The role of market segmentation in strategic tourism marketing
Market orientation is a key factor of business success (Narver & Slater, 1990) because it informs strategic planning. It is defined as 'the organisation-wide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence across departments, and organisation-wide responsiveness to it' (Kohli & Jaworski, 1990, p. 6). As such, it represents the basis of, and justification for, any marketing action.
Essentially, market orientation is about understanding and responding to consumer needs. Consumer needs, however, are heterogeneous: that is, different consumers have different needs. The key strategic marketing tool driven by the motivation to understand consumer needs, thus ensuring market orientation, is market segmentation. Market segmentation also accounts for the fact that in most markets consumers differ in their needs.
One would expect, therefore, that organisations in general - and specifically tourism destinations and businesses - would be very familiar with market segmentation and use it in close conjunction with other aspects of strategic marketing as a basis for their marketing activities. A number of authors have pointed out, however, that this is not the case and that there is in fact a significant theory-practice divide that prevents organisations from utilising market segmentation effectively as a strategic tool (Dibb, 2005; Dibb & Simkin, 1994; Greenberg & McDonald, 1989). A recent survey with 167 marketing managers (Do1nicar & Lazarevski, 2009) confirmed these concerns empirically: 68% of marketing managers agreed that segmentation analyses are like a black box to them and that they do not understand what actually happens in the process of segmenting respondents, 65% stated that they have had difficulties interpreting segmentation solutions in the past and 30% believe that segmentation strategy is independent of positioning and competition strategy.
Given the importance of segmentation and the apparent shortcomings in its application, the aims of this chapter are to (1) place market segmentation in the context of strategic marketing rather than treating it as an isolated marketing tool; (2) provide a systematics of basic segmentation approaches and criteria relevant to tourism; (3) illustrate the entire process of tourism market segmentation step by step, highlighting potential difficulties and alternative ways of addressing them to arrive at valid segmentation solutions; (4) point to an analytic, perceptions-based market segmentation (PBMS) strategy that offers a methodological framework for integrating market segmentation with other areas of strategic marketing in order to most effectively harvest the benefits of segmentation; and (5) make market segmentation more transparent to data analysts and users of segmentation solutions in tourism, thus reducing the theory-practice divide.