Thus, market segmentation divides the total market into different sub-markets that have similar characteristics. There are 4 levels of market segmentation, and these are used based on the target marketing process.
4 levels of market segmentation are;
- Mass Marketing or Undifferentiated Marketing.
- Product-Variety Marketing or Differentiated Marketing.
- Concentrated Marketing or Niche Marketing.
- Micro Marketing.
To understand market segmentation levels, we need to see what a market looks like with no, partial and full segmentation. Let see a hypothetical six buyers the market and how they are segmented;
As you can see, the market segmentation levels are the way a company looks at the market and sets how broad it’s market targeting should be.
Let’s try to under all 4 levels of market segmentation;
1. Mass Marketing or Undifferentiated Marketing – Target the entire market with just one marketing campaign.
Mass marketing is the process of communicating a product to the entire market with one marketing strategy, using the power of mass distribution and mass media.
Also, know as undifferentiated marketing because this strategy does not target individual market segments. Different market segments are marketed with the same blanket approach, usually to maximize sales volume.
Most businesses try combining mass and niche marketing strategies.
Advantages of Mass Marketing
- Economies of scale can be obtained in mass markets because of enormous size. Thus, the average cost of bringing the product to the market will be lower, and hence, profit margins higher.
- Only one marketing plan is required, and no specific market segment is targeted. One marketing campaign targets the whole market, facilitating marketing economies of scale.
- Providing products for a mass market enables establishing a more extensive base of customers. This will generally increase profitability.
Limitations of Mass Marketing
- In mass marketing, the competition is usually broad and extreme.
- There are very high barriers to entry for mass markets. Often incumbent competition has invested in capital equipment, large-scale factories, offshore centers, efficient supply chain management processes, etc. Huge competition can make it extremely difficult to compete in a mass-market as a new firm successfully.
- Mass marketing is less focussed, requires more resources.
- The company can suffer a high loss if the marketing strategy fails.
2. Product-Variety Marketing or Differentiated Marketing – Target the Entire market with different products and marketing mix
In Product-Variety Marketing or Differentiated Marketing, the marketer divides the market into different segments depending on the consumer’s buying behavior, requirements, purchasing power, location, and age level.
In product-variety marketing, the seller produces two or more products that have different features, styles, quality, and so on. Subsequently, Kohinoor produced several kinds of toothpaste bearing different brands with other packages. They were designed to offer variety to consumers rather than creating various appeals to different market segments.
Differentiated marketing helps the marketer to connect to each type of customer in the best possible way. Most companies use different market segments for marketing its entire list of products which caters to different market levels.
The promotional and advertising activities for a particular focus only to the target market for that product.
For example, Unilever sells different brands of soap-like—Lux, Lifebuoy, wheel, etc.
In differentiated marketing, firms promote several products with different marketing mixes for serving smaller market segments.
By providing increased satisfaction for each of many target markets, a company produces more sales, increases production, inventory, and promotional costs.
A company can remain competitive and profitable despite the higher marketing costs. The increased marketing cost actually comes back as ROI with a high number of sales and a huge loyal customer base.
3. Niche Marketing or Concentrated Marketing – Target a few well-defined segments of the market
Niche marketing targets specific and well-defined market segments and concentrates all marketing efforts on a small but specific and well-defined segment of the population.
Niches are ‘created’ by identifying needs, wants, and requirements addressed poorly or not at all by other firms, and developing and delivering goods or services to satisfy them.
As a strategy, niche marketing aims to be a big fish in a small pond instead of being a small fish in a big pond.
A niche may be identified by dividing a segment into sub-segments or by defining a group with a different set of characteristics
who may look for a unique combination of benefits of attributes in the product
The main requirements or characteristics of Niche Marketing are
- Customers have a distinct set of needs and want from the service or product.
- The seller of the service provider needs more skill or niche skills.
- Premium prices for higher quality and specialized niche services.
Advantages of Niche Marketing
- When a specific market segment is targeted in a firm’s marketing, marketing tends to be more focused and likely to have a greater appeal within the targeted segment. Mass marketing is not as focussed and, as such, tends to focus on the ‘average’ consumer.
- Businesses can become highly specialized in finding out the needs and wants of a niche market they are targeting. With needs and wants being better met, customer loyalty can ensue.
- Competitive rivalry within a niche market is less than that for broader markets. Less competition can translate into increased pricing power for a firm’s differentiated products, which, in turn, can lead to increased profitability.
Limitations of Niche Marketing
- Niche markets, by their definition, are small. The number of total potential customers in the market is limited. Niche marketing strategies may miss potential customers and depress sales revenues.
- Economies of scale may not be obtained in niche markets due to their limited size. Thus, the average cost of bringing the product to the market will be higher, leading to higher prices and or lower profit margins.
