Market segmentation and target market procedure in Nike Company operations in Australia

Market segmentation and target market procedure in Nike Company operations in Australia

1. Literature review

Market segmentation

Since its introduction in 1956, market segmentation has been largely established as an essential tool in understanding consumer behaviors (Haider, Zafar, Khalid, Majid, Abdullah & Sarwar, 2017). Identifying different groups within the market helps in establishing a well-structured communication framework that is essential in understanding the specific needs and wants among different consumers. Haider et al. (2017), asserts that the intelligence-gathering involved in market segmentation process allows for creative use of information gained through a backward feedback process down the production chain. The different development that market segmentation has undergone over the years has resulted in numerous studies refuting the claim that market segmentation is a simple process involved in subdividing a market into groups with specific homogenous characteristics. Through this, Dolnicar, Grün & Leisch (2018), asserts that individual organizations must have in place a well-structured targeting process for an effective market segmentation that can enhance its competitiveness in the highly volatile contemporary world’s business environment.

However, Dietrich (2017), asserts that effective segmentation offers an individual organization the opportunity of dividing its market into a smaller and meaningful homogenous group; hence allow for the effectiveness of all marketing strategies. Individual companies utilizing the segmentation-targeting-positioning (STP) marketing strategy have to adopt segmentation as the first stage in ensuring the effectiveness of this marketing operation approach. Utilizing the strategy of targeting specific market niches can help an individual organization acquire a competitive advantage in the market, which can be essential for ensuring superior market performance (Dietrich, 2017). Similarly, segmentation allows organizations to design their 4Ps involved in marketing to meet the specific needs, tastes, and preferences among individual consumers; hence it promotes effective competition. Through all these, some studies have emphasized examining segmentation modeling techniques while some have focused on the methodological aspect of specific market segments.

Dibb & Simkin (2016), advances several quality criteria that have been in use for assessing the effectiveness of market segmentation solutions. Some of these include sustainability, differentiability, measurability, and actionability. The sustainability concept involves the viability and feasibility of each market segment’s operation into the future. It highlights the different systems and procedures involved like designing products and services in a cost-effective manner that can ensure an organization’s profitability. Differentiability primarily entails having a clear distinction among different market segments with a different set of actions. Similarly, measurability involves having in place key performance indices (KPI) that can gauge the performance of different elements involved in a particular market segment including the profitability and market share of each segment. Lastly, actionability entails putting in place viable systems and procedures that foster seamless execution of different elements involved in operating a particular market segment.

Different market segmentation approaches have been advanced over the years by several studies. The most common include psychographic segmentation and domain-specific segmentation. Psychographic segmentation is highly dependent on lifestyle, which has led to questions on the reliability of the method of analysis and measurement (Pomarici, Lerro, Chrysochou, Vecchio & Krystallis, 2017). On the other hand domain, specific segmentation are highly dependent on psychographical data but utilize a set of consumption patterns and prevailing consumption situations. Similarly, domain-specific assigns consumers into segments based on their consumption characteristics relation with their behavioral response with respect to the supply of a given product.

Market segmentation approaches

There are several approaches that have been applied over the years by different organizations in ensuring an effective market segmentation that can guarantee nominal competition within their environment. This has resulted in several criticisms in regard to the use of a demographic approach given its lack of richness. However, Wang, Miao, Zhao, Jin & Chen (2016), asserts that the essence of demographic variables in market segmentation cannot be ignored considering that demographic factors like family size, income, and education significantly affect the purchasing power of a particular population and can this form a market segment. Psychographic segmentation is also heavily influenced by socio-demographic factors like age, education, and income. Similarly, for instituting an actionable market in relation to positioning and targeting it is essential to consider social-demographic factors. Additionally, a purely-data driven market approach is more common in domain-specific market segmentation.

Decompositional/ data-reduction approaches

Sarti, Darnall & Testa (2018), observes that the most essential element involved in data-driven market segmentation also known as posteriori market segmentation is the research approach the study involved should assume. In relation to factor-cluster segmentation, some studies have presented caution in developing a standardized research approach. Standardization of research is not the most viable technique that can be useful in the identification of segments involved in such a case. Similarly, in segmentation involving tourism almost three-quarters of studies have utilized psychographic criterion like motivations to identify the market segments. Additionally, the majority of cluster studies with respect to market segmentation face the constraint of mutually exclusive clusters (Sarti, Darnall & Testa, 2018). Through this, such studies assume the existence of internal homogeneity of clusters and that consumers from other segments are distinct. As a result of this, such studies lose explanatory power and they question the conceptual framework of non-overlapping clusters as well as their ignorance of segment heterogeneity.

