Market Segmentation, Strategy, and Portfolio Planning
Levels of Market Segmentation
There are several levels of market segmentation:
- Mass Marketing: This strategy, which some companies still do not use, is the opposite of targeted marketing. A business mass-markets a common product to all customers, using the “one size fits all” concept.
- Segment Marketing: This allows businesses to identify broad segments and tailor products to better fit the needs of groups of consumers.
- Niche Marketing: This focuses on sub-groups within broad segments. These niches offer market opportunities for smaller companies because these groups of customers are under-served by large competitors (i.e., the product is not tailored well enough for the niche) or are overlooked by larger companies.
- Micromarketing: This is the ultimate type of niche marketing. This type of segmentation tailors products to suit individual customers or communities.
Strategic Marketing: A Long-Term View
While financial profitability measurement provides an important input into strategy, the quarterly, semi-annual, or annual financial reporting cycle tends to favor strategies that achieve short-term financial gains. If short-term financial benchmarks are set as key performance indicators, managers are encouraged to adopt short-term strategies to meet the targets.
This practice thwarts long-term strategic goals. Many significant internal improvements require investment over many financial reporting periods. A short reporting cycle that emphasizes quick profits is also asymmetrical to many of the key beliefs and functions of marketing, like building lasting value for the customer and stakeholder.
Building and delivering valuable products that contribute to customers’ long-term well-being will also sustain a business’s viability. This requires long and sustained investment. Sometimes this investment will be at the expense of shorter-term financial performance.
Central to the concept of sustainable strategy are long-term profits. These result from:
- Customer lifetime value (CLTV)
- Customer satisfaction
- Customer loyalty
- Product and service quality
Portfolio Planning and Market Lifecycles
The portfolio planning technique provides better information for managers. An example was given that considered a portfolio of business units rather than products, in which Coles Supermarkets found that they performed best in inner-city locations.
Management might need to concentrate the company’s resources on inner-city stores and close suburban stores. In turn, this might create niche opportunities for a competitor. It might also increase inner-city rents over the longer term, which would increase the operating costs of those stores and thus their profitability, making the suburban option more attractive.
Alternatively, Coles might choose to direct more of its advertising spend on suburban stores to try to increase their activity, in order to equal that of the successful inner-city stores.
This adds to the cost of operating suburban stores, so prices might need to be adjusted. The implication is that any adjustments have consequences. Portfolio planning management is a useful planning tool, but it is one that requires both constant monitoring and frequent adjustment.
A balance within the portfolio will ensure long-term viability.