What is Market Segmentation? Definition, Types, Examples, Bases, Importance

What is Market Segmentation?

Market segmentation is the process of dividing a total market into market groups consisting of people who have relatively similar product needs, tastes, and preferences. The purpose is to design a marketing mix strategy that more precisely matches the needs of individuals in a selected market segment(s).

Market segmentation is the technique used to enable a business to better target its 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.

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What is Market?

Market is a place where trade activity is carried on. It means buying and selling goods. Market refers to a huge number of audience, thus market segmentation is done and the selected segment is targeted and a product is been positioned.

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Market Segmentation Definition

Market Segmentation is the sub-dividing of a market into homogeneous subsets of customers, where any subset may conceivably be selected on a market target to be reached with a distinct marketing mix. – Philip Kotler

Market Segmentation consists of taking the total heterogeneous market for a product and dividing into several sub-markets or segments, each of which tends to be homogeneous in all significant aspects. – William J. Stanton

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Objectives of Market Segmentation

In general, segmentation has the main objective to improve the competitive position of businesses. It provides better service to consumers. In addition to these main objectives are—boost sales, improve market share, to communicate, better promotion, and strengthening the image.

At least there are five advantages to be gained by doing market segmentation, namely:

1. Designing Products that are More Responsive to Market Needs: The company puts the customer in the first place, and adjusts products to satisfy them and achieve customer satisfaction at a profit.
   
   
2. Analyze Market: Segmentation market is helping executives to detect anyone who attacked its product market.
   
   
3. Assess Opportunities: After analyzing the market, companies that master the concept of segmentation will be on the lookout for the idea to find opportunities. This opportunity is not always something that big, but in its time would be great.
   
   
4. Mastering the Position of Superior and Competitive: A company that controls segments well is generally well aware of their customers. Companies understand the shifts that occurred in the segment.
   
   
5. Determining Effective Communication Strategies: After learning about the targeted segment, the company will determine how to communicate effectively with the targeted segments.

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Types of Market Segmentation

There are 4 different types of market segmentation and those are discussed below:

1. Geographic Segmentation
2. Demographic Segmentation
3. Psychographic Segmentation
4. Behavioural Segmentation

Geographic Segmentation

Geographic segmentation divides the market into geographical units such as nations, states, regions, counties, cities.

The organisation can choose to operate in one or more area and pay special attention to local variation. In that way, it can tailor marketing programs to the needs and wants of the local customer.

The geographic segmentation is furthermore useful when there are differences in a location where a product is marketed. The differences can be caused by cultural factors, traditions, politics etc.

Demographic Segmentation

In demographic segmentation, the market is divided on variables such as age, family size, family life cycle, gender, income, occupation, education, religion, race, generation, nationality, and social class.

One reason demographic variables are so popular with marketers is that they’re often associated with consumer needs and wants. Variables are easy to identify and measure.

Psychographic Segmentation

In psychographic segmentation, buyers are divided into different groups on the basis of psychological/personality traits, lifestyle, or values.

People within the same demographic group can exhibit very different psychographic profiles. Psychological profiles are often used as a supplement to geographic and demographics when these do not provide a sufficient view of customer behaviour.

Behavioural Segmentation

In behavioural segmentation, marketers divide buyers into groups on the basis of their knowledge of, attitude toward, use of, or response to a product.

It considers variables like brand loyalty and the usage rate of the consumer.

Also Read: What is an Entrepreneurship

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Bases of Market Segmentation

Bases of market segmentation are the factors that are used to divide the market into a small homogeneous market.

1. Geographic Segmentation: It includes the following variables:
   1. Region: Continent, Country, State
   2. Size of metropolitan area: Segmented according to population size
   3. Population Density
   4. Climate
      
      
2. Demographic Segmentation: It includes the following variables:
   1. Age
   2. Gender
   3. Family Size
   4. Family Life Cycle
   5. Income
   6. Occupation
   7. Education
   8. Generation
   9. Ethnicity
   10. Nationality
   11. Religion
   12. Social Class
       
       
3. Psychographic Segmentation: It includes the following variables:
   1. Interests
   2. Activities
   3. Opinions
   4. Values
   5. Attitudes
      
      
4. Behavioural Segmentation: Behavioural Segmentation is based on actual customer behaviour towards products. Some behavioural variables include:
   1. Benefits Sought
   2. Usage Rate
   3. Brand Loyalty
   4. User Status
   5. Readiness to buy
   6. Occasions

Bases for Consumer Market Segmentation

Market segmentation can be done on two bases, i.e., consumer mar- ket and business market. Consumer market includes the final users of the products or services who normally make a purchase in smaller quantities.

