The term Market Segmentation is often confused with psychographics, values, behaviors, lifestyle and multivariate cluster analysis procedures. However, in essence Market Segmentation is a far wider concept. It permeates the exercise of business all over the world.
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So, what typically is Market Segmentation? At the most grass root level, Market Segmentation is the subdivision of a market according to some commonality, kinship or similarity. That is to say, the members of a market segment definitely have something in similarity. The main purpose of Market Segmentation is to concentrate the marketing vigor on the market segment so as to gain an upper hand in that specific segment. When put in other words, the core of all marketing strategy is the marketing force applied, and market segmentation is the tool that helps in achieving this force.
Businesses generally like to segment their market for a variety of reasons. It has been commonly observed that the needs and desires of customers differ to at least some extent and thus businesses that create distinct offers for each segment do more good than harm to themselves. Such an act offers better quality products or services and help increase profitability of the business as a whole.
Market segmentation is an excellent means of determining ways to reach your customers. Market Segmentation allows you as different options to enter into a market but usually it’s difficult to quantify the impact of an approach. When a large market is broken down into smaller segments, it becomes easier to focus your individual strategies specifically to each of the segment and thereby paying attention to as many groups of customers as possible. By following this targeted approach you are sure to have a competitive edge, as you focus on the individual customer needs, thus allowing your business to stay on top of all the latest trends and prospects in your niche market. All that is needed to segment your market appropriately is a winning business plan.
Market segments can be seen from 2 perceptions. They may be:
A collection of products or service providers in a specific industry
A specific collection of buyers
For this, lets’ look at the example of a mobile phone market that can be used to define either the group of firms selling mobile devices or the consumers who are buying them. An efficient business house will be attracted in both the market segments. Knowing this information he can determine the share of market of his own business and look for openings to elevate his market share. This allows you to target those segments that want to purchase items similar to what your products or services are. This increases the potential for sales because past behavior is an excellent predictor of future behavior. It also enables you to target buyers of a major brand, by selling add-ons and added services.
When you know of customers that already buy a specific item you can market them your own products in an easier way and eventually convince them to buy. For example, it has been commonly observed that clients who avail of haircuts at a salon most often look to purchase hair styling products or spa services. Now, an efficient salon owner would also be very interested in knowing how the whole group of salons in the particular area is performing and how his own offerings compare with the competitors. If you are completely new to market segmentation, you can take professional help from business strategists offering a large variety of services in your area.
Market Segmentation not only helps a business to reach out new customers but also a focused approach towards your existing customers significantly aids in building loyalty of your present customers. When you as an efficient business owner ask for specific feedback from targeted factions of customers you would discover some amazing solutions for the improvement of your product.
But, what’s even better is that when you as a business house do actually implement those ideas received from significant segments of your market. This shows your concern towards them and proves how customer-centric you are.
For a worthy market segment, it should fulfill a number of vital conditions to actually be worthy of being a target. Given below are a few of these conditions that you need to consider:
The segment being created must be measurable quantitatively.
The segment being created must be big so as to make profit out of it.
The segment must exist for at least some period of time so that it can be measured.
The business owners must be able to get in touch with their prospective customers through their marketing efforts.
The business owners must be able to translate prospects into customers in a cost effective way.
Your customers in a specific segment must have a liking for similar products and services.
The potential customers of different segments must have diverse product preferences.
The intended customers must at all times respond to definite marketing activities.
There should be sufficient data to follow an intended sales approach.
A business owner must consider many factors before he can actually begin to segment the market. A marketer thus must try to segment his market as thoroughly as possible so that the end result is a small group of customers. The advantage with such a strategy is that it provides him a base of viable prospects for his products or service. Thus, a significant amount of money can be saved on advertising and marketing on those unlikely prospects that won’t be much interested in them.
By knowing better about your market segments where you are operating and selling, it gets easier to formulate and manage your goals. Such a practice ensures that you stay away from irrelevant competition and you always focus on your goals and objectives.
For example, a small grocery store must focus on its own segment of customers and must not try to think of competing with large departmental stores like Wal-Mart or BestBuy. Thus, it is rather evident by now that effective market segmentation can not only help a business promote their brand to large sample of prospects but can lead it to a winning strategy.
Before knowing what exactly are the different market segments that are commonly used, we must first know that our focus in this article is on consumer markets and not on business markets. Here are the most common market segments that are used in business strategies and how they impact the pricing decisions of those businesses these days:
Types of Market Segmentation
Geographic Segmentation:
Undoubtedly, this is the most common form of market segmentation, wherein the organizations subdivide their target customers by their geographic location. Example of this kind of market segmentation is when a company does market its products or services in one country and not in another.
A few restaurant chains in the United States, like to operate in just one market, state, or region. There are also some instances of regional variances in consumer likings and this is another major cause of geographic segmentation. For example, certain companies might try to sell their redeye gravy only in the southeastern US and marketers of meat products like beef and pork may try to avoid some regions like the south Asian countries.
