Market Segmentation: A Guide
Have you observed that numerous marketing companies do not know how to accurately implement the technique of market segmenting before they develop an outstanding marketing plan?
According to a study conducted by the Harvard Business School, 85% of 30,000 new product campaigning suffered miserable failure due to poorly executed market segmentation technique.
Alarming, isn’t it?
Now you must be wondering why the implementation of market segmentation technique is significant and crucial in the field of marketing.
One of the main reasons to use market segmentation technique is to gain an advantage in the competitive market by understanding the specific needs of the customers. Of course, results can be achieved through mass marketing, but market segmentation is a more effective process.
Let us find out how.
In this blog I am going to discuss:
- Definition of Market Segmentation.
- Strategies of Market Segmentation.
- Segmentation, targeting, and positioning
- How to identify the market to be segmented?
- Bases for segmenting consumer markets.
- Types of market segmentation.
- Difference between geographic and demographic segmentation.
Let’s discuss in details the intricacies of Market Segmentation.
What is Market Segmentation?
To get a comprehensive idea of the salient features of market segmentation, it is essential to understand the definition.
According to Google, the most typed query in the USA and Australia is “what is market segmentation” or “what segmentation in the field of marketing is?”
Market Segmentation is a process of dividing a market of potential customers into groups, or segments on the basis of different characteristics. In the process of segmenting, researchers specifically investigate common characteristics like shared needs, common interests, similar lifestyles or same demographic profiles.
The “market segmentation” concept was termed by Wendell R. Smith in 1956. There are various reasons for segmenting the market. One of the primary reason is that marketers aim to create a custom marketing mix for each segment that can be catered accordingly. This enables the companies to focus more on product differentiation strategies, marketing and pricing strategies. It would also help to avoid unnecessary risks, reduce costs, target customers better, and generate more profits.
Thus, it is essential to segment the entire market population for a business to succeed.
Strategies of Market Segmentation
Now that we have a brief understanding of the market segmentation, let’s try to understand the strategies of market segmentation.
Before entering a market, all companies should devise an effective market segmentation strategy. Companies can implement market segmentation strategies to make their marketing plans operate smoothly. It also enables them to structure and apply targeted marketing campaigns which appeal to specific consumers.
The five primary segmentation strategies implemented by companies are:
- Behaviour Segmentation: Behavioural segmentation is the strategy of dividing the total market into a smaller homogenous group based on the behaviour of purchasing customers. The companies analyse the buying pattern of customers to determine the usage frequency, brand loyalty, benefits required, etc.
- Benefit Segmentation: This process of division is based on the benefits that the consumers perceive from a product or a service.
- Demographic segmentation: Demographic segmentation strategy helps a company to target the consumers more accurately. In this strategy, the market is segmented on the basis of race, religion, gender, family size, income, and education.
- Geographic segmentation: This is a common strategy where customers served in a particular area are taken into account. This segmentation approach is a conventional technique for smaller companies who serve a broader demographic customer base in a regional territory.
- Psychographic segmentation: Psychographic segmentation strategy is to divide the market based upon personality traits, values, attitudes, interests, and lifestyles of consumers.
These are some of the effective market segmentation strategies implemented by organisations to generate profits.
Segmentation, Targeting, and Positioning
In modern times, Segmentation, Targeting, and Positioning (STP) is a known strategic approach. It summarizes and simplifies the market segmentation process. The residents of the UK, USA, and Australia often wonder what segmentation is or about market segmentation.
Discovering customers and targeting them is the concept that works behind the STP model of marketing. Let’s talk about the three steps of reaching the target customers and appealing them.
- Segmentation: It is the grouping of consumers based on some sort of criteria like location, demographics or any other measure. The primary idea is those grouped together will respond similarly to a marketing action due to their similar behaviour, characteristics or needs.
- Targeting: This is the process of identifying the most interesting and profitable segments from the stage of segmentation. After determining the target audience, focus on recent campaigns keeping those audiences in mind.
- Positioning: Arguably, the most significant step of the entire procedure is positioning. It is pivotal to position the product, service or brand to appeal the target market so that consumers have an interest in what is being offered. This step should be operated in a way that it creates a value of offerings.
The STP model is useful as it helps marketers to prioritise propositions, develop, and then deliver personalised and relevant messages to interact with different audiences.
How to Identify The Market To Be Segmented?
The market for a product is too diverse and thus becomes a strenuous affair for most companies to satisfy each customer. Companies need to identify a group of customers within the market and invest efforts toward satisfying their needs. Determining market segments accurately for a given product is the essential factor in attracting customers, generating revenue and gaining profit for your business.
