What is market segmentation?
Segmentation in consumer markets
Market segmentation is a very valuable technique used by companies when planning strategic marketing. It enables businesses to target products at the right customers more effectively. In essence, it is about identifying the specific needs and wants of the customer groups and then using the intelligence into providing products and services which meets customers' needs. After all, a business cannot satisfy all the needs and wants of all consumers. Each market segment is unique and is comprised of a number of individuals who share common thoughts and characteristics. Segmentation can also be applied within Business to Business markets, although this has large number of similarities to consumer marketing, many differences also exist and this is explored later on.
Market segmentation can be defined as the process of defining and subdividing a large homogenous market into clearly identifiable segments having similar needs, wants, or demand characteristics. Its objective is to design a marketing mix that precisely matches the expectations of customers in the targeted segments.
Each segment has its own profile made up of criteria commonly known as bases. A segment consists of;
1. A large identifiable group within the market
2. Similar wants and needs
3. Purchasing power
4. Geographical location
5. Buying attitudes/ habits and trends
Segmentation allows businesses to identify different groups within the market and apply different marketing and promotional techniques to each segment. It is not however necessary for a company to target every segment; they may wish to target specific segments as part of their strategic marketing plan.
Example: Motor vehicle companies such as Volvo develop a large number of models which are all aimed at different market segments in terms of lifestyle, gender, income and age. In addition to this, they also have services and products specifically aimed which caters for a large number of commercial businesses.. This includes vehicles for emergency services, taxi, limousines and special edition vehicles.
In order to identify specific segments, a number of related questions need to be thought about. These could include;
1. How big is the segment?
2. Is it profitable?
3. What is their buyer behaviour?
4. How can we promote and sell to this segment?
5. Is it achievable?
Markets can be segmented into various types and bases.
1. Psychographic: The basis of psychographic segmentation is the lifestyle of the individuals. It also includes aspects such as personality, values, perceptions, beliefs, attitudes and classes.
1. Geographic: The most common form of segmentation, where markets are segmented based on their geographic area. Regional differences in consumer preference are evident and companies must adapt their products accordingly. An example of geographic segmentation is the regional variation between brands in Europe. The UK is particularly diverse as products that are sold on the continent are sold in the UK under a completely different brand, even though the product is identical. Examples include the car brand Vauxhall which is sold elsewhere as Opera.
1. Behavioural: This divides customers into groups based on the way they respond to, use or understand a product. It can be grouped into terms of occasions, usage, benefits and loyalty. Occasions include when a product is consumed or purchased such as breakfast cereals or seasonal goods relating to events such as Valentine's Day. Usage can relate to the markets that are heavy, medium or light users. Loyalty relates to consumers that always purchase a certain brand â these are valuable customers. Companies segment their markets into those where loyal customers can be sourced and retained.
1. Demographic segmentation consists of dividing the market into groups based on variables such as age, gender, nationality, income, occupation and race.