As a marketing officer in BMW Company, I would say that it is important to follow the developments in both the local and global markets. One of the most important aspects of this is the process of customer segmentation (Malcolm & Dunbar, 2004). The new company marketing manager has asked me to provide her with a report explaining the different aspects of market segmentation, because our company has been successful in this front. She is, however, not very conversant with this field and has directed me to research on customer segmentation, determine its characteristics and examine its success rate. The manager wants me to determine the causes of such failures and come up with their possible solutions. This would eventually help the management team to improve our customer segmentation and develop marketing strategies that would be effective. Eventually, it will lead to the efficient use of the available resources.
BMW is a German based automobile manufacturer that boasts a substantial market share over luxury cars. It is ranked the top three global luxury car manufacturers alongside Mercedes Benz and Audi, all of which are based in Germany (Alan, 2008). The company manufacturers automobiles, motorcycles and engines, and was founded in 1917 as an aircraft manufacturer (Alan, 2008).
BMW, which stands for Bavarian Motor Works in English, has been among the companies that have targeted premium customers. Their products target the high-end customers, and this explains why the company does not include their minivans in the list of their products, but rather concentrate on luxurious cars. They recently adopted a slogan to convince customers that they no longer gave them ‘ultimate driving machine’ but that their products provided the customer with ‘sheer driving pleasure’. Their approach in customer segmentation has been successful as they sell over 1 million vehicles annually.
Features of Customer Segmentation
There are several important aspects of customer segmentation that a firm must put into consideration in order to obtain the best results from adopting such a strategy (Philip, 1999). Customer segmentation involves the grouping of the desired customers in order to develop strategies that would reach them and influence their drive to buying a product. A marketing strategy should be created in a way that directly influences the perception of a customer and this would only be successful if the strategy used to reach the customer is specific (Malcolm & Dunbar, 2004). Therefore, the marketing strategy must be developed as per the market segment that they would reach (Philip, 1999). The following are some of the most important characteristics of customer segments.
Measurable – This characteristic determines the approximate number of customers that form a given segment. This is important because marketing mainly involves the number of potential customers that would be reached by a given marketing strategy. It would help the management team to determine the amount of resources that would be allocated to a given segment to effectively cover it. BMW has been very successful in their marketing strategies because after determining the number of potential customers within a segment, they devise methods to effectively reach out to them, hence having highly successful advertisement.
Accessible – A customer segment has to be accessible. This means that there has to be a medium that can be used to relay information to customers. Since marketing targets masses, it would be important to determine the best way to reach a given segment in the most effective way possible. The method used to access the segment should be friendly to them and should be a method that these people can closely identify with. BMW has in past located its selling points near high end residential areas, or places where their target customers would most possibly go out for shopping (Young-ryeol, 2011). After determining their target market, they have come up with strategies that the premium customers can identify with. In one of their advertisement posters in Seoul, Korea, the company advertised a brand new BMW 7 Series sedan being displayed in a Mobility Lounge (Young-ryeol, 2011). This leaves the car to be portrayed as a possession of the rich and only the premium customers can identify with such places.
Substantial – A customer segment has to be worthy and relevant to the company. Marketers should only look and target the social segments that can be interested in their products. Any efforts to reach out to a certain segment must be well examined to ensure that the correct efforts are placed on the right segment. In placing their selling points on the high end points, BMW clearly focuses on their targeted customers. Advertisements would only be designed to identify with the right people and efforts that might not reach the premium customers are played down. Further, the company has concentrated on the production of luxury cars and has created a brand that only the premium customers can identify with. This can be used to explain why they are highly successful.
Homogenous – A market segment needs to be comprised of people of similar characteristics. A homogenous segment would possibly look for similar products and could easily affect each other. For instance, it can be said that BMW targets men aged above 35 years and who earn over $70,000 annually (Young-ryeol, 2011). When a segment is homogenous the reach out strategies are equally homogenous and the success rate of such methods is high, if well executed. A homogenous customer segment is likely to watch similar or near similar television programs, would possibly read similar magazines and newspapers, would visit similar recreational facilities and eventually use similar products. This means that there is a high possibility for a strategy to be easily packaged since the type of people it is destined for is similar. By locating their selling points in high end areas, BMW is already targeting a homogenous segment that lives within the same locality. Furthermore, they concentrate more on luxury cars rather than minivans, which would not be appropriate for premium customers.
