How market segmentation drives your sales

Cairo University

Faculty of Commerce - English Section

Master of Business Administration MBA 2015

How market segmentation drives your sales

(Empirical Study)

By: Khalid Mohamed Abusrea Mohamed Eldeeb

Supervisor:

Dr. Wafaa Abdeldayem

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Table of Contents

Abstract:.................................................................................................................... 2

Keywords: ................................................................................................................. 2

Introduction: ............................................................................................................. 3

Literature Review: ................................................................................................... 3

Introduction: ........................................................................................................................................... 3

Why & when we need the Segmentation? ............................................................................................. 4

Steps of Segmentation: ........................................................................................................................... 5

Bases of Segmentation: ........................................................................................................................... 6

How to evaluate & select the market segment? .................................................................................... 9

Based on the above literature review: ................................................................................................. 11

Methodology of the Study: ....................................................................................12

Research Problem: ................................................................................................................................ 12

Objectives of the Study: ........................................................................................................................ 12

Data Preparation: ................................................................................................................................. 13

Data Presentation & Analysis: ............................................................................................................. 13

Findings & Recommendations: ............................................................................17

A proposed segmentation model for the Egyptian medical supplies distributors: ......................... 18

References& Previous researchers read: .............................................................24

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Abstract:

Segmentation is essential and necessary for organizations trying to survive in the

global market. Therefore, organizations that sell a product or service have to know

their various target markets. Then segment their product in a way that suits each

segment identified. This study aims to clarify the best methods and technique of

medical consumer market segmentation in Egypt and how this can be effectively

utilized to improve the organization’s sales. The researchers working in the

medical supplies sector and the organizations in this sector always face the

problem of whom to target. This study focuses more on the definition, bases of

segmentation and this segmentation effect on the organization sales. This research

will provide information about the market segmentation which will help the

researcher and the organizations to identify the gap between the concept of market

segmentation and how it is applied in practice to achieve a sales growth.

Keywords:

Market Segmentation, Medical Supplies, Healthcare, Market analysis, Targeting,

Sales Growth and Sales Increase.

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Introduction:

The globalization increased the competition and it became difficult for the

competitor to survive in the market. Continues improvement is very important

especially in marketing strategies. The development of these strategies became

mandatory. It helps the companies to achieve the marketing objectives which will

lead to achieving the organization objective. This organization objective should

aim to achieve a competitive advantage over the competitors.

Every organization wishes to focus on all of the customers but before applying the

marketing strategies or camping we have to divide the market into groups or

segment with a smellier needs and wants and this strategy is known as the market

segmentation.

So, the main objective of segmentation is the concentration of marketing energy

and force on subdividing to gain a competitive advantage within the segment. It is

also the main tool to achieve the marketing objectives which one of them is the

growth in sales to increase the market share as well.

Literature Review:

Introduction:

Market segmentation was first studied in the middle of 1950s by Wendell R Smith,

professor of marketing.

According to Charles W. Lamb, 2003 “Market segmentation is to divide a market

into smaller groups of buyers with distinct needs, characteristics, or behaviors who

might require separate products or marketing mixes.”

Wind, Y. summarizes market segmentation as a proactive process “managers

purposefully identify segments” involving the application of analytic techniques to

identify these segments:

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"Realizing the potential benefits of market segmentation requires both managerial

acceptance of the concept and an empirical segmentation study before

segmentation can begin."

Moriarty said "The largest problem is how to subdivide the market."

This indicates that the managerial acceptances and the academic study of

segmentation are very important before applying it. That’s why the researcher will

explain more in details about the steps & basis of segmentation.

Why & when we need the Segmentation?

Organizations should work harder to make sure that their marketing activities have

the greatest impact possible. The mass marketing strategy costs a lot and this is not

efficient in the current high global competition. So, when the organization focuses

the marketing effort on the segmented market it can better match the needs of this

segment effectively and efficiently.

Frenkel Ter Hofstede 1999, reported some examples of when we need to do the

segmentation:

o Identify behaviors and buying motives for your products.

o Increase brand loyalty and decrease brand switching.

o Target your marketing mix to the customers most likely to want your

products or services.

o Design or redesign new products and services to meet your market needs.

o Improve your competitive positioning to be more accurate and better

differentiate you from the competition.

o Help you avoid unprofitable markets.

o Optimize your marketing resources and get the most impact for your

investment.

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o Refine your pricing to maximize revenue.

o Find hidden needs and make improvements to your existing products.

There are a lot of benefits from segmentation but to achieve it we have to apply the

segmentation in the right way and follow the empirical steps.

Steps of Segmentation:

Charles W. Lamb and Carl McDaniel 2003, referred to the steps of segmentation as

follow:

The 1st step in segmenting markets is to “select a market or product category for a

study”. It may be a market in which the organization has already occupied a new

but related market or product category, or a totally new one.

The 2nd step is to “choose a basis or bases for segmenting the market”. This step

requires managerial insight, creativity and market knowledge.

There is no scientific procedure for selecting segmentation variables. However, a

good segmentation plan must produce market segments which meet the four main

criteria: (substantiality, identifiably, accessibility, and responsiveness).

The 3rdstep is “selecting segmentation descriptors”. After choosing one or more

bases, the marketer must select the segmentation descriptors. Descriptors identify

the specific segmentation variables to use.

The 4th step is to “profile and analyze segments”. The analysis should include the

segment’s size, expected growth, purchase frequency, current brand usage, brand

loyalty, and long-term sales and profit potential. This information can then be used

to rank potential market segments by profit opportunity, risk, consistency with

organizational task and objectives, and other factors which are important to the

organization.

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The 5thstep is to “select target markets”. This step is not a part of the segmentation

process but a natural result of it. It is a major decision that affects and often

directly determines the organization’s marketing mix.

The researcher summarized the above mentioned steps in the following figure:

Figure 1: Steps of segmentation. Source: The Researcher

Bases of Segmentation:

In the 2nd step of the above segmentation process, it shows that there are several

bases of segmentation.

According to Smith, W. R, Consumer market can be segmented based on the

following characteristics:

Geographic

Demographic

Psychographic

Select a market or product category

Choose a bases

Select descriptors

Profile and analyze

segments

Select target markets

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Behavioral

Geographic Segmentation:

Consumers are segmented based on their region, Continent, Country, City,

neighborhood, population size, Population Density or Climate.

Demographic Segmentation:

Consumers are segmented based on their Age, Gender, Family Size, Family Life

Cycle, Income, Occupation, Education, Generation, Ethnicity, Nationality,

Religion or Social Class.

Psychographic Segmentation:

Consumers are segmented based on their Interests, Activities, Opinions, Values or

Attitudes.

Behavioral Segmentation:

Consumers are segmented based on their Benefits Sought, Usage Rate, Brand

Loyalty, User Status, Readiness to buy or Occasions.

Effective Segmentation:

After the 4th step of analyzing and profiling the segments, we have to make sure

that the segmentation we did is efficient. For that, we have to know the criteria of

effective segmentation. According to Kotler 2004, that for segmentation to be

useful, it has to be:

1) Measurable: The size, purchasing power, and characteristics of the segments

can be measured.

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2) Substantial: The segments should be large and profitable enough to serve. A

segment should be the largest possible homogenous group worth going after

with a tailored marketing program.

3) Accessible: The segments can be effectively reached and served.

4) Differentiable: The segments are conceptually distinguishable and respond

differently to different marketing-mix elements and programs.

5) Actionable: Effective programs can be formulated for attracting and serving

the segments.

Consequently, the researcher summarizes the above characteristics as follow:

Figure 2: Effective segmentation characteristics. Source: the researcher.

EffectiveSegmentation

Measurable

Accessible

DifferentiableActionable

Substantial

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How to evaluate & select the market segment?

After the segmentation, we have to evaluate the best segment to select and target.

According to Kotler 2004, in evaluating the market segment, the organization must

look at two factors: the segments overall attractiveness and the organization’s

objectives and resources. Does a potential segment have characteristics that make

it generally attractive, such as size, growth, profitability, scale economies, and low

risk? Does investing in the segment make sense given the organization’s

objectives, competencies, and resources? Some attractive segments may not mesh

with the organization’s long-run objectives, or the organization may lack one or

more necessary competencies to offer superior value.

Having evaluated different segments, an organization can consider five patterns of

target market selection, which includes;

Single Segment Concentration: Volkswagen concentrates on the small-car

market and Porsche on the sports car market. Through concentrated

marketing, the organization gains a strong knowledge of the segments needs

and achieves a strong market presence. Furthermore, the organization

enjoys operating economies through specializing its production,

distribution, and promotion. If it captures segment leadership, the

organization can earn a high return on its investment.

Selective Specialization: the organization selects a number of segments,

each objectively attractive and appropriate. There may be little or no

synergy among the segments, but each promises to be a money-maker. This

multi-segment strategy has an advantage of diversifying the organization’s

risk.

Product Specialization: the organization makes a certain product that it sells

to several segments. An example would be a microscope manufacturer who

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sells to university, government, and commercial laboratories. The

organization makes different microscopes for the different customer groups

and building a strong reputation in the specific product area.

Market Specialization: the organization concentrates on serving many needs

of a particular customer group. An example would be anorganization that

sells an assortment of products only to university laboratories. The

organization gains a strong reputation is serving this customer group and

becomes a channel for additional products the customer group can use.

Full Market Specialization: the organization attempts to serve all customer

groups with all the products they might need. Only very large organizations

such as IBM (computer market), General Motors (vehicle market), and

Coca-Cola (drink market) can undertake a full market coverage strategy.

Large organizations can cover a whole market in two broad ways: through

undifferentiated marketing or differentiated marketing.

In undifferentiated marketing, the organization ignores segment differences and

goes after the whole market with one offer. It designs a product and a marketing

program that will appeal to the broadest number of buyers. It relies on the mass

distribution and mass advertising. Undifferentiated marketing is the ‘the marketing

counterpart to standardization and mass production in manufacturing’ the narrow

product line keeps down costs of research and development, production, inventory,

transportation, marketing research, advertising, and product management.

Presumably the organization can turn its lower costs into lower prices to win the

price-sensitive segment of the market.

In differentiated marketing, the organization operates in several market segments

and designs different products for each segment. General Motors does this when it

says that it produces a car for every ‘purse, purpose, and personality’.

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Differentiated marketing typically creates total sales more than undifferentiated

marketing. However, it also increases the cost of doing business.

Based on the above literature review:

Market segmentation can be done easily if we followed the 5 steps module starting

by selecting a product category and ends with selecting the proper segment to

target. Through these steps, there are the bases for segmentation. Geographic,

Demographic, Psychographic and Behavioral characteristics are the main bases of

segmentation. There are four criteria for the effective segmentation which are

Measurable, Substantial, Accessible, Differentiable and Actionable.

When the organization identifies the market-segment opportunities, it has to

evaluate the different segments and decide how many and which ones to select and

target. In evaluating the segments, the organization must search for the segment’s

attractiveness indicators and the organization’s objectives and resources. In

choosing which segment to target the organization can choose to focus on single

segment, several segments, a specific product, a specific market, or the full market,

it must choose between differentiated marketing and undifferentiated marketing

each strategy has a different effect on sales.

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Methodology of the Study:

Research Problem:

The organization which will be studied in this research is MedMarket which is a

medium distributor and agent for medical supplies in Egypt. The company main

vision is to deliver the health care products to the people in need of it around

Egypt. The company works as a mediator between the factories and the consumers

or the retailers. Through the previous years the company was able to cover a good

area of Cairo city but was not able to expand more due to the low growth in sales

and the differentiation of the customers. The researcher realized that most of the

marketing budget where spent in channels that don't usually reach the targeted

audience effectively.

After a few weeks of an extensive study to the medical supplies market, the

researcher found that the concept of whom to target is not clear for most the

organizations in this field. Which results to ineffective marketing campaigns and

low growth rates in sales. Besides the direct effect where to invest, what to sell and

to whom.

The researcher objective is to investigate the effect of market segmentation on

sales growth.

Objectives of the Study:

The objectives of the study are:

1. To find out if segmenting the market of a product increases sales.

2. To discover the elements necessary for effective segmentation to be

effective.

3. To know how to select a potential segmented market, that will increase sales

of an organization.

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4. To discover how to segment the medical supplies sector and the differences

between segments.

Data Preparation:

Due to the time limitation of the research, the population of the study will contain

10 distributors of medical supplies in Egypt. 5 Employees from each distributor

were interviewed by the researcher and were asked about the relation between

marketing segmentation and sales.

The main sources of data were the interviews and the review of relevant textbooks,

journals and internet search. The interview was structured to elicit information

from the respondents.

The information obtained from the respondents will be analyzed using descriptive

techniques to describe the importance of the relation between the segmentation and

sales. Also, will be analyzed using simple percentages.

Data Presentation & Analysis:

Through the interviews conducted to the medical supplies distributor, these were

the data obtained;

90% are male, and just 10% are female. The study shows that 80% of the

respondents are within the age bracket of 25 – 35 years; 10% are in the age bracket

of 35 – 45 years; while 10% are less than 25 years of age.

This indicates that a majority of those in the medical supplies business are more of

the younger generation.

In terms of academic qualification, 80% of the respondents have a secondary

school qualification while only 20% have a bachelor degree or a higher national

diploma qualification.

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The respondents were asked the following question during the interviews:

Table 1

Which customer segment do you focus on when trying to market your medical

supplies?

Answer Options Choice (%)

Individual Women 5

Individual Men 20

Pharmacies 40

Private Companies 10

Government 25

100

From the analysis made above it can be concluded that the distributors target

customers from Pharmacies, which has the highest percentage of 40%.

Table 2

Do you have a clear structure for the medical supplies market segments in Egypt?


Yes 10

Not Really 20

No 70

100

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From the analysis made above it can be concluded that most of the distributors of

medical supplies in Egypt has no clear structure for the medical supplies segment.

Table 3

Do you focus your marketing efforts on a specific segment?


Yes 20

No 80

100


medical supplies in Egypt are wasting their marketing effort.

Table 4

Do you think that focusing the marketing mix on a specific segment will increase

your sales?


Yes 90

No 10

100


medical supplies in Egypt agrees on the importance of segmentation on sales.

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Table 5

To what extent do you think marketing segmentation will contribute towards

increasing your market share?


A lot 60

Fairly 30

Very Little 10

Barley at all 0

100

From the analysis made above it can be concluded that more than half of the

medical distributors (60%) believe that marketing segmentation will contribute a

lot in increasing their market share.

Table 6

Do you believe Marketing Segmentation is necessary for increasing sales or

revenue in your organization?


Yes 70

No 30

100

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Most of the distributors believe that marketing segmentation is necessary for

increasing sales. This shows that they believe on the importance of segmentation.

Findings & Recommendations:

From the data analyzed above the researcher discovered that the medical supplies

sector is not segmented well in Egypt due to the high variety of the productand the

lower marketing qualification of the people working in this sector. Also, it has

been concluded that marketing segmentation has great significance in affecting the

level of sales of an organization.

The following recommendations have been made, that will assist organizations on

how they can use effective marketing segmentation to increase the level of sales

and market share:

1. Organization needs to get professional marketers that can enlighten and train

their organization as a whole on marketing segmentation and marketing strategies

as a whole.

2. Organizations need to determine who their target customers are and make sure

that the organizations resources are focused on the most viable and profitable of

the target customers from that segment.

3. Organizations need to understand that once these customer segments are

consistently satisfied; then demand will increase, which intern means sales will

increase, therefore, an increase in revenue of that organization

Since the researcher is a marketer working in the field of medical supplies he

decided to take a step forward and try to segment the medical supplies sector in

Egypt to help the organization in generating more sales.

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A proposed segmentation model for the Egyptian medical supplies

distributors:

After analyzing the medical supplies market in Egypt the researcher found that the

geographic segmentation would not be applicable of the medical supplies because

the willingness from consumers to buy these supplies from anywhere especially the

Pharmacies due the importunacy of these items.

Demographic segmentation wouldn’t be the best choice as well.

According to Brian Carmody 2013, Behavioral segmentation would be the best

base to segment this market, so if we take the Benefits Sought / Uses as our basis

the segmentation we will segment the market into 9 segments as shown in figure 3.

