1) how can we spot and choose the right market segment?

There are four Approaches to Market segmentation and to choose a market segment.

A) Full Market coverage or Mass marketing

Whenever a firm wants to target all the customers to cater to the maximum level of market that it
can, then it is known as full market coverage type of segmentation. In this scenario, the company
knows that it can get maximum revenue and therefore maximum profitability, if it offers its goods in
an open market manner – Everyone is targeted and there is no specific market segmentation
involved. Some excellent examples of companies which chose a market segment based on full
market coverage are Coca cola, Pepsi, Vodafone, or any other telecom companies and several FMCG
companies.

These companies are the ones which manufacture goods which are useful to everyone – rich, poor,
elderly, children, middle aged, absolutely anyone can consume their products. This type of
marketing is also known as Mass Marketing.

There are two types of marketing within full market coverage.

a) Undifferentiated marketing – Commonly carried out by the likes of Coca cola or Ford in its hey
days. Coca cola is a company which has not differentiated its core product – Coke. The market
segment is as far and wide as possible. In its hey days, Ford motor company utilized the
undifferentiated marketing funda, wherein it manufactured the same type of cars for the complete
mass market.

b) Differentiated marketing – HUL and P&G are known as the champions of Differentiated
marketing. Look at Dove from the house of HUL. Although HUL has several other soap and shampoo
brands, Dove has still created a niche segment for itself due to the premium marketing and
positioning of the brand. Even Coke, which has a core product Coca cola used by the mass market,
has a differentiated marketing product – COKE ZERO which is used for a targeted mass market
segment. A consumer durable company like Philips too has many products which are useful for the
mass market segment but are differentiated based on the consumers the products will be offered to.

A major benefit when you choose a mass market segment is that there is good Economies of scale.
The larger the company, the lesser the cost and the better the ROI. As you choose more products to
target to multiple segments, the cost of R&D, advertising, distribution and other costs increase with
the increase in the number of products. As Mass marketing targets all the consumers based on one
product, the ROI is fantastic.

But a problem associated with mass marketing, especially with the young generation and the
dynamic people of the last decade is that each one of them wants to have unique products. They
want to have differentiated products which are suitable for them. Hence, many companies are
slowly shifting from Undifferentiated marketing to differentiated marketing to have a better
penetration and acceptance in the market. Maggi, which was majorly concentrated towards the
mass market with its instant noodles, soon launched ATTA noodles and Oats to cater to the more
differentiated market segment which was health conscious.

B) Multiple segments concentration to choose a market segment

If your product is not something meant for the mass market, then you can also turn towards
Multiple segment concentration. In this type of market segmentation, you cater to multiple market
segments with multiple products. So general electric caters to the consumer market segment
through its consumer products such as Bulbs, lights etc whereas it caters to the business segment
with its aircraft engines and gas turbines. Some products are targeted towards the mass market
whereas others are targeted towards the niche market and GE gets the best of both markets.

The advantages of multiple segment concentration is that you get specialized for the segments you
are going to concentrate on. Siemens is a company known to be a pioneer in its medical equipments
and medical products such as Ultrasound and Xrays. At the same time, the company presence in IT
manufacturing, Telecommunications, Business products and several other markets. Due to its core
strength of technology and high performance products, Siemens has become a trusted brand in
whichever segment it concentrates in. Such specialization builds the brand equity for the parent
company across multiple segments.

The disadvantage of multiple segment concentration is that the costs are high. You have to market
your products to each segment individually, and unlike mass marketing, there is no option to carry
the same communications across multiple segments thereby saving the cost. The R&D cost,
manufacturing cost, distribution cost, selling costs all increase when you are targeting multiple
segments. There are two ways you can target multiple segments.

a) Product specializations – You market based on the specialized products that you can
make. Honda is known for its engines and generators which are marketed to different customer
segments.

b) Market Specialization – SAP is a company which gives its enterprise management solutions to any
of the companies which have a turnover of 100 crores and above. It caters to multiple segments and
markets as long as the company has a high turnover rate. So SAP has a concentrated market of
companies which are above 100 crore turnover.

C) Single segment concentration to choose a single market segment

Single segment concentration is also known as concentrated marketing or Niche marketing. In the
last few years, we have seen more and more companies doing gap analysis and filling up gaps in the
market, thereby coming out as niche marketed companies. These companies choose their market
segment based on the types of customers within the market segment.

A perfect example of Niche marketing is Rolex – Which is concentrated towards the uber rich
segment and markets its watches to them only. The advantage of niche marketing is that the
company can gain a major market share very fast if it has the first mover advantage. Naukri.com is
the perfect example which started in the job market and today has the leading job portal in India. No
other portal has come even close. Lenskart.com is targeted towards people who need glasses or
lenses. All these are niche markets where only few players exist. But the market leader is the
company which had the first mover advantage.

