144 CHAPTER8IDENTIFYINGMARKETSEGMENTS ANDSELECTING TARGET MARKETS
USING MARKET SEGMENTATION
Market segmentation aims to increase a company’s precision marketing. In contrast,
sellers that use mass marketingengage in the mass production, distribution, and pro-
motion of one product for all buyers. Henry Ford epitomized this strategy when he
offered the Model T Ford “in any color, as long as it is black.” Coca-Cola also used mass
marketing when it sold only one kind of Coke in a 6.5-ounce bottle.
The argument for mass marketing is that it creates the largest potential market,
which leads to the lowest costs, which in turn can lead to lower prices or higher margins.
However, many critics point to the increasing splintering of the market, which makes
mass marketing more difficult. According to Regis McKenna, “[Consumers] have more
ways to shop: at giant malls, specialty shops, and superstores; through mail-order cata-
logs, home shopping networks, and virtual stores on the Internet. And they are bom-
barded with messages pitched through a growing number of channels: broadcast and
narrow-cast television, radio, on-line computer networks, the Internet, telephone ser-
vices such as fax and telemarketing, and niche magazines and other print media.”^1
This proliferation of media and distribution channels is making it difficult to
practice “one size fits all” marketing. Some observers even claim that mass marketing
is dying. Therefore, to stay focused rather than scattering their marketing resources,
more marketers are using market segmentation. In this approach, which falls midway
between mass marketing and individual marketing, each segment’s buyers are
assumed to be quite similar in wants and needs, yet no two buyers are really alike. To
use this technique, a company must understand both the levels and the patterns of
market segmentation.Levels of Market Segmentation
Regardless of whether they serve the consumer market or the business market—offer-
ing either goods or services—companies can apply segmentation at one of four levels:
segments, niches, local areas, and individuals.Segment Marketing
Amarket segmentconsists of a large identifiable group within a market, with similar
wants, purchasing power, geographical location, buying attitudes, or buying habits.
For example, an automaker may identify four broad segments in the car market: buy-
ers who are primarily seeking (1) basic transportation, (2) high performance, (3) lux-
ury, or (4) safety.
Because the needs, preferences, and behavior of segment members are similar
but not identical, Anderson and Narus urge marketers to present flexible market offer-
ingsinstead of one standard offering to all members of a segment.^2 A flexible market
offering consists of the product and service elements that all segment members value,
plus options (for an additional charge) that some segment members value. For exam-
ple, Delta Airlines offers all economy passengers a seat, food, and soft drinks, but it
charges extra for alcoholic beverages and earphones.
Segment marketing allows a firm to create a more fine-tuned product or service
offering and price it appropriately for the target audience. The choice of distribution
channels and communications channels becomes much easier, and the firm may find
it faces fewer competitors in certain segments.Niche Marketing
Anicheis a more narrowly defined group, typically a small market whose needs are not
being well served. Marketers usually identify niches by dividing a segment into subseg-