[30] In a differentiated approach the firm targets one or more market segments, and develops separate offers for each segment.[30]. The view on segmentation presented by Wendell Smith consists of viewing a.. Heterogeneous Market as a number of smaller Homogeneous Market The ways that companies choose to buy is a segmenting variable called. Such analysis would reveal whether the campaign message moves the targeted group as intended, as well as its effects on other segments. Designers may intervene on groups of larger size, who are more movable, who are reachable with current resources, who represent more incidence or severity of the problem (Slater et al., 2006), or who may influence others. The expression "market segmentation" was first coined by Wendell R. Smith in his 1956 publication Product Differentiation and Market Segmentation as Alternative Marketing Strategies. This is an applied example of behavioural segmentation, using attitude to a product or service as a key descriptor or variable which has been customized for the specific application. These variations between people are important for health messaging. Years of sustained writing in such varied fields as economic geography, public utility economics, and marketing were capstoned by his article, "Product Differentiation and Market Segmentation as Alternative Marketing Strategies," in the July, 1958, is- Leaders in Marketing In 1956 Wendell R. Smith published a groundbreaking article on marketing strategies called "Product Differentiation and Market Segmentation as Alternative Marketing Strategies." The title is intimidating, but the content is much easier to grasp, and Smith's ideas are becoming increasingly relevant in our current marketing landscape. A premise in health promotion and disease prevention is that exposure to and consequences of illness and injury can be minimized through peoples actions. In practice, markets can be segmented as broadly as continents and as narrowly as neighborhoods or postal codes. Product Differentiation and Market Segmentation as Alternative Marketing Strategies Show all authors. and Bonoma, T.V., "How to Segment Industrial Markets,". In 1956, Wendell Smith introduced the concept of market segmentation in marketing research. The predictors can be used to refine which strategies to incorporate in messages delivered to segment 1 but not segment 2. Furthermore, once people are exposed to illness or injury, their prognosis, quality of life, and life span can be shaped by their actions. Businesses may be segmented according to industry, business size, business location, turnover, number of employees, company technology, purchasing approach, or any other relevant variables. A more robust technique for estimating the market potential is known as the Bass diffusion model, the equation for which follows:[36]. Gandy (2001) writes that the effect, if not the primary purpose, of segmentation and targeting is the exclusion of participants who are deemed unlikely to support the preferred view (italics in original, p. 142). Each of these product types is designed to meet the needs of specific market segments. Targeted messages are more likely to be read, understood, recalled, perceived as credible, and rated highly than one, generalized communication (e.g., Kreuter, Farrell, Olevitch, & Brennan, 2000; Noar et al., 2007). attitudes, are useful only for specific business functions. Between 1902 and 1910, George B Waldron, working at Mahin's Advertising Agency in the United States used tax registers, city directories, and census data to show advertisers the proportion of educated vs illiterate consumers and the earning capacity of different occupations, etc. In ancient Greece, early biologists grouped organisms into species (i.e., taxonomy, Slater, 1996). [47] In practice, demographic segmentation can potentially employ any variable that is used by the nation's census collectors. In addition to geographics, demographics, psychographics, and behavioural bases, marketers occasionally turn to other means of segmenting the market or developing segment profiles. With research, the designers may discover that parents of unvaccinated children may not be complying due to lack of resources (time or money), which is not addressed in the previous groups. Purchase or usage occasion segmentation focuses on analyzing occasions when consumers might purchase or consume a product. If health mavens are not engaging in the recommended actions, they may be a source of counter-messages in the community, thus they may need to be prioritized as campaign targets. Traditionally two variables (often, but not necessarily, price and quality) are used to construct the map. To be most useful, the indicators need to capture the current state of the population in regards to the campaigns outcomes, along with the predictors that affect these outcomes (e.g., behavior and motivation; Maibach et al., 2011). In the 20 years since the pioneering article by Wendell Smith [97], segmentation has become a dominant concept in marketing literature and practice. A study of the German book trade found examples of both product differentiation and market segmentation in the 1820s. Do we have the resources necessary to enter this market segment? The premise of this chapter is that segmentation at its best is a systematic and explicit process of research (Slater, 1996) to make informed decisions about how many audiences to consider, why the audience is doing what they are doing, and how to reach that audience effectively. While empirical clustering can be done with demographic variables, it is typically performed on proximal, psychosocial predictors. over