In a previous article I discussed the difficulty of applying market segmentation in developing markets. As hard as this task may be, some aspects of segmentation were done during the first stages of mobile telecom implementation.
When entering a new market, we analyzed the expectations within the capital city of the country we were planning to enter. The geographical approach was necessary to determine the needed investment for coverage (mountains, hills, bushes, buildings, distances, soil tests, etc…)While demographics were the basis to determine the potential of profit (People, Businesses, population density, etc…)
Analysis however was not conducted in order to determine any type of detailed segmentation, as all potential customers were grouped in one single segment: Customers who can afford the service. This was mainly due to the limited competition and the lack of alternatives to our products and services.
As the competition increased and the mobile telecom technology developed the needs and ability to define various market segments grew. Existing operators, if able to adapt to changes, were better placed when it came to market research, study, and analysis. The developing markets often do not have updated information resources. Although some are more advanced than others, you can be stuck in a place where a source of reliable information, the information you need, does not even exist.
To a new operator this is a serious challenge. I remember when we entered to a market based on Internet outdated information and the reports of our local partner. When we went to implement our plan we found out that our competitor was already well established, the market was well covered, and that the area we had decided to use as a set up point was suffering from lack of infrastructure. The population we estimated to be there did not was already displaced due to civil war. It was a disaster for us as a new entrant. Although I believe we should have studied this market more, there was still the fact that there was not enough information to rely on.
However in a different market where we have been operational for a couple of years, the development of the billing systems helped us define multiple segments based on customers’ usage trend. Regardless of the lack of official information, our presence and our systematic data collection gave us an edge over any new comer. We were simply better positioned to identify market segments based on geographic, demographic, and psychographic information.
In my next article I will be discussing the cases when we were the new mobile operator and how we proceeded with market research, analysis, and segmentation. Future articles will also discuss how we formulate and tailor products to target the segments of interest.
Market segmentation is a useful methodology when it comes to nowadays highly competitive markets. From my personal experience in mobile telecom, the market segmentation was not always something we were interested in. In earlier days, the competitors were limited and although we identified our customers to be among the rich within society, we did not take the niche approach and neither positioned ourselves as an upper scale service. In a matter of fact, during those old days, we barely practiced any type of promotion.
By realizing the fact that the selling price of the handset was prohibitive to the majority of the population, we had to plan our approach to the market. The service fees were above any communication budget that a middle class household could afford. Actually, during that stage, we targeted upper class businessmen, international organizations and others who could afford the service and needed it due to their line of work.
Although not practicing segmentation yet as an understanding, the nature of our products geared the company towards a psychographic approach especially related to lifestyle of expected customers. Although the psycho-graphical approach continues to be used heavily, it is not the sole focus of mobile business.
Various segments joined the mobile telecom market: Small and medium businesses, freelancers, students, housewives, etc… The mobile telecom business became bigger than ever and as it got bigger more and more competitors entered the market. Segmentation challenge spread over geographic, demographic, and psychographic aspects and although one aspect or the other may have been the leading basis, the challenge often included a combination of all.
For us, marketers in developing countries, the challenges are not only in the ability to identify successfully the various segments and pinpoint the target- As much as we try to apply what we learned in Universities, and follow the latest marketing trends, we need to face the realities of the markets we work in. Theoretically it looks rather easy to collect a bunch of reports and market researches, understand and analyze them then implement a marketing strategy accordingly. But what if these reports that are supposed to be a given in developed markets do not even exist?
Let us take as an example the geo-marketing. It can be simply described as the usage of geographic information in the process of planning marketing activities. For any location within the US if you consult any free mapping service on the web you can be overwhelmed with the information you get. Try to find the same information for a city in West Africa. Nowadays you probably would find some information but is it even comparable to the information you can find about a village in the USA? The databases of information, if available, are decades old.
As hard as it may be, marketers have to find solutions. Whether in-house development of available information or do-it on your own research, we still have to understand the market. When faced with competition it is important to position yourself, and you cannot position yourself anywhere other than within your targeted customers’ base, the segment that needs your services.
In an attempt to define market segmentation, a writer defined the market as a group of users with similar needs. To me this is an incomplete statement, as I see the market to be where goods and services can be exchanged. Although typically nowadays goods and services are exchanged for money, it doesn’t make it the only way of exchange as you can trade your products and services for other products and services (barter).
If we specify a market relating it to a product or a service, by saying mobile telecom market for example, then the first statement in the article would be acceptable. In a mobile market people are not expecting to buy oil and businesses are not offering it yet the variety in mobile products and services is there. On another hand, if we say the Chinese market, I doubt that anyone could say that about one fifth of the world population has similar needs, unless we are talking about basic human needs such as the need for food and water.
Companies resort to market segmentation in order to identify and target their potential customers. Although a telecom operator may start their operation in a country, by Identifying the interest and potential of a certain geographical location, it is actually the sub segmentation what interests them. In the initial stages of mobile industry, the cost of the handset was prohibitive and the potential customers targeted were those who can afford to pay for such products and services. The segment of interest at that stage was based on social status as only the rich could actually afford these services.
No company working on large scale consumer products offers individual products as every person have their own need. Market segmentation helps in categorizing consumers into groups of similar needs. As the mobile technology developed and competition increased, other social classes were interested in the service. They could afford it, and that is what interests a company, the profit they can make from such consumers.
As the base of potential customers grows, restraints on the provider grow as well. Multiple interests can be identified and a new classification (segmentation) is necessary. Classic voice users, SMS users, and data users may share the interest in mobile service yet have different usage trends. Usually when this happens companies with limited resources tend to focus on the most beneficial consumer segments.
For a new market entrant and existing ones who want to protect their market share, it is vital to identify the potential customers. Although they can base their research on geography, sociology, economy or other behavioral studies, they are targeting the market to benefit. By identifying their segment(s) of interest they can define the product, price it, decide where and how to sell it, and use adequate promotional means to reach their target consumers, hence covering the marketing mix (The 4Ps).
Market segmentation and its relationship with marketing is a large subject to discuss in one article so hopefully I will have other articles published soon to discuss further the various methodologies applied in market segmentation (especially those based on career experiences).