Models of product differentiation tend to be of two types: (a) Address Type Models: Here goods are characterised by their attributes. Address type models seek to characterize the degree of product differentiation in equilibrium.
(b) Non-Address Type Models: Here, there is a set of goods that can be produced, and consumers have tastes over the range. Consumers like variety.
(g) Market Segmentation: The concept of market segmentation is an outgrowth of the marketing concept. Its main thrust is to give separate attention to the distinctive characterisation of each segment. Market segmentation has been defined by Stanton as, “The process of taking the total, heterogeneous markets for a product and dividing it into several sub-markets or segments, each of which tends to be homogeneous in all significant aspects.”
Conditions for Effective Segmentation: The four important conditions are: (i) Measurability: The characteristics of the market segment or the buyers comprising it must be such as to be physically determinable. They must be measurable or quantifiable.
(ii) Accessibility: The market segment must be accessible through the existing channels of distribution, advertising media, sales force and so on, but all at reasonable cost.
(iii) Substantiability: The segment must be large enough to be profitable. Conceptually, a firm treats each customer like a separate segment.
(iv) Responsiveness: It is also necessary that the segment must be willing to react favourably to an appropriate marketing programme. The degree of willingness may vary, but some amount of willingness must be a basic condition.
Basic Approaches: When a marketer decides to adopt a segmentation strategy, he can adopt either of the two basic approaches or he can combine both into a kind of grid.
These are: (i) Consumer Characteristics Approach: This is the oldest form of approach. It consists in identifying established groups of consumers, about whom many things are already known, analysing their characteristics and finding out how these groups differ from others according to their common characteristics.