the 54 years since Wendell Smith first raised the consciousness of the community to the importance of market segmentation, it is surprising that so little progress has been made. (Segment must have sufficient time to reach desired performance level). For this reason, many companies purchase data from commercial market research firms, many of whom develop proprietary software to interrogate the data. [68] Before the onset of Covid-19 travel restrictions, they credited this segmentation with having generated an incremental 50 million of revenue in the UK market alone in just over two years. ( Needs-based, benefit-sought, usage occasion, purchase frequency, customer loyalty, buyer readiness). Each empirical group procedure has technical considerations. This allows the segmentation of a population into smaller groups defined by individual characteristics such as demographic, socio-economic, or other shared socio-demographic characteristics. Furthermore, with advances in customization, it may soon be as cheap and easy to tailor a message to a person instead of a group. It is possible to have as many groups as there are people (leading to individual tailoring). In this case, the target variable is known the marketer has already segmented using a behavioural variable user status. Health mavens may be particularly important for campaign planning, because they actively maintain expertise in a variety of areas, share their knowledge, and are likely to be resources for others on health matters (Boster et al., 2011). Search Google Scholar for this author. Product Differentiation and Market Segmentation as Alternative Marketing Strategies Author (s): Wendell R. Smith Source: Journal of Marketing, Vol. This step includes identifying specific outcomes to achieve to meet the campaigns goal (e.g., behavior change or public awareness) and matching those specific outcomes with relevant theories designed to address such a goal. In 1992, an article appeared in the journal Health Communication; the article (Hofstetter, Schultze, & Mulvihill, 1992) explored how research into grouping people based on their patterns of media exposure, and cognitive predictors of their media exposure grouping, could be used to understand exposure to health information in a multimedia environment. [9] From the 1880s, German toy manufacturers were producing models of tin toys for specific geographic markets; London omnibuses and ambulances destined for the British market; French postal delivery vans for Continental Europe and American locomotives intended for sale in America. [92], A priori research occurs when "a theoretical framework is developed before the research is conducted". [53][54][55] These include the following:[56][57]. Many factors are likely to affect a company's segmentation strategy:[32]. A next extension for person-based methods as modes of research is to analyze how well persuasive strategies, in fact, move people from one segment to another. This approach customer-level and occasion-level segmentation models and provides an understanding of the individual customers needs, behaviour, and value under different occasions of usage and time. Different persuasive strategies may be needed to achieve maintenance, behavior initiation, and cessation; different theories of persuasion are more effective at forming, changing, or strengthening beliefs. Business-to-business (B2B) sellers might segment the market into different types of businesses or countries, while business-to-consumer (B2C) sellers might segment the market into demographic segments, such as lifestyle, behavior, or socioeconomic status. To further complicate the situation, different people, based on their personalities, may respond to the same messages in different ways. Pride, W., Ferrell, O.C., Lukas, B.A., Schembri, S., Niininen, O. and Cassidy, R., Madhavaram, S., & Hunt, S. D., "The Service-dominant Logic and a Hierarchy of Operant Resources: Developing Masterful Operant Resources and Implications for Marketing Strategy, ", Dickson, Peter R.; Ginter, James L., "Market Segmentation, Product Differentiation, and Marketing Strategy, ". (i.e., with respect to distribution and promotion). This is particularly used in digital targeting via programmatic bidding approaches. Marketing Insider, "Evaluating Market Segments", Online: Applbaum, K., The Marketing Era: From Professional Practice to Global Provisioning, Routledge, 2004, p. 33-35. Indeed, segmentation research may be even more important for health campaigns than for marketing, because health behaviors may be more resistant to persuasive messages than consumer purchasing behavior (Maibach et al., 1996). There are different approaches to positioning:[85], Segmenting business markets is more straightforward than segmenting consumer markets. Geo-cluster segmentation is widely used by Governments and public sector departments such as urban planning, health authorities, police, criminal justice departments, telecommunications, and public utility organizations such as water boards.[45]. Under the terms of the licence agreement, an individual user may print out a single article for personal use (for details see Privacy Policy and Legal Notice). 3-8) Wendell R. Smith https://www.jstor.org/stable/1247695 Grocery Chain Store Prices: A Case Study Grocery Chain Store Prices: A Case Study (pp. The activity of identifying and grouping objects based on shared characteristics is not new. Geographic segmentation is widely used in direct marketing campaigns to identify areas that are potential candidates for personal selling, letter-box distribution, or direct mail. Wendell R. Smith. A generation is defined as "a cohort of people born within a similar span of time (15 years at the upper end) who share a comparable age and life stage and who were shaped by a particular span of time (events, trends, and developments). Wendell R. Smith. 