In Niche marketing, there is high expenditure involved towards awareness creation and towards
brand building and getting the confidence of the customers. You need to highly differentiate the
brand from the competitors. On the other hand, because the company is so involved with the
customers, customer feedback matters a lot and there are consistent changes brought about in the
working style of the company as per the feedback of customers. Ola has a model known as Ola Gold
which caters to customers who use Ola frequently. Similarly, Other niche marketers always have a
premium model which is preferred by their most loyal customers.

In recent years, it has made a lot of sense to target niche customers because entering into mass
segments takes a lot of time and effort as well as capital invested needs to be huge. Hence, many
companies have started with the goal of niche marketing, they have expanded their business and
then tried to cater to multiple segments or enter larger markets with the differentiated marketing
strategy.

D) Individual segmentation

Whenever a company customizes its products as per the individual customer, then it is known as
Individual segmentation. The best company which literally gave birth to the word “Customerization”
is Harley Davidson. Each and every Harley is different and each of them has 1000’s of accessories to
choose from. A customer can spend a lot of time upgrading his Harley and adding more accessories
to it.

Individual segmentation is observed when a company changes its products based on one single
customer and for each customer. Several telecom companies like Vodafone and Airtel have entered
customerization where each of the customer can choose his own data plan and create his own
mobile plan as he wants. Subway is a Sandwich making company which gives individualized sub
sandwiches for everyone. There are a lot of options given to the customer to make his own sandwich
as he wants.

Customerization is NOT easy and not meant for everyone. There are very few companies which have
mastered this model. A major challenge to this model is that it has poor resale value. Because the
product is customized for the individual customer, it might not be resold to any other customer or
might have little value for other customers. Again, Harley davidson is a company where the rules
dont apply and it has fantastic resale value besides being customized.

So, a company might need to think on a lot of angles including investment involved, creativity
involved as well as the market acceptability before it can enter such a segment.

So out of the above methods, how do you choose a market segment? In general, there are 5
criteria’s which define a good market segment for your business.

5) factors to choose a market segment

1) Size – How big is the market segment you are going to target and will it be enough for your firm to
cover the costs and to give handsome profits? After all, this is business and you need to have a good
profit to be sustainable. Niche market’s have a lesser size but then the growth rate is fantastic and
most companies start marketing to multiple niche markets to increase their operational size.

2) Growth rate – The growth rate of a market segment is important. If today, a company targets
Desktops and not laptops then they will be in trouble. The reason is that although Desktops have a
huge market share, the growth rate of desktops is declining rapidly. A company will be better off
manufacturing both – laptops and desktops. So you need to see the growth rate before you choose a
market segment.

3) Profitability – There are some industries which have become so competitive that they are not
profitable anymore. Even in FMCG, the soaps and deodarants segment is so competitive, that the
products are being sold at very low margins. A new entrant in this arena needs to consider the
investment and the loss he will suffer over a period of time before his brand is
established. Reliance JIO entered India by offering all its services for free. This goes to show how bad
the profitability of the telecom market is, where a company needs to enter by offering its products
for free to better its customer acquisition rates.

4) Economies of Scale – Uber and Ola became such big brands within a matter of few years because
of the Economies of scale. Facebook and Whatsapp too used the same medium – Internet, to
become very big in a very small time. Although it is difficult to establish the same economies of scale
when physical movement of goods is involved, but the same needs to be considered to determine an
attractive market segment. How much more can you expand? Or are you entering a very niche
market segment where economies of scale will not make a huge difference?

5) Risk – Financial industries have a very well bifurcated segmentation policy. Some of their financial
instruments target high risk and high return type of customers whereas other instruments target low
risk and low return type of customers. So that even if the high risk customers lose, the low risk
customers maintain the stability of the financial company. Understanding the amount of risk
associated with your market segment is important before choosing a market segment.

To chose a market segment is to chose the right life partner for your business. Because if you chose
the right life partner, your life will only have prosperity and happiness. Same goes for the market
segment. A correct market segment will bring prosperity to your business and help you
automatically grow your business thereby leading to success.
2. How can we differentiate our offerings?

Differentiation allows you to provide superior value to customers at an affordable price,

creating a win-win scenario that can boost the overall profitability and viability of your
business. Our research indicates there are six primary ways to differentiate, including
product, service, channels of distribution, relationships, reputation/image, and price.

However, not all differentiation strategies are equally effective, and some methods may
be more important to invest in than others in order to stand out from the competition.
Read on to learn more about these different strategies and the key advantages and
disadvantages associated with each one.

Product Differentiation
Product differentiation is probably the most visible. It includes actual physical and
perceived differences, of which the latter can be acquired through advertising. Product
differentiation may take the form of features, performance, efficacy (or the ability of the
product to do what it is purported to do), meeting specifications, or a number of other
criteria. This is the general area that most B2B marketers — and probably most
consumer marketers as well — spend the majority of their time and dollars.

The problem, though, is that product differentiation is short-lived. It is remarkably easy to

duplicate almost any product innovation. Of course, the western world has a
sophisticated intellectual property rights ethic and legal system that provides copyright
and patent protection. From a practical standpoint, though, these do not present
challenges. In fact, many businesses choose strategically not to patent since it tells
competitors exactly how to duplicate the advantage. At best, a product innovation is
protected for the life of the patent. At worst, when a patent does not exist, anyone with
enough capital to buy a machine may be a competitor in a matter of days or weeks.