On the same note, the popularity of factor-cluster segmentation hinges on two data reduction techniques. These include exploratory factor analysis (EFA) and confirmatory factor analysis (CFA). EFA primarily focuses on the identification of latent constructs as well as the underlying factor structure involved in a specific set of variables (Goryushkina, Gaifutdinova, Logvina, Redkin, Kudryavtsev  & Shol, 2019). On the other hand, CFA is used in the verification of factor structure involved in a specific set of observable variables. It also gives room for testing the hypothesis involving the existence of a relationship between the observed variable and their latent construct. Though several studies have applauded CFA, Dolnicar, Grün & Leisch (2018), Criticized it citing that the disaggregation approach utilized in CFA increases model misfit.

Principal Component Analysis (PCA) is one of the most renowned techniques utilized in dimension reduction. This technique focuses on generating direction in data involving large variance (Dolnicar, Grün & Leisch, 2018). It excludes label information on the data. It also preserves much of the variance space while performing dimensionality reduction. On the same note, the emergence of machine learning software in the contemporary world has advanced algorithms that cluster cases in accordance with estimated membership probabilities. The Mixture-model cluster forms one of the most dominant model-based approaches. In this case, each latent class always represents an unknown cluster. However, studies always face the challenge of non-homogeneity of data, which has led to the development of latent class analysis (LCA) especially in attitudinal segmentation (Dolnicar, Grün & Leisch, 2018). The essential element involved in LCA is that the probability of group membership is generated using the attributes of different variables. Similarly, LCA also helps in the identification of explicit differences among identified segments.

Psychographic segmentation

Psychographic segmentation basically involves lifestyle segmentation studies. In the case of psychographic segmentation researchers always describe consumer market segments while in lifestyle segmentation groups consumers based on specific lifestyle factors clusters (Sarti, Darnall & Testa, 2018). Initially, psychographic segmentation utilized the concept of personality, which has been replaced with lifestyle. Through this, lifestyle has become the essential element involved in psychographic segmentation. The concept of lifestyle is constructed based on motivational factors and lifestyle values. Through this, lifestyle considers views from behavioral and rational psychology fields.  Additional the AIOs (activities, interest, and opinion)also form the standardized used factors in lifestyle segmentation clusters (Sarti, Darnall & Testa, 2018). These three together with socio-demographic factors like age, income, and education.

Dietrich (2017), Also defines lifestyle to be a pattern in which people live and spend their income. This definition further confirms the essence of the above factors and the three elements involved in psychographic segmentation. Similarly, at the societal level, the value concept is relatively stable than at the individual’s level, which presents a challenge in ensuring effective segmentation. However, over the years several organizations and studies have utilized the psychographic segmentation concept in ensuring effective market segmentations. There have been also calls for the classification of services and products in accordance with the needs and values they exhibit. Through this, information relating to an individual consumer’s feelings about a product or a service can be easily established.

Domain-specific lifestyle segmentation

Dolnicar, Grün & Leisch (2018), asserts that this is the most viable technique for an effective market segmentation exercise. A domain is a specific element of behavior that is aimed at achieving the same goal. The domain-specific lifestyle segmentation primarily focuses on using specific psychographic data that relates to specific consumer behaviors and patterns as well as consumer situations in segmenting the market. This is highly used within the food and beverage industry to ensure effective market operations that accommodate all factors involved in the targeted consumers. It is also considered as one of the valuable techniques that can be used in product marketing. Food-related lifestyle (FRL) model forms one of the techniques utilized in this category and has been heavily used by several companies within the food and beverage industry across different continents including Asia and Europe (Dibb & Simkin, 2016). FRL utilizes the AIOs items in measuring twenty-three lifestyle dimensions, which are essential in identifying six FRL segments. Attitude is at the core of all operations involved in FRL as it dictates the manner in which individuals respond to a specific stimulus within their environment. Through this, FRL is constructed to consider all elements involved in an individual consumer’s life before they make consumption-related choices. This ensures that FRL is domain-specific.