1 (Jul., 1956), pp. Note that these descriptors are merely commonly used examples. Research is needed to make informed decisions. Combination of geographic & demographic variables. "Market segmentation is to divide a market into smaller groups of buyers with distinct needs, characteristics, or behaviors who might need separate products or marketing mixes." (Charles W. Lamb 2003). Besides being one of the major ways of opera-tionalizing the marketing concept, segmentation pro- In 1956, Wendell Smith published a paper proposing market segmentation as alternative marketing strategy (Smith 1956) and is often credited with popularising the now common place marketing fundamental. In the study of public opinion, Dewey (1927) introduced the notions of publics as subgroups who shared similar values or interests about a given issue. There are no formulas for evaluating the attractiveness of market segments and a good deal of judgment must be exercised. 5p. Marketers normally select a single base for the segmentation analysis, although, some bases can be combined into a single segmentation with care. This is not a simple step: over 60 social-psychological theories and models relevant to understanding behavior and behavior change have been identified (Darnton, 2008). Perbert, F., Stenger, B. and Maki, A., "Random Forest Clustering and Application to Video Segmentation," [Research Paper], Toshiba Europe, 2009, Online: Minhas, R.S. In dividing or segmenting markets, researchers typically look for common characteristics such as shared needs, common interests, similar lifestyles, or even similar demographic profiles. For example, in Australia the post-war population boom peaked in 1960,[74] while the peak occurred somewhat later in the US and Europe,[75] with most estimates converging on 1964. Constantin, C., "Post-hoc Segmentation using Marketing Research,", Desarbo, W.S., Ramaswamy, V. and Cohen, S. H., "Market segmentation with choice-based conjoint analysis,". The use of multiple segmentation variables normally requires the analysis of databases using sophisticated statistical techniques such as cluster analysis or principal components analysis. The disadvantage is that proximal variables are better predictors than distal ones. Do we have prior experience with this market segment or similar market segments? "[2] From an economic perspective, segmentation is built on the assumption that heterogeneity in demand allows for demand to be disaggregated into segments with distinct demand functions. [42] Typical geographic variables include: The geo-cluster approach (also called geodemographic segmentation) combines demographic data with geographic data to create richer, more detailed profiles. Key informants in the at-risk community can also provide insights into constraints inhibiting campaign success (Slater, 1995; Slater et al., 2006); this information can also be used to decide which theories are most applicable. Language links are at the top of the page across from the title. The population of people associated with the target outcome may be small (e.g., the neighborhood experiencing an outbreak) or large (e.g., a continent or the globe). Effective campaigns include formative research to identify important variations in the public, groups of people in similar states, and persuasive strategies to move those groups based in sound theories of social influence. An alternative strategy is to segment the audience based on shared, targeted behaviors, in this case, stewardship intentions (e.g., Smith et al., 2015). However, the Bass model has been so widely used in empirical studies that the values of p and q for more than 50 consumer and industrial categories have been determined and are widely published in tables. The indicators are then described in ways that characterize the group. active members, lapsed members, length of membership, Customer relationship management (CRM) databases, Customer self-completed questionnaires or feedback forms, Commissioned research (where the business commissions a research study and maintains exclusive rights to the data; typically the most expensive means of data collection), Census data (population and business census), Government statistics and surveys (e.g. Lehmann, Donald R. Managing Customers as Investments: The Strategic Value of Customers in the Long Run, pp. Cultural segmentation enables appropriate communications to be crafted for particular cultural communities. Unlike traditional segmentation models, this approach assigns more than one segment to each unique customer, depending on the current circumstances they are under. A related consideration is whether to conduct audience segmentation for a particular campaign goal (e.g., one health behavior: hand-washing to prevent spread of infection) or to segment audiences across health behaviors (e.g., subgroups of individuals with similar behaviors on hand-washing, staying home when ill, and requesting antibiotics for viral illnesses; Maibach et al., 1996). The goal of this chapter is to provide an overview of the history, concepts, and methods of audience segmentation as a research process. Before finalizing a segmentation solution, it can help to use a variety of sampling strategies and test whether the segments replicate. The model presumes that the grouping variable cannot be observed, but can be inferred from multiple, measured variables. Many different ways to segment a market have been identified. The