Market Segmentation: Key Concepts and Importance

What is Segmentation?

Segmentation refers to a process of bifurcating or dividing a large unit into various small units which have more or less similar or related characteristics.

Concept of Market Segmentation 

The process of splitting customers, or potential customers, in a market into different groups, or segments, within which customers share a similar level of interest in the same or comparable set of needs satisfied by a distinct marketing proposition. Marketing proposition; the 'tools' or means available to the organization to improve the match between benefits sought by customers and those offered by the organization so as to obtain a differential advantage. Often referred to as the four Ps, this is usually the appropriate mix of product features, price, promotion and place (service and distribution). For the customer, this manifests itself as benefits, cost, relevant image and convenience; in other words, a customer value proposition.

• Market segmentation is a marketing concept which divides the complete market set up into smaller subsets comprising of consumers with a similar taste, demand and preference.
• A market segment is a small unit within a large market comprising of likeminded individuals.
• One market segment is totally distinct from the other segment.
• A market segment comprises of individuals who think on the same lines and have similar interests.
• The individuals from the same segment respond in a similar way to the fluctuations in the market.

In Simple terminology, Market Segmentation is a way of aggregating prospective buyer into groups and segments based on demographics, geography, behaviour or psychographic factors in order to better understand and market to them.

A marketer can rarely satisfy everyone in a market. Not everyone likes the same food or cereal, hotel room, restaurant, automobile, college or movie therefore marketers start dividing up the market into segments.

1. Target Markets – the marketers then which segment present the greatest opportunity which are its target markets. A target market is specific group of consumers identified as the intended recipient of an advertising campaign. It characterised by shared demographic, behaviour or needs which the product or service aim to serve. Identifying a target helps businesses focus their marketing efforts efficiently ensuring the right message reaches the right people. For example – First cry of a new born baby of a new parents.
2. Positioning – for each chosen target market, the firm develops a market offering. The offering is positioned in the minds of the target buyers as delivering some central benefits. Positioning is the process of establishing a distinct image and perception of a product or brand in the minds of consumers and how it is distinguished from the products of the competitors. For example – Scorpio, a sports utility vehicle (SUV) launched in Indian by Mahindra and Mahindra in 2002 is designed for people who prefer a sturdy vehicle that offers luxury and comfort.

Importance of Market Segmentation 

Market segmentation is built around the consumers. In other words, the company analyses the needs of the consumers, & the group of those consumers who have similar needs. It tries to satisfy those needs by having common marketing program, without such segmentation, market program becomes haphazard & they lead the company nowhere. A small company with limited resources can select a particular group of consumers & market its products efficiently by selecting the marketing mix suitable to that group.

Need for Market Segmentation or Why Market Segmentation?

1. Market Segmentation helps the marketers to devise appropriate marketing strategies and promotional schemes according to the tastes of the individuals of a particular market segment. A male model would look out of place in an advertisement promoting female products. The marketers must be able to relate their products to the target segments.
2. Market segmentation helps the marketers to understand the needs of the target audience and adopt specific marketing plans accordingly. Organizations can adopt a more focused approach as a result of market segmentation.
3. Market segmentation also gives the customers a clear view of what to buy and what not to buy. An Omega watch would have no takers amongst the lower income group as they cater to the premium segment. College students seldom go to a Zodiac or Van Heusen store as the merchandise offered by these stores are meant mostly for the professionals. Individuals from the lower income group never use a Blackberry. In simpler words, the segmentation process goes a long way in influencing the buying decision of the consumers. An individual with low income would obviously prefer a Nano or Alto instead of Mercedes or BMW.
4. Market segmentation helps the organizations to target the right product to the right customers at the right time. Geographical segmentation classifies consumers according to their locations. A grocery store in colder states of the country would stock coffee all through the year as compared to places which have defined winter and summer seasons.
5. Segmentation helps the organizations to know and understand their customers better. Organizations can now reach a wider audience and promote their products more effectively. It helps the organizations to concentrate their hard work on the target audience and get suitable results.

Basis of Segmenting consumer market 

The following factors are considered before dividing the market:

