Market Segmentation

Table of Content:-

Market Segmentation Meaning

The concept of market segmentation is based on the fact that the markets of commodities are not homogenous but they are heterogeneous. A market represents a group of customers having common characteristics but two customers are never common in their nature, habits, hobbies, income and purchasing techniques. They differ in their behaviour and buying decisions. Based on these characteristics, customers having similar qualities are grouped into segments.

Market segmentation means breaking down the total market into self-contained and relatively homogeneous sub-groups of customers, each possessing its own special requirements and characteristics. This enables the company to modify its advertising messages, output and promotional methods to correspond to the needs of particular segments.

Accurate segmentation allows the firm to pinpoint selling opportunities and tailor its marketing activities to satisfy consumer needs.

Market Segmentation Definition

According to Philip Kotler, “Market segmentation is sub-dividing a market into distinct and homogeneous subgroups of customers, where any group can conceivably be selected as a target market to be met with distinct marketing mix“.

The main aim of market segmentation is to prepare separate programmes or strategies for all segments so that maximum satisfaction to consumers of different segments may be provided. 

According to Philip Kotler, “The purpose of market segmentation is to determine the difference among them or marketing to them”.

Market segmentation is the starting step in applying the marketing strategy. Once segmentation takes place, the marketer targets the identified consumer group with a proper marketing mix to position the product as perceived by the target segments.

Nature of Market Segmentation

1) Systematic Process: Segmentation of the market demands a systematic process. The process of market segmentation consists of the following steps:

i) Defining the market.

ii) Data collection to analyse the characteristics of the potential customers. 

iii) Identifying the bases of segmentation.

iv) Defining the market segments.

v) Evaluating the market segments.

vi) Selecting the appropriate market segments. 

2) Serves Many Benefits: Market segmentation brings many benefits to the marketer for selecting the target market and using an appropriate combination of the four P’s.

3) Subject to Certain Limitations: Market segmentation is subject to limitations such as given below: 

i) Difficulties in data collection,

ii) It is a time-consuming process, and 

iii) It is expensive.

4) Facilitates Customer Satisfaction: Through market segmentation, the customers get goods and services of their choice, which helps in fulfilling their needs and wants.

5) Acts as Promising Marketing Strategy: Market segmentation is better than market aggregation, as the recent marketing trend is shifting from a mass marketing strategy to a target marketing strategy 

Importance of Market Segmentation

The importance of market segmentation is as follows:

1) Adjustment of Product and Marketing Appeals: Market segmentation allows an understanding of the nature of the market. The seller can adjust his thrust to attract the maximum number of customers through various publicity media and appeals. 

2) Better Position to Spot Marketing Opportunities: The producer can make a fair estimate of the volume of his sale and the chances of furthering his sales. In the region where the response of the customers is poor, the strategy or approach can be readjusted accordingly to push the sales based on marketing research.

3) Allocation of Marketing Budget: It is based on market segmentation that the marketing budget is adjusted for a particular region or locality. In a place where sales opportunities are limited, it is of no use to allocate a huge budget there. 

4) Understanding and Meeting the Needs of Consumers: It helps the marketer to fully understand the needs, behaviour, habits, tastes and expectations of the consumers of different segments so that clear and precise decisions can be taken to harness marketing opportunities.

5) Stronger Positioning: Positioning is making a distinct discernment in the customers’ personalities about what greatly improves the situation. Having all the more barely outlined segments makes it less demanding for marketers to convey successful messages that pass on the profits and esteem coveted by that distinct segment.

6) Enhanced Efficiency: Marketing effectiveness is the major attention of market segmentation. By breaking customers into outlined segments, companies can uproot prospects from consideration when selecting media for message conveyance. Advertisements are typically paid for depending upon the number of individuals arrived at by a message. Messages conveyed to individuals, not in a given segment have small business profits and squander cash. Segmenting markets and specifically distributing marketing messages enhances the quality of the message.

7) Competitive Advantages: Basically, the company that best grasps what makes customers remarkable inside a segment, and different from one segment to the following, win. By better knowing the customer segments, one is unavoidably set to convey an adequate worth proposition that allures the customer to a certain brand. At the time one knows who the marketer is attempting to achieve so that one can perform more targeted research to study more about customers and convey messages that best match the brand’s strengths to their requirements and needs.

8) Targeted Media: Selecting the best media class and vehicle to convey the marketing messages is pivotal to effective marketing. At the time one has to decently characterise market segments and know who is targeting, so it is simpler to discover the right medium to communicate.

9) Market Expansion: Geographic segmentation is one type of segmentation where expansion is immediately possible. If one has a market strategy based on geography, then once the marketer is catering to a particular territory, one can immediately expand to a nearby territory. In the same way, if a marketer is targeting customers based on their demography (eg, Adidas targets fitness enthusiasts) then one can expand in similar products (e.g. Adidas expanding with its fitness range of clothes and accessories). Segmentation plays a crucial role in the expansion.

10) Better Communication: One of the factors of the marketing mix which is absolutely dependent on STP is promotions or communications. The communications of a company need to be spot-on for its target market. Thus if one needs a target market, the marketer needs segmentation. Communication cannot be possible without knowing the target market.

