Market Segmentation

Market Segmentation

The STP (segmentation, targeting, and positioning) process is an important concept in marketing (Pride and Ferrell 2010). The STP process demonstrates the link between the entire market and how a company chooses to compete in the market. This paper outlines segmentation as the key word in marketing at Reebok Company. The first section of the paper defines segmentation and identifies where it is located in marketing. The second section outlines how, when, and why segmentation in marketing emerged; and finally, the paper will outline how, when, and why segmentation in marketing is used at Reebok.

However, as the business world becomes more globalized, market segmentation is emerging as an important concept in designing and selling products in the market. Segmentation refers to a marketing strategy that entails dividing a broad target market into different sets of customers with common needs, and then designing and implementing strategies to target consumer desires and needs through the use of media channels and other touch-points that best allow companies reach the customers (Pride and Ferrell 2010). Market segmentation study is both important and interesting because it assists in designing marketing mix that matches the customer’s expectation in the targeted market segment. Since a few companies can supply the whole market needs, most companies must breakdown the total demand into segments and then choose the demand that the company is best equipped to address.

Marketing segmentation is based on the customer’s needs. Therefore, segmentation should be definable, measurable, accessible, substantial, differentiable, actionable (easy to develop), and focus on customers’ characteristics such as age, location, gender, and income among other characteristics which can be used to inform a segmentation exercise (Czinkota and Ronkainen 2007). The most common aspects that are used in market segmentation are geography. It considers the region of the market where it can either be urban or rural. Kurtz (2012) believes geographical segmentation is important to any business. This is because it helps companies to identify and divide the market into population, language, or climate. Segmentation also focuses on demographic variables including sex, age, family size, religion, race, income, occupation, education, or nationality (Kurtz 2012). Similarly, segmentation in marketing is based on psychographic profilers. That is, social class, personal type, or lifestyle type. Such segmentation is based on assumptions that the types of products and brands that customer purchase reflect their characteristics and living patterns (Kurtz 2012). This implies that, lifestyle can be measured through activities, interests, or opinion surveys. Lastly, segmentation uses behavioral aspects including, but not limited to the type of product user (such as special occasion or regularly), product usage such as medium or heavy users, and brand loyalty including high, medium or none.

In 1982, Reebok Company introduced a new dimension in form of “freestyle” leather shoes into the market (Pati 2002). Thereafter, the company added tennis, children’s shoe, basketball, and other shoes that were targeted at specific market segments. Reebok’s segmentation strategy was to tap into the value-for-money segment in addition to the niche, high-price/status segment (Pati 2002). This shows that, Reebok Company already had shoes in lower price ranges. In addition, Reebok had an Indianized campaign with Indian sportstars such as Maisha Garewal, Rahul Dravid, and popular sports in India like cricket. According to Pati (2002), Nike had just entered the market and thus Reebok began losing sales in large numbers and volumes to Nike. At the same time, Nike retained its international campaign with its Tennis and Basketball stars and famous line, Just Do it (Pati 2002). That made Reebok anxious to develop a new strategy that could help the company copes with the Nike juggernaut. After a qualitative research was commissioned on Reebok, two clear brand images emerged spontaneously. That is, the Reebok’s brands which included “For us, Ruby Bhatia, Where can we relate to it, Good brand, and Technologically sound”. On the other hand, Nike’s brands included “Soloist, Unique, Snobbish, and Kamal Sidhu” among others (Pati 2002). In other words, Nike was about the awe-inspiring go-getter, the person with attitude, while Reebok was the approachable person that was next door.

Some studies cite that, if Reebok had tried to incorporate Nike’s appearance and high-testosterone sex appeal, it would have been “me too” case (Pati 2002, p. 375). Alternatively, reinforcing Reebok’s predictability and security would have resulted into further loss of excitement. As a result, Reebok was forced to depend on connection and aspiration (Pati 2002; Majumdar 2001). That is, the company was forced to relate to youth values and tap into contemporary youth culture. At the same time, Reebok was to represent values that were admired and aspired. Therefore, Reebok segmentation in marketing emerged spontaneous out of anxiety to maintain its competitive stand in the market.

