History of Marketing
The business historian, Richard S. Tedlow, identifies four stages in the evolution of market segmentation:
Fragmentation (pre-1880s): The economy was characterised by small regional suppliers who sold goods on a local or regional basis.
Unification or Mass Marketing (1880s–1920s): As transportation systems improved, the economy became unified. Standardised, branded goods were distributed at a national level. Manufacturers tended to insist on strict standardisation in order to achieve scale economies with a view to penetrating markets in the early stages of a product’s life cycle. e.g. the Model T Ford.
Segmentation (1920s–1980s): As market size increased, manufacturers were able to produce different models pitched at different quality points to meet the needs of various demographic and psychographic market segments. This is the era of market differentiation based on demographic, socio-economic and lifestyle factors.
Hyper-segmentation (1980s+): a shift towards the definition of ever more narrow market segments. Technological advancements, especially in the area of digital communications, allow marketers to communicate with individual consumers or very small groups. This is sometimes known as one-to-one marketing.
The practice of market segmentation emerged well before marketers thought about it at a theoretical level. Evidence suggests that the practice of market segmentation was developed incrementally from the 16th century onwards. Retailers, operating outside the major metropolitan cities, could not afford to serve one type of clientele exclusively, yet retailers needed to find ways to separate the wealthier clientele from the riff raff. One simple technique was to have a window opening out onto the street from which customers could be served. This allowed the sale of goods to the common people, without encouraging them to come inside.
Another solution, that came into vogue from the late sixteenth century, was to invite favored customers into a back-room of the store, where goods were permanently on display. Yet another technique that emerged around the same time was to hold a showcase of goods in the shopkeeper’s private home for the benefit of wealthier clients. Samuel Pepys, for example, writing in 1660, describes being invited to the home of a retailer to view a wooden jack. The eighteenth century English entrepreneurs, Josiah Wedgewood and Matthew Boulton, both staged expansive showcases of their wares in their private residences or in rented halls to which only the upper classes were invited while Wedgewood used a team of itinerant salesmen to sell wares to the masses. Evidence of early marketing segmentation have also been noted in other parts of Europe. A study of the German book trade found examples of both product differentiation and market segmentation in the 1820s.
Wendell R. Smith is generally credited with being the first to introduce the concept of market segmentation into the marketing literature in 1956 with the publication of his article, Product Differentiation and Market Segmentation as Alternative Marketing Strategies. Smith’s article makes it clear that he had observed many examples of segmentation emerging and to a certain extent saw this as a natural force in the market that would not be denied. As Schwarzkopf points out, Smith was codifying implicit knowledge that had been used in advertising and brand management since the 1920s.
Contemporary market segmentation emerged in the twentieth century as marketers responded to two pressing issues. Demographic and purchasing data were available for groups but rarely for individuals and secondly, advertising and distribution channels were available for groups, but rarely for single consumers. Between 1902 and 1910, George B Waldron, working at Mahin’s Advertising Agency in the United States used tax registers, city directories and census data to show advertisers the proportion of educated vs illiterate consumers and the earning capacity of different occupations etc. in a very early example of simple market segmentation. In 1924 Paul Cherington developed the ‘ABCD’ household typology; the first socio-demographic segmentation tool. With access to group level data only, brand marketers approached the task from a tactical viewpoint. Thus, segmentation was essentially a brand-driven process.
Until relatively recently, most segmentation approaches have retained this tactical perspective in that they address immediate short-term decisions; such as describing the current “market served” and are concerned with informing marketing mix decisions. However, with the advent of digital communications and mass data storage, it has been possible for marketers to conceive of segmenting at the level of the individual consumer. Extensive data is now available to support segmentation at very narrow groups or even for the single customer, allowing marketers to devise a customized offer with an individual price which can be disseminated via real-time communication
1.In his oft-cited work, New and Improved: The Story of Mass Marketing in America, Basic Books, N.Y. 1990 pp. 4–12, Richard Tedlow outlines first three stages: fragmentation, unification and segmentation. In a subsequent work, published three years later, Tedlow and his co-author thought that they had seen evidence of a new trend and added a fourth era, termed Hyper-segmentation (post 1980s); See Tedlow, R.A. and Jones, G., The Rise and Fall of Mass Marketing, Routledge, N.Y., 1993 Ch 2
2.Fullerton, R., “Segmentation in Practice: An Overview of the Eighteenth and Nineteenth Centuries,” in Jones,D.G.B. and Tadajewski,M. (eds), The Routledge Companion to Marketing History, Oxon, Routledge, 2016, p. 94
3.Cox, N.C. and Dannehl, K., Perceptions of Retailing in Early Modern England, Aldershot, Hampshire, Ashgate, 2007, pp. 155–59
4.McKendrick, N., Brewer, J. and Plumb. J.H., The Birth of a Consumer Society: The Commercialization of Eighteenth Century England, London, 1982.
5.Fullerton, R.A., “Segmentation Strategies and Practices in the 19th-Century German Book Trade: A Case Study in the Development of a Major Marketing Technique”, in Historical Perspectives in Consumer Research: National and International Perspectives, Jagdish N. Sheth and Chin Tiong Tan (eds), Singapore
6.Cano, C., “The Recent Evolution of Market Segmentation Concepts and Thoughts Primarily by Marketing Academics,” in E. Shaw (ed) The Romance of Marketing History, Proceedings of the 11th Conference on Historical Analysis and Research in Marketing (CHARM), Boca Ranton, FL, AHRIM, 2003.
7.Smith, W.R., “Product Differentiation and Market Segmentation as Alternative Marketing Strategies,” Journal of Marketing, Vol. 21, No. 1, 1956, pp. 3–8 and reprinted in Marketing Management, Vol. 4, No. 3, 1995, pp. 63–65
8.Schwarzkopf, S., “Turning Trade Marks into Brands: how Advertising Agencies Created Brands in the Global Market Place, 1900–1930” CGR Working Paper, Queen Mary University, London, 18 August 2008
9.Jones, G.D.B. and Tadajewski, M. (eds), The Routledge Companion to Marketing History, Oxon, Routledge, 2016, p. 66
10.Lockley, L.C., “Notes on the History of Marketing Research”, Journal of Marketing, Vol. 14, No. 5, 1950, pp. 733–736
11.Lockley, L.C., “Notes on the History of Marketing Research”, Journal of Marketing, Vol. 14, No. 5, 1950, pp. 71
12.Kara, A and Kaynak, E., “Markets of a Single Customer: Exploiting Conceptual Developments in Market Segmentation”, European Journal of Marketing, Vol. 31, No. 11/12, 1997, pp. 873–895