Market Segmentation

Understanding Market Segmentation

• Market segmentation is a vital concept in strategic marketing where a broad market is divided into subsets of consumers who share similar demands and preferences.
• It is an identification process that allows businesses to recognise and profile distinct groups of buyers who might require varying product and/or service mixes.

Basis of Market Segmentation

• Segments can be generated based on a variety of factors like demographics, psychographics, geographic variance, and user behaviour.
• Demographic segmentation pertains to age, gender, income, family size, occupation, etc., which primarily affects buying behaviour.
• Psychographic segmentation is based upon consumer personality traits, values, attitudes, interests, and lifestyles.
• Geographical segmentation includes region, climate, population density and population growth rate.
• Behavioural segmentation considers the knowledge of, attitude towards, usage of and response to a product.

Benefits of Market Segmentation

• Market segmentation helps businesses to better understand their customers, and adjust their marketing mix to meet the specific needs and preferences of the segmented group.
• Segmentation facilitates targeted marketing, which is often more effective than mass marketing.
• A well-segmented market enables firms to stake out their own market place and protect it from competitive threats.
• It also unveils opportunities for growth in the market by projecting on consumer needs that are poorly served or not met by the existing marketing offerings.

Process of Market Segmentation

• The process begins with market research where information about customers in a given market is collected.
• The second step involves the segmentation of market, based on the categories like demographics, psychographics, and behavioural factors.
• The segments are then evaluated and compared on the basis of market growth, competitive position, and profit margin.
• Lastly, the most attractive segments are chosen and companies form strategies to target and serve these segments.

Limitations of Market Segmentation

• Effective market segmentation requires substantial resources which some businesses may lack. It also includes costs of production, distribution, and promotion.
• Inaccurate analysis or segmentation can lead to setbacks. If a market is wrongfully segmented, the outcome could be unsatisfactory marketing communication and lower sales.
• Not all segmented markets are profitable. Firms need to ensure that the segmented market is substantial enough to justify a unique marketing mix.
• Over-segmentation or too many market segments can lead to customer confusion and ineffective use of resources.