Market Segmentation definition

In easy words, market segmentation is diving up of a large market into smaller groups. So, we can say that market segmentation is the bifurcation of a large market into various small markets, which are related to each other.

According to Philip Kotler’s definition of market segmentation, “Market Segmentation is the sub-dividing of customers into homogeneous subset of customers where any subset may be conceivably selected as market target to be reached with distinct marketing mix.”

Market Segmentation allows the companies to target different categories of consumers who perceive the full value of certain products and services. Before diving the market, researchers generally look for shared characteristics such as common needs, interests etc.

The objective of the market segmentation is to identify the high yield segment, the ones which are more profitable and have high growth potential.

It is assumed that every segment of market requires different type of price, product, and promotion marketing variables.

B2B sellers segment market on the basis of business and the county. B2C sellers segment market on the basis of demographic, psychographic areas.

Market Segments should be evaluated on bases such that they are:

  1. Identifiable: Differentiating attributes of market segments should be measurable so that they can be identified.
  2. Accessible: Market Segments must be reachable through communication and channel of distribution. It would be a failure if a company chooses a segment which cannot be reached by the company.
  3. Substantial: The company should see till what extent it can serve the segment. For example- if a small company chooses a segment which requires large resources, then it would be a failure for the company as it is small and it will fail to serve them.
  4. Durable: Company should choose such market segment which is relatively stable to minimize the cost of frequent changes. Market experiences frequent changes. And if the segment also changes according to the change in the market or more than the cost of the company will increase.

Bases of Market Segmentation with example

Market Segmentation on the basis of Gender

Marketer divides the market on the basis of gender. As males and females, both are different from each other, their needs will also be different from each other. So, organization needs to have different marketing strategies for males and females. Generally; cosmetics, footwear, jewelry and clothes industries divides the market on the basis of gender.

Market Segmentation on the basis of Age

Division of market can also be done on the basis of the age. A product for infant, teenager and adult will differ. Market segments targeting infants include products like Baby Food, Toys, Nappies. Market segments targeting teenagers include coldrinks, bags, books.

Examples of companies targeting Market Segmentation for Adult and mature consumers include Magazines, Anti-Ageing products, household goods.

Market Segmentation on the basis of Income

Income influences the buyer to a great extent. Income will tell the ability of the consumer. How much they can spend will depend on the income. So, marketer divides target market into:

  • a) High Income Group
  • b) Medium Income Group
  • c) Small Income Group

Market Segmentation on the basis of Marital Status

Market can also be divided according to the marital status of a consumer.

Market Segmentation on the basis of Occupation

Marketers can differentiate market on the basis of occupation of the individual. The purchasing patterns and needs for an employed person will be different from that of a student. For example, an employed person will be a better target market segment for company selling stitched suits while the market segment of students will be better for company selling shorts and casual t-shirts.

Benefits of Market Segmentation

  • Knowing the Customer Better- Organization gets an idea who their customers will be and can better focus on their traits, personalities, behavior and purchasing patterns.
  • Attention to Particular Segment- Segmentation allows the organization to pay attention to a particular segment which will yield highest return. For example- A small scale company that is paying full attention to a market instead of small segment will be wasting resources because it will not be able to satisfy the large market with its limited resources.
  • Strategy- Company makes strategy on the basis of the market. Making strategies for market which are of no use will be a failure for the organization. So, it enables the company to make strategy for a particular market only which is related to the operation of the organization. For example- Coca cola is providing its product to the whole market, so obviously it will yield less profit as whole market covers old age consumers and infant also. So, Coca Cola, when segment their market on the basis of the age, they can easily make strategies for the teenager segment. So, the resources are fully utilized.

Limitations of Market Segmentation

  • Increases cost- Targeting multiple markets will increase the cost of the company. As company will have to make different strategies for different segments. All the activities from product mix to promotion mix will be different for different segments.
  • Hamper Broad-Brand Equity- Company cannot build their brand by narrowing the market into smaller segments.
  • Difficulty in predicting- Human behavior never remains constant. Their behavior changes with the change in the situation so it becomes difficult for the organization to predict the behavior.

