Segmentation refers to the process through which the business is specialized in terms of product diversification and differentiation with the aim of satisfying a given market niche. In other words, segmentation denotes the deliberate concentration in one market segment. Segmentation as a business strategy can be employed in the pursuit of a specific target market. One way to go about segmentation entails the application of targeting and position. In targeting and position, the business identifies its target market and consequently directs its efforts towards the satisfaction of the needs of that particular market. These efforts are what cumulatively result into market positioning. This paper will look at the aspects of targeting and position and apply the same within the context of the financial markets for illustrative purposes. In the long run, it should be appreciated that segmentation as a business strategy cannot yield the results in isolation. It has to be supported by other compatible and complimentary business strategy. In particular, segmentation ought to be considered in light of Porter’s generic competitive factors. In that context, segmentation falls under the domain of focused market strategy. According to the focused market strategy, the business ought to identify its specific target market and specialize its products in satisfaction of its target market needs.
One limb of segmentation could be seen in the targeting process. In targeting, a business identifies its specific target market. Often any market is segmented into diverse market dynamics motivated and determined by different market factors. It is imperative to note that the natural occurrence of the market makes its difficult and almost impossible to classify the market into definite segments. However, at a general level, it is possible to classify the market into specific segments. Often these segments are concerned with specific sets of factors that qualify them into a certain segment. For instance, a segment could be sensitive to prices and often be influenced in their decision making by the prices. Ordinarily such a class would be in pursuit of low prices. This dynamic makes their products loyalty by determined by the prices. In order to tap on these target market, it is essential for the business to offer the lowest prices possible. The best strategy to pursue in that context is the cost leadership where the business offers its products at the lowest costs possible. This one dynamic that could define a particular target market.
Alternatively, a market segment could be influenced and directed by the product quality. In such a target market, consumers of a product would be influenced by the quality of products. Ordinarily consumers would be insensitive to the prices of a product so long as the quality is up to expectation. A business in targeting a quality sensitive segment would need to concentrate more on the quality that the pricing of its products so as to tap and capture the targeted segmented.
However, targeted market segments are often not as simplistic as is indicated in the two illustrations advanced. Often, the interests and dynamics are more complex and advanced. In many cases, the factors at play are often a mixture of various factors. For instance, a segment could be more inclined towards speedy, high quality and durable goods. While the other segment could be inclined towards durable, cheap and easily available products. It is the cumulative interests in the targeted market that the business needs to tackle and avail in theirproducts. In addition, situation do exist where the business reclassifies the target markets and groups one or two targeted markets together. Often this approach is justified by the similarity of closeness in aspects and needs. For purposes of increasing their samples size in the population, the business may want to expand the targeted market or merge a few segments that share one or more features. In the long run, therefore, targeting refers to the process through which the business identifies its interested target market that it intends to supply. The dynamics at play often entail the identification of the needs of the segment and the consequent development of products for the satisfaction of the interests and needs of the targeted market.
Upon the identification of the target market, the next process in segmentation is the positioning. In positioning, the business undertakes to place itself strategically in line with the target market requirements and needs. In this aspect, the business deliberately pursues actions that go into satisfying the target market needs. Positioning in other words is an active process in which the business entity pursues interventions and activities that seek to position itself within the reach of the targeted consumers. In that strain, positioning would involve activities such as just in time production where products are released and availed to the market in readiness for the demands and likely needs of the market. In addition, it should be noted that positioning may assume two characters. It could be long term in nature or short term. In other cases, positioning could assume both long and short term characters. In the short term positioning, the firm reacts to the external factors through intermediate measures. These measures could be seen in the form of subcontracting production, issuing discounts, offering offers, extensive advertisements, offering product use incentives, among other forms of short term positioning. In the long term positioning, the business could engage activities such as corporate restructuring, changing the production runs, introducing new designs that address client needs, indebt application of new technology, the introduction of new managerial models, business expansions and restructuring, among other long term measures. At the same time, the business may opt to approach positioning by pursuing a dual approach that undertakes both activities simultaneously. It should be appreciated from the onset that positioning is intended to place the business strategically towards the capture of the identified target market. In addition, positioning is more than a mere managerial process. Unlike the targeting that is left to the management, positioning affects the entire organization and needs the contribution and participation of the entire business organization. It is after the conclusion of targeting and positioning that the business is said to have adopted segmentation as its operational strategy.