Service Differentiation
Differentiation of service includes not only delivery and customer service, but all other
supporting elements of a business such as training, installation, and ease of ordering. To
many, these seem like the simple components of a business — the blocking and tackling
or the foundational elements that do not require sophistication. But think about a
business like McDonald’s. Like their Big Mac or not, they know how to differentiate on
service. With very few exceptions, you will get the same product and the same service at
a McDonald’s in Texas that you will get in Georgia, Connecticut, or California. And in
each location, the fries will be cooked the same, have the same amount of salt, and be
served up equally as fresh from the fryer.

Distribution Differentiation
Channels of distribution can also be an effective means of differentiation. Distribution
can provide coverage or availability, immediate access to expertise, and greater ease of
ordering, and higher levels of customer or technical service.

For many manufacturers facing a fragmented market, it is not feasible to reach the end
user without the distribution function. Building materials, for example, have to somehow
move from factory plant to contractor. Such products typically move through two stages
of distribution including master distributors, specialty dealers, and retailers.

With enough support — that is training, joint sales calls, supporting literature, lead
sharing, etc. — a distributor can become a staunch ally and partner of the manufacturer.

Even in a non-exclusive relationship, a committed distributor can create advantage

through joint promotions, bundling, warranty and service support, and technical service.
It is time-consuming and extremely expensive for a competitor to pre-empt or duplicate
this level of differentiation.

Relationship Differentiation
An often overlooked means of differentiation is through company personnel. Employees,
associates, or team members with customer interface can provide and demonstrate
competence, courtesy, credibility, reliability, and responsiveness. Responsible for
executing day-to-day client-facing communication, they are the linkage between the
product and customer. If that linkage breaks down, the business is destroyed.

In many businesses, the sales representative, CSR, or the technical service

representative becomes a trusted member of the customer’s team, ensuring that the
product is delivered on time and works as it is supposed to, while resolving any issues
quickly and accurately. Performance like this creates emotional bonds between the
vendor and customer.

This avenue of differentiation is closely related to service, but focuses specifically on the
people. Customers want to conduct business with people, not an institution. Building this
relationship takes time, but establishes a highly differentiated position.

Image/Reputation Differentiation
Some businesses set themselves apart by their image either as part of another
differentiation avenue or as a separate strategic path. Normally, image is created by
other forms of differentiation such as high levels of service, superior product quality, or
performance.

Image is controlled and managed by symbols used in communications, advertising, and

all types of media — written, digital, and audio, as well as the atmosphere of the physical
place where customers encounter the business. This is not limited to retail businesses
only.

An image or reputation can be a daunting hurdle for potential new entrants. DuPont, for
example, generally has a strong image as a technical powerhouse in almost all markets
in which they participate. The company employs a large number of engineers, scientists,
and product development experts. Their sales reps often have a strong technical
education or background, and their products are positioned as being leading edge.
Milliken and Company has a similar image. For the potential new start-up wishing to
compete against such a juggernaut, often the only option is a type of guerilla warfare.

Brand does not automatically differentiate a company from its competitors. The brand
has to stand for something, be recognized by the target audience, and communicate
something unique and different from the competition. That takes a large marketing
budget to pull off successfully. It is understood that it takes seven repetitions of any
message to even be heard. Branding is much more than just creating a logo. It is the
ongoing communication of your value proposition in a meaningful and effective way.

With a small marketing budget, the smartest, most effective strategy is to move away
from a branding strategy and towards a customer-driven strategy. Pick a handful of
customers that can drive the success of your business. That could be anywhere from 3
to 4 or 15 to 20, but it is not hundreds. Then focus all of your budget on these
companies. Give them exactly what they want, and do it better than anyone else can.
 You will increase your share of their business, and they will become loyal advocates and
promoters of your business.

Price Differentiation
Successfully competing on price requires recognition that every customer has a different
price they would be willing to pay for your product. Segmentation and differentiation
allows a business to come close to maximizing the potential revenue by offering each
segment a differentiated product at a different price.

Price differentiation (or discrimination) recognizes that the value of goods is a subjective
reality, which varies by customer, use occasion, and operating environment. In the B2B
world, most prices are subject to some kind of negotiation, and some customers are
prepared to pay more than the prevailing market price. In short, price discrimination
allows a business to capture consumer surplus — the difference between the amount
consumers are willing to pay for a good or service and the amount that they actually pay.

Factors to Consider for Differentiation

A difference is worth establishing when it meets at least one of the following criteria:

 Valuable: the perceived benefit exceeds the cost

 Important: delivers a benefit critical to success
 Distinctive: unique or offered in a distinctive way
 Superior: better technology, faster
 Emotional: ties to a core emotion — love, hate, desire
 Communicates: understood and visible
 Preemptive: cannot be easily copied
 Affordable: customers can pay the higher price
 Profitable: contribution (margin times volume) exceeds cost of difference