Market Segmentation
Market segmentation made with two-word market and segmentation, let’s know in short
- A market is a place or system where buyers and sellers interact to exchange goods or services for value.
- 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.
Market Segmentation is 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.
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.
Basis of Segmentation
The following factors are considered before dividing the market:
- 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.
- Demographic Factors: This is the most widely used basis for market segmentation. Market is classified on the basis of population, using ages, income, sex, etc as indicators.
- 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.
- Sex: There is a variation of consumption behavior between males & females. This factor is used as a basis for segmentation for products like watches, clothes, cosmetics, leather goods, magazines, motor vehicle, etc.
- 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.
- Psychological factors:
- 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.
- Behavior Factors:
- Occasions: Sellers can easily find out certain occasions when people buy a particular product. Eg: Demand for clothes, greeting cards, etc increases during the festival season. Demand for transportation, hotels etc increases during the holiday seasons.
- Benefits: Each consumer expects to fulfil certain desire or to derive some benefits from the product he purchases. Eg: 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.
- Attitude: On the basis of attitude of consumers, markets may be classified as enthusiastic market, indifferent market, positive market, & negative market.
- 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
- The Destitute
Types of Market Segmentation
- 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.
- Behaviouristic 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.
- Geographic Segmentation - Geographic segmentation refers to the classification of market into various geographical areas. 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.
Why Market Segmentation?
- 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.
- 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.
- 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.
- 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.
- 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.
Benefits of Market Segmentation
The purpose of segmentation is to determine the differences among the purchases which may affect the choice of the market area & marketing strategies. Following are some of the benefits of marketing segmentation.
- It helps to formulate marketing programs.
- It helps to understand the complex behavior of consumers
- Tastes & Preferences of consumers may be easily determined.
- It helps in locating the new markets
- It helps marketing programs beneficial to consumers as products are produced & sold according to their needs.
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