Types and Bases of Market Segmentation
Basically, there are four most popular types of market segmentation – demographic, psychographic, behavioral, and geographic segmentation. These types of market segmentation are the bases or variables by which a marketer can segment the markets.
The marketer can segment the consumer market as well as the organizational or industrial market. To segment each of the markets, some bases or types of market need to be considered. While segmenting, the marketer can use a single variable or maybe two, three to understand target markets.
Lets, understand the types and bases of segmentation of the consumer and organizational market.
Bases for Consumer Market Segmentation
The consumer market consists of those people, who buy products for final consumption or use. Although marketers consider and combine many bases in identifying consumer market segments, the most frequently used bases are explained as follows:
Demographic variables are the variables that segment the market on the basis of population composition. Demographic variables include,
Age: If a market is segmented on the basis of age group, then the total population may be classified into various age-groups such as under 5 years, 5 – 10 years, 10 – 15 years, 15 – 25 years, 25 – 40 years, 40 – 60 years, above 60 years, etc. But the division of age groups largely depends upon the company’s objective and convenience, nature of the product, and consumption habits.
Gender: If the market is segmented on the basis of sex group, it will be classified into male, female, and third gender.
Income: The market can be segmented on the basis of the income of the customer. Under this variable, can be classified as low income, average income, and high-income.
Marital Status: The market can be segmented on the basis of the income of the marital status. Under this variable, it can be classified into unmarried, married, and divorced.
Ethnic Background: On the basis of ethnic background, the Nepali market is segmented into Brahmin, Chhetri, Newar, etc. And, the international market can be Asian people, American, people, white people, black people, etc.
In addition, family life cycle, education, employment, occupation, etc. are other demographic variables.
Marketers often identify buyer groups based on the location of the market. It is done so with the logic that people living in the similar area have similar kinds of needs and want. Moreover, these need and wants to differ with people living in different areas. Geographical variables include area, topography, climate, population density, etc.
Area: Market can be segmented on the basis of area. For example, the world market can be divided into five continents, as well as local, regional, national, international, etc.
Topography: The market can be segmented on the basis of the geographical structure of an area. For example, the Nepalese market can be divided into Himalayan, Hilly, and Terai regions.
Climate: Climate is another geographic variable that is used to segment the market. For example, alpine, temperate, etc.
Population density: The market can also be segmented on the basis of population density. This variable is instrumental in determining the demand size of the particular area. For example, urban, rural, etc.
Psychographic market segmentation bases are of three – social class, lifestyle, and personality.
Social Class: While segmenting the market on the basis of social class, people are classified into various socio-economic groups such as upper-class people, middle-class people, and lower-class people. Upper-class people have high purchasing power, the lower class has little purchasing power, and the middle class lies in between the upper class and lower class. Therefore, their buying habits and consumption pattern differ from one another.
Life-Style: A market can be segmented on the basis of the lifestyle of the people. For example, heavy drunkard, chain-smoking, keeping long hair, visiting cinemas, interested in changing dresses or fashions frequently, etc. Each interested group represents a potential market segment for specific products.
Personality: It represents the internal quality or image of the people, which is psychologically or behaviourally expressed by them. Some of the personality characteristics include extravagant ambitious, analytical, authoritarian, aggressive, social, self-confident, introverted, and extroverted, etc. Each character of personality represents a potential market segment.
Some marketers use consumer behavioral patterns to segment the market. The variables related to consumer behavioral patterns are defined as behavioral variables. They are also known as product-related variables. The major variables or bases of market segmentation are as follows:
Benefits: It is a universal truth that consumers generally use those products from which they receive maximum benefits. Thus, marketers have to segment a market on the basis of benefits sought by the customers from the product. In this type of segmentation, marketers must add as many as possible benefits attribute to the product. For example, if marketers want to market noodles, they should add adequate benefits that the consumers expect from the product, such as taste, good flavor, health benefit, maximum volume, attractive packaging, adequate information about the use of the product, low cost, etc.
Usage rate: The market can also be segmented on the basis of the usage rate of the product by customers. They are explained below:
- Heavy users: Consume a huge volume of products.
- Medium users: Consume a moderate volume of product.
- Light users: Consume a low volume of products.
Brand loyalty: The market can be segmented on the basis of customer loyalty about the product or service. Some customers buy one brand all the time, some shift from one brand to another while many other have no brand loyalty.
Industrial or Organizational Market Segmentation Bases
The industrial or organizational market consists of those users, who buy products for either of the following three purposes:
- For reproduction or further production.
- For resale to earn profit, or
- For institutional use or providing facilities to the organizational staff to facilitate their performance.
The goals of organizational market segmentation closely resemble those of segmenting consumer markets. As in consumer market segmentation, in industrial market segmentation also the main goal is to identify homogeneous buyer groups that can be reached effectively and persuasively by separate marketing mixes and to provide better service than that afforded by an undifferentiated marketing approach. Competitive advantage is a corollary aim of both goals.
Several segmentation bases are used in the segmentation of the industrial market. The most common bases used in segmenting industrial markets are explained as follows:
Use of Product
One of the most important bases for segmentation of industrial markets is the purpose of use of products or how the industrial buyer will use the product. For example, different consumer groups may buy and use flour for different purposes. A noodle company buys to prepare noodles while a university canteen buys them to make bread for its customers.
An industrial market or business market can be segmented on the basis of the buying characteristics of the customers. Buying characteristics include price sensitivity, the importance of services, type of purchase (i.e., first purchase, or second purchase, or regular purchase), requirement of home delivery, buying procedures, etc.
On the basis of these buyer characteristics, marketers need to segment the market into small segments. Some industrial buyers may be more price-sensitive, some may expect adequate services before and after the purchase of the product. Likewise, some may be the new buyer while other may be a regular buyer. Some businesses may have a long buying procedure while others may be short and quick. A single market program does not work effectively in these diverse situations. Therefore, to make the marketing of the firm more effective and efficient, it must segment a market into various segments.
The next important basis for segmenting an industrial market is to identify how much the customers buy at a time i.e. what will be the lot size per purchase. It will be better for the firm to select the segments, that require higher lot sizes of industrial products at a time. Market segment based on customer size is suitable for a firm from the viewpoint of economies of scale in production, sales, profitability, goodwill, and long-term survival in the market.
Geography is one of the significant bases of industrial market segmentation. If the organization is international, it can divide the market in terms of continent or region, or country to export its products. For a national organization, the market can be divided on the basis of topography. For example, Nepal can be divided into a mountainous region, hilly region, and Terai region. Geographical area base also holds significance as it provides a direction of the specific climate of the specific region which is important in the packaging of products.