Let’s see how to identify a market to be segmented:
- Lifestyle Interests: Identifying the target market based on shared lifestyle, interests or activities of a group of customers might offer a more clear perspective.
- Benefits: Sometimes, your product only makes the process of segmentation easier for you as they offer only a few unique benefits which appeal to varied customer groups.
- Rates of Usage: Identifying a market by figuring out the usage rates of products by customers is one of the ideal ways. By implementing this particular approach, you can divide customers into groups using the product rarely, regularly or those who are die-hard loyal customers.
- Impact of price: A typical role is played by the price factor in identifying the right market segment. Emphasizing on the price or the value of your offering will help to appeal to consumers from the lower or middle-income classes.
Companies need to set a target market in which it desires to operate and gain profits. Once the segments are identified accurately, companies can devise marketing plans to cater to the needs of the consumers of the target market.
Bases for Segmenting Consumer Markets
“Bases of market segments” or “segmentation analysis” is a standard query among the marketers of the USA, UK, and Australia.
What do they need to know?
Have a look at the bases for segmenting consumer markets:
- Gender: It is one of the simplest but significant bases of market segmentation. Interests, desires and wants of males and females are different at numerous levels. Therefore, marketers concentrate on and implement various marketing strategies for both genders. Usually, clothing, cosmetics, and jewellery industry make the most of this type of segmentation.
- Age: One of the effective strategies of personalized marketing is segmenting the market by age group. All products cannot be used by consumers of different age group. Thus, it is essential to set the target market to create better communication strategies and achieve brilliant conversion rates.
- Income: Income plays a pivotal role in determining the purchasing capability of the target audience group. Marketers segment the consumer market into three groups on the basis of their income: high, mid and low-income group.
- Location: The location of the target group of consumers affect the purchasing decision of consumers immensely.
- Occupation: Occupation is another crucial factor that influences the purchase decision of customers. A businessperson’s need might be a luxurious product for a school teacher.
Customer segmentation is a procedure that is applicable universally. This technique can be a useful advantage for marketers of both small business, start-ups and global companies of all industries.
Types of Market Segmentation
One of the ancient trick mentioned in marketing books is market segmentation. Let’s look at the types of market segmentation most commonly used:
- Demographic segmentation: One of the simplest and widely applicable market segmentation technique is demographic segmentation. It divides the market on the basis of demographic variables like gender, age, family size, income, nationality, religion, etc. This segmentation is seen in industries like automobiles, cosmetics, mobile phones, etc.
- Behavioural segmentation: This type of market segmentation divides the population by their usage, behaviour, and decision-making pattern. It is assumed that the knowledge of the product and its use can influence the purchasing decision of an individual. The audience can be segmented into those who know the product, those who do not have any idea of the product, ex-users, current users, first timers, potential users, etc. Example: Young people use Dove, whereas athletes prefer Lifebuoy.
- Psychographic Segmentation: In this type of segmentation, the consumer market is segmented from the lifestyle of consumers, their activities, interests as well as opinions. Example: The famous brand Zara markets to cater to the needs of people desiring to purchase the latest clothing, whereas Arrow markets its products to satisfy customers looking for premium office wears.
- Geographic segmentation: The market is segmented based on geography. Potential customers purchase products on the basis of their location. Example: Residents of mountains buy less ice-cream than residents of plains.
The marketers should always remember that the segments should be homogenous. Marketers also need to remember that different segments have some significant features that make them unique.
Differences Between Geographic And Demographic Segmentation
Now that you have a comprehensive idea of the different types of market segmentation, let’s understand the differences between geographic and demographic segmentation.
This segmentation is based on location. It includes factors like country, regions, climates etc.
This segmentation is based on the demographic profile of consumers like age, gender, occupation, education, income level, etc.
Geographic segmentation is crucial in international marketing.
Demographic segmentation is significant in all marketing departments.
Customer retention and loyalty fluctuates with location.
One advantage of demographic segmentation is customer retention and loyalty.
It is easier to segment a market on the basis of geography.
In demographic segmentation, one has to segment on the basis of different criteria. It is comparatively time-consuming.
Size of the community is the key. The marketers will gather more data with an increase in the area covered.
A group of a target audience is analysed in demographic segmentation.
This type of segmentation works in seasonal apparel, certain food products, etc.
This segmentation works in industries like automobiles, cosmetics, mobile phones, etc.
Market segmentation is one of the most effective tools used by marketers to cater to their target group. It becomes easier to personalize campaigns, focus on essentials, and to gain the profits by targeting a specific group of audience. Efficiently utilizing the tactics of customer segmentation will help business organizations to reach specific markets by combining various segmentation styles.
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