The Advantages and Limitations of Using Target Group Index Segmentation Method în a World Market

In the fast changing competitive market, customers have different needs, wants and preferences. Various differences in culture, gender, beliefs, background, education, living areas, income, objectives in life and other characteristics of personality, customers tend to have different needs. Thus companies strive to use principles of marketing to serve and satisfy customer's needs or even go beyond that and reach customer delight, and this cannot happen to customers at the same time due to the simple fact that companies have limited resources.

Therefore companies usually tend to identify the most attractive groups of users and divide them according to their needs.

According to Sun (2009, p.63) Wendell.R.Smith, an American professor was the first to approach market segmentation field in the 1950s.

This concept of '' market segmentation'' is crucial to a successful marketing strategy.

Kotler and Armstrong (2006) define market segmentation as ''dividing the market into smaller groups of buyers with distinct needs, characteristics, or behaviors who might require separate products or marketing mixes.''(p.195).

The purpose of market segmentation is to allow marketers to adjust the elements of marketing mix (product, place, price and promotion) to satisfy the needs of customers in one or more segments, and this would result in enhancing the company's competitive position by delivering certain product(s)/service(s) to the targeted market.

Market segmentation depends on information gathered from customers about products or any situation of purchase (variables) which allow marketers define segments.

Sun (2009) defines market segmentation variables as ''features of individuals, groups or organizations and often used by marketers to divide a total market into segments.''(p.65).

Sun (2009,p.64) cites Lamb and McDaniel (2003) who suggest that segmentation starts with a selection of market or product category for study, It could be the current market the organization involved in but It may consider a new product line or a product category. Then an organization has to choose market segmentation variables(s). This step is exceptionally important, as it demands a managerial observation, and awareness of the market being studied. Beane and Ennis (1987,p.64) stated that there is no one way of segmenting markets, yet in order for market segments to be effective, the following standards should be achieved: substantiality, Identifiability, accessibility, and responsiveness.

This essay will discuss the advantages and disadvantages of using Target Group Index (TGI) in segmenting international market on the pharmaceutical industry.

Beane and Ennis (1987), Raiij and Verhallen (1993) and Sun (2009) indicated similar findings in their researches that markets can be segmented based on the following segmentation variables: Geographic, demographic, psychographic and behavioral variables. Segmentation variables are essential in the market segmentation process; the selection of appropriate variables can lead to proper market segments and deliver value to the target audience. However there is no unique way of segmenting markets, different segmentation variables alone or a combination of variables can be tried to cover the market.However when segmenting international markets, the main segmentation variables ( bases) are political, cultural and economic variables.

According to Doyle (2008,p.202) the reasons for segmenting the market are fundamental:

1. It permits products and communications to be tailored to the needs of customers.

2. By closer matching to customer needs, it leads to higher customer satisfaction.

3. By focusing on customer needs it avoids commoditizing the product and a consequent focus on price.

4. Since customers differ in price sensitivity, it facilitates different pricing strategies and higher average margins.

5. It encourages growth and customer relationships through different offers through the customer life cycle.

6. It allows the company to pre-empt competitors by developing discrete offers customized to each segment of the market.

7. It stimulates innovation by focusing product development around the specific needs of customers.

Furthermore, Doyle (2008) argued that It is crucial for managers to appreciate that market segments are not fixed but highly dynamic: new segments are continually emerging and old ones disappearing. Capitalizing on these dynamics is one of the most important ways for companies to achieve growth and value creation. Two factors affect these dynamics: changes in the environment and the evolution of the market.

However, there are several limitations of segmentation. According to ( )global market segmentation might produce unreliable statistics from developing countries, data might not be available, difficulty in finding updated information is another limitation and governments may be unreliable when producing information about the country.