MARKET SEGMENTATION

Introduction

Market segmentation is the process whereby producers organize their knowledge of customer
groups and select for particular attention, those who’s needs and wants they are best able to
supply with their products. It involves division of a prospective market into identifiable groups.

In other words, market segmentation involves division of a market into segments having similar
wants.

Market segment is a subgroup of people or organization, sharing one or more characteristics that
cause them to have similar product needs.

In every organization, it has gone through the following THREE stages of marketing:

i) Mass marketing

Marketing style makes efforts to attract every eligible buyer to use its product which has
been mass produced. There is no attention paid to consumer preferences.

ii) Product differentiated marketing

The organization produces two or more products for the entire market. These products might
have different characteristics but they are not designed for any different groups.

Rather they only provide alternatives to every buyer in the market.

The organization differentiates among varied market segments, focuses on one or more of
these segments and develops the product to meet the needs of the target market.

Practical examples of market segmentation

Example 1: The population in a hospital can be categorized into different sub-groups:

Example 2: Dog food market

 Market segmentation is customer-oriented: Marketer will identify the customer need and
want then only decide if it is practical to develop marketing mix to satisfy those wants.
 The management can respond to meet changing market demand.
 By selecting the market niches i.e. suitable markets, an organization can exploit the
market better.
 Develop strong positions (targets) in specialized market segment.

To the Firm: identification of valuable customers, more targeted promotions and marketing
communication, sustainable profit growth

To the Customer: customized products & services, personalized experience, increased customer
satisfaction

Process of market segmentation

 Identify the current and potential wants that exist in the market.
 Identify the characteristic that distinguish among the segments
 Determine who has each want. Final step is to estimate how much demand and potential
sales each segment represents.

Techniques/Methods of segmentation

• Use of judgment
• Data-based: cluster analysis, regression
Above is an example of data based cluster analysis

Bases of market segmentation

1. Geographic segmentation: segmentation is based on the idea that customer needs differ
according to geographic regions.
2. Demographic segmentation: segmentation is based on demographic variables (age,
gender, family life cycle income, social class, occupation, level of education, race,
profession, media habits, industry, size…etc.). It is the most frequently used method due
to:
i) Consumer wants, preferences and usage rates are associated with demographic
variables
ii) This method is easy in measurement and data interpretation
3. Psychographics segmentation: segmentation is based on social status, life styles, and/or
personality characteristics…etc.
4. Behavioral segmentation: prospective buyers of products are segmented on the basis of
their knowledge, attitude, use and response to the product. A number of behavioristic
variables are used for market segmentation:
  Occasions: buyers are classified on the basis of critical events (marriage, child
bearing, injury, retirement ...etc.)
 Benefits: benefit segmentation identifies the:
 Major benefits that the consumers look for in the product
 Kinds of people who look for each benefit
 Major brands that deliver each benefit

The core benefit segment has quality buyers, service buyers and economy buyers.

 Quality buyer: focus on product image and not the cost

 User status: this based on first time visitors, repeat visitors, ex-visitors, potential
visitors ….etc.
 Usage rare: segmentation is based on usage rate (frequent customers, less frequent or
one time)
 Loyalty status: degrees of loyalty are
 Hard core loyal: those ones exclusively devoted to the organization
 Soft core loyal: those who may be devoted to 2-3 organization
 Shifting loyal: those who gradually move to favor one organization over another
organization
 Switchers: those who have no loyalty to any organization
 Buyer readiness stage: at any given time, people are in different stages of readiness to
buy a product. According to Kotler among the potential buyers some are:
 Unaware of the product
 Aware
 Informed
 Interested
 Desirous
 Intended to buy
  Attitude: Customer satisfaction based on enthusiasm can be described as enthusiastic,
positive, indifferent, negative or hostile.

5. Price segmentation: when marketing new products or entering new market, producers
must make a strategic choice as to where on the prevailing price spectrum they should
aim their marketing effort.

Requirements for effective market segmentation

Measurable: the size, needs, purchasing power and characteristics of the customers in the
segment should be measurable. Quantification should be possible.

Divisible: segments should be differentiable. There must be the clear cut basis for dividing
customers into meaningful homogenous groups. They should be differences in buyer’s needs,
characteristics, and behavior for dividing into groups.

Accessible: the segment should be reachable and serviceable. It should be accessible through
existing marketing institutions such as distribution channels, advertising media and sales force.
There should be middlemen to distribute the products.

Substantial: the segment should be substantial. It should be large enough in terms of customers
and profit potential.

Actionable: should be actionable for marketing purposes. Organizations should be able to design
and implement the marketing mix to serve the chosen segment.

Thus the characteristics of a good segment are:

• Large
 • Identifiable
• Distinctive
• Stable
• Actionable / Respond differently

Market Targeting

Once the market segmentation has been completed, the company should be aware of the
needs and wants of its selected segments. It is in the interest of the business to identify any
untapped needs in the marketplace, as there could be customers who may not be adequately
served by competitors.

It is then necessary to identify the most profitable segments and to decide which segments
will be served. There are three market coverage alternatives which can be applied;
undifferentiated marketing; differentiated marketing and concentrated marketing.

Undifferentiated Marketing Strategy

Differentiated Marketing Strategy

A differentiated marketing strategy will usually involve targeting a number of segments. This
marketing coverage strategy entails developing an individual product or service offering, and
creating a marketing plan for each and every segment. Hence, the company should carry out a
thorough market research to learn about how it can satisfy its selected segments. This will
translate to more costs than an undifferentiated strategy. Therefore, it is extremely important for
the company to decide which services are of critical importance to its chosen segments.

Concentrated marketing

The companies with limited resources will usually target just one or a few sub-markets. If a
segment is successfully chosen, there is a possibility that the firm may earn a high rate of return
on its investment.

However, this form of marketing could also involve a high-risk factor. If the selected segment
fails, the company can experience hefty losses.

In sum, the appropriate market coverage strategy may be determined by a number of factors:

• The company’s resources.

• Diversities within the market.

• The competitors’ market coverage strategies