21 2. CHAPTER II LITERATURE REVIEW 2.1 Theoretical Foundation This conceptual is based on several marketing theories and consumer behaviour that are relevant to answering business issues related to determining market segmentation and marketing tactic aimed at increasing TEGUK’s sales. It is hoped that these theories can help authors identify the root of the problem, develop appropriate solutions, and develop measurable implementation steps. By using an analytical framework based on marketing theory and consumer behaviour, these conceptual aims to provide a scientific perspective in understanding the market, designing relevant strategies, and building an effective implementation approach to strengthen TEGUK's position in the market and encourage sales growth. 2.1.1 Market Segmentation Market segmentation is one of the most fundamental concepts of marketing and is the key to successful business performance. It was first introduced by Wendell R. Smith in his journal entitled Product Differentiation and Market Segmentation as Alternative Marketing Strategy in 1956 where he stated that the market is heterogeneous and needs to be divided into smaller and more homogeneous segments so that segmentation is "the process of dividing a market into distinct groups of buyers with different needs, characteristics, or behaviours who might require separate products or marketing mixes (Smith, 1956). 22 Over time, segmentation theory has developed into various methodologies, one of which is the Behavioral Segmentation Theory that emphasizes customer behavior as the basis for segmentation. This includes factors such as the benefits consumers seek, the frequency of product usage, and specific purchase occasions or situations (Haley, 1958). Behavioral segmentation is particularly useful in understanding consumption patterns, such as purchases influenced by discounts, impulsive shopping habits, or preferences for convenience and quality. By understanding these behaviors, companies can adjust their marketing strategies to attract attention and retain customers effectively. Another approach widely used in market segmentation is the Demographic Segmentation Theory explained by Kotler and Keller. This theory segments the market based on demographic variables such as age, gender, income, education, and marital status (Kottler & Keller, Marketing Management (13th ed.), 2009). Demographic segmentation is considered one of the simplest and most effective methods because these variables are easy to identify and measure. In practice, this segmentation is often used to determine consumer needs, preferences, and purchasing power, allowing companies to design products and marketing strategies that better align with the characteristics of the target market. Beyond demographics, segmentation can also be based on Psychographic Segmentation Theory, as outlined by Wells and Tigert. This theory emphasises lifestyle, personal values, and customer preferences as the foundation for segmentation (Wells & Tigert, 1971). Through understanding how consumers view themselves and the products they consume, companies can design campaigns that create emotional connections and build customer loyalty. 23 Furthermore, the Geographic Segmentation Theory that highlights the importance of segmenting the market based on geographical location, states that consumer preferences and behaviours can be greatly influenced by their living environment, including cultural differences, climate, and accessibility (Frank, Massy, & Wind, 1972). Geographic segmentation allows companies to tailor their distribution and promotion strategies according to the market needs in specific locations. For example, by opening outlets in high-traffic areas or expanding their reach through digital platforms to reach customers in broader regions. In addition to these approaches, Kotler and Armstrong proposed the Multi-Segment Targeting Theory, which emphasizes the importance of targeting more than one market segment with tailored strategies (Kottler & Armstrong, Principles of Marketing (14th ed), 2011). This theory allows companies to develop different products and marketing campaigns to meet the needs of each segment, without neglecting the other segments. By adopting this approach, companies can effectively reach diverse consumer groups while simultaneously expanding their overall market share. In this research, market segmentation theory is used as the primary foundation to evaluate consumption patterns and customer behaviour. By applying demographic, psychographic, geographic, and behavioural segmentation approaches, this study aims to provide a comprehensive analysis of TEGUK’s primary target market. Additionally, the application of Multi-Segment Targeting Theory supports a flexible marketing strategy that enables the company to engage multiple customer groups without compromising the focus and effectiveness of its campaigns. 24 2.1.2 Market Mix Marketing Mix is fundamental concept in marketing that is used to design and evaluate marketing strategies holistically. This concept was first introduced by Neil Borden in 1953, who explained the importance of various marketing elements as a mix that must be carefully planned. Later, Jerome McCarthy developed this approach into the 4P framework, as outlined in his book Basic Marketing: A Managerial Approach (McCarthy, 1960). Philip Kotler, in his book Marketing Management, defines Marketing Mix as a set of tools that company can control to influence market response to its products. According to Kotler and Keller, Marketing Mix should be designed to create value for customers in a way that align with the needs and wants of the target market (Kottler & Keller, Marketing Management (13th ed.), 2009). Marketing Mix consists of the following elements: The 4Ps in Marketing Mix 1. Product: The product refers to the goods or services a company offers to customers. This includes the design, features, quality, packaging, and product benefits. Kotler emphasizes the importance of product innovation and differentiation to meet changing consumer needs. 2. Price: Price is the amount a customer must pay to obtain a product or service. Pricing strategies must consider production costs, perceived product value, customer purchasing power, and competitor prices. Kotler emphasizes that prices must reflect the value perceived by customers, so that they can increase company loyalty and competitiveness. 25 3. Place: Place refers to the distribution channels a company uses to deliver products to customers. This includes both physical and digital channels, such as retail stores, e-commerce, and delivery service. According to Kotler, effective distribution strategies influence customer accessibility and satisfaction. 4. Promotion: Promotion includes all communication activities a company undertakes to increase brand awareness and encourage purchases. This includes advertising, sales promotions, digital marketing, public relations, and the use of influencers. Kotler highlights the importance of integration in marketing communications so that the message delivered is consistent across channels. 2.1.3 VRIO Analysis VRIO is a framework developed by Jay Barney in his book Firm Resources and Sustained Competitive Advantage, which is used to analyse a company's internal resources. This framework is used to analyze a company’s internal resources and capabilities to determine their potential for providing a sustainable competitive advantage (Barney, 1991).