Conceptual Models of Market Segmentation

Description

            The conceptual model of market segmentation in the healthcare industry is based on predictive measures. In healthcare, it is imperative that segmentation information be predictive as opposed to descriptive. Although typologies are part of a methodological framework, they are important in segmentation and building theory. Mckinney (1996) pointed out, “The constructed type as a conceptual device represents an attempt to advance concept formation in social sciences from the stage of description and empirical generation to the construction of theoretical systems” (as cited by Slater, 2006, p.272).

            Healthcare marketers use cluster and a priori techniques - types of the conceptual model. In the cluster technique, lifestyle or psychographic studies are segmented. This framework is designed to determine a cluster of relevant variables based on benefit, need, and attitude segmentation (Malhotra, 1989). The benefit of the cluster technique is the responsiveness of participants during the process. However, “…clustering of a small number of units on a large number of variables could lead to capitalization on chance and instability of the resulting clusters” (p. 46).

            The a priori technique determines segmentation variables; categories are decided prior to data collection. “Examples of this approach include segmentation based on demographics, state of being, or geographic variables” (p. 46). The major benefit of a priori segmentation is the measurability and actionability criteria. If a priori conclusions are inaccurate, the resulting intervention measures will suffer.

Process for Determining Market Segmentation

            A major determinant of the nature and direction of a firm’s economy is the consumption patterns (demand) of various market segments. Market segmentation involves identification of subgroups of consumers or industries that share similar attributes that cause them to have similar product or service needs (Francese, 2007). The importance of market segmentation is the identification of target markets and selection of target consumer/industry segments to choose the most beneficial marketing strategy or strategies for a particular marketing mix. The steps in segmenting and targeting the market are as follows:

1.      Group consumers into segments

2.      Group related products or services

3.      Develop a market-product grid with estimated size for each market

4.      Select target market segments in which to focus

5.      Take mixed marketing actions to reach target markets (Kerin, Hartley, Berkowitz, & Rudelius, 2006, p. 28)

            “Factors used to segment consumer markets include customer characteristics (geographic, demographic, and psychographic variables) and buying situations” (Kerin et al, 2005. p. 254). Following are examples of how certain customer characteristics can be used to segment specific markets:

1.      Geographic customer characteristic: Region, city size, statistical area, and density

2.      Demographic customer characteristic: Household size, marital status, income, education, occupation, gender, age, race, life stage, and birth era

3.      Psychographic customer characteristic: Lifestyle, personality, and values

4.      Buying situations are another way to segment consumer markets. These buying situations include benefits sought (product features, quality, service, warranty) and usage (heavy user, light user, nonuser). (Kerin et al, 2005, p. 239)

Variance in Different Situations

Influences of Market Segments on Marketing Strategies

Differentiation

             Marketing strategies that focus on building customer loyalty and emphasizing an appealing attribute of the product or service are dependent on differentiation strategies (Pearce & Robinson, 2004). For example, through extensive market development practices in recruitment and retention, Banner Health (BH) has an exemplary nurse-to-patient ratio and the organization has received several awards for being the best place to work for nurses (Magnet Status). BH has used these attributes to recruit and retain nurses. This increases the supply of nurses and improves the quality of healthcare outcomes. However, there are risks associated with the differentiation strategy to include differentiation is not sustained because of competitor imitation and increased differentiation of competitors results in loss of interest in the product or services from consumers (Pearce & Robinson, 2004).

Market Development/Concentrated Growth

          Market development allows firms to practice a form of concentrated growth by identifying or expanding new uses for existing products or services. BH has successfully maintained an acceptable nurse-to-patient ratio and is using its vast resources to build new hospitals. However, an inadequate supply of nurses and an overabundance of patients are plaguing the entire healthcare industry and competition for these nurses is high. Therefore, to ensure an adequate supply of nurses, BH has promoted market development/concentrated growth to retain this valuable consumer. Frequently, changes in media selection, promotional appeals, and distribution are used to initiate this approach (Pearce & Robinson, 2004, Chapter 6).

            Under optimal conditions, market development / concentrated growth poses a low risk to BH; however, other factors such as an aging and growing population, the continued shortage of nurses, and an increase in chronic illness are just a few risks that can thwart the marketing strategy. Pearce and Robinson (2004) asserted,

Slowed growth in the segment would jeopardize the firm because its investment, competitive edge, and technology are deeply entrenched in a specific offering. It is difficult for the firm to attempt sudden changes if near-term obsolescence, a faltering market, and new substitutes threaten its product [or service], or changes in technology or customer needs. (Chapter 6)

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