What is Market Segmentation?
Market segmentation is a process, strategy, and practice to divide the whole market into its sub-market to make such a market more approachable. Simply, it is a practice to subdivide the entire consumer market into segments based on consumer need, taste, preference, and spending patterns.
Market segmentation is also called market segregation, which divides the large, heterogeneous markets into smaller target markets. Since each market segment has a distinct consumption habit, a proper market segmentation gives a clear picture of all segmented markets to develop a fruitful marketing strategy.
In every market, there is a mix of people. Although every person is different from another, some small group of people has similar nature, needs, values, or anything. Such similar things of consumers or people become the target of market segmenting.
While segmenting a marketer divides consumers into different groups on the basis of their consumption pattern. The consumption pattern of consumers may differ on the basis of their demography, society, psychology, culture, and so on. After the classification of consumers into different groups, the marketing mix elements such as product, price, promotion are designed to meet such selected consumer groups need or want.
With the ever-increasing competition in today’s marketplace, it is almost impossible for all businesses or marketers to satisfy the needs of the aggregated or entire market. Such a marketplace scenario made it necessary to segment a mass market into many smaller markets. Which has enabled marketers/businesses to be in the position of satisfying customer needs even in the competitive environment and to realized desired goals.
For example, suppose a marketer is dealing in readymade garments to satisfy people of all age groups. When competition increases in the market, the marketer increasingly feels difficult to survive in the market. Unless additional investment is made to expand its operation or in research and development activities to develop or diversify products to meet competition, it may be unable to fulfill the needs of the whole market. Therefore, in these situations, a marketer may be willing to select a particular target group whose needs can be easily fulfilled. For example, he may be willing to deal in only children’s dresses and avoid producing or marketing dresses required for youth and/or old. Similarly, he may instead of handling his business in all territories of the country, only select urban areas or rural areas for the purpose.
Requirements for an Effective Market Segmentation
Market segmentation is a difficult, time-consuming, and expensive process. The basic objective of segmenting a market involves improving the competency, sales volume, and profitability of the organization. To achieve that objective, market segmentation must be more effective and meaningful. In order to make market segmentation more effective and useful, the following requirement must be fulfilled or followed.
Differences in Customer’s Response
One of the fundamental tests to know the segment validity is to know whether the buyers in a segment respond differently to the marketing mix. If they respond, the market segmentation becomes more meaningful. If the buyers of two segments respond the same way to the same marketing mix, then they are probably a single segment, in this particular situation market segmentation becomes meaningless.
Differences in customer response should be clearly identified or measured. It can be identified or measured on the basis of data and information collected. Customer response based on quantifiable information is easily measurable, but customer response based on unquantifiable information such as feeling, lifestyle, personality is difficult to measure. If the differences in customer response are not measurable, an appropriate or suitable marketing program cannot be formulated and implemented, as such, primary objectives cannot be achieved, and thus, market segmentation becomes meaningless.
Segments targeted by the marketers must be accessible, that is, the marketers must be able to reach the segments targeted. The major means of reaching the segments are promotional tools and distribution channels. The marketer must be able to adopt the right promotional tools and distribution channels to quickly enter into the target segments. If the marketers fail to adopt a satisfactory means of reaching the desired market segment(s), then the market segmentation will have very little value.
Segmentation is an expensive task, hence it must be able to create enough demand for the company’s products. It must be able to attract scattered customers or collect scattered markets and unify into a large market. If a company is a national company it should attract customers with similar needs scattered in various parts of the country. If it is an international company, it should attract the targeted customers scattered in different countries of the world. If the marketers fail to make segments large enough market or create enough demand for their products, then the basic objectives of segmentation cannot be fulfilled.
A market segment needs to be large enough to be profitable, adequate profits can be generated from even a small segment if the products are priced quite high. However, from a strategic point of view, this strategy may not be successful in the long run.
Once a market is segmented, it must be stable over a period. Stability is important to marketers mainly for two reasons.
- Stability provides marketers the required time to recover the investment made in market segmentation.
- Objectives of market segmentation are strategic in nature hence require time to achieve.
Unstable segmentation can not achieve the primary objectives of market segmentation, therefore, it is regarded failure strategy.
