Introduction

This chapter traces the evolution of market segmentation over the time into a function of strategic importance. The chapter then discusses the market segmentation in the context of the developed country, taking cognizance of the political, economic, social, technological, legal, and ecological environment prevailing there and its impact on strategic market segmentation. The challenge of market segmentation in the context of dynamic emerging market is then studied with respect to the same PESTLE environment, with an attempt to compare and contrast with the developed country scenario, along with its impact on strategic market segmentation. An attempt then is made to find some solution for effective market segmentation in dynamic emerging market, based on the real emerging market environment. Market segmentation in an emerging market is strategic because of uncertainty, instability, and volatility of environment and presence of institutional voids, and hence, the present chapter assumes paramount importance, since the success of any business rests on a single pivot of the right market segmentation, targeting and positioning of offerings, failing which businesses are bound to doom.

Strategic Market Segmentation

Antecedents

Industrial revolution in Europe heralded a new era in progressive evolution of a market. Previously, the goods/products that were in use were hand-made and primarily satisfied the needs of the people world over. There was no separate identity for ‘marketing’ activity since it was not necessary. The rise of the machines led to the mechanization of production, which necessitated thought in the direction of marketing.

The orientation toward the marketplaceFootnote 1 by the firms progressed as follows.

Production concept era where market segmentation was not much relevant, product concept era in which market segmentation based on the customer needs that are satisfied by the product, selling concept era in which market segmentation aimed at the expansion of the market by aggressive selling efforts, marketing concept era of mid-1950s in which market segmentation matured into a structured mechanism, and discrete segments were identified to offer value through products either to one or many segments simultaneously and holistic marketing concept era where segmentation underwent a change of predefined framework. Segmentation varies widely depending on the marketing activity/program in the question.

Business Aspect

Market segmentation has been the primary tool in penetration and expansion of the market in a scientific manner. Segmentation aided in reaching out to the masses, creation of value to the customers, customer-centric product creation, communication of brand value to the customers, and enhancement of business potential of the organizations.

Marketing Aspect

Market segmentation cleared the mist of the markets and showed the way for a focused and structured approach to market products and services by organizations. This was responsible for effective targeting and positioning of the products and services which improved the performance of the organizations.

Previous Research

According to business historian Richard S. Tedlow, the evolution of market segmentationFootnote 2 happened in four stages, namely fragmentation, unification/mass marketing, segmentation, and hyper-segmentation.

Contemporary segmentation became a brand-driven process due to

  • Availability of demographic, purchasing data, advertising/distribution channels for groups and rarely for individuals.

  • Tactical approach of the brand marketers on segmentation.

Market Segmentation

Market segmentation varies depending on the product offerings of the enterprise, whether they are for consumer markets or business markets. Let us look at the characteristics of segmentation of both these markets.

Consumer Market Segmentation

Two schools of thought have been popular in the consumer market segmentation research.

One suggests using the following three descriptive characteristics for segmentation.

  • Geographic segmentation based on geographic variations.

  • Demographic segmentation based on demographic variations.

  • Psychographic segmentation based on variations simultaneously produced by psychology and demographics of the consumers.

The other school suggests behavioral segmentation based on consumer behavior aspects as follows.

Segmentation is structured on the behavioral bases like

  • Needs and benefits

  • Decision roles

  • User and usage

    • Occasions

    • User status

    • Usage rate

    • Buyer-readiness stage

    • Loyalty status

    • Attitude.

Business Market Segmentation

Business market segmentation employs the following variables

  • Demographic

  • Operating variables

  • Purchasing approaches

  • Situational factors

  • Personal characteristics of the buyer

Of these, the demographic variables are the most important, followed by the operating variables, down to the personal characteristics of the buyer.

Justification of a Practical Approach for Strategic Market Segmentation

As previously mentioned, the entire success of marketing program rests on appropriate market segmentation and targeting. Segmentation hence got elevated to strategic space. Strategic market segmentation thus replaced the erstwhile market segmentation.

Potential Impact of Market Segmentation on Formulating, Implementing, and Sustaining Strategic Marketing Issues

Market segmentation groups customers with a similar set of needs and wants. Identifying meaningful number and nature of market segments and targeting one or more of them will be of paramount strategic importance since any miscalculation in segmentation will be detrimental to entire business.

Market Segmentation in the Context of Developed Country

Developed countries are those which pioneered industrial revolution and became fertile grounds of capitalism. Rapid industrialization and maturity of economy eventually resulted in these nations. They made breakthrough innovations and advances in mechanization of agriculture, defense, medicine, science, engineering, manufacturing, technology, transport, telecommunications, space research, software, and other related fields which are building blocks of the economy. A gradual shift from agrarian to industrial to services nature of economy is evidenced in them. Today, their economies are predominantly a mixture of industrial and services components.

Another common feature among some of the developed countries is that they were colonial till the middle of twentieth century, for example, Great Britain, France, Portugal, Spain, and Netherlands. Their colonies happened to be cheap source of raw materials and also immediate markets for their industries for centuries, and this is the primary reason for their industrial development.

Let us now examine the environmental factors for an industry/enterprise in a developed country that contributed for flourishing of the business and the economy and how strategic market segmentation was impacted due to these developments.

Political

Political environment was marked by monarchies, dictatorships and aristocracies, strong military formation, frequent wars for territories which were flourishing centers of trade and business, sources of rich natural resources and areas of strategic prominence, search for outside opportunities due to limited domestic resources, establishment of colonies by exploitation of weak political situations in the kingdoms with which trade contacts existed.

