Table of Contents:-
- Market Segmentation Meaning
- Market Segmentation Definition
- Nature of Market Segmentation
- Importance of Market Segmentation
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 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 programs or strategies for all segments so that maximum customer satisfaction to 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
The nature of market segmentation is given as follows:-
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 those 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 a 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 sales 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. Advertisement is 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
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 (e.g., 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 an important role in the expansion.
10) Better Communication
One of the factors of the marketing mix which is dependent on STP is promotions or communications. The communication of a company needs 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 targeting segments which do not need bargaining or negotiation. Thus their profitability is high.
12) Identifies New Markets
This is not obvious. The reason is that on the surface marketers, 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
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 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 have these options. In short, one can truly manage the markets, business and consumers.