time they spend actively viewing each page. and Aiken, M.W., "Artificial neural networks: A new methodology for industrial market segmentation,". (1996) conducted audience segmentation across five health behaviors and their antecedents (based on social cognitive theory; Bandura, 1986). The process involves finding people who are similar in their patterns of responses on a set of variables that predict an outcome aligned with a campaigns goals (Slater, 1996). The major challenge with the Bass model is estimating the parameters for p and q. Smith Wendell (1956), "Product Differentiation and Market Segmentation as Alternative Marketing Strategies," Journal of Marketing, 21 (July), 3-8. and Jacobs, E.M., "Benefit Segmentation by Factor Analysis: An improved method of targeting customers for financial services". Segmenting the e-market. Insights from segmentation analysis are subsequently used to support marketing strategy development and planning. Health campaigns may include face-to-face or mediated conversations as well as verbal and nonverbal messages. the concept was really Wendell Smith who defined segmentation this way: "segmentation is disag- gregative in its effect and tends to bring about The rest of this essay discusses empirical decisions with LCA in mind. This technique involves iterations of combining and dividing data and looking at the solutions (e.g., with dendrograms or agglomeration schedules) until the researcher determines how many groups are needed to represent the data (Moutinho, 2011). These are described next. Going Hybrid: The New Era of Segmentation. Philosophically, there is debate about what segments identified through statistical techniques represent. LCA has a few advantages over other techniques: it is less sensitive to missing data, it can include categorical and interval variables, and it provides fit indices to guide decisions to determine which number of groups best fits the data. [93] In other words, the marketer has an idea about whether to segment the market geographically, demographically, psychographically or behaviourally before undertaking any research. Many marketers believe that behavioural variables are superior to demographics and geographics for building market segments[60] and some analysts have suggested that behavioural segmentation is killing off demographics. [80] Forsyth et al., in an article 'Internet research' grouped current active online consumers into six groups: Simplifiers, Surfers, Bargainers, Connectors, Routiners, and Sportsters. "Segmentation Based on Affinity for Advertising,", Albaum, G. and Hawkins, D. I., "Geographic Mobility and Demographic and Socioeconomic Market Segmentation,", Blocker, C. P. and Flint, D. J., 2007. In the early 1980s, Australian fashion designer. Oxford Research Encyclopedia of Communication, Department of Communication, Arts and Sciences, College of the Liberal Arts, Pennsylvania State University, Gender (Gay, Lesbian, Bisexual and Transgender Studies), https://doi.org/10.1093/acrefore/9780190228613.013.321, health and risk message design and processing, Identifying like-minded audiences for global warming public engagement campaigns: an audience segmentation analysis and tool development, Theory and method in health audience segmentation, Identifying influence: Development and validation of the connectivity, persuasiveness, and maven scales, Understanding tailoring in communicating about health, Audience segmentation and climate change communication: Conceptual and methodological considerations, Identifying like-minded audiences for global warming public engagement campaigns: An audience segmentation analysis and tool development, Perceived risk and efficacy beliefs as motivators of change, Segmenting by risk perceptions: Predicting young adults genetic-belief profiles with health and opinion-leader covariates, Antibiotic resistance: A primer and call to action, Preparing for antibiotic resistance campaigns: A person-centered approach to audience segmentation, http://repository.upenn.edu/cgi/viewcontent.cgi?article=1414&context=asc_papers, Transtheoretical Model and Stages of Change in Health and Risk Messaging, Publics Approaches to Health and Risk Message Design and Processing, Advocacy Groups as Agents for Change in Health and Risk Messaging, A Case Study of Sesame Workshops Cleaner, Happier, Healthier Intervention in Bangladesh, India, and Nigeria: Reporting on Exposure and Impact, Audience Fragmentation and Journalism in the U.S. [95], The figure alongside illustrates how segments might be formed using clustering; however, note that this diagram only uses two variables, while in practice clustering employs a large number of variables.[96]. [46] Demographic segmentation assumes that consumers with similar demographic profiles will exhibit similar purchasing patterns, motivations, interests, and lifestyles and that these characteristics will translate into similar product/brand preferences. In 1985, Meyers and Seibold explored demographic and psychological predictors of peoples utilization of health services. It can also be used to consider which segments to prioritize for intervention, because that segment may represent people who can help to achieve the overall campaign goals. Lockley, L.C., "Notes on the History of Marketing Research". Without research, campaign designers must make assumptions about subgroups within a population. In 1956, Wendell Smith introduced the concept of market segmentation in marketing research. Is this market segment reachable and accessible? The goal of health campaigns is to influence outcomes that benefit the at-risk population and society at large (Hines et