Compare market segmentation and product differentiation?

Market Segmentation(Gray Armstrong, 2008)

Dividing a market into distinct groups of buyers who have different needs, characteristics or behavior, and who might require separate products or marketing programs.

If the demand forecast looks good, the company next decides how to enter the market. The market consists of many types of customers, products and needs, The marketer has to determine which segments offer the best opportunity for achieving company objectives. Consumers are grouped in various ways based on geographic factors (countries, regions, cities); demographic factors (sex, age, income, education); psychographic factors (social classes, lifestyles); and behavioral factors (purchase occasions, benefits sought, usage rates). The process of dividing a market into groups of buyers with different needs, characteristics or behavior, who might require separate products or marketing mixes, is market segmentation. Every market has market segments, but not all ways of segmenting a market are equally useful.

For Example

Panadol would gain little by distinguishing between male and female users of pain relievers if both respond the same way to marketing stimuli. A market segment consists of consumers who respond in a similar way to a given set of marketing stimuli.

In the car market, for example, consumers who choose the biggest, most comfortable car regardless of price make up one market segment. Another market segment would be customers who care mainly about price and operating economy. It would be difficult to make one model of car that was the first choice of every consumer. Companies are wise to focus their efforts on meeting the distinct needs of one or more market segments.

Product Differentiation(Gray Armstrong, 2008)

A company can differentiate its physical product. At one extreme, some companies offer highly standardized products that allow little variation: chicken, steel and aspirin. Yet even here, some meaningful differentiation is possible.

Differentiation can be a source of competitive advantage. Although research in a niche market may result in changing a product in order to improve differentiation, the changes themselves are not differentiation. Marketing or product differentiation is the process of describing the differences between products or services, or the resulting list of differences. This is done in order to demonstrate the unique aspects of a firm's product and create a sense of value.

For Example

Perdue claims that its branded chickens are better - fresher and more tender - and gets a 10 per cent price premium based on this differentiation.

Other companies offer products that can be highly differentiated, such as cars, commercial buildings and furniture. Here the company faces an abundance of design parameters. It can offer a variety of standard or optional features not provided by competitors. Thus Volvo provides new and better safety features, while Lufthansa offers wider seats to business-class flyers. In the United Kingdom, 1iitbread has targeted its chain of Brewers Fay re pubs at families. Besides the usual food and drink, most Brewers Fayres have a toddlers' area, a play zone for bigger children and a 'Charlie Chalk Fun Factory - a large self-contained area full of games, toys and adventure equipment.

Companies can also differentiate their products on performance. Whirlpool designs its dishwasher to run more quietly; Unilever formulates RadiOS to remove odors as well as dirt from washing.

Style and design can also be important differentiating factors. Thus many ear buyers pay a premium for Jaguar cars because of their extraordinary look, even though Jaguar has sometimes had a poor reliability record. Similarly, companies can differentiate their products on such attributes as consistency, durability, reliability or repairability.