Target market segmentation

Steinhoff & Palmatier (2016), Identifies that target market segmentation is used in analyzing specific target markets.  Through this, it forms an essential tool that can be used in discerning the most profitable market segments. It is conducted across different levels including international, national, regional, and local levels. Tuten & Mintu-Wimsatt (2018), identifies three strategies used in target market segmentation, which include concentrated strategy, differentiated strategy, and undifferentiated strategy. The differentiated strategy involves choosing several target markets with different strategies for operating them. The undifferentiated strategy involves similar treatment of all target markets with a standardized approach of operation.  On the same note, a concentrated strategy primarily focuses on one target market through the use of specific and unique characteristics exhibited.

Similarly, Market analysis at the external level involves the use of macroeconomic factors while at the internal level involves the use of microeconomic factors. The specific areas involved in these two analyses include trends and attitudes involved among the local community under study, local forces like partnership and level of delegation of roles, identification of the potential target markets and competition as well as promotional strategies (Piñeiro-Otero & Martínez-Rolán, 2016). In relation to trends and attitudes of individuals in the local community factors like culture, and level of technology and innovation is to be considered. The primary focus is to be in regard to the demands, needs, tastes, and preferences of individuals involved.

Moreover, in relation to local forces factors like the manner in which partnership influences and shape the consumption patterns in specific communities.  Additionally, the identification of the potential target markets entails analyzing the existing specific and unique characteristics that can be essential in generating unique groups. Further, analyzing regional competition involves the consideration of different players in the market and their impact on the operation of a targeted market (Saura, Palos-Sánchez & Cerdá Suárez, 2017). It also takes into consideration the promotional strategies utilized by individual competitors.

Saura, Palos-Sánchez & Cerdá Suárez (2017), identified four grounds for segmenting a market within an individual city. The first of these is the segmentation of the resident’s characteristics, which involves the establishment of specific tastes and preferences within a city to form a ground in which the market can be segmented. The second base is the segmentation of an individual city’s characteristics. These are always based on the prevailing culture among its inhabitants that constitute the uniqueness within the city.  The third base involves the segmentation of city actors. This primarily involves establishing the normal operations within the city by discerning who is doing what and where and in which circumstances (Allurwar, Nawale & Patel, 2016). The last base involves the segmentation of competition areas, which involves the identification of the city’s market share as well as the share held by each player.

Market segmentation and targeting in the sport’s apparel industry

Scur & Kolososki (2019), asserts that the concept of value-creating means individual companies cannot effectively create value to all consumers in a cost-effective manner. Through this, organizations always utilize three strategies to streamline their efforts and better understand their consumers. These include market segmentation, market targeting, and positioning strategies. These three strategies foster the creation of subgroups that results in effective market operations. They also ensure consumers recognize the differences in brand image hence allow well-placed organizations to acquire valuable competitive advantage in relation to brand loyalty.

There are several market segmentation techniques utilized within the sports apparel industry. One of these is psychographic segmentation that segments markets through the use of lifestyle of individuals as well as their values and personality (Thibaut, Vos & Scheerder, 2019). The second one is demographic segmentation that takes into account the different demographic factors like education, religion, age, and family size among others in predicting and establishing consumer needs and desires. The third segmentation technique is geographical segmentation, which involves the use of geographical locations in identifying the different subgroups within a market. On the same note, the last segmentation technique involves behavioral segmentation, which is the use of the use of knowledge, attitude, and level of response to a specific product in generating the subgroups within the market (Pattison, Venter & Chuchu, 2016).  The deconstructing and selection of unfitting market segments allow individual companies involved in priorities and rank viable market segments.

Baber (2019), asserts that market targeting in the sports industry involves the evaluation of viable market segments as well as planning on how each segment will be operated to create value for all stakeholders involved. Through this, individual companies consider two factors which include company fit and market segment attractiveness. Segment attractiveness requires the consideration of the long term goals and objectives as well as the political, environmental, and social responsibility factors before operating in a specific target market. Through this, individual companies always prefer the operation of one market segment during their early stages of operation and upon acquiring greater competitiveness in these markets they venture into other target markets (Pattison, Venter & Chuchu, 2016). An example is Nike in which the company started off by advancing running shoes for athletes. With time the company targeted different market segments through the use of its numerous divisions and has ever since established itself as one of the most successful sports apparel producers.