al., 2014). Facebooks segmentation abilities are depressingly impressive. and Perdue, R.R., "A BenefitBased Segmentation,". Demographic separation involves dividing a larger population into groups based on shared demographic characteristics, such as race, gender, ethnicity, income, age, education, and economic status (Slater, 1995). It can provide insights into who is doing what, and why groups are doing different things (Maibach et al., 1996) so that public health messages can reach the right people in the right way to maximize improvements in public health. Positioning is the final step in the S-T-P planning approach; Segmentation Targeting Positioning; a core framework for developing marketing plans and setting objectives. Geographic segmentation may be considered the first step in international marketing, where marketers must decide whether to adapt their existing products and marketing programs for the unique needs of distinct geographic markets. Audience segmentation provides critical information for planning effective campaigns that use resources strategically (Maibach et al., 2011). Effective campaigns provide a target audience with the right persuasive strategy to inspire change based on their initial state and psychosocial predictors for change. The issues with single versus composite scores to represent a latent construct and techniques to analyze the factor structure of scales are the same in audience segmentation as they are in other quantitative research. Product Differentiation and Market Segmentation as Alternative Marketing Strategies Wendell R. Smith Published July 01, 1956 You do not have access to this article. An example of attitudinal segmentation comes from the UK's Department of Environment which segmented the British population into six segments, based on attitudes that drive behaviour relating to environmental protection:[67]. A successful example of hybrid segmentation came from the travel company TUI, which in 2018 developed a hybrid segmentation using a combination of geo-demographics, high-level category attitudes, and more specific holiday-related needs. Is the market segment growing or contracting? Sugar also comes in many different types - cane sugar, beet sugar, raw sugar, white refined sugar, brown sugar, caster sugar, sugar lumps, icing sugar (also known as milled sugar), sugar syrup, invert sugar, and a plethora of sugar substitutes including smart sugar which is essentially a blend of pure sugar and a sugar substitute. Do buyers have bargaining power in the market? A challenging problem for health campaigns is to define those who need to be reached, and then intelligently group people based on a complex set of variables in order to identify groups with similar needs who will respond similarly to a particular persuasive strategy. In addition, the segmentation approach must yield segments that are meaningful for the specific marketing problem or situation. It is also reasonable that if campaigns are effective, some segments should disappear and/or new ones may emerge. Presented by TUI at POPAI Retail Marketing Conference, 7 February 2019. For example, according to the risk perception attitude (RPA; Rimal & Real, 2003) framework, there should be four groups based on peoples risk and efficacy assessments related to a health action. Not everyone favors audience segmentation. [61] Typical behavioural variables and their descriptors include:[62]. The father of market segmentation is widely considered to be Wendell Smith (1956) who proposed market segmentation as an alternative to product differentiation. Segmentation is a necessary but not sufficient condition for campaign success: decisions about message design and implementation are also critical (Slater, 1995). The researcher still makes decisions about what indicators to include; segmentation will be useful to the extent to which the researcher correctly identified the relevant variables (Slater, 1996). [37] The average value for p is 0.037 and for q is 0.327. Kara, A. and Kaynak, E., "Markets of a Single Customer: Exploiting Conceptual Developments in Market Segmentation", Firat, A.F. A contrasting perspective is that identified segments are empirical constructions made by researchers (e.g., Gandy, 2001); empirically identified segments do not exist independently from the research process (Hines et al., 2014). "[16] As Schwarzkopf points out, Smith was codifying implicit knowledge that had been used in advertising and brand management since at least the 1920s. Audience segmentation involves dividing a larger population that need to be reached into groups that exhibit similar patterns of responses across a complex set of variables, and differences from other groups on those same variables (Grunig, 1989; Slater, 1996). For products that can be differentiated, (such as cars) then either a differentiated or concentrated approach is indicated. Online market segmentation is similar to the traditional approaches in that the segments should be identifiable, substantial, accessible, stable, differentiable, and actionable. [18] Some scholars have argued that the fragmentation of markets has rendered traditional approaches to market segmentation less useful.[19]. First, the development of more powerful AI and machine learning algorithms to help attribute segmentations to customer databases; second, the rapid increase in the breadth and depth of data that is available to commercial organisations; third, the increasing prevalence of customer databases amongst companies (which generates the commercial demand for segmentation to be used for different purposes).
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