Economists, MBA's, etc: Lets discuss necessary components of market segmentation

[lord of the mark]

My understanding has always been that any business strategy, that is based on using the division the division of a market into different groups with diferent demographics or market behavior, and then using that behavior to increase profitibality, is a "market segmentation strategy"

While such strategies OFTEN involve differential pricing, and sometimes, different SKU's, they need not.

For example, lets take a hypothetical product X. X sells to two market segments, lets call them segment A and segment B. Segment A consists of individuals who have an intense preference for this product. Segment B has a slight preference, at current prices (lets assume that for other strategic reasons the price is fixed, and is the same for all segments) Segment B is most inclined to purchase at a certain portion of the year, in particular the holiday shopping season. Lets assume that the company that make X is constrained in its supply of X. They CANNOT procure enough X to meet all demand (at the current price) between September 1 and Dec 31 of the current year.

They believe that members of segment B, if they cannot find the product, will be lost sales. Members of segment A, will purchase the product in January or later, when demand falls below the available levels of product. Therefore, to minimize lost sales, they limit product on the market in September and October, in order to have more available during the holidays.

Im NOT asking if this happens wrt to a particular product, or if it is a wise strategy.

I am only asking if this strategy would be considered a market segmentation strategy.

Thanks in advance.

[Dauphin]

It's market segmentation, but I don't think it is practical approach unless you can demonstrate or explain why segment A won't be buying in the holiday season. Otherwise you aren't differentiating the markets properly.

[VetLegion]

Wikipedia definition is wide enough to incorporate your scenario as market segmentation:

http://en.wikipedia.org/wiki/Market_segmentation

[lord of the mark]

bumped, so the person who raised the question in Other Games can "tear this apart"

[Japher]

I see they're getting right on it

[snoopy369]

Originally posted by Dauphin
It's market segmentation, but I don't think it is practical approach unless you can demonstrate or explain why segment A won't be buying in the holiday season. Otherwise you aren't differentiating the markets properly.

Indeed... I suppose it makes a bit of sense in that a higher proportion of segment B will buy vs segment A, but otherwise it doesn't really work.

You could have significant price drops in nov/dec, and count on segment B buying more (due to it being presumably a larger segment) and the A people buying more later on when they're unable to buy during the holiday... though you'd be better off using targetted coupons - or even targetted mailings specifically intended for 'segment B' people giving them exclusive opportunity to buy it separately from the segment A people. You risk alienating segment A that way, however, which is never a good idea...

You also are running contrary to SOP for retailers, which is make as much profit as possible early on, because you need your numbers to look good in Q3 (pre-holiday) often more so than in Q4, and your cash flow in Q3 determines your ability to stock product in Q4.

This is why you have 'release day sales' on things like books and music, where on day 1 the price is 30% or more off, then a few weeks later it goes up to full price, and then a year or two later it goes back down again; you want to grab the largest proportion of early buyers whether it be segment A or segment B, both to get the largest amount for yourself (as a store competing against other stores) and to increase product hype via best seller lists and such (as a publisher). Driving 'early sales' is generally considered superior to 'later sales', excepting certain things like Black Friday and other Christmas/Holiday sales that are basically 'foot traffic' drivers; if you're talking about a product on that level (a major product that will be a foot traffic driver) then the main reason to save it for the holidays is not to 'sell to segment B' per se, but to draw in segment B type people (non-regular customers of that store/brand/product) and encourage them to buy other things (accessories, other similar products, etc.); I don't think the 'segment A' vs 'segment B' issue is really the main rationale.

[lord of the mark]

We're assuming its the manufacturers strat, not the retailers.

[Asher]

Originally posted by Dauphin
It's market segmentation, but I don't think it is practical approach unless you can demonstrate or explain why segment A won't be buying in the holiday season. Otherwise you aren't differentiating the markets properly.

The market in question is video games, and both "markets" buy games in the holiday season.

[/torn apart]

[lord of the mark]

Originally posted by Asher

The market in question is video games, and both "markets" buy games in the holiday season.

[/torn apart]

The argument you promised to tear apart related to the definition of market segmentation.

[Asher]

Originally posted by lord of the mark


The argument you promised to tear apart related to the definition of market segmentation.

Yes, and the definition as you've defined it here does NOT apply to the market you used it in. That was my point, that's what I've destroyed. It was retarded, to put it bluntly, to argue that only casuals or hardcore -- and not both -- buy games at Christmas. Unfathomably stupid, perhaps.

[Asher]

Let's also discuss the utter stupidity of the OP.

You say:

For example, lets take a hypothetical product X. X sells to two market segments, lets call them segment A and segment B.

So you say "given that we have a segmented market....................do we have a segmented market?"

Then you think it proves something?

Let's also dismantle the other ridiculously stupid assumptions:

Segment B is most inclined to purchase at a certain portion of the year, in particular the holiday shopping season.

You're saying casual gamers are "most inclined" to buy the Wii at Christmas? Just who the hell was buying the Wii all year, if not mostly casuals?

I'm still amazed you tried this argument.

[Japher]

Therefore, to minimize lost sales, they limit product on the market in September and October, in order to have more available during the holidays.

They don't limit production they limit distribution, right? Production is steady, but below what demand would require come the "Christmas season".

I'm new to all this, but how is this a market strategy? Isn't marketing the sale of goods, not so much the distribution?

What I would think is that the company has set something wrong the rest of the year; no manufacturing company should operate at capacity to a point that they would need to wharehouse product, that can be costly. So, you'd have to weigh those costs and really see if it's worth it. Me? I'd probably reduce supply the whole year, charge a premium to hopefully account for loss sales and then use the new found capacity to have a sale at christmas. That's what Sony does!

What if that product were a consumable or had really high costs for storage, like natural gas?

[Kidlicious]

This is obvioulsy linked to another thread. Can't we have the link to that thread?

[lord of the mark]

Originally posted by Kidicious
This is obvioulsy linked to another thread. Can't we have the link to that thread?

http://apolyton.net/forums/showthread.php?s=&threadid=172348&perpage=30&pagenumber=4

Note particularly post 117 to 123, where Asher asks for a tear apart thread in the OT. Note well, the prior few posts are about Ashers definition of the necessities for something to be defined as a market segmentation strategy, NOT the empirical question of whether the Wii buyers actually segment as I hypothesize.

"Seriously? You think this is a "market segmentation" strategy? I'm sure you're familiar how market segmentation works. Having 1 SKU with 1 price with 1 pool of games is not a segmented market. "

"Go start a thread in the OTF and I can take you to school on this if you wish to continue."

[lord of the mark]

Originally posted by Asher
Let's also discuss the utter stupidity of the OP.

You say:

For example, lets take a hypothetical product X. X sells to two market segments, lets call them segment A and segment B.

So you say "given that we have a segmented market....................do we have a segmented market?"

Then you think it proves something?

In my scenario, there is one SKU, one price, and one pool of games, so if youre admitting thats a segmented market, you are admitting your earlier statement about what defines a segmented market is incorrect.