Importance of Market Segmentation

  • Marketing Activities- Marketing activities of the company will be developed once the market is divided into the smaller segment. Segment will help in determining the marketing activities according to the behavior of the consumers.
  • Increase Marketing Effectiveness- Marketing effectiveness will be increased as marketer will know what is required in that particular segment.
  • Generate greater customer satisfaction- Once the market is divided into smaller segment, customer satisfaction will be increased. It is because the company will satisfy the needs of the customer according to their behavior. For example- In a whole market, Company will have to focus on everything to satisfy the customer, but when a market is segmented, Company will only focus on the needs of that particular market.
  • Allocation of Marketing Budget- Marketing Budget can be allocated as Company will get an idea where company has to spend much to increase the sales and where a company needs to spend less.
  • To estimate the level of sales- Sales can be estimated easily. Because a company will know what a particular segment prefers.
  • Company Goals- Whatever activity is done in the business, is done to achieve the goals of the company. So is the case with Segmentation, it is also done to help the company in achieving their goals.

Customer Segmentation Models and Criteria

Demographic Segmentation

This is one of the most important elements of market segmentation as the data is easily available and affects the buying pattern drastically. Age, Income, Gender, Background and Family life are important factors of Demographic Segmentation. Demographic segmentation assumes that consumers with similar demographic profiles will exhibit similar purchasing patterns, motivations, interests and lifestyles and that these characteristics will translate into similar product/brand preferences.

For example- Let us take the example of smartphones, the target market segment age range would be 18-60 years, so it will include Teenagers and Adults. Income level would have to be middle to upper class as these mobiles phones are going to be little expensive. Mobile phones are not gender specific, as males and females both use smart mobile phones.

Geographic Segmentation

It divides the market on the basis of geographic criteria. Marketer cannot have similar strategies for individuals living at different places. Factors are-

  • Region- Continent, County, State, City or Neighborhood.
  • Size of Metropolitan Area- Size of the population.
  • Population Density- Urban, Suburban, Rural areas.
  • Climate- Winters, summers or rainy season.

Geographic segmentation may be considered the first step in international marketing, where marketers must decide whether to adapt their existing products and marketing programs for the unique needs of distinct geographic markets. Tourism Marketing Boards often segment international visitors based on their country of origin.

Psychographic Segmentation

Psychographic segmentation is based on the lifestyle of the consumer. It is measured by studying the activities, interests and opinions of the customer.

  • Activities- Work, Hobbies, Social Events, Vacation, Shopping.
  • Interests- Family, Home, Job, Community, Recreation.
  • Opinions- Themselves, Social, Business, Economics, Education, Products.

Psychographics is a very widely used basis for segmentation, because it enables marketers to identify tightly defined market segments and better understand consumer motivations for product or brand choice.

Behavioral Segmentation

It divides the consumer on the basis of their behavior. Many marketers think that it is superior to Demographic and geographic segmentation.

Usage- Consumers can be segmented on the basis of the usage status. For instance, high usage, low usage. High usage gets the most attention from the company as the company thinks that their brand loyalty will be increased.

User Status- Non-users, Regular Users, Ex-users and Potential Users. Relying on regular users is not a profitable job for the company. They also have to make sure that non-user and potential users are also attracted towards the product. It can be done by eliminating the reason of not using the product.

Attitude- It is a learned tendency to respond towards something. Negative, positive, over enthusiastic effects may be reported by the company.

Occasions- Occasions when a consumer might purchase a product. For example- sweets are purchased on Christmas, Easter, Diwali and other festivals.

Cultural Segmentation

Market can be divided into the cultural segment also. In a country, people of different cultures exist. So, market can be segmented into cultural segments also to suit different ethnicities, traditions, holidays and religious sentiments.

Market Segmentation Process

1) Determining the need of Consumers- Consumers stand on the first place in the marketing process. So, their need should be first of all determined by the company. And according to that, they should be grouped based on their needs. For example- If in a region, there are general restaurants but not Chinese, so the company will come to know the need of the consumer.