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Segmentation Failures
While many companies appreciate the need to segment their customers, most of them have not been very successful (Douglas, 2007). Few companies can match a company like BMW, as they fail to precisely map out the actual segments they wish to reach in the market. Some that are successful in doing so face the challenge of sustaining this segment over a long period of time, and their strategies pointing to a certain segment collapse. Some of the factors that have been attributed to such failures are discussed.
Scope of Segmentation
When a company embarks on the process of segmenting their customers, they are often faced with the dilemma of either taking a large scope or a very small scope. Either way, the company ends up failing to meet their desired targets and eventually fail to create effective segments. When a company uses a wide scope of segmentation, it may eventually fail to execute the recommendations of the findings of the research (Mohan, 2008). On the other hand, a very small scope would be limited to a single commodity, leaving the findings of a given research only applicable to only a single product. Most companies fail to strike a perfect balance in their research for market segmentation.
Outbound versus Inbound Segmentation
During the development of a product, the needs of the customer are analyzed and put into consideration (Malcolm & Dunbar, 2004). The process of engineering and creating the product in accordance with the needs of the customer is known as inbound stage. This considers aspects such as the technological environment, the features desired by the customer and the diversity in product use among others (Mohan, 2008). The other stage which involves the marketing strategies and decisions is known as the outbound stage. It tries to put into consideration the needs of the customer, with emphasis on factors such as the media habits, price sensitivity, demographics and preferred channels among others. This creates a very big and complex rift between the two stages (product development and product marketing), thus making it hard to effectively map out sustainable segments.
The Stability of the Segments
Markets are very dynamic and may render useful segmentations obsolete after a short while, leaving them ineffective. Companies are, therefore, required to create new strategies to segment their customers every time the market changes. This might not be possible because some of the changes may be too radical to be prepared for. This raises the question on when research should be carried out to re-segment the customers. Making a perfect timing for this may be too challenging for any firm to get, making their segment shift without the knowledge of the firm (Mohan, 2008). However, companies such as BMW have been successful because their products dictate the market, as they increase the level of their innovativeness. Another good example for a company that keeps making innovations is Apple, thus driving their segments, rather than following the segments to help them in their designs.
Products with Diverse Audience
Another challenge that firms face is the inability to segment their products when there are diverse customer classifications. Products such as computer software and programs are used by people across the whole divide and it would be difficult to determine the segments who would buy these products (Mohan, 2008). Such issues lead the firm to be compelled to use highly diverse marketing methods to reach out to the diverse market, which might prove to be very expensive. Small companies that try to enter the market of essential goods that are common face a very tough challenge to create a niche for their products because they cannot target one particular segment. An automobile company like BMW would effectively map out their market due to the nature of their products and their targeted market that is selective.
Overcoming Failures
From the above weaknesses, the following solutions can be used to create effective customer segments.
Striking the Right Market Research Balance
In order to ensure that a research is relevant and would be used for a long time without growing obsolete, the company should determine the best time and levels that they should carry out their segmentation research (Mohan, 2008). This could be done through observing the successful companies and trying to determine how they are able to strike the balance.
Determine When a Segment Becomes Relevant
Inbound and outbound stages are important in reaching out to the customers. It would be important to ensure that the product meets the needs of the customers from the development stage. Further, the product should be created in a manner that would be acceptable in the market. It would, therefore, be advisable to have a full plan of a product from inception to consumption before the first step is taken. This way, it would be easy to create an end to end approach to segmentation, since the whole cycle would be reconciliatory and targeting the identified customer segment (Mohan, 2008).
Refreshing the Data for Segmentation
Data collection methods make the most challenging parts of refreshing customer segmentation. Instead of collecting data periodically, companies could come up with strategies to follow up their products to determine the market dynamics. They could also track the performance of their competitors as well as use online feedback and data collection methods which is easy and less costly (Mohan, 2008). This would lead to a constant feedback system.
General Segmentation
At times, though rarely, it is inconsequential to create customer segments. This occurs when products are required by everyone, with a good example being essential pharmaceutical products. In this case, the firm involved needs to create strategies that would cut across all segments (Mohan, 2008). They may use segments created by other industries in order to reach their targets.
Conclusion
Customer segmentation is a vital tool in developing the marketing strategies for any organization. While some organizations have been successful in segmenting their potential customers, others have failed despite trying. Organizations that are successful in this exercise should intensify their processes, while those that have not been successful should determine the most effective ways, either to create the segment, or to disregard the segments and come up with their own strategies. Such would involve organizations whose products are not limited to a certain homogenous group of people.
