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Retail Store Segmentation for Target Market - MyAssignmenthelp.com
Question: Discuss about the Retail Store Segmentation for Target Market. Answer: Introduction When an organization introduces its products and services in the market, it needs to choose the appropriate target audiences. For this, it uses different approaches of market segmentation and creates a set of customers with similar characteristics and behaviors. This report includes different ways, which can be implemented by an organization to segment its customers. There is discussion about some approaches of market segmentation along with their advantages and disadvantages. Furthermore, part B of the report includes the primary and secondary target market for the chosen organization, i.e. Starbucks. At the end, last section defines the positioning in general and then positioning process and statement of Starbucks. The report analyzes how an organization can target its customers and audiences for new products and services. Segmentation Approaches Segmenting the audiences is an important and common strategy that is used in marketing process to break down a larger market into small and identical groups of consumers. It is the first step in the target marketing process and aims on recognizing the groups of buyers, who have similar needs and wants. Under this process, the company chooses different segmentation variables, which are readily available and very easy to measure (Elliott, Rundle-Thiele Waller, 2014). Market research has an important role in understanding the connection between segmentation variables and buying behavior of customers. To become effective in todays competitive business environment, market segmentation should be done on the basis of up-to-date and accurate understanding of the purchasing behaviors and needs of customers and how these demands are changing. An organization can segment the audiences by considering their different characteristics, i.e. psychographic, behavioral, geographic, demographic charac teristics (Cross, Belich Rudelius, 2015). Before targeting the markets, it evaluates the potential segments by analyzing some factors, like; market potential, cost structure and competitive situation. The organization needs to consider the costs, which are included in communicating the products to satisfy the needs of potential segment. Moreover, it can estimate the sales potential by assessing thee competitive situation of organization in the market. With this analysis, it can make the decisions for, which the market segments it will aim and which it will not consider. It will ensure that companys products and services will meet the needs and demands of each segment (Weinstein Cahill, 2014). There are four segmentation approaches, which can be used by a company, are stated below; Demographic Approach Demographic Approach is one of the major approaches of market segmentation, under which an organization segments the market on the basis of demographic characteristics. These demographic characteristics are related to the measureable social characteristics of people. These are the mostly used variables for segmenting the market. Under this approach, the segmentation is done on the basis of different variables, like; gender, age, family size, occupation, income, race, nationality and religion of population (Wedel, Kamakura, 2012). Advantages There are some advantages of demographic segmentation, like; it is very simple to implement and use, because the quantifiable and statistical data is readily available in most of the markets. The required information and data can be acquired cheaply and very quickly. If the company segments the market on the basis of demographic variables, it is very easy to understand for its all people, like; management, sales and customer service staff. The market may have strong competition and this segmentation makes it very easy to identify what products to target to who and what kind of promotional techniques to utilize (Andaleeb, 2016). Disadvantages The major disadvantage of demographic segmentation is that this approach is done on the basis of assumption that people in same demographic group will have identical requirements. For example, not all 25 year old people have similar needs. Thus, the major limitation with this approach is that it provides little understanding about the customers. This segmentation may direct to the proliferation of goods. If the organization markets the products narrowly, it can decrease the development of extensive brand equity (Winston, Cahill, 2013). Geographic Approach Geographic segmentation is done on the basis of some geographic variables, like; region, climate, local population etc. These variables are the consistent predictors of needs and buying behaviors of customers for variety of products. Advantages and disadvantages of this approach are given below; Advantages This is very valuable approach for large corporations, which runs operations in many nations. It allows them to look at the cultural differences. It tends to work effectively in the countries and areas, where there are major differences in socio-economic situations in different areas. Disadvantages This approach of market segmentation is limited because it assumes that all of the customers in an area have similar requirements and demands (Hollensen, 2015). This approach needs to be used in combination with other approach. By using two approaches, a company can target the people. Psychographic Approach Like geographic and demographic variables, psychographic variables are considered on the basis of characteristics of customers. There may be differences in lifestyles, psychological traits, interests, hobbies, social status etc. This approach assists in understanding the customers by recognizing their mindsets and how they are articulated in their life styles. Advantages This approach provides a better insight in the consumer as a person that more likely direct to the recognition of underlying requirements and objectives. It can deliver a better understanding of the people that in turn can create more responsive and valid segments and marketing plans. By implementing this approach, marketers can understand the interests, expectations, hobbies and needs of customers effectively (Brown, Suter Churchill, 2017). Disadvantages The major challenge under this approach is that it needs that company has detailed information about customers. Thus, it is only suitable for the large companies, not for smaller companies. It can be very expensive because it requires extensive research, i.e. both qualitative and quantitative. Behavioral Approach Like all above characteristics, behavioral segmentation is not done on the basis of customer characteristics and on the basis of actual purchasing behavior towards products and services of company. Behavioral variables are such as; brand loyalty, expectations regarding benefits, usage, decision making pattern and behavior (Armstrong, Kotler, Harker, Brennan,2015). Advantages