11) Increases Profitability: Segmentation increases competitiveness, brand recall, brand equity, customer retention, and communications. Thus, if it is affecting so many factors of the business, then definitely it affects the profitability of the company. One of the USPS of these brands is their segmentation. They are in fact targeting segments which have no need for bargaining or negotiation. Thus their profitability is high.

12) Identifies New Markets: This is not obvious. The reason is that on the surface marketer many times do not see these new market niches. They do not necessarily jump at marketers. By segmenting the markets one can find new markets. They may be small, only in a few locations, very specific, or very particular. Segmenting can bring additional market benefits.

13) Reduces Costs: Obviously, if one selects carefully and only reaches into the marketplace for a smaller segment of all that is there, the costs will be less. This applies to all media, particularly direct mail and telephone marketing, where lists represent such a large part of segmentation. Production is a major part of all marketing campaigns. It includes paper, printing, and a letter shop for direct mail. People and time for telemarketing.

14) Reduces Credit Risks: As unfortunate as it is true, there are folks and companies out there who do not pay their bills. Fortunately not many of them, but enough to make the bravest financial officer quake upon occasion. Using market segmentation allows one to eliminate those who cause credit problems or handle them “cash only”. A marketer can reduce bad debt ratios, and cut cancellations. On the opposite side, positively, marketers can offer extended credit terms to those who have earned a good rating. Only by segmenting the market into units does one has these options. In short, one can truly manage the markets, business and consumers.

Pre-Requisites of Effective Segmentation 

Effective market segmentation usually has the following requirements:

1) Measurable: The size and purchasing power and disposable income of the segment can be measured. Some automobile buyers want high-performance, status, stylish, and luxury model cars but it is important to measure and know the size of such buyers. It is essential that sufficient data or information in terms of customer purchase behaviour and the size of the market so that a new segment can be a business opportunity.

2) Substantial: It is the degree to which the proposed segments are large from consumer demand and profitable to the marketer, for considering a separate marketing plan and programme. 

3) Accessible: It is the degree to which the proposed segment can be effectively reached and served. Whether the distribution system and the promotion can effectively reach them.

4) Differentiable: Each segment of the market should be different from others in terms of its needs and wants. Each segment requires different marketing strategies because it responds differently to different strategies. A motorcycle manufacturer can segment the market based on the usage of the product. People buying cars for fuel efficiency are different from people buying them for style and both need different marketing strategies.

5) Actionable: A segmentation variable should help marketers develop effective marketing programs to attract and serve potential customers effectively.

Bases of Segmenting Consumer Markets

The consumer market can be segmented into various segments using different basis. The basis of consumer market segmentation can be broadly divided into four broad categories which are as follows:
  1. Geographic Segmentation
  2. Demographic Segmentation
  3. Psychographic Segmentation
  4. Behavioural Segmentation

1) Geographic Segmentation: This is generally the starting point of all market segmentation strategies. The geographic location of customers does help the companies in planning their marketing offers. This type of segmentation is quite common in dividing the rural and urban consumer markets.

Geographic segmentation refers to segmenting markets by region of a country or the world,  market density, market size, or climate. Market density means the number of individuals within a unit of land, such as a census tract.

For example, the Discovery channel telecasts its program in Tamil, Malayalam, Hindi, Telugu etc for reaching Tamilnadu, Kerala, and Andhra regions and their remote areas.

Climate is commonly used for geographic segmentation because of its dramatic impact on residents’ needs and purchasing behaviour, Snow-blowers,  clothing, water and snow skis, and air-conditioning and heating systems are products with a different appeal, depending on climate.

2) Demographic Segmentation: The next commonly used basis for market segmentation is the demographic factors of the market. In demographic segmentation, the market is divided into groups based on variables such as family size, age, family life cycle, gender, income, education, occupation, religion, race, generation, nationality and social class. Demographic variables are the most popular factors for distinguishing customer groups.

Some of the demographic variables used are given below:

i) Age and Life-Cycle Stage: Consumers’ wants and liabilities change with time and age. Based on age, a market can be divided into four parts viz., teenagers, children, adults and old. For example, LIC market its services based on the age and lifecycle stage of the people. 

ii) Gender and Sexual Orientation: When God created human beings he made Males and Females and gave them distinct survival needs. Gender segmentation is one of the most common forms of segmentation as around the globe men, women and children have always been vocal about their separate needs. For example, Horlicks segmented its market to meet the need of children and women.

iii) Marital Status: The lifestyle of a person depends on whether he is married or not. An unmarried person prefers to enjoy life and his purchase behaviour will show more food and entertainment and less furniture. But a married person will purchase a household’s items, furniture and many more.

iv) Income: Income differs along the population in any country. In India, it is as diverse from a hundred rupees a month to millions a month. In this scenario, the buyers will behave differently in terms of wants as per their income.

v) Social Class: It has a strong influence on preference for cars, home furnishings, clothing, leisure activities, reading habits etc. Many companies design their products and services for specific social classes. For example, many products and services like garments, watches, cosmetics etc segmented their market according to social class.

vi) Family Size: The type and size of the family affect the amount and size of purchases. The consumption pattern of joint families differs from a nuclear family. 

vii) Occupation: Various occupations can influence buying behaviour. People in sales, production, finance and academic training will have different purchase behaviour.

viii) Educational Level: The segments of people with the same academic standard segments having the same income i.e. with a similar ability to buy have different likelihoods to buy. differentiate and segment the market.

ix) Religion: Religious rituals, traditions and cultures also differentiate and segment the market.