Consumer market segmentation refers to the process of dividing and grouping the consumers on the basis of some common characteristic. There are four variables which are considered in consumer market segmentation:

Demographic factors

The study of population is called demography. Demographic factors include age, gender, education, religion, etc. The demographic factors are used to segment market mainly by the organisations who deal with consumer goods such as tea, soap, detergents, etc. Some of the demographic variables are:

Age: The market can be divided into segments on the basis of age of the customer. An elderly person has different needs, taste and preferences as compared to a child. For example, a garment shop has multiple segments for different age groups such as kids or teenagers.

Gender: There are many products which are consumed by people based on their gender. Females buy cosmetic products such as nail paints, lipsticks and bangles, whereas males buy products such as shaving blades, cream, or razor.

Income: The income of customers are also considered as a variable for segmenting the market. In accordance with the income of the customers, the organisation makes products for low-income group, medium-income group and high-income group.

Occupation: The lifestyle and buying habits of people depends on their occupations such as lawyers, doctors, engineers or teachers.

Education: The education of the customers (uneducated, educated, graduate, Masters) is also a variable which is used for segmenting the market. Magazines, novels, books are published by keeping the educational factor into consideration.

Religion: The religion of the consumers may also be taken as the basis for segmenting the market. For example organisations manufacturing products such as camphor, dhoop, agarbatti may target the Hindu community while those manufacturing candles may target the Christian or Buddhist communities.

Geographic factors

The geographical factors are considered important in market segmentation. An organisation makes the product to satisfy the needs of people who belong to particular area, city, state and country.

Let us understand this with the help of an example, In Delhi’s PVR, movies play in Hindi and English language, whereas, in Bengaluru’s PVR, movies are played in Hindi, English, Kannada, Tamil and Telugu language.

Psychographic factors

Psychographic segmentation involves seg- mentation on the basis of lifestyles, values and beliefs of an indi- vidual. People prefer to purchase those products or services that give them satisfaction and suit their values. Various factors that come under psychographic segmentation are as follows:

• Lifestyle: It differentiates people based on their habits, incomes and social status. People always purchase those products which suit and match with their lifestyles. It is easier to find the difference between the lifestyle of people who belong to urban and rural areas.
  
  For instance, people living in the urban and rural areas may have similar needs and wants but their choices of brands and sometimes even products are different as per their lifestyles.
  
  
• Personality: It refers to segmenting the market on the basis of individuals’ personality traits that determine their buying behaviours. Organisations try to match the offered products or services with the personalities of the target market segments.
  
  For example, Soft Drink Company such as Mountain Dew is promoted with a message of becoming fearless and tough. It uses the punch line ‘Dar Ke Aage Jeet Hai,’ to target individuals with aggressive and risk-taking attitudes.
  
  
• Values: They are connected with the thoughts and beliefs of customers, which may influence the attitudes of customers towards the product in the long run. These are important to develop communication programmes that affect the thoughts of customers.
  
  For example, TV serials and movies are often based on value-based customer segmentation. Most Indian television soaps convey the importance of Indian cultural values and focus on the joint family concept.

Behavioural factors

The segmentation based on customers’ behaviour towards a product is behavioural market segmenta- tion. The behavioural factors help the organisation to understand consumers based on their previous patterns.

This variable is very helpful to segment customers especially when these customers purchase products regularly from the organisation. Following are the variables which can be used for segmenting the market on the basis of behaviour:

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Market Segmentation Process

Market segmentation itself is a process of grouping and sub-grouping a large heterogeneous market of the audience into similar qualities and attributes.

