Market Segmentation

9 September 2016

Marketing strategy that involves dividing a broad target market into subsets of consumers who have common needs, and then designing and implementing strategies to target their needs and desires using media channels and other touch-points that best allow to reach them. Market segments allow companies to create product differentiation strategies to target them. Market segmentation is the technique used to enable a business to better target it products at the right customers.

It is about identifying the specific needs and wants of customer groups and then using those insights into providing products and services which meet customer needs. Segments are usually measured in terms of sales value or volume. In the diagram below, segment B is twice the size of segment C: A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will respond similarly to a marketing action. Market segmentation enables companies to target different categories of consumers who perceive the full value of certain products and services differently from one another.

Market Segmentation Essay Example

Generally three criteria can be used to identify different market segments. Basis of Market Segmentation ?Gender The marketers divide the market into smaller segments based on gender. Both men and women have different interests and preferences, and thus the need for segmentation. Organizations need to have different marketing strategies for men which would obviously not work in case of females. A woman would not purchase a product meant for males and vice a versa. The segmentation of the market as per the gender is important in many industries like cosmetics, footwear, jewellery and apparel industries. Age Group Division on the basis of age group of the target audience is also one of the ways of market segmentation. The products and marketing strategies for teenagers would obviously be different than kids. Age group (0 – 10 years) – Toys, Nappies, Baby Food, Prams Age Group (10 – 20 years) – Toys, Apparels, Books, School Bags Age group (20 years and above) – Cosmetics, Anti-Ageing Products, Magazines, apparels and so on ? Income Marketers divide the consumers into small segments as per their income. Individuals are classified into segments according to their monthly earnings. The three categories are:

High income Group Mid Income Group Low Income Group Stores catering to the higher income group would have different range of products and strategies as compared to stores which target the lower income group. Pantaloons, Carrefour, Shopper’s stop target the high income group as compared to Vishal Retail, Reliance Retail or Big bazaar who cater to the individuals belonging to the lower income segment. ?Marital Status Market segmentation can also be as per the marital status of the individuals. Travel agencies would not have similar holiday packages for bachelors and married couples. Occupation Office goers would have different needs as compared to school / college students. A beach house shirt or a funky T Shirt would have no takers in a Zodiac Store as it caters specifically to the professionals. Criteria for segmentation An ideal market segment meets all of the following criteria: •It is possible to be measure. •It must will be large enough to earn profit. •It must be stable enough that it does not vanish after some time. •It’s possible to reach potential customers via the organization’s promotion and distribution channel. It is internally homogeneous (potential customers in the same segment prefer the same product qualities). •It is externally heterogeneous, that is, potential customers from different segments have different quality preferences. •It responds consistently to a given market stimulus. •It can be reached by market intervention in a cost-effective manner. •It is useful in deciding on the marketing mix. ? Basis for segmenting consumer markets Geographic segmentation The market is segmented according to geographic criteria—nations, states, regions, countries, cities, neighborhoods, or zip codes.

Geo-cluster approach combines demographic data with geographic data to create a more accurate profile of specific [1] With respect to region, in rainy regions you can sell things like raincoats, umbrellas and gumboots. In hot regions you can sell summer wear. In cold regions you can sell warm clothes. A small business commodity store may target only customers from the local neighborhood, while a larger department store can target it’s marketing towards several neighborhoods in a larger city or area. In geographical segmentation, market is divided into different geographical units like: •Regions (by country, nation, state, neighborhood) Population Density (Urban, suburban, rural) •City size (Size of area, population size and growth rate) •Climate (Regions having similar climate pattern) A company, either serving a few or all geographic segments, needs to put attention on variability of geographic needs and wants. After segmenting consumer market on geographic bases, companies localize their marketing efforts (product, advertising, promotion and sales efforts)

Demographic Segmentation: In demographic segmentation, market is divided into small segments based on demographic variables like: •Age •Gender •Income •Occupation •Education Social Class •Generation •Family size •Family life cycle •Home Ownership •Religion •Ethnic group/Race •Nationality Demographic factors are most important factors for segmenting the customers groups. Consumer needs, wants, usage rate these all depend upon demographic variables. So, considering demographic factors, while defining marketing strategy, is crucial. Psychographic segmentation Psychographics is the science of using psychology and demographics to better understand consumers. Psychographic segmentation: consumers are divided according to their lifestyle, personality, values and social class.

Consumers within the same demographic group can exhibit very different psychographic profiles. In Psychographic Segmentation, segments are defined on the basis of social class, lifestyle and personality characteristics. Psychographic variables include: •Interests •Opinions •Personality •Self-Image •Activities •Values •Attitudes A segment having demographically grouped consumers may have different psychographic characteristics. Behavioral segmentation In behavioral segmentation, consumers are divided into groups according to their knowledge of, attitude towards, use of or response to a product.

In this segmentation market is divided into segments based on consumer knowledge, attitude, use or response to product. Behavioral variables include: •Usage Rate •Product benefits •Brand Loyalty •Price Consciousness •Occasions (holidays like mother’s day, New Year and Eid) •User Status (First Time, Regular or Potential) Behavioral segmentation is considered most favorable segmentation tool as it uses those variables that are closely related to the product itself. Occasions Segmentation according to occasions is based on the arising of special need and desires in consumers at various occasions.

For example, for products that will be used in relation with a certain holiday. Products such as Christmas decorations or Diwali lamps are marketed almost exclusively in the time leading up to the related event, and will not generally be available all year round. Another type of occasional market segments are people preparing for their wedding or a funeral, occasions that only occurs a few times in a persons lifetime but happens so often in a large population that it can be considered a market segment. Benefits

Segmentation takes place according to benefits sought by the consumer or which the product/service can provide. Bases for Business Market Segmentation •Business market can be segmented on the bases consumer market variables butbecause of many inherent differences like •Businesses are few but purchase in bulk •Evaluate in depth Joint decisions are made Business market might be segmented on the bases of following variables: Company Size What company sizes should we serve? Industry Which industry to serve? Purchasing approaches

Purchasing-function organization, Nature of existing relationships, purchase policies and criteria. Situational factors Seasonal trend, urgency should serve companies needing quick order deliver, Order: focus on large orders or small. Using segmentation in customer retention The basic approach to retention-based segmentation is that a company tags each of its active customers with three values: Is this customer at high risk of canceling the company’s service? One of the most common indicators of high-risk customers is a drop off in usage of the company’s service.

For example, in the credit card industry this could be signaled through a customer’s decline in spending on his or her card. Is this customer worth retaining? This determination boils down to whether the post-retention profit generated from the customer is predicted to be greater than the cost incurred to retain the customer. [2][3] What retention tactics should be used to retain this customer? For customers who are deemed worthy of saving, it is essential for the company to know which save tactics are most likely to be successful.

Tactics commonly used range from providing special customer discounts to sending customers communications that reinforce the value proposition of the given service. Price discrimination: Where a monopoly exists, the price of a product is likely to be higher than in a competitive market and the quantity sold less, generating monopoly profits for the seller. These profits can be increased further if the market can be segmented with different prices charged to different segments charging higher prices to those segments willing and able to pay more and charging less to those whose demand is price elastic.

The price discriminator might need to create rate fences that will prevent members of a higher price segment from purchasing at the prices available to members of a lower price segment. This behavior is rational on the part of the monopolist, but is often seen by competition authorities as an abuse of a monopoly position, whether or not the monopoly itself is sanctioned. Areas in which this price discrimination is seen range from transportation to pharmaceutical.

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