Market segmentation 247
segmented in less conventional ways in order to
differentially target segments according to their
likely contribution to sales and profits. Other
strategic targeting issues are then examined,
together with the next stage of the process,
positioning the marketing offering.
Historical perspective
The famous saying in the car industry by Henry
Ford, concerning the model T, that customers
could have any colour as long as it was black,
was a reflection of the mass marketing of the
time. Great economies of scale were achieved
through the long production runs of mass
producing standardized products for an appar-
ently homogeneous market. In a classic paper by
Wendell Smith, who was one of the originators
of segmentation thinking, the development of
segmentation is explored (Smith, 1956). As mass
production and consumption continued, many
organizations attempted to gain some com-
petitive advantage and developed the strategy
of product differentiation. As Smith stated:
‘Product differentiation is concerned with the
bending of demand to the will of supply.’ In this
way, a variety was offered to buyers.
This is the key to product differentiation
because, although the result might in some
cases look very similar to segmentation, differ-
ences in product, image, distribution and/or
promotion are offered to the market. Perhaps
such differences do indeed appeal to different
groups within the overall market, but if they do
it is mainly due to coincidence. True segmenta-
tion starts with identifying the requirements
and behaviour of segments, and varying mar-
keting mixes accordingly in order to more
deliberately match marketing offerings with
customer behaviour.
Product differentiation clearly represents a
product-orientated approach in that it is an
‘inside out’ management attitude to marketing
planning. Market orientation starts with under-
standing of the market and identification of
market needs and behaviour. In this sense, it is
an ‘outside in’ planning approach. This is the
segmentation approach and declares that mar-
keting offerings cannot generally hope to be all
things to all people, and that differences
between groups and similarities within groups
may be analysed for marketing planning pur-
poses. In this way, customers are grouped
together as far as it is meaningful for them to be
targeted with distinct marketing mixes.
It is not always the case that for each
segment a different product must be devel-
oped. This might be the case, but equally there
might be different prices charged in different
segments for the same product or service (e.g.
gas, electricity and train travel), or for different
segments based on levels of repeat purchase
and loyalty. Similarly, there could be differences
in promotion – Levi’s, for example, advertise on
television for a fairly wide market, but the same
product lines are also promoted with quite
different images and themes in the ‘style’ press,
targeted at the 15- to 19-year-old fashion
opinion leaders (Edmonson, 1993); the concept
of opinion leadership in segmentation is
explored later. There again, there are examples
of where distribution might be the main mix
difference between segments, and so on.
There is always a danger, however, of
segmenting ‘too far’. Market ‘fragmentation’ or
‘oversegmenting’ may create too small and
unprofitable segments, and thus becomes less
efficient – the baffling array of shampoo prod-
ucts is, perhaps, an example, as might be the
plethora of different rail prices depending on
day, time, advance booking, type of rail card,
and so on. However, individualized (custom)
segmentation or mass customization is the
legitimate polar opposite and is the direction in
which marketing is certainly taking the seg-
mentation issue, as will be seen later.
Strategic aims to shift the marketing para-
digm from a transaction-based one to being
more relational, together with practical attempts
to operationalize this, have real implications for
segmentation and targeting. Developments over
the last couple of decades (especially) have