2) Identify the Segment- So in the step 1, we have determined what the need of the consumers is. Now we will have to see, who the consumer will be for the product. In other words, we will have to divide the market into segments on the basis of Geographical, Demographical or Behavioral segmentation.

Let’s go with the previous example- Chinese food is generally preferred by Age group of 10-40 years. So, the target will be kids, youngster and mature adults.

3) Which Segment is Attractive- Out of all segments, the marketer will decide which segment is attractive and will yield him higher profit than others. He will have to choose which is the best among demographic, psychographic and geographical segmentation.

Attractiveness of the firm also depends upon the competition, in fact higher the competition lesser is attractiveness for the firm.

Example- So now the owner realizes that he has more number of individual who are in their 30s and are youngster. He will market the product in malls, theatres as these places encounter such people most often. So here, combination of Geographic and Demographic segmentation is used.

4) Profitable or Not- So we have judged segment on the basis of the attractiveness. So, it’s time to judge which segment will yield maximum profit.

Example- Chinese owner has decided to go with 30s people because youngsters order less and spend much time in their restaurant which increases the cost and reduces the profitability.

5) Positioning for the Segment- Once we have identified the market segment, we need to position the product in the mind of the consumer.

Example- In the above case, we find out that it was not profitable for the restaurant to serve youngster. But the owner simply opened a fast food chain right next to the restaurant. So, now both the middle aged and youngster can enjoy.

6) Expanding of the segment- When the product is positioned in the mind of the customer, owner can finally expand the segment.

Example- Chinese owner has the best process in hand. He was using both Demographic and Geographic segmentation. Now he will start looking at other geographic segments where he can establish his concept and expand his business.

7) Incorporating the segmentation in your Marketing Strategy- After finding out the segment which can be expand and is profitable, you need to incorporate the segment into your marketing strategy.

Steps of Market segmentation make your segment clear and then you can adapt various other marketing strategies as per the segment being targeted. You can modify the product, keep optimal price, and increase the quality of the product and so on.

Product Positioning and Product Differentiation

Product positioning refers to the position of the company, brand or product occupies in the mind of the customer. Positioning can also be known as the process which affects the thinking of consumer in relation to the brand, company or product. It is the best way through which a company can promote their product in the target market according to the demand of the customer. A company’s product won’t survive in market without competitive advantage and a unique selling proposition.

Product Positioning Strategies

  • a) Competitive Strategies- It requires a unique or a superior product attribute in regard to a competing product.
  • b) Reducing Competitive Strategies- This concept of Product Positioning Strategies can help to differentiate a product in the dominant market of an already well-established brand.
  • c) Product Benefit Strategies- In this strategy, product benefits are communicated to the consumers.
  • d) Product Attribute Strategies- Positioning a product based upon a specific attribute can also be compelling to the targeted audience.
  • e) Product Categories- Positioning of your product by differentiating it from other product upon a category.

Product differentiation is a process where a producer differentiates a product from other products by making changes in its features. Differentiation is done to make a product more attractive than other competitive products. Product differentiation can be as simple as change in the packaging or as elaborate as change in functional area. Product differentiation helps in determining the feature which sets the product apart from other similar products. And it uses that feature to gain the consumer interest.

Sometimes it happens that functional areas of two products are same but a company can make a product different from other by making changes in the nonfunctional areas of the product. Non-functional areas mean change in size, color or packaging of the product. Even a unique advertising of the product can also make it different from others.

Due to the product differentiation, brand image of a product is established and it can also allow sellers to charge a higher price. If a consumer feels that this product is better than that of competitor, even if it is done only speculatively, it will encourage the consumer to buy the product due to its brand image.

Conclusion of Market Segmentation

Market segmentation is thus a very important part of the marketing strategy. It allows the firm to find the potential market for its product and let the firm focus on that particular market. It has various bases on which the market can be segmented. If a firm follows the steps of marketing segmentation, it will easily connect to the consumers and create an advantage for the firm.

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