People Innovation Excellence

Market Segmentation

Market Segmentation

Most businesses realize that since no two people are exactly the same, then it is unlikely that they will be able to please all customers in a market with a single product. They also realize that it is rarely feasible to create a distinct product for every customer. Instead, most businesses attempt to improve their odds of attracting a significant base of customers by dividing the overall market into segments, then trying to match their product and marketing mix more closely to the needs of one or more segments. A number of customer characteristics, known as segmentation bases, can be used to define market segments. Some commonly used bases include age, gender, income, geographical area, and buying behavior.

Market segmentation is a marketing term referring to the process of defining and subdividing a large homogenous market into clearly identifiable groups, or segments that have common needs, characteristics and 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. It seeks to identify targeted groups of consumers for the purpose of tailoring products and branding in a way that is attractive to the group. The objective of market segmentation is to minimize risk to the company by determining which products have the best chances for gaining a share of a given target market and determining the best way to deliver the products to the market. This allows the company to increase its overall efficiency by focusing its limited resources on efforts that produce the best return on investment.

Markets can be segmented in a number of ways: geographically by region or area; demographically by age, gender, family size, income or life cycle; psychographically by social class, life style or personality; or behaviorally by benefit, uses or response. The objective is to enable the company to differentiate its products or message according to the common dimensions of the market segment.

Segmentation typically involves significant market research and can thus be costly. It is practiced especially in major companies with highly differentiated product lines or serving large markets. The small business tends to discover the segment it serves best by the trial and error of dealing with customers and stocking products more and more suitable to its particular clientele. Its objective is to design a marketing mix that precisely matches the expectations of customers in the targeted segment. Few companies are big enough to supply the needs of an entire market; most must breakdown the total demand into segments and choose those that the company is best equipped to handle.

Three criteria can generally be used to identify different market segments: homogeneity, or common needs within a segment; distinction, or being unique from other groups; and reaction, or a similar response to the market. For example, an athletic footwear company might have market segments for basketball players and long-distance runners. As distinct groups, basketball players and long-distance runners respond to very different advertisements.

Novita, S,Kom, MBA

References:

Eliya, Susan A. “No Sweat: Segmentation continues to create opportunities for growth.” Household & Personal Products. March 2006

“Hidden Identity: Retailers still struggle to know their customers.” Chain Store Age. January 2006.

“Market Segmentation Pays Off in Big Way in Mexico.” MMR. 12 December 2005.

Millier, Paul. “Intuition Can Help in Segmenting Industrial Markets.” Industrial Marketing Management. March 2000.

Simon, Karen. “Stay Ahead of Your Customers.” Apply. 1 February 2006.


Published at :
Written By
Novita, S.Kom, MBA
LS-S2 | SoBM/IBM
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