Marketing is a relatively new discipline, emerging in the early 1900s in the University of Illinois and University of Pennsylvania, followed shortly afterwards by other universities, including Harvard. As the century progressed, the philosophy and approach matured and adapted to chaining times.
When marketing was born, the world was an industrial society and marketing was oriented around products and advertising – the legend of Madison Avenue, in New York and the famous creative agencies was propagated in these years.
Over the years, the world changed in many ways and so did the orientation of marketing; As the industrial society became the information society, we witnessed the growth of brands and then super brands, such as Coca Cola®, whose brand alone was valued at $84 billion in 2019.
But another, crucial, change was happening all around the world – markets were fragmenting. In the post-world war II period, the global economy expanded and the focus of any company was to scale up product to meet demand – life was happy and strategic planning were the buzz words on the smart business people’s lips. But was with so many episodes of life, pride comes before a fall and the hubris of the five year forward thinking strategic planners was confronted by the saturation of previous growth markets and increasing competition between firms operating within them – triggering authors such as Michael Porter to write about generic strategies and five competitive forces, to help marketeers come to terms with this brave new world.
How do you deal with markets with groups of buyers becoming more demanding and expecting sellers to meet their needs? Marketeers learned to split their formerly monolithic markets into smaller chunks, which became known as segments.
Essentially, a market segment is a group of potential consumers who have the same or similar needs, and the smart marketeer can design offers that meet their needs, thus differentiating their products from other segments and achieving competitive advantage.
Let’s consider an everyday occurrence, an airliner sets off on a seven- or eight-hour flight to distant shores.
Passengers in first class are thinking about getting their heads down and sleeping, for the class of travel is about a stress-free journey and the can dine when they wish, whilst the denizens of business class are viewing the wine list and menu to see what tickles their fancy. The premium economy passengers are grateful they have an extra 20cms (8 inches) of legroom and a larger screen than economy, to watch a movie or two. In economy, the passengers don’t mind the slightly tight seating, as it allows them to afford to see places (or people) that otherwise would be out of reach and are happy to have a free meal and beverages.
Immediately, you have four segments – but the true situation is much more complicated! Not everyone pays the same price, as some passengers need full flexibility and pay a considerable premium for that, whilst others are happy to accept no changes or refunds for the rock bottom ticket price.
Other passengers will be late bookers, who have to pay whatever is needed for a seat on the flight, whilst others will book a year in advance to get the best deals. Campaign branding can help to drive these sales.
A smart airline will brand its classes to appeal to the segments, e.g. British Airways has First (so exclusive that it excludes the word class), Club World (sounds comfortable), World Traveller Plus (I’m more than the basics economy, yeah) and World Traveller – no mention of economy, WT sounds so much more refined to the buyer!
The airline uses segments and positioning within them to maximize the revenues for each flight – and therein lies a lesson for all of us.
Smart marketeers will analyze and choose segments that reflect the position they seek to achieve in the market – some companies focus on low costs and aim to sell at the lower end of the range, whilst others look for premium niches – both can be highly successful in their chosen positions.
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