The element of brand recognition must be effectively planned and executed among different market segments to ensure enhanced competition levels. In light of this, positioning through the use of effective promotional strategies that increase brand awareness within a specific market segment is always essential. Similarly, brand equity involves the manner in which consumers in a specific market segment view the company’s brand, market share, and prices. Sande  (2019), proposed a four-step model that can be utilized by companies to build a strong brand in their targeted market. The first step involves in this entails creating brand salience that primarily ensures the targeted consumers comprehend the product as well as other competing brands. The second step involves the creation of brand meaning by setting brand performance and brand imagery. The use of the following three dimensions: uniqueness, favorability, and strength ensure this is achieved. The third step involves establishing how consumers respond to marketing campaigns. Establishing consumers’ judgments and feelings is essential in the realization of this. The last step involves establishing consumers’ relationships with the company’s brand.

Dolnicar, Grün & Leisch, (2018), also identified ten steps involved in market segmentation. The first step involves making decisions on whether to segment a market or not. Through this, the different challenges involved in the two alternatives are critically analyzed. The second step involves listing the unique characteristics of an ideal market segment. The ideal market segment should ensure the capacity and capabilities of an individual organization is optimally explored. In this, the attractiveness of the market segment must also be considered. The third step is data collection in which data from market surveys are considered as well as the four broad market segmentation in the form of behavioral, geographical, psychographic, and socio-demographic segmentation. The fourth step involves data exploration through the use of several analysis techniques like descriptive analysis, principal component analysis among other forms of data analysis (Dolnicar, Grün & Leisch, 2018). The next step involves the extraction of segments through the use of distance-based methods like hierarchical methods, distance measures, positioning methods, and hybrid approaches or through the use of model-based methods like finite mixture of distribution and regression as well as the use of algorithms.

The next step involves the profiling of market segments through the identification of key and unique characteristics of market segments that march the earlier identified characteristics of the ideal target market in step two. The seventh step involves describing market segments by developing a complete picture of what each market segment looks like. The eighth step involves the selection of target market segments. This should be done in accordance with the criteria set in step two (Dolnicar, Grün & Leisch, 2018). The second last step involves customizing the market mix to fit the specific needs of the individual selected market segment. It largely involves modification of the 4Ps involved in marketing. The last step involves the evaluation and monitoring of the manner in which target markets operate.

2. Research questions, objectives, and Purposes

The contemporary world presents a highly volatile business environment as a result of technological invention and innovation as well as globalization and changes in demographic structures. All these require individual companies to foster strategic management that can enable them to easily compete through the acquisition of superior competitive advantage (Mehra, 2017). Market segmentation and target marketing operations form some of the strategies rampantly used by several organizations in different industries to ensure effective competition. The primary purpose of this study is to create a comprehensive understanding of the different market segmentation that exists within Nike Company’s operation in Australia as well as how these market segmentations were created

Research Objectives

• To establish the differences between market segmentation and target market
• To establish the different techniques used in ensuring an effective market segmentation
• To discern the different types of market segments operated by Nike company
• To discern the different market segments that exist within the Australian sports apparel industry
• To establish the sources of competitive advantage within different market segments in the Australian sports apparel industry
• To establish the extent to which demographic factors impacts the Australian sports apparel industry

Research questions

1. What is the base at which market segmentation and target markets are differentiated
2. What are the different techniques that are used by Nike Company in generating its market segment?

• What are the different market segments that exist within Australian sports apparel industry

1. What are the market segments operated by Nike company in Australia
2. What strategies do Nike company use in acquiring a competitive edge within its operations in Australia
3. What are the different demographic factors that impact the Australian sports apparel industry
4. The list of questions for the research survey

The primary respondents to these research questions will be the staff members of Nike Company, Australia, and specifically those within the marketing department.

1. What is your current position with the company?
2. For how long have you been working in the company and within the marketing department?
3. What is your understanding of market segmentation?
4. What is your understanding of target marketing?
5. What are the different types of market segments your company operates within Australia?
6. What are the strategies that you understand to be used by your company in developing its market segments?
7. What are the strategies you understand to be used in gaining competitive advantage within these market segments?
8. What are the different demographic factors that you have observed to impact the level of your company’s operations in its target market?

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