1. Geographical Factors: On the basis of geographical factors, market may be classified as state-wise, region-wise & nation-wise. Many companies operate only in a particular area because people behave differently in different areas due to various reasons such as climate, culture, etc. 
2. Demographic Factors: This is the most widely used basis for market segmentation.  In demographic segmentation, the market is divided into groups on the basis of variables such as Age, Family Size, Family life Cycle, Gender, Income, Occupation, Education, Religion, Race, Generation, Nationality and social class. It popular because consumer needs, want and usage rates and product and brand preference are often associated with demographic variables.
• Age: It is known fact that people of different ages like different products, need different things, & behave differently. Almost all companies use this factor to reach the target market. On the basis of age, market in our country is divided into children’s market, teenager’s market, adult’s market, & the market for old people. Companies use the census data to prepare marketing strategies on the basis of age.  
• For example – Television channels in India
• Aastha and Sanskar – target toward the older generation 
• Carton Network, Disney, Hungama Tv – for children 
• MTV and Channel V  - For Youngsters
• New Channels & Movies – For 30 plus age group.
• Life Stage: College, New Job, Getting Married, deciding to buy a house sending the child to the school, taking care of parent’s children’s marriage planning for retirement so on these life stage present opportunities for marketers who can help people cope with their major concerns. Insurance companies offer schemes for people who are panning their retirement life or child higher education or marriage.
• Sex or gender: men and woman tend to have different attitudinal and behavioural orientations. There is a variation of consumption behavior between males & females. Gender differentiation has long been applied to these factors is used as a basis for segmentation for products like watches, clothes, cosmetics, leather goods, magazines, motor vehicle, etc. For example – men refer to drive a motorcycle or bikes whereas there are specific brands of scooters or scooty targeted towards woman. 
• Family Life Cycle: This is another important factor, which influences the consumer’s behavior. Eg: Before making purchases, a bachelor may consult his friends, a boy may ask his parents & a married man asks his wife. The study of family life cycle helps a company to prepare an effective promotional strategy.
• Income: income determine the ability of consumer to participate in the market exchange and hence this is important and basic segmentation variable. For example – Nirma washing powder was launched as the lowest priced detergent in India primarily target at the middle-income segment of the market. To overcome this income constraints of consumers and to encourages trials. Detergents, shampoos, hair oil etc. are available in small sachets for one time consumption and at low unit prices. Low unit price through appropriate packaging is one of the ways to reach out to a large mass of consumers in India who otherwise may not be able to participant in the market exchange.
• Generation – Each generation is profoundly influenced by the times in which it grows up the music, movies, politics and defining events of that period. Marketers often advertise to cohort group by using the icons and images prominent in their experiences. For example – Ratio – Sa Re Ga Ma Pa mostly old songs which targeted elders.
• Social Class – Social Class has a strong influence on preference in Cars, Clothing, Home , Furnishing, Leisure activities, reading habits and retailers. For example – A senior executive level person with higher educational qualifications exhibits different purchase preference and habits as compared to a person with similar income levels but different occupation and lower education levels. For example – contractor and senior manager in MNC.
3. Psychological factors: psychographics segmentation is market research method used to divide a market or customer group into segments based on their belief, values, lifestyles, social status, activities, interest and opinions and other psychological criteria. Psychographics is the science of using psychology and demographic to better understand consumers. People within same demographic groups can exhibit very different psychographic profiles.  
• Personality: Most consumers are influenced by personality traits. This is particularly true in the case of urban consumers. On the basis of personality, consumers may be divided in to introverts (reserve people), talkative, status, conscious, suspicious & so on.  For example – same age Fooding habits different vegetarian and non-vegetarian, another instance same income level reading habits and dressing style id different to another.
• Value and lifestyle significantly affect the product and brand choices of consumers. Religion has significant influence on value and lifestyles. For example – A significant number of consumers in India are strictly vegetarians. Even among those who consume non vegetarian food, many avoid beef. McDonald’s changed their menu in India to consumer preference.
4. Behavior Factors: in behavioural segmentation buyers are divided into groups on the basis of their knowledge of, attitude towards, use of response to a product or can say on the basis of behavioural variables such as occasion, benefits, user status, usage rate, loyalty status and attitude.  
• Occasions: Sellers can easily find out certain occasions when people buy a particular product. E.g.: Demand for clothes, greeting cards, etc. increases during the festival season. Demand for transportation, hotels etc.  increases during the holiday seasons. And buyers can be distinguishing according to the occasion when they develop a need, purchase a product or use a product. For example, Air travel is triggered by occasions related to business, vacations, or family. Occasion segmentation can help firm expand product usage. Metro office hour festival train.
• Benefits: Each consumer expects to fulfill certain desire or to derive some benefits from the product he purchases. E.g.: A person may purchase clothes to save money & another to impress others. Based upon this, markets may be classified as markets for cheap price products & market for quality products etc. 
• User status: Markets can be segmented into non users, ex users, potential users, first time users and regular users of a product. Each will require a different marketing strategy.
• Usage Rate: Market can be segmented into light, medium and heavy product users. Heavy users are often a small percentage of the market but account for a high percentage of total consumption. For stationery product and educational institution and offices  
• Attitude: On the basis of attitude of consumers, markets may be classified as enthusiastic market, indifferent market, positive market, & negative market.
5. Economic Factors: On the basis of economic factors, markets have been classified in the westerns countries as follows:

Upper Class	Upper-upper class	Lower-upper class
Middle class	Upper-middle class	Lower-middle class
Lower class	Upper-lower class	Lower-lower class

In our country, it is classified as upper class (rich), middle class, & the lower class. Another classification based on income in our country is as follows: Very Rich , The Rich class , The Aspiration Class  and The Destitute.

 FAQ's

Define Market Segmentation?

Market Segment is group of customers who share a similar set of needs and wants and it is the practice of identifying your target market into approachable groups. Market segmentation creates subsets of a market based on demographics, needs, priorities, common interests, and other psychographic or behavioural criteria used to better understand the target audience.

Boost Your Strategy with These 3 Types of Market Segmentation

1. Psychographic segmentation - The basis of such segmentation is the lifestyle of the individuals. The individual’s attitude, interest, value help the marketers to classify them into small groups.
2. Behavioristic Segmentation - The loyalties of the customers towards a particular brand help the marketers to classify them into smaller groups, each group comprising of individuals loyal towards a particular brand. 
3. Geographic Segmentation - Geographic segmentation refers to the classification of market into various geographical areas. The variation in population in village and city or metro city is also important for the marketer while formulating marketing strategy & plans. Geographic market also varies in their product requirements. So, A marketer can’t have similar strategies for individuals living at different places. Nestle promotes Nescafe all through the year in cold states of the country as compared to places which have well defined summer and winter season. McDonald’s in India does not sell beef products as it is strictly against the religious beliefs of the countrymen, whereas McDonald’s in US freely sells and promotes beef products.

Related Posts

Previous

Next