Economic

Usage of more land for industrialization due to less population, establishment of more and more factories due to industrialization, demand for expanded markets, lucrative colonies which were sources of cheap raw material and dumping yards of finished products, resulting in accumulation of huge capital and strengthening of the home economies, marked the economic environment.

Social

Religion was the center of social structure, which controlled the political, economic, and legal systems. The society was striated into the church class, the ruling class, the aristocrats (official machinery), and the ruled class. Challenge of religion by science, rise of Protestants, the spirit of innovation, inventions and discoveries, and rapid industrialization triggered social transformation. Originally unskilled and agrarian, the labor, gradually were trained to the demands of industrialization. Society was almost homogenous, with the only differentiation in the social rank of the people.

Technological

Fertile technological environment existed which resulted in inventions like steam engine, railroad network, shipping, and printing press which advanced manufacturing, transport, and communications. Strong economies with huge pool of capital encouraged more investment and technological advancement. Strong political will and competition among countries to gain military supremacy started rat race for defense and telecommunication innovations. Weapons were produced in so huge quantities creating defense markets as well.

Legal

Since church was all powerful, legal system rested on religious practices. Codification of law later evolved. Industrial revolution created labor force, which eventually culminated in labor legislation.

Ecological

  • The lure of industrial supremacy undermined the ecological backlashes. Unhealthy competition in weapon production ignored the environmental and ecosystem damage caused by nuclear weapons.

  • The world has not yet healed from the devastation of two world wars. The developed countries have pushed the world to a zone far from repair.

Impact on Strategic Market Segmentation

  • Political environment influenced business market segmentation due to rapid industrialization in the strategic sectors like defense, transport, telecommunications, and infrastructure. Geographic segmentation in retail space gained importance.

  • Economic environment influenced geographic and demographic segmentations in both business and retail markets.

  • Social environment influenced the demographic and psychographic segmentation, predominantly in retail markets.

  • Technological environment influenced the psychographic and behavioral segmentation in retail markets.

  • Legal environment influenced demographic segmentation both in business and retail markets.

  • Ecological environment influenced behavioral segmentation in retail market and situational variables in business markets.

Market Segmentation in the Context of Emerging Market

The environmental factors in the emerging market vis-à-vis a developed country can be analyzed as follows (Table 12.1).

Table 12.1 Environmental factors influencing market segmentation [Prepared by Author]
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Impact on Strategic Market Segmentation

The environment in which firms operate in emerging market is fundamentally and drastically different from the developed countries, as observed above. It is therefore imprudent to use the market segmentation methodology that worked for developed countries, to the emerging markets as well. Joint ventures of one foreign and one local firm would be the most appropriate strategy for business for the efficient management of local (to the emerging market) parameters. This would be a win–win situation for both the local and foreign firms.

Discussion

The above information on the environment in emerging markets leads to the following analysis on the market segmentation in emerging markets.

The whole population (consumers and firms) of an emerging market can be divided into four segments of the people, which can be conveniently termed as emerging market pyramid (EMP), depicted as follows (Fig. 12.1).

Fig. 12.1
figure 1

Emerging market pyramid (EMP). [Prepared by Author]

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Let us examine the pyramid as follows, from both the business market and consumer market perspectives (Table 12.2).

Table 12.2 Analysis of emerging market pyramid (EMP) [Prepared by Author]
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From the above analysis, it can be observed that the segments fare in five segmentation criteria and Michael Porter’sFootnote 3 five forces or parameters for segment attractiveness as follows.

Market segmentation criteria—segment rating

Criterion

The seekers

The strugglers

The acquirers

The transcendent

Measurable

 

✓

✓

✓

Substantial

 

✓

✓

 

Accessible

 

✓

✓

✓

Differentiable

 

✓

✓

 

Actionable

 

✓

✓

 

Segment attractiveness parameters—segment rating

Parameter

The seekers

The strugglers

The acquirers

The transcendent

Threat of rivalry

  

✓

 

Threat of potential entrants

 

✓

✓

 

Threat of substitutes

  

✓

 

Threat of buyers’ bargaining power

 

✓

  

Threat of suppliers’ bargaining power

  

✓

 

Recommendation

On the basis of foregoing analysis and discussion, it is evident that targeting ‘the strugglers’ and ‘the acquirers’ segments would be a prudential strategic move for gaining competitive edge. Following are few recommendations for both of these segments.

For ‘the Strugglers’ Segment

  1. 1.

    Since the segment is very highly price elastic and very highly brand loyal, only value for money and highly durable offerings suit this segment.

  2. 2.

    Population of this segment generally would be facing hardships. So, if offerings which ‘make life easy’ are provided, they would imbibe them for life.

  3. 3.

    This segment would be the long-term cash cow if the offering is positioned securely in the segment.

  4. 4.

    If firms can go extra mile and take initiatives to enhance buying power of this segment, as a part of corporate social responsibility, part of the segment gets converted to ‘the acquirers’ which bolsters the profitability of offerings in ‘the acquirers’ segment.

For ‘the Acquirers’ Segment

  1. 1.

    Offerings for this segment should enhance the social status, personality of the user and, at the same time, provide maximum luxury/performance.

  2. 2.

    Often, niches in this segment would be more practical and profitable.

  3. 3.

    Branding should be given top most priority since only brands and not products get sold in this segment.

If Both Segments Are Targeted

  1. 1.

    Firms should be extremely careful not to provide same brand if they cater to both the segments. The brand is bound to fail.

  2. 2.

    If both segments are decided to be targeted,

    • Appropriate differences in the offerings should be built in.

    • Marketing, branding, advertising should be taken up in such a way that offerings to these segments appear to be from two separate firms.