Process of Market Segmentation
The process of market segmentation is also known as the formation of a market segmentation strategy. So, how you can be able to develop a successful market segmenting strategy? To make such a strategy the following steps are important to follow:
Identification of Market Segments
In the first step of market segmentation, you first identify the market segment where you want to enter. To develop a meaningful market segment you may focus on some factors such as customer’s size, need, want, preference, age, etc. And, to be clear about such factors you may gather relevant information.
Develop the Profile of Each Segment
After the potential market segments are identified, the marketer needs to analyze each of the segments to know their similarities and dissimilarities. To know clearly about each market segment you should prepare a separate profile for each segment.
Evaluation of Market Segments
After the profile of each segment has been developed, you may evaluate each of the segments on the basis of some factors. Such as the cost to reach each segment, the demand of products, the competitive position of your firm in each segment, segment size & profit, potentially achieving your firm’s goals, etc.
Selection of Target Market
After the effective evaluation of market segments, you may now select the best market segment. The best market segment is your target market. And, the best market segment is one that offers you greater profitability with customer satisfaction. You may also select two or three market segments if you think you are capable of satisfying them.
Development of Positioning Strategy
Once the target market is selected, you should identify the attributes and images of competitors on the product you are seeking to sell. Only selecting the target market is not enough, you should be able to develop your product positioning strategy that can best appeal to its potential customers within a functional discipline.
Do Marketing Program
This is the final step in process of market segmentation. After developing a product positioning strategy, now you have to develop a good marketing plan and program to communicate with your target market. The aspects of the marketing mix are best to develop an effective marketing program. Make quality-attractive products, set affordable prices, emphasize distribution in a significant distance in less time, and use good promotion tools.
Types of Market Segmentation
The bases of market segmentation are basically of four types. These are the bases usually used to segment the consumer market. They are:
Demographic Segmentation: It is the most commonly used market segmentation which basis is the population composition. It is segmented on the basis of its sub-factors such as age, gender, marital status, income, ethnicity, occupation, family life cycle, etc.
Geographic Segmentation: This segmentation groups customers on the basis of their geographic areas. Its variables include area, city, country, climate, topography, population density, etc.
Psychographic Segmentation: It categorizes customers on the basis of their personality, mental, and emotional characteristics. Its variables include social class, lifestyle, personality, etc.
Behavioral Segmentation: The marketer also categorizes the consumer market on the basis of behavioral patterns on products. It includes purchasing habits, benefits, uses rate, brand loyalty, etc.
Objectives and Importance
Market segmentation aims at understanding the customers in a better way so that organizations can properly design the strategy to fulfill their needs and wants. It not only helps to satisfy the customer but the organization is also well equipped to allocate its resource in an efficient way.
The major objectives of the market segmentation are as follows:
Knowledge of Attractive Marketing Opportunities: Marketing segmentation divides a big heterogeneous market into a small homogenous market segment which collects the detailed information of every set of customers. It is a key way to gain knowledge of available marketing opportunities. The firm in turn can do the comparative analysis of segment and their market opportunities.
Facilitates Selection of Target Market: Segmentation of the market facilitates the marketer in picking up his target market correctly. Market segmentation enables the firm to differentiate one segment from another within the market by showing which market segment is best from it. This differentiation helps to form the target market for the firm.
Facilitates of Determination of Marketing Mix: When the whole market is segmented, it is easier to have a clear understanding of various aspects of customers. Marketers can know in detail about the need, want, demand of customers. They can also know about their age, place, education, religion, income, purchasing power, etc. Marketers hence are well equipped to determine the marketing mix that best that suits them. Moreover, they can change the market mix accordingly.
Selection of Suitable Channels: Through segmentation of the market, one can also get information regarding the mediatory choices of customers. Moreover, one gets information about possible benefits and disadvantages associated with the different distribution channels which help the marketer to choose a channel that is best suitable for the market.
Assessment of Strengths and Weakness: By segmenting the market, one can also get information about the competitors of each segment. Marketers can easily get information regarding the various attributes of the competitor. It helps them to identify their strength and weakness in comparison to the competitor. Firm hence are well equipped to implement a proper marketing strategy and satisfy their customer.
Helps in Design of Effective Marketing Program: One of the major objectives of market segmentation is to collect detailed information about the current and probable customers. Once you are aware of your customer, you can design and implement your designed marketing program effectively.