Brian Carmody, had an idea about the idle segmentation for this sector but he

hasn’t applied it. The researcher will use his model with a few modifications to

match the Egyptian market.

Proposed Segments:

1. Self-Care: sometimes referred to as “home care”, are devices that the

patient/consumer uses in their daily life, at home. In other words, these

products do not typically require a clinician to be present for their use.

Hearing aids, diabetes management tools, and mobility aids, are examples of

self-care equipment used at home as part of a person’s daily routine.

2. Electronic: More devices become electronic every year. One major growth

category we’re seeing now involves the electronic medical record (EMR),

sometimes called the electronic health record (EHR). Not only are more

companies developing the software to streamline the use of the EMR, there

are several companies working on ways to store and transport the EMR.

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3. Diagnostic: Tools used to test or screen for conditions are known as

Diagnostic. This type of equipment basically takes a biological or chemical

measurement that gets recorded in the medical record and used for

diagnosis, or to track therapeutic progress. Sphygmomanometers (which

record blood pressure), ophthalmoscopes (which are used in eye exams), and

otoscopes (which allow a clinician to evaluate the health of the outer and

middle ear) are a few diagnostic tools often used in exam rooms for

example.

4. Surgical: Surgical supplies and equipment can include the stainless steel

tools that surgical teams use in surgery. Other types of surgical tools can

include diagnostic scopes that surgeons insert deep into the patient’s body so

that they can see in hard to reach places. Supplies used in surgery also

include the disposable items they wear for personal protection from

infection, such as caps, gowns, gloves, and glasses, as well as the gauze and

drapes used to keep the patient clean and safe. Surgical supplies, in fact, can

be such a large category that many hospitals typically have their own

Operating Room Purchasing and Materials Management staff.

5. Durable Medical Equipment: Often abbreviated as “DME”, durable medical

equipment includes the various types of walking aids, transfer equipment,

bath safety, and wheelchairs. As the name implies, this category must be

manufactured and tested to be “durable” because patients who use this

equipment rely on it to keep them safe and comfort. Because of the various

conditions that require their use, DME can be tested quite vigorously for

weight or load-bearing strength, as well as for non-slip features.

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6. Acute Care: Equipment and supplies used in hospitals are known as acute-

care supplies. These supplies differ from “Home Care/Self Care” supplies

because they are bought and stored by hospitals, and they require a member

of the hospital’s patient care staff to be used properly. Nursing care kits such

as general purpose trays, minor procedure trays, wound and skin care kits,

monitoring equipment, and non-surgical instruments are used on a daily

basis in hospitals for patient care.

7. Emergency and Trauma: Emergency departments see perhaps the widest

variety of patients and conditions. They are often called the “front door” to a

hospital because the Emergency Department is often the first, and sometimes

only, area of a hospital that a patient will see. The growing number of

uninsured patients only seek care in the ER because they can’t afford to pay

for a primary care visit out of pocket, and they know that emergency rooms

cannot turn a patient in need away. So Emergency Departments need to be

prepared with ample supplies for diagnostic and exam tools, wound care

supplies, respiratory therapy equipment, minor procedure kits, and personal

protective gear. In other words, they need to be equipped as a mini-hospital

within their Emergency Department.

8. Long-Term Care: Long-term care centers such as nursing homes, assisted-

living residences, skilled nursing facilities, hospices, and even rehabilitation

hospitals, require many of the items described above, as well as less-acute

supplies for long-term care of a patient or resident. In many cases, the person

cared for in these environments is called a “resident” rather than a “patient.”

Common categories of supply used in these facilities include beds and

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mattresses, therapeutic chairs that serve various functions, mobility

assistance products, incontinence management supplies, exercise equipment,

and grooming and dressing aids, to name a few.

9. Storage and Transport: Patients and long-term care residents sometimes

don’t have the mobility to travel to a necessary piece of equipment, so

various types of carts are used to bring medical supplies to them. Case carts,

storage carts, supply carts, linen carts, food carts, and procedure carts are

some of the most common types needed in healthcare. These carts store and

transport much of the equipment described in all of the above categories.

