Market segmentation

Market segmentation is the process of dividing a broad consumer or business market, normally consisting of existing and potential customers, into sub-groups of consumers (known as segments) based on some type of shared characteristics. In dividing or segmenting markets, researchers typically look for common characteristics such as shared needs, common interests, similar lifestyles or even similar demographic profiles.

Overview

The overall aim of market segmentation is to identify high yield segments – that is, those segments that are likely to be the most profitable or that have growth potential – so that these can be selected for special attention (i.e., become target markets). Many different ways to segment a market have been identified. Business-to-business (B2B) and business-to-consumer (B2C) markets can be segmented by geography, demographics, psychographics, and behavior, among other variables.

Bases for Segmentation in Consumer Markets

Geographic Segmentation

This involves dividing the market into different geographical units such as nations, states, regions, counties, cities, or neighborhoods. A company may decide to operate in one or a few geographical areas, or to operate in all but pay special attention to certain areas.

Demographic Segmentation

Demographic segmentation divides the market into segments based on variables such as age, gender, family size, income, occupation, education, religