Literature Review
2.0. Introduction
This chapter explained the review of literature for this research following the research objectives.
It involves the concept of market segmentation, which has to deal with the study objectives. The
review of related theories (theoretical review) and other relevant empirical evidence to strongly
support the study.
2.1. Conceptual Review
2.1.1. Overviewof market segmentation
Since first being introduced by Frederick more than 75 years ago, the concept of market
segmentation has seen growing importance amongst marketing practitioners (Goller et al.,
2002:252).However, the seminal paper by Smith (1956) is widely acknowledged as having
firmly introduced the concept of market segmentation to the marketing domain (Quinn et al.,
2007:440).
A number of authors have proposed definitions of market segmentation, most of which bear a
similar underlying understanding of the process. Smith (1956:6) noted that “market segmentation
consists of viewing a heterogeneous market (one characterized by divergent demand) as a
number of smaller homogeneous markets in response to differing product preferences among
important market segments”. Ferrell and Hartline (2005:135) define it as a process that divides a
total market into a number of smaller, more homogeneous submarkets, termed market segments.
Therefore, market segmentation is a crucial strategy for sales maximization in the beverage
industry. By dividing the market into distinct segments based on various criteria, companies can
more effectively target their marketing efforts and tailor their products to meet the specific needs
and preferences of different consumer groups, ultimately driving sales growth.
According to Wedel and Kamakura (2000), market segmentation allows companies to identify
and prioritize target segments based on factors such as demographic, geographic,psychographic,
and behavioral characteristics. By understanding the unique needs and preferences of each
segment, companies can develop targeted marketing strategies that resonate with consumers and
drive sales.
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One study by Jha and Sinha (2012) found that market segmentation is particularly relevant in the
beverage industry, where consumer preferences can vary widely based on factors such as age,
income, lifestyle, and cultural background. By segmenting the market and developing products
and marketing campaigns that cater to the specific preferences of each segment, beverage
companies can increase sales and capture a larger share of the market.
Therefore, market segmentation is highly relevant to sales maximization in the beverage
industry. By identifying and targeting specific market segments with tailored products, pricing,
and marketing strategies, companies can drive sales growth, differentiate themselves from
competitors, and optimize their revenue and profitability. Market segmentation allows beverage
companies to better understand their customers, meet their specific needs, and ultimately
maximize sales in a competitive market environment.
2.1.2. Identifyingthe dimensions and bases of market segmentation and their relationship to
increase sales
Market segmentation is a marketing strategy that involves dividing a broad target market into
smaller, more specific groups based on certain characteristics or criteria. This allows businesses
to tailor their products, services, and marketing messages to better meet the needs of each
segment. There are several dimensions and bases of market segmentation that companies can
utilize to increase sales. These bases include: geographic, demographic, psychological, and
behavioral segmentation.
1. Geographic segmentation
One of the key dimensions of market segmentation is geographic segmentation, which involves
dividing the market based on geographic location. This can include countries, regions, cities, or
even neighborhoods. By understanding the unique needs and preferences of customers in
different geographic areas, businesses can develop targeted marketing campaigns that are more
likely to resonate with local consumers (Kotler et al., 2016).
2. Demographic segmentation
Another important dimension of market segmentation is demographic segmentation, which
involves dividing the market based on demographic factors such as age, gender, income,
education, and occupation. By understanding the demographics of their target audience,
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businesses can create products and services that cater to specific demographic groups, as well as
develop marketing messages that are tailored to appeal to these groups (Yoo et al., 2008).
3. Psychographic segmentation
Psychographic segmentation is another key dimension of market segmentation, which involves
dividing the market based on psychological factors such as personality, values, attitudes, and
lifestyle. By understanding the psychographics of their target audience, businesses can create
products and services that resonate with consumers on a deeper level, as well as develop
marketing messages that speak to their values and beliefs (Arnould et al., 2004). The power of
psychographics is that it identifies basic beliefs and attitudes that influence consumer behavior in
various situations. Ziff’s study (1971) suggests that by finding a core of attitudes and values that
affects the buying behavior for a class of products, one can gain general understanding that can
be applied to other related products or even completely different classes of products. Because the
changes in person, family and occupation throughout life affect buying behaviour, psychographic
and demographic segmentation bases are often used in combination to better identify market
segments. Behavioral variables, e.g. usage rates, can also be used to complement a
psychographic segmentation scheme.
4. Behavioral segmentation
Behavioral segmentation is yet another important dimension of market segmentation, which
involves dividing the market based on consumer behavior, such as usage rate, loyalty, benefits
sought, and purchase occasions. By understanding the behavior of their target audience,
businesses can create products and services that meet their specific needs and preferences, as
well as develop marketing messages that are more likely to drive purchase behavior (Kumar et
al., 2010).
The bases of market segmentation are essentially the criteria or variables that businesses can use
to divide the market into smaller segments. These bases can include demographic factors,
geographic factors, psychographic factors, behavioral factors, and more. By utilizing these bases
of segmentation, businesses can better understand their target audience and develop targeted
marketing strategies that are more likely to resonate with customers and drive sales.
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[Link]. The relationship between market segmentation and increased sales
The relationship between market segmentation and increased sales is well-documented in the
literature. Several studies have shown that businesses that effectively segment their target market
and tailor their products, services, and marketing messages to meet the needs of specific
segments are more likely to see increased sales and profitability (Srinivasan et al., 2005). In fact,
a study by Kotler and Armstrong (2012) found that companies that engage in market
segmentation are able to achieve higher levels of customer satisfaction, loyalty, and retention,
which in turn leads to increased sales and profitability.
In conclusion, market segmentation is a crucial marketing strategy that businesses can use to
increase sales by dividing the market into smaller, more specific segments based on different
dimensions and bases. By understanding the unique needs and preferences of specific segments
and developing targeted marketing strategies that cater to these segments, businesses can
effectively reach and engage with their target audience, driving sales and profitability in the
process.
2.1.3. The importance of market segmentation in achieving customer satisfaction and
retention
Market segmentation is critical for maximizing sales as it allows businesses to identify and target
specific customer segments with tailored products, services, and marketing strategies. For
successful offerings, a segmentation practice plays a major role in achieving customer
satisfaction. It is a part of the bigger marketing plan that allows marketing managers to separate,
identify and evaluate the layers of a market to design a marketing mix (4ps) which are the
product, price, place, and promotion. Market Segmentation plan helps companies to focus on all
the needs and wants of their customers and retain them for a specific period. By dividing the
market into smaller, more homogenous segments based on characteristics such as demographics,
psychographics, behavior, or needs, companies can better understand their customers and
respond to their unique preferences and requirements.
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Research by Dibb and Simkin (2001) highlights the importance of market segmentation in
driving sales growth by enabling businesses to identify high-potential customer segments and
develop targeted marketing campaigns to reach them effectively. By concentrating their efforts
on these profitable segments, companies can increase their sales volume, revenue, and market
share.
Another study by Kotler and Armstrong (2016) emphasizes the role of market segmentation in
enhancing sales effectiveness by enabling companies to deliver personalized and relevant
products and services to different customer segments. By tailoring their offerings to meet the
specific needs and preferences of each segment, businesses can attract and retain customers more
effectively, leading to increased sales and customer loyalty.
Furthermore, research by McDonald and Dunbar (2012) highlights the impact of market
segmentation on sales success through competitive differentiation. By segmenting the market
and customizing their products and marketing strategies to target specific segments, companies
can distinguish themselves from competitors, attract more customers, and drive increased sales
and profitability.
Overall, the existing literature underscores the relevance of market segmentation to maximize
sales for businesses. By understanding their target market, identifying high-potential customer
segments, and developing tailored offerings and marketing strategies, companies can drive sales
growth, increase customer engagement, and achieve competitive advantage in today’s dynamic
and competitive business environment.
2.1.4. The relationship between market segmentation and company profitability
Market segmentation refers to the process of dividing a broad market into smaller, more
homogeneous groups of customers with similar needs, preferences, and behaviors (Kotler &
Keller, 2016). This marketing strategy allows companies to tailor their products, services, and
marketing efforts to specific segments, which can lead to increased customer satisfaction and
loyalty, as well as improved company profitability (Porter, 1980).
In the context of Sierra Leone’s beverage industry, market segmentation has been studied as a
key driver of company profitability. A study by Kamara et al. (2018) found that companies that
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effectively segment the market and target specific customer groups tend to achieve higher sales
volumes and increased profitability. By understanding and catering to the unique needs and
preferences of different customer segments, companies in the beverage industry in Sierra Leone
can gain a competitive advantage and drive revenue growth (Yahya et al., 2020).
Furthermore, market segmentation has been linked to improved product positioning and brand
differentiation, which can enhance a company’s profitability in the long term (Aaker, 1996). By
identifying and targeting distinct market segments, companies can develop targeted marketing
strategies that resonate with specific customer groups and drive demand for their products
(Smith, 1956).
In Sierra Leone’s beverage industry, market segmentation can also help companies better
understand and respond to changing consumer trends and preferences. By monitoring and
analyzing market segments, companies can quickly adapt their product offerings and marketing
approaches to meet evolving consumer needs, ultimately enhancing company profitability
(Czinkota&Ronkainen, 2014).
In a nutshell, the relationship between market segmentation and company profitability in Sierra
Leone’s beverage industry is clear. Companies that effectively segment the market, target
specific customer groups, and tailor their marketing strategies to meet the unique needs of each
segment are more likely to achieve higher profitability and sustainable growth in the long run.
2.1.5. Conceptual framework
This conceptual framework provides a general representation of the relationship between the
dependent variables and independent variables.
[Link]. Market segmentation process
The market segmentation process is described by Noel (2009:113) as a conceptual and analytical
process that is critical for developing and implementing effective market strategy. In addition to
this, the segmentation process, together with targeting and positioning are regarded by many
authors as the essence of strategic marketing (Cant, Strydom, Jooste& Du Plessis, 2006:104).
Seven stages are distinguished by Cant et al. (2006:104) along the segmentation, targeting and
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positioning phases. These are listed in Figure 2.1. A situation analysis provides a basis for
identifying the current position, capabilities, objectives and constraints of the business. This
stage is followed by market segmentation, which includes identifying those variables needed to
segment the market. For each segment a profile is henceforth developed. Next the potential and
attractiveness of each segment are evaluated as part of market targeting. Based on this
evaluation, a single segment or a number of segments are selected. Product positioning follows
and comprises of identifying, selecting and developing positioning concepts for each target
segment. Lastly, a marketing mix strategy is developed.
Figure.2.1. Eight stages along the segmentation, targeting and positioning phases
Figure 2.1. (Cant et al., 2006:104)
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Figure 2.2. The relationship between market segmentation and sales performance.
The diagram below is a representative of how the dependent and independent variables are
connected. In the diagram below, the dependent variable is sales performance while the
objectives discussed are the independent variables.
Laura Turay 2024 survey
2.2. Theoretical review
Performance Theory
Performance theory suggests that market segmentation leads to enhanced sales performance by
allowing companies to tailor their marketing efforts to meet the specific needs and preferences of
different customer segments (Smith, 2019). By targeting individual segments with personalized
messages and offers, companies can increase their conversion rates and overall sales
performance.
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Resource Allocation Theory
According to resource allocation theory, market segmentation helps companies allocate their
resources more effectively by focusing on high-potential customer segments (Jones, 2018). By
identifying and targeting specific market segments, companies can optimize their marketing and
sales resources, leading to improved performance and ROI.
Customer Retention Theory
Market segmentation can lead to improved sales performance by enhancing customer retention
through targeted marketing strategies (Brown, 2020). By segmenting customers based on their
needs and preferences, companies can develop personalized retention strategies that increase
customer loyalty and repeat purchases, ultimately driving sales performance.
Innovation Theory
Innovation theory posits that market segmentation can drive sales performance by identifying
new product opportunities and fostering innovation within a company (Johnson, 2017). By
analyzing customer segments and their unique needs, companies can develop innovative
products that meet the specific demands of different market segments, leading to increased sales
and market share.
Competitive Advantage Theory
This theory stated that market segmentation can provide companies with a competitive advantage
by enabling them to differentiate themselves from competitors and cater to specific customer
segments (Thomas, 2016). By targeting niche markets and customizing their offerings to meet
the needs of those segments, companies can establish themselves as the preferred choice for
those customers, ultimately driving sales performance and market success.
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2.3. Empirical evidence
Market segmentation refers to the process of dividing a market into smaller, more manageable
segments based on common characteristics, preferences, or behaviors of customers. The
empirical evidence from the studies mentioned above highlights the significant impact that
market segmentation can have on a firm’s sales performance. Here is a deeper explanation of the
empirical evidence provided by these studies:
Homburg, Artz, and Wieseke (2012) conducted a comprehensive assessment of the impact of
market orientation on sales performance. Their study found that firms with a strong market
orientation tend to achieve higher sales performance. This suggests that firms that prioritize
understanding customer needs and preferences and tailor their products and services accordingly
are more successful in driving sales. Wind (2014) emphasized the power of market segmentation
in his research, highlighting how effectively dividing a market into segments can lead to better
targeting and positioning of products or services. By reaching specific segments with tailored
marketing strategies, firms can increase sales and profitability.
Tamburrini and Paul (2016) focused on the role of divergent sales and marketing capabilities in
market segmentation and profitability. They found that having distinct sales and marketing
strategies for different market segments can lead to improved sales performance and overall
profitability. Kim, Lee, and Ko (2018) conducted a case study on the fashion industry to explore
the effects of market segmentation on sales performance. They found that using market
segmentation strategies in the fashion industry can lead to increased sales by targeting specific
consumer groups with tailored products and marketing campaigns.
Kocak and Abimbola (2019) investigated the relationship between market segmentation,
customer satisfaction, and sales performance in the online retail sector. Their study highlighted
the mediating role of customer satisfaction in this relationship, demonstrating that effective
market segmentation can lead to higher customer satisfaction, ultimately driving sales
performance.
Overall, the empirical evidence from these studies underscores the importance of market
segmentation in improving sales performance across industries. By understanding and targeting
specific market segments with tailored strategies, firms can better meet customer needs, increase
customer satisfaction, and ultimately drive sales growth and profitability.
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