Q2.

Market segmentation can be taken too far – what are the potential
disadvantages of over-segmenting a market? (b) What strategy might
a firm pursue when it believes that the market has been broken into
too many small segments?
 Briefly explain “market segmentation” – the idea behind this is to
not only identify clusters of customers with common
characteristics but to also deliver unique messages to these clearly
defined groups. Each group is defined by a common set of criteria
that distinguishes them from other types of customers (or market
segments) – worth 3 marks
Marketers can certainly go overboard with over-segmentation. The
reasons given:
 Marketers may segment a market for the sake of segmenting
without understanding whether a market opportunity really exists.
Not every perceived opportunity becomes a profitable opportunity.
 Marketers may lack the time and resources to adequately
communicate the relevant messages to all of them and still be
profitable.
 Marketers identify segments that are large enough to bring
profitability. But when considering this, there is a trade-off
between customer homogeneity and scale effects.
 Marketers assess the degree to which market segments respond
differently to different marketing mix elements, such as product
features. Segmentation becomes frivolous if the segmentation
variables do not maximize behavioral differences between
segments.
 The market may be already too small that marketing to a portion of
it is just not profitable.
 There may be other factors to consider.
Q1. What are the pros and cons to BMW’s selective target marketing?
 Briefly define target marketing– Target marketing is the overall
term for directing your marketing endeavours toward a group of
people.
 Market segmentation is the breaking down of the market into
smaller segments with the intention of promoting your product or
service differently to each of them. Market segmentation allows
your target marketing to become more specific; it divides broad
markets – such as male, female, teen and adult – into smaller
segments in which people are grouped by shared characteristics.
There are pros and cons.
Pros include:
 Serving a specific target segment or market does not mean you
can charge any price you want; you can add a premium because
you are considered a product that has a value proposition. So,
higher value sales.
 Also there are higher chances to develop stronger brand
value/equity because you will stand for something very specific
in consumers’ mind and this will appeal to specific groups of
potential customers.
 Operational costs are lower because you need fewer resources to
serve the market. Same rule applies to your marketing costs as a
total, since your budget will be allocated into channels that serve
only this target segment or market.
 However, targeting advertising is usually more expensive (per
channel). But this can result in a higher return on your marketing
budget.
 With a premium car like BMW, you are likely to serve much
fewer customers (as opposed to say, the Proton market. It is just
simple mathematics, so sales are probably lower than if you
served a broader market; however, your profit margins will be
higher.
 Cons include:
 It may be costly to develop a target market. E.g. There is a need
to regularly conduct primary research to determine who buys
BMW products, especially when servicing regional or national
markets or as in the case of Malaysia, a small and competitive
non-national premium car market.
 There is the risk that you might be wrong about who your
customer is. Just because a target group is well-defined does not
necessarily mean that is the right group to aim for. If you narrow
your focus too far, you may actually be missing potential
customers in a group you haven't thought of. Marketers should
be prepared to change their strategies if you find a target market
is not responding the way you predicted it would.
 As hinted above, target marketing may overlook secondary
customers, which means that BMW may potentially lose
significant sales.
 Limited growth potential. Marketing to a targeted segment of
customers may have limits because you can only grow so far.
Beyond that, you will need to either identify new target markets
or find a way to appeal to the broader market.

Pros of BMW's selective target marketing

1. Opportunity to exploit untapped and neglected segments
2. Better focus on customer needs and develop customized products
3. Heavy engineering and robust models
4. Extremely responsive service support

Cons of BMW's selective target marketing:

1. Limited profit options
2. Limited opportunities to grow due to highly selective marketing
3. Unavailability of service centers at many locations where there can
be consumers of its