Figure 3: Medical supplies market segments. Source: The researcher

Medical Supplies

Self-Care

Electronic

Diagnostic

Surgical

Durable Equipment

Acute Care

Emergency & Trauma

Long-Term Care

Storage & Transport

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The researcher will analyze and profile one of the segments as an example of an

effective segmentation:

Self-care:

As our healthcare system, its capabilities, and its contributing technologies

continue to evolve, more solutions are sure to be added to the self-care medical

supply segment. Since it's less expensive for healthcare systems to shift care away

from acute care settings, the market is incentivized to invent more ways patients

can take health measurements, track progress, and manage their ailments long-term

on their own.

These four examples combined are used by roughly56% (50 million) of people in

the Egypt alone, and several times that number worldwide.

Hearing Aids:

Approximately 11% (10 million) of Egyptians of all ages for those over the age of

75, 50% need a hearing aid. Hearing loss matters because if untreated with an aid,

it can cause a lifetime of difficulties far more critical than mere "annoyance".

Hearing loss can affect the ability to learn in school, communication between

friends, receiving verbal instructions from those in our community responsible for

keeping people safe, such as police officers, firefighters, and EMTs, job

performance, and emotional development.

Hearing aids became smaller devices that can fit comfortably in or behind the ear.

The device amplifies sound for the person wearing the device. The devices have

even become "smart" enough to amplify a single voice in a crowded room full of

surrounding noise.

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Blood Glucose Monitoring Devices:

There are approximately 9% (8 million) of Egyptians with Diabetes. Blood

Glucose Monitoring Devices allow a diabetic to measure the amount of sugar in

their blood at home. As a team, the diabetic and his or her physician can make

adjustments to medical treatment, diet, and exercise based on these measurements.

Blood Pressure Monitoring Devices:

There are approximately 26% (23.5 million) Egyptians above the age of 25 having

a blood pressure problems. These devices allow them to monitor their blood

pressure to control it.

Mobility Aids:

Mobility aids come in a growing variety of shapes and sizes. From full-fledged

wheelchairs to rollators, knee walkers, crutches, and canes, this category continues

to grow to help people adapt to their disability and stay mobile in their home and

elsewhere.

From the data above about the self-care segment, we can conclude that the

segmentation is Measurable, Substantial, Accessible, Differentiable and

Actionable.

Therefore, the researcher suggests that the distributors of medical supplies in Egypt

should follow the above segmentation to increase their sales and market share.

Furthermore, applying this segmentation model will require at least a year of

efforts to achieve an outcome. The researcher wishes that he could have the time

to apply this model and monitor the results, but due to research limitation he will

extend this research in the future.

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References& Previous researchers read:

Brian CarmodyMedical Supplies Expert from

http://medicalsupplies.about.com/

International Market Segmentation Based on Consumer-Product Relations

Author(s): Frenkel Ter Hofstede, Jan-Benedict E. M. Steenkamp and Michel

Wedel Reviewed work(s): Source: Journal of Marketing Research, Vol. 36,

No. 1 (Feb., 1999), pp. 1-17.

Kotler P. (2004), Marketing Management. India, Pearson Education Ltd.

Kotler P. And Keller K. L. (2005), Marketing Management. London,

Pearson Prentice Hall Publications.

Kotler, P., Marketing Management: Analysis Planning and Control. 7th

edition, Englewood Cliffs: Prentice-Hall, 1991.

MARKET SEGMENTATION TECHNIQUES IN THE HEALTH CARE

INDUSTRY 2013: A REVIEW FOR APPLICABILITY IN INDIA

DIPANJAN KUMAR DEY RESEARCH SCHOLAR IBS HYDERABAD,

IFHE.

MARKET SEGMENTATION: ORGANISATIONAL ARCHETYPES AND

RESEARCH AGENDAS, Mark Jenkins & Professor Malcolm McDonald,

Cranfield School of Management.

Moriarty, R. T. & Reibstein, D. J., "Benefit Segmentation in Industrial

Markets", Journal of Business Research, Vol. 14, 1986, pp. 463-486.

Smith, W. R., "Product Differentiation and Market Segmentation as

Alternative Marketing Strategies", Journal of Marketing.

The Relevance of Marketing Segmentation on the Level of Sales of a

Product or Service by Mrs. Hauwa Lamino Abubakar.

How market segmentation drives your sales

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