- Profitable niche markets with low barriers to entry are likely to attract new competitors into the industry. Niche markets are small and cannot sustain a relatively high number of competitors.
Rather than market its products separately to several segments, a firm opt for a concentrated marketing approach.
With concentrated marketing or niche marketing, a firm focuses on profitably satisfying only one market segment. It may be a small segment but a profitable segment.
This approach can appeal to a small firm that lacks the financial resources of its competitors and to a company that offers highly specialized goods and services. Along with its benefits, concentrated marketing has its dangers.
Since this approach ties a firm’s growth to a particular segment, changes in the size of that segment or customer buying patterns may result in severe financial problems.
Sales may also drop if new competitors appeal successfully to the same segment. Niche marketing leaves the fortunes of a firm to depend on one small target segment.
4. Micro Marketing – Target at a very basic level of the market segment
Micro-marketing looks at the activities individual in marketers in the entire economic sector. This approach is still more narrowly focused than concentrated marketing. Micro-marketing involves targeting potential customers at a very basic level, such as postal code, specific occupation, or lifestyle.
Ultimately, micromarketing may even target individuals themselves. It is referred to as marketing to segments of one. The internet allows marketers to boost the effectiveness of micromarketing.
With the ability to customize (individualization attempts by the firm) and to personalize (individualization attempts by the customer), the internet offers the benefit of mass customization – by reaching the mass market with individualized offers for the customers.
Several types of micro marketing;
- Local Marketing.
- Individual Marketing
In Local marketing, the seller or the marketer only concentrates on the local market. The products also have the local appeal or the local usages, and the promotional activities are planned based o the location only with local flavor.
Here the cost remains high due to lower production, and competition is also less. Marketers can concentrate on mom in the local market to reach all the customers in the region. The best example would be the marketing of regional chain of hotels or restaurants, locally produced food products, etc.
Local marketing can be studied from both the retailer and manufacturer perspective. For the retailer, local marketing implies the optimization of the store’s marketing mix.
For the manufacturer, local marketing implies optimizing the product’s marketing mix at the store level. We focus on the interaction between manufacturers and retailers, how manufacturers and retailers optimize the marketing mix for a product (category) at the store level.
Individual marketing focuses on satisfying the needs and wants of individual customers it’s also known as one-to-one marketing and customized marketing; it’s the segmentation level where the seller offers a customized product to the consumer.
In simple words, making and selling product(s) according to the needs and preferences of the consumer.
For example, a Fabrics company will cut your cloths according to the needs of the individual customers.
Individual Marketing happens when several specific attributes are “fulfilled” will the personal message be automatically triggered by one person.
The more attributes included triggering the message, the more relevant it becomes for the person. Let’s look at the type of attributes.
- Customer profile attributes: A simple message commonly used is the birthday month promotion.
- New and renewal: Sending automatic messages triggered to the person based on the new, active, lapsing, or inactive customers (or members) group. The content will be relevant based on their activity level.
- Buying behavior: The spending history (the type of product, average spend, frequency, changing spending patterns) is used to trigger a message.
- Channel behavior: the channel interactions (web, mobile, e/m-commerce, social media, visits) is used to trigger a message.
- Customer sentiments: may include feedback forms, service cases, likes on social media.
- Location: These are often real-time messages being sent when a person is close to, outside, or inside a particular location.
However, many triggers may be using multiple attributes across categories to send the message.
Example of individual marketing:
A person has recently bought shirts on your e-commerce site.
Based on his previous spending pattern, he usually also buys ties to go with the shirts. You have recently launched a new set of ties in one of your stores. Three days later, as he walks down the street outside your store, your beacon detects that he is very close by.
Based on this information, the following push message with a picture is automatically created and sent via your mobile app to the customer: “Within the next 2 hours you have 10% off our new ties that have just arrived”.
Because the market and its buyers are vastly diverse, most companies cannot compete in an entire market. So a company must identify the parts of the market that it can serve profitably.
Companies, nowadays, are shifting from mass marketing and product-variety marketing and micro-marketing toward target marketing. Target marketing is more useful to sellers in locating their marketing opportunities.
Sellers can develop the most appropriate product for each target market and mold their prices, distribution channels, and advertising to reach the target market efficiently.
While sellers adopt the “shotgun” approach (scattering marketing efforts) in mass marketing and product-variety marketing, they adopt the “rifle” approach (focusing on the buyers who have greater purchase interest) in target marketing.
With the increasing fragmentation of mass markets into many micro-markets, each with different needs and preferences, target marketing is increasingly assuming the form of micromarketing.
Adopting micromarketing, companies develop their marketing programs to the needs and wants of narrowly defined geographic, demographic, psychographic, or behavior segments.
Target marketing finally takes the form of customized marketing. In customized marketing, the company adapts its product and marketing program to the needs of a specific customer or buying organization.