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  Market Segmentation: Segmentation circle

Once a growth strategy is identified, the company needs to create a marketing plan for a brand. The marketing plan starts with the choice of a market coverage strategy, which itself will identify the target market for the brand.

A segmentation circle is a device for assuring that this decision process is logical.

One of the most important decisions that a company makes is what market coverage strategy to use for a brand. In analyzing any one product, the first thing to consider is the market. For example, the market for Duracell is the battery market. But this market is too broad to segment effectively (since it includes industrial batteries), so it makes sense to narrow the market to what can be called a focus market, in this case the consumer battery market. In a sense, the focus market rules out products that are not substitutes. For example, a marketing analysis for Gatorade (which has about a 90% market share) should not exclude water since that is a substitute for a sports drink and a possible source of new sales. Otherwise the analysis would be stuck with a market definition of sports drinks and thus virtually no practical way of increasing sales.

(Note that this is exactly what Gatorade did with their "lighter" brand extensions. By using thirst-quenching drinks as the market, they succeeded in developing products that are as much substitutes for water as sports drinks, thus helping to prevent cannibalization.)

For Duracell, the marketing issue is what market coverage strategy should they use in the consumer battery market. To answer this question a company can construct a "segmentation circle" that represents the possible ways that a market can be segmented such that each possible segment is or can be a product that meets separate needs and wants. (Note: if not separate, cannibalization can and probably will occur.)

Consumer segmentation variables include demographics (e.g., age, gender and family life cycle), psychographics (e.g., self concept and lifestyle), usage rate (e.g., heavy and light users) and benefits sought. In this case benefits sought may be batteries for normal vs. high-drain devices.

A company has three basic choices for market coverage strategy:

  • Undifferentiated – ignore segmentation variables and go after the whole market with one brand.
  • Differentiated – operate in all or several segments of the market and design separate brands for each.
  • Concentrated – operate in one or only a few segments of the larger market following a niche strategy with one brand.

For years Duracell and its competitors in the consumer battery market followed undifferentiated market coverage strategies. There was only the Duracell brand name and the company wanted to sell those batteries to everyone in the market. However, Duracell switched to a differentiated market coverage strategy by bringing out a new product line called Duracell Ultra (for high-drain devices). The success of this strategy depends on how well Duracell did their segmentation analysis—the segmentation circle—since that is what defines how different the two markets really are. If they are not different, the new product could cannibalize the existing product or, worse, dilute the meaning of the brand in the minds of consumers.

The segmentation variables that are relevant are the ones that represent (or potentially represent) ways of offering different products to a market. That is why income is relevant for, say, sport utility vehicles but not for sports information. There are luxury sport utility vehicles, but there are not—and probably won't be—upscale general sports magazines, Web sites or apps. Income may be related to who has multiple electronic devices, but not to creating the Web site or other sports information product itself. The "test" for any segmentation variable, then, is: If you can't say a subsegment could lead to a branded product in that segment, then it isn't an effective way of segmenting that market.

A way of telling what market coverage strategy a company is using is the number of separately-branded products that it offers in any one market. Gap could have regional variation in product assortments (say for different climates), but if there was only one Gap name, the market coverage strategy would be undifferentiated. In reality, there are at least two Gap brand names: Gap and Baby Gap; hence, Gap follows a differentiated market coverage strategy. If there were only Baby Gap, the market coverage strategy being used would be concentrated.

Once a company chooses a market coverage strategy for a brand it knows its target market. A concentrated market coverage strategy leads to one target market as does an undifferentiated market coverage strategy. A differentiated market coverage strategy leads to as many target markets as there are brands.

A company must be sure to avoid the trap of defining a target market by who is in that market before analyzing the needs and wants of the target market. That's why we say that what the market is comes first, and then the choice of a market coverage strategy. For example, the Honda Element was aimed at 20-somethings but ended up selling to as many people in their 40's as 20's. If Honda had used a segmentation circle to indentify its market coverage strategy for the Element, thus defining a target market by name (say small utility sedans), and then asked themselves who had these needs and wants, they would have understood who would be in the target market.


Summary of the marketing logic

  • For any market or focus market identify segmentation variables.
  • Use a segmentation circle to see the market coverage strategy choices.
  • Choose the best market coverage strategy.
  • Let that define the target market.

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