and gaining more business:

During the period, McDonald’s business in Europe registered a 3.2% rise in sales and its global profits increased by 4% to US$ 979.5 million. It was reported that McDonald’s growth in the UK was above the European average in terms of sales as well as customer count. 

In the UK, cost-conscious customers flocked to McDonald’s restaurants as they offered different menu choices at affordable prices. Commenting on its business in the UK, Steve Easterbrook (Easterbrook), CEO of McDonald’s UK, said, “This marks our twelfth consecutive quarter of growth and has been achieved at a time when the informal eating out market in the UK was flat.

The UK was one of the key markets for McDonald’s. The fast food giant entered the country in 1974, at a time when American-style fast food was not too popular in the country. The British considered McDonald’s entry a part of the American cultural invasion and so McDonald’s faced some start-up problems in the country. During its first year in the UK, McDonald’s reported losses as it failed to attract English customers.

In order to enhance its brand reputation in the UK and to improve sales, McDonald’s focused on four core areas – food, employees, the environment, and communities. It introduced several new items on the menu, revamped restaurants, launched community programs, and introduced accredited qualifications and apprenticeships for its employees in the UK…

Promotional Strategies

McDonald’s promoted its brand image in the UK through the use of digital media like the Internet, websites, online promotions, e-mails, online games, and TV commercials. These initiatives were meant to create awareness among customers regarding the quality of the food, nutrition, health-related information, menu choices, etc. at McDonald’s…

Ingredients used in UK Market

McDonald’s quality of its food is at the root of everything they do. They give all the credits to their carefully selected suppliers, only top quality ingredients go into McDonald’s food.

They say their work closely with suppliers and producers, and also they have developed good, long-term relationships. They help us maintain the highest possible standards in quality, safety and traceability. So our customers can enjoy the great taste of McDonald’s every time they visit.

In UK market they use beef, pork as an ingredient which differs from Indian Market. In Beef all of their beef comes from cattle raised on British and Irish farms. All of their burgers are made from 100% beef, supplied by farms accredited by nationally recognized farm assurance schemes.

In Pork All of our pork comes from British farmers accredited by nationally recognized farm assurance schemes.

McDonalds only uses cuts of British pork across our entire menu. Only cuts of shoulder and belly are used to make our famous Sausage & Egg McMuffins.

Menu of McDonalds UK

Sausage & Egg McMuffin

Bacon Egg Muffin

Bacon Roll

Bacon Egg and Cheese Roll

Low fat Blueberry Muffin

Sugar Donut, etc