A chainsaw manufacturer may market its efforts more in the forest areas than other areas. Air-conditioner sellers would like to focus more on middle-eastern countries than European regions. Geographic segmentation can come in various forms such as rural v urban, north v south, interior v coastal areas, high-elevation v low-elevation areas etc. this also proves that Geographic Segmentation is sometimes an alternate to other forms of market segmentation.
Distribution Segmentation:
Different channels of distribution can reach out to different markets. For example, a company making typical pet supplies might sell them under a brand name to supermarkets, under a different name to pet stores and yet another name to veterinarians.
Such type of distributional segmentation is done usually by small companies so as to allocate each distribution channel its unique name to gain the advantage in all of them. Some other examples of Distribution Segmentation are a fashionable line of clothing sold only in expensive departmental stores or a premium shampoo sold only through upscale beauty salons.
Media Segmentation:
Although not a very common form of marketing segmentation, yet it is used sometimes by some companies. The basis for this type of market segmentation is that different media reaches out to different audiences.
The firms that rely on this type of market segmentation tend to pour in their entire allocable budget into one form of media so that they can dominate the segment of the media which uses that particular media. Media segmentation is most commonly used by those organizations that have some influence over a form of media, and can prevent others from using that media.
Price Segmentation:
Price Segmentation is of the most widely used and effective form of market segmentation. The main motive behind this form of market segmentation is the variance in the household incomes of customers thus market segmentation along the price dimension.
When the incomes are low, rational says that a marketer should offer some cheap products, some medium-priced ones and a few high-priced ones. Such a kind of Price Segmentation has been commonly adopted by companies like General Motors, historically. Other major automobile brands like Chevrolet, Pontiac, Buick and Cadillac have varied pricing strategies to appeal to almost all income groups, especially the high- income groups.
Demographic Segmentation:
There exist some common demographic variables such as age, gender, housing type, income and educational level. Thus, some marketers target only men while others focus solely on women. Some brands target specific products to specific factions of the society.
For example, hearing aids should be marketed more to the elderly than to the youth and vice versa is true for music downloads. Educational level is an important cause of demographic segmentation. For example, some insurance and financial products are marketed more to the educationally well-off irrespective of their financial status than to the lesser educated ones. Demographic segmentation is a commonly adopted and highly effective form of market segmentation.
Time Segmentation:
Time segmentation although, is a bit less common but when applied brings about great results. Some products such as Christmas cards and fireworks are sold only during specific days of the year. Some stores are open later than others and some are open on weekends. Chili is marketed more in the fall season than other seasons. All these practices are having one thing in common i.e. they are marketed according to time segmentation.
The time element is a remarkable basis for market segmentation. In addition to the preceding, markets can be segmented by hobbies, by religion, by sports team loyalties, by special interest groups, by political affiliation, by university attended, and several other variables. Market segmentation can be applicable on each and every facet of human imagination.
Psychographic or Lifestyle Segmentation:
Last and certainly not the least type of market segmentation, is the psychographic or lifestyle segmentation. It is based upon multivariate analyses of consumer attitudes, behaviors, perceptions, emotions, beliefs and interests.
Psychographic segmentation is a legitimate method to segment a target market provided that the marketer can identify the appropriate market segmentation variables. In this method, the qualitative research techniques such as depth interviews, focus groups and ethnography play a vital role in establishing the various market segments.
Common Mistakes
The entire process of Market Segmentation tends to be lengthy and complicated, thus increased are the chances of errors. Some of the most common errors that marketers make in market segmentation include:
Segmenting a segment. This usually happens when a marketer wants to sell a specific product or service to a specific segment pre-identified for that product itself. However, the problem there arises when suppose a client asks that a tiny portion of the market is segmented. Theoretically, this is true but, the resulting segments seldom are of any value, since they are too tiny. A general rule is to segment the entire market and include all age groups, genders, income groups, religions etc. Actually, the market must be largely defined for a market segmentation analysis to be more practical.
Overlooking the “universals. A good practice to follow is to avoid the repetitive statements in a segmentation questionnaire. These are those statements that almost all people agree with or disagree with and are termed as “universals”. Variables need to move up and move down for the multivariate analysis to function.
Do not create too many segments. There is an actual limit to the quantity of segments that businesses can efficiently target. As a rule of thumb, those who create more than four or five segments, usually end up with segments that would be too small to be meaningful. However, it might not be true always either.
Final Thoughts
The notion of market segmentation is sturdy. Market Segmentation is a technique applied to collect greater marketing force to a subdivision of a market. On the contrary, a great amount of funds are lost on psychographic segmentations that go inoperable in the end.
Actually, psychographic segmentation’s biggest utility lies in positioning, pursuing via advertising messages and outlining new product avenues. So I hope the article could enlighten you with the practices and types Market Segmentation and could supplement your marketing database with significant ideas. Don’t wait. Go forth and segment!
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