This approach of segmentation is utilized in the matured markets, where the companies are seeking to understand how to encourage non-users and transform the medium users to the heavy users. This approach is more suitable for the competitive industries and there is better consideration of factors, like; consumption rates and loyalty. Disadvantages This approach does not seek that why the people buy the products and services, their lifestyles and requirements. Thus, the market understanding level is not very high. It is dependent on the market intelligence and needs experimentation and market testing. Thus, an organization can implement these approaches of market segmentation, which are both advantageous and disadvantageous for the company. These assist the company in understanding the needs and demands of customers and segmenting the market. The marketers can implement the above approaches according to the nature of company and its products and services. Target Market for the Organization Starbucks Corporation is a popular coffee house chain and coffee company in United States of America. It is a successful retailer and promoter of fame coffee all over the world. Company is having good position in the coffee and beverages industry (Starbucks, 2017). As of 2016, it owns 23,768 stores across the world. Its stores serve both cold and hot drinks, whole-bean coffee, instant coffee, like; caffe latte, espresso, fresh juices etc. In addition to this, it offers snacks also, like; crackers and chips. Currently, it holds approximate 33 percent of market shares in US coffee market. The target market for the products and services of this company is vast. When the company introduces its new products in the market, it targets a specific market on the basis of market segmentation (Schultz, 2012). Using above approaches of market segmentation, Starbucks has to decide that how many and which areas to approach. This process is known as targeting. The target market profile of Starbucks is divided in two segments, like; primary target market and secondary target market. The target market for Starbucks is stated below; Primary Market Primary target customers are founded by analyzing the data or information from emphasizing on those, who drink prepackaged coffee at their home. The organization is targeting the market on the basis of demographic and psychographic characteristics. Under demographic segmentation, the primary target market of this company includes both male and female from the age group of 24 to 40 years old. It is targeting the people of higher income level and graduates. Moreover, it is targeting the people of different social classes, like; upper middle, lower middle and middle class. These are the customers, who account for half of its business revenues. Primary Target market of Starbucks increases at a rate of 3 percent every year (Bilgic, Kantardzic, Cakir 2015). Secondary Market Secondary market of the company is the second most significant customer segment, which the marketers wish to target. It may have fewer needs and demands for the companys products. Under this market, Starbucks is targeting both male and female from the age group of 18 to 23 years old. Furthermore, it is considering the students and under-graduates people as the prices of products are high and they cannot be afforded by them. In this market, the needs and demands of Starbucks coffee and drinks are lower than primary target market. Starbucks is using effective decision criteria by understanding that Starbucks is not just brand of coffee, but it is like an experience, which a customer is valuing in the morning in coffee time. It is making the decision by believing that products and services of the company are costly, but trending, so it is targeting the above audiences (Armstrong, et al, 2015). It has decided by considering different consumer segments in the coffee market, i.e. In-home vs. Out of house and Ground coffee vs. instant coffee. This part shows that Starbucks has used demographic and socio-economic approaches to target the market. Making this decision is beneficial for the sales and profits of the company in todays competitive business environment. Positioning Positioning is an overall strategy of a company, which targets to make a brand approach a unique position, comparative to competitors in the mind of customers (Tu, Wang Chang,2012). It refers to the place, which a company sets in the customers mind and how it is differentiated from the goods and services of competitors. It describes how the targeted customers perceive the offers of company relative to the offers of competitors. Positioning is totally based on the customer perceptions that may or may not resemble with the objective features of products. Positioning of Starbucks Utilizing Effective positioning enables an organization to provide the value requirements as per its target markets. After making decisions on target markets, companies decide that what position it desires to occupy in target market. So, it makes major focus on some significant attributes, like; quality, price, product, competitor etc. Starbucks places itself as a high priced coffee brand that wishes to sell products with high quality to the young generations with the average income or who have the potential to earn the money (Dudoyskiv, 2017). This organization wants to become a high quality coffee brand in the perception of its potential customers. The major competitors of Starbucks are Costa and Dunkin Donuts, which have placed themselves same as Starbucks. In addition to this, Starbucks is also using adaptive positioning, under which it has developed low calories coffee beverages, i.e. Chai Tea Latte and Caffe Misto as the health consciousness is increasing among customers (Gallaugher, Ransbotham, 2010). Furthermore, it positions itself under standby positioning, where some beverages of Starbucks like; Frappuchino has to wait for the changes in market for a specific period to search its needs and demand. This organization has understood the opinions of public, however it takes long time to produce, but after energizing, it can assist pulling the organization into the competitive market (Tu, et al., 2012). Thus, Starbucks is using effective strategies for choosing its primary and secondary target markets and positioning itself among these targeted audiences efficiently. It is very important to use effective positioning to attract a large base of customers towards new products and services of the company. Each and every company should use an appropriate segmentation approach to select target audiences and place the products in market by using effective positioning. References Andaleeb, S. S. (2016). Market Segmentation, Targeting, and Positioning. InStrategic Marketing Management in Asia: Case Studies and Lessons across Industries(pp. 179-207). Emerald Group Publishing Limited. Armstrong, G., Kotler, P., Harker, M., Brennan, R. (2015).Marketing: an introduction. Pearson Education. 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