Reebok’s segmentation in marketing emerged in 1981 and continued up-to-date (Pati 2002). Reebok produced for runners; running shoes in 1981, cross-training shoes in 1988, and adult smart training DMX shoes in 2001. The company also made aerobic/fitness exercisers: aerobic shoes in 1982, cross-training shoes in 1988, and adult smart train DMX shoes in 2001. Moreover, the company made for tennis players: tennis shoes in 1984 and cross-training shoes in 1988. In 1984 and 1988, Reebok made basketball shoes and cross-training shoes for basketball players (Pati 2002). The other market segments included golfers, adventure seekers, walkers, children, and comfort/style-conscious customers. However, Reebok Company matched each segment with its desired shoes in different years. Research further showed the performance oriented segment accounted for about 27% of the company sales while nonathletic oriented segment accounted for about 73% of the company’s sales. The graph below illustrates Reebok’s different market segments between 1981 and 2001:

Source: (Reebok segments n.d)

Market segmentation at Reebok emerged as an extension of the marketing concept that existed before 1980s. According to Iacobucci (2001), segmentation at Reebok was based on a simple observation that all the customers who existed and potential customers where not alike. That is, there were significant differences in their needs, tastes, wants, income, background, experience, and education. Reebok’s management was also aware such characteristics often changed over time with changes in lifestyle (Iacobucci 2001). This implied that if such characteristics were the same, then they would have eliminated the company’s need to have different variations of their products (shoes). However, that being the case, Reebok would have only used one promotional campaign to identify and meet all its customer’s needs (Iacobucci 2001). For instance, Reebok would have only one type of shoes. Nonetheless, since people’s needs continued to vary over time, Reebok recognized the need to divide its entire market into different parts by focusing on specific customer needs and desires.

Reebok’s decision to segment its market reflected the idea that, a market consists of individuals and the markets are rarely homogenous in purchase rates, benefits wanted, price, and promotion elasticity (Sharma 2009). Moreover, the market response rates and promotion programs for goods and services often differ. For instance, Reebok’s market segmentation was driven by the differences in shoe preferences, size, growth in demand, and competitive structure of market for shoes (Sharma 2009). There were also two market categories: primary market mostly for performance oriented shoes and secondary market for nonathletic oriented shoes. Therefore, Reebok desired to segment the market for shoes into different parts to enable the company to fulfill specific needs and desires for shoes from the customers since 1981. Basically segmentation at Reebok emerged to divide the customers’ into various groups such as runners, adventure seekers, children, tennis players, aerobic exercisers, and those customers who are style conscious with a view to meet their individual needs and desires.

Market segmentation at Reebok is used to uncover wants and needs of specific customer groups. The company then develops suitable shoes to satisfy their needs. According to Hoch (1999), Reebok use segmentation to guide the company to reposition new market for the existing types of shoes. For instance, nonathletic oriented customers (walkers, children, and comfort/style-conscious customers) have been the target for Reebok. For comfort/styles-conscious customers, Reebok came up with running shoes in 1981, aerobic shoes in 1982, tennis, kids, and basket shoes in 1984, walking shoes in 1986, cross training shoes in 1988, and adult smart training DMX shoes in 2001 (Reebok segments n.d). All these types of shoes were made for secondary market.

Similarly, through market segmentation, Reebok identified walkers’ demands for shoes in both primary and secondary market. The company then made a variety of shoes including running shoes in 1981, aerobic shoes in 1982, basketball, and tennis shoes in 1984, walking shoes in 1986, cross-training shoes in 1988, and adult smart train DMX shoes in 2001 (Reebok segments n.d). Reebok further used segmentation to guide them in identifying the most appropriate media for promotional massages. That is, the company used segmentation to determine characteristics of their customers and then designed shoes that would attract them and other customers who could be looking for similar shoes.