After a constructive examination of segmentation processes, that is, targeting and positioning, the paper would now relate the same to the financial services industries. The paper would draw its example from the Bank of America. Bank of America is one of the largest and oldest financial services providers not only in the U. S but also in Europe. It is the contention of this paper that the Bank of America sits well for purposes of illustration of the market segmentation strategy. In the Bank of America, the target market ranges from the individual and personal bankers, to medium scale corporate bankers to executive corporate bankers. In targeting, the bank looks at the dynamics and factors at play for the specific targeted market segments. The bank then examines their unique needs and preferences. For example, the bank may find that the executive corporate bankers are more inclined towards huge loans ranging in millions of dollars, which are tied with less collateral requirements and for long durations in terms of number of years. This target market could be insensitive to the rates of interest in as long as their needs are met. The bank may identify this as their target market. Safe in the knowledge of the needs of this targeted market, the bank can pursue a segmentation strategy through the deliberate positioning. In positioning and given the dynamics and risks in the financial sector, the bank needs to examine the nature of the loans it can offer these target market and come up with a product that strikes a middle ground for both the bank and the target market. It then aggressively sells products to its target market.
Segmentation of this nature comes with a number of benefits. One, it positions the business, in this case the bank favourably in the market against its rivals. In the wake of a competitive world where the stakes are high, it remains essential for the business to position itself ahead of the park. Secondly, this method has the overall impact of building the business brand image among its target market. Often the satisfactory service of the client would come with the additional positive brand image building. The business may leverage on the brand image in future engagements such as during expansion or introduction of new products. Thirdly, the segmentation as a strategy is more results oriented and enables the business achieve its organizational objectives more realistically and in a focused approach. This is as opposed to other risk prone and indefinite methods. In the long run, the organization approaches the market from a point of information that is informed and forecasted. This approach ensures the organization gains in terms of profitability and overall competitive performance.
In conclusion, it should be appreciated that segmentation suffices as an effective business strategy if executed religiously and with the full upholding of the business discipline and focus. It is imperative to note in the same breadth that segmentation cannot success in isolation. It operates successfully within the confines of business that is backed up with properly trained and managed personnel and an overall conducive business atmosphere. However, segmentation must be appreciated for its elements of certainty and ability to give the business a focused strategy in the implementation of the organizational objectives. While segmentation could be seen in terms of targeting and positioning, it should be appreciated that the process involves more than just the two mentioned processes. In the long run, segmentation intertwines and overlaps with a number of other business process. The common denominator often is the collective purpose of achieving business profitability and competitiveness. The provision of financial services best illustrates the essential roles of segmentation as is shown in the case of Bank of America.
Bridgepoint Education, Inc. 2012. Managerial Marketing. San Diego: Bridgepoint Education, Inc.
Davenport, Thomas H, Don Cohen, and Al Jacobson. 2005. "Competing on Analytics." Babson Executive Education 1-12.
Gates, Stephen. 2006. "Incorporating Strategic Risk into Enterprise Risk Management: A Survey of Current Corporate Practice". Geneva: Conférence Internationale de Management Stratégique, Annecy. http://www.strategie-aims.com/events/conferences/8-xveme-conference-de-l-aims/communications/2175-incorporating-strategic-risk-into-enterprise-risk-management/download.
Porter, Michael E. 2008. "The Five Competitive Forces that Shape Strategy." Havard Business Review 78-94.
Robinson, Colin. 2008. Competition and Regulation in Utility Markets. New York: Edward Elgar Publishing.
SAS Institute Inc. n.d. Bank of America avoids gridlock in credit-risk scoring, forecasts using SAS. SAS Institute Inc.