Why Segment Markets?

Henry Ford made history with his decision to mass produce the

Model T Ford ad a very low price for the mass market. His famous quip,

“The can have any color it wants, as long as it’s black!” clearly illus-

trated his marketing philosophy. A wise choice at the time, but for long.

Other manufacturers, notably General Motors, began producing cars in

a variety of price levels, styles, brands and colors, believing that the auto

market was becoming bigger and more affluent – a segmented market.

They were right. GM built a market lead over Ford that it has never re-

linquished.

Today, most firms pursue a market segmentation strategy. In fact, it is

probably safe to say that market segmentation is one of the most visible

features of the affluent society. As people increase their wealth and lei-

sure time, they become able to enjoy a much greater variety of life-styles,

and the many different products and services that go with them.

In short, market segmentation is popular because it often plays off in

higher sales and profits. By designing specific products for different cus-

tomer groups, the firm can more closely match the needs of its different

target customers. This offers the firm some protection from competitors

who are not as closely matched to these segments’ needs. Market seg-

mentation bring other related benefits, too. It keeps the firm tuned more

closely to the market and alert to new opportunities. And it encourages

higher management efficiency in using the firms resources.

Logically, the concept of a market segment can be extended to the

needs of individual customers or firms. In fact, the term “custom-made”

refers to just this idea – creating a product or service to the specifica-

tion of a particular customer. Since customized products and services

are more costly to produce than standardized products, the total market

that can afford to be individually served is very small. Even segmenting

to larger groups can be extremely expensive.

Firms also must guard against creating too many different products or

excessive or frivolous product features beyond those desired by enough

customers.

Whether markets are uniform or segmented, they usually are too large

for a single organization to serve effectively with its limited resources.

Therefore firms select certain target markets from the segments it has

identified. Marketing mix strategies are then developed to match these

target market needs and also the objectives and resources of the firm.

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