Reebok uses different segmentation categories to achieve a specific goal. For instance, the company uses demographic segmentation variables to identify its target customers (Paul and Kapoor 2008; Mcdonald and Milne 1999). Similarly, Reebok uses geographic variables to identify where the customers are located, psychological segmentation variables to identify customers’ values and lifestyles, and behavioral variables to identify benefits that its customers seek and shoes usage rates (Paul and Kapoor 2008). This implies that, selecting the right segmentation variables is critical for Reebok.

Market segmentation at Reebok is used in different circumstances. For instance, nonathletic shoes are more popular among comforts/style conscious customers. Similarly, golf and tennis shoes are more popular in urban areas than in rural areas (Lamb Hair, and Mcdaniel 2012). Under such circumstances, Reebok uses segmentation to evaluate the demand for shoes in different regions thereby facilitating manufacturing rate. Moreover, Reebok uses geographic segmentation for customers who are not willing to travel far to inquire about products (Lamb Hair, and Mcdaniel 2012). For instance, Reebok uses geographic segmentation variables mostly to identify the type of shoes that most households want for their kids.

Reebok also uses segmentation whenever those living close to one another have similar consumption behavior, economic status, tastes, lifestyles, and preferences (Rouse 2006). For instance, the company uses geo-demographic segmentation on areas that prospective buyers have similar wants and needs. According to Rouse (2006), geo-demographic segmentation is useful when a company is able to isolate its potential customers with similar personalities, interests, and in terms of where they live. However, for products which are used by wider societal cross-section, geo-demographic market segmentation might not be suitable. Owing to the fact that, shoes come in different designs, sizes, and materials, and that households needs different shoes, geo-demographic segmentation has been useful for Reebok Company. Reebok also uses geo-demographic segmentation whenever opening new stores (Rouse 2006). Such segmentation assists in understanding the characteristics of those living within the new market the company targets to attract.

On the other hand, Reebok uses demographic segmentation whenever targeting customers from specific factors point of view (Lamb, Hair, and Mcdaniel 2009). For instance, Reebok makes shoes for women on the basis of demographic gender variables, children’s shoes on the basis of children’s age, and the quality of shoes based on household’s income among other specific customers variables. Similarly, Reebok uses psychographics segmentation whenever targeting personality characteristics. A study conducted by Lamb, Hair, and Mcdaniel (2009) showed customers have certain self-image that describes their personality. For instance, there are some people who are modern, aggressive, ambitious, extrovert, conservative, or introvert. Therefore, Reebok uses psychographics segmentation to identify customers within the market with personality characteristics and then make shoes that would attract such customers.

Reebok uses segmentation in its marketing for various reasons. First is to pursue growth. According to Lodish, Morgan, and Kallianpur (2001), Reebok is targeting the promising global markets such as China. This is because, interests in sports has been skyrocketing in China. Reebok wants to take advantage of Chinese basketball star, Yao Ming’s move to the NBA. Lodish, Morgan, and Kallianpur (2001) study showed 93% of Chinese males between the age of 13 and 25 who represent the prime market for athletic shoes watch NBA broadcasts on a regular basis. Similarly, Reebok’s Asian Pacific General Manager projects a 50% annual growth in footwear sales (Pride and Ferrell 2010, p. 190). Therefore, taking advantage of such growth Reebok relies on different segmentation variables to identify specific characteristics of customers in both local and international markets. For instance, to make most of the opportunities in the projected global growth in the market for sport shoes, Reebok has set up Yao’s House basketball courts across Central Shanghai (Braun 2008). Each of the courts features the Reebok’s trademark, and a giant Sport Illustrated cover that shows basketball star. Offering young adults and teens a place to sharpen their slam dunks, Reebok hopes to shape its customer’s attitudes, both in urban areas and on streets basketball courts towards its products.

In conclusion, segmentation is the most important word in marketing. Segmentation concept is often used to facilitate dividing markets into small parts each representing a particular customer’s want and need. Since the emergence of market segmentation at Reebok in 1981, the company has been able to compete strongly with its rivals such as Nike in shoes market industry. Similarly, through market segmentation, Reebok has been able to explore different markets thus making more sales.

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