3) Psychographic Segmentation: Oftentimes it has been seen that two consumers with the same demographic features may act in an entirely different manner. Even though the two may be of the same age, from the same profession, and with similar education and income, each of the customers may have a different attitude towards risk-taking and new products and stores. This is because of the psychographic variables given below: 

i) Life Styles: The lifestyle concept is also considered another important variable determining buyer behaviour. Lifestyle reflects the overall form in which people live and spend time and money. It is a behavioural concept enabling people to grasp and predict buyer behaviour. The lifestyle concept has an interdisciplinary approach as it involves sociology, culture, psychology and demography. The lifestyle concept as a basis for segmentation is quite reasonable and desirable. For example, Fast track watches target and suits its products young urbanites and their design suits people who want looks and maintain fashion in a new trendy lifestyle.

ii) Personality: Marketers have used personality variables to segment markets. They endow their products with brand personality that matches consumer personalities. Personality characteristics influence the consumer’s buying behaviour and different people have different personality characteristics that lead them to buy a product or service. For example, for many perfume/body sprays, marketers target their customers based on personality characteristics like masculinity/feminity.

iii) Values: Some marketers segment by core values, i.e. belief systems that underlie consumer behaviour and attitudes. Core values go much deeper than behaviour or attitude & determine at a basic level, people’s choices and desires over the long term. Marketers who segment by values believe that by appealing to people’s inner selves it is possible to influence their outer selves and their purchase behaviour.

iv) Beliefs: This is one of the parameters of segmentation used by marketers to sell products. People according to their experiences, situations and upbringing develop their own beliefs. For example, people develop religious beliefs as per their religion. And their purchase behaviours are primarily influenced by their beliefs. Not only during festivals but in normal life also people with different religious beliefs develop different lifestyles and different behaviour as consumers.

In general, psychographics refers to information about consumers’ values, attitudes, motivations, and lifestyles as they relate to buying behaviour in a particular product category. Numerous marketing research companies conduct psychographic studies for particular clients.

4) Behavioural Segmentation: In behavioural segmentation, buyers are divided into groups based on their knowledge and attitude towards the use, or response to a product. Many marketers believe that behavioural variables occasions, benefits, user status, usage rate, loyalty status, buyers-readiness stage, and attitude are the best starting points for consulting market segments. The major behavioural variables used by marketers to segment the market are given below:

1) Occasions: Buyers can be distinguished according to the occasions on which they develop a need, purchase a product, use a product or when they get the idea to buy. Occasion segmentation helps boost product usage. According to the occasions, buyers develop a need to purchase or use a product. It can help firms expand product usage. A company can consider critical life events to see whether they are accompanied by some needs.

There can be two types of occasions:

a) Regular: Like Holi, Diwali, Eid, Independence Day, Republic Day etc. 

b) Special: Marriage, Anniversary, Winning moments etc.

ii) Benefits: Here, the marketer identifies the benefits that a customer looks for when buying a product. This has been a very effective method of segmenting the market for watches that a customer may buy for just knowing the time or durability or as a gift/ an accessory/ a dress item/ a jewellery item.

Customers can be classified according to the benefits they seek. On purchase of the same product, different customers look for additional benefits because of which they buy products from other companies which satisfy their specific needs.

iii) User Status: Markets can be segmented into the following classes depending on the user status. For example, the categories of users using a product say deodorant. The users of deodorant can be divided into different categories:

a) Non-User: A 10-year child or 70-year-old in our country generally does not use deodorant. 

b) Potential Users: This is the category where the usage rate is expected to be highest. In the example of fashionable teenagers, corporate people are the potential users of deodorant.

c) First-time Users: The users who use it for the first time. For example, the teenager’s first deodorant may be used in his college days. 

d) Regular User: A corporate big-wig always use it at big party or conference, a fashion-conscious lady or a regular corporate and nowadays because of the fall in the price of deodorant students also are regular users. 

e) Ex-User: Somebody who stopped using for some reason may be due to allergies or due to switching to some substitutes like perfume are the ex-users of the product.

iv) Quantity Consumed/Usage Rate: The quantity consumed at any given time has also been the basis for segmenting the beverages (tea, coffee), soft drinks, breweries, and cigarette markets. Accordingly, the market segments given below are visible: 

a) Light: These are the categories of users who are very infrequent. In the case of cosmetics, an average housewife who is not very fashion-conscious is a light user of cosmetics.

b) Medium: Fashion-conscious teenagers are medium users of cosmetics i.e. they use them very frequently.
Market Segmentation

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