This helps the companies concentrate on a specified group of customers they want to target which will help them gain a competitive advantage over their competitors in the market and ultimately help them gain profit.

Using market segmentation the marketers can easily customize their marketing strategies. It narrows the risk of ineffective marketing strategies and chooses the right type of market segment that would suit their marketing strategies.

Benefits: They refer to the advantages of the product for customers. The benefits of the product attract customers to purchase the product on a regular basis.

Occasions: These are the special events that are considered to divide the customers according to their purchase requirements in different occasions as Cadbury has launched Celebration’s Rich Dry Fruit Collection for festive offering for its customers.

Usage rates: Usage rates classify customers according to their usage of the product i.e. they can be heavy, medium or light users. Organisations pay attention on those users who require products for heavy and medium uses. For example, some organisations provide membership to their regular cus- tomers so that they can avail discounts on purchasing large or medium quantity.

Loyalty status: The marketers analyse customers according to different loyalty status and apply a suitable marketing strategy. For example, Citibank offers different balance transfer options at a lower rate of interest on its credit cards to attract loyal customers of other banks.

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Importance of Market Segmentation

One of the most importance of market segmentation is that it allows an organization to precisely reach a consumer with specific needs and wants.

Other importance of market segmentation is discussed below:

1. Adjustment of product and marketing appeals
2. Better position to spot marketing opportunities
3. Allocation of marketing budget
4. Effective competition with rivals
5. Effective marketing programme
6. Evaluation of marketing activities

Adjustment of product and marketing appeals

Market segmentation presents an opportunity to understand the nature of the market. The seller can adjust his thrust to attract the maximum number of customers by various publicity media and appeals.

Better position to spot marketing opportunities

The producer can make a fair estimate of the volume of his sale and the possibilities of furthering his sales. In the regions where response of the customers is poor, the strategy of approach can be readjusted accordingly to push the sale.

Allocation of marketing budget

It is based on market segmentation that marketing budget is adjusted for a particular region or locality. In the place where the sales are limited, it is no use allocating a huge budget.

Effective competition with rivals

It helps the producer compete with his rivals effectively. The producer can adopt different strategies for different markets taking into account the rivals strategies.

Effective marketing programme

It also helps the producer to adopt an effective marketing programme and serve the consumer better at comparatively low cost. Different marketing programmes can be used for different segments.

Evaluation of marketing activities

Market segmentation helps the manufacturer to find out and compare the marketing potentialities of the products. It helps to adjust production and using resources in the most profitable manner. As soon as the product becomes obsolete, the product line could be diversified or discontinued.

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Examples of market segmentation

Example of geographic segmentation

McDonald is an example of geographic segmentation. It customizes its menu that varies from country to country. McDonald’s has introduced burgers with no beef or no pork in it for India. And likewise in Mexico, more chilli sauce is used.

KFC in India concentrates on veg products in south India and on chicken products in North India.

Example of demographic segmentation

Ferrero SpA an Italian manufacturer of branded chocolate is an example of demographic segmentation. Its sub-brand kinder manufacture chocolate specially for children and has also separate colours and toys for girls and boys.

Example of psychographic segmentation

Rolls Royce is an example of psychographic segmentation, it targets the consumer having the potential of buying luxury cars and having a rich lifestyle. It concentrates on the variable of the lifestyle of the consumer.

Example of behavioural segmentation

Airlines, hotel and such industry are the example of behavioural segmentation.
Emirates airlines are the best example for it, it offers excellent services to the passengers which helps them retain the customer.

It creates brand loyalty and make the customer loyal to their airlines and fly with them frequently.

Also Read: 4Ps of Marketing Mix

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What is the Target Market?

Target market is a group of audience within which the company is planning to sell its products. It is a process after market segmentation is done, a marketer has to select one or more segments in which a marketer has to implement his marketing strategies.

The target market consists of consumers who have similar characteristics who are more likely to buy the products which will be more profitable for the company.

After the selection of one or more market segments, the marketer has to implement its marketing strategies. It has to modify the marketing mix (4Ps) as per the needs to reach to the customer.

After a target market is selected marketer needs to position its product to the selected segment of the customers.

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