ABSTRACT
Even the wealthiest firm cannot afford to serve all potential customers in the same way: no firm has unlimited resources. Since 1956 when Wendell Smith described the idea of market segmentation, firms have known that they should target those groups of customers who are most likely to help the firm reach its objectives, whether maximizing profit, maximizing market share, or entering a new strategic market. As we have seen in Chapter 3, unless a firm chooses overall cost leadership as its basic strategy, strong segmentation is required for success in both differentiation and niche strategies. Sophisticated marketing managers have developed the idea of “cost to serve.” This simply means determining what it costs to provide products and services to particular market segments. It may seem obvious that supplying many small customers with small quantities of custom-made product is more costly than supplying a few large customers with large quantities of standard product, but often this simple truth may be lost in an avalanche of data. The basic tenet behind the idea of segmentation is to find and serve the most rewarding customers: if a firm is able to offer a unique set of benefits to a particular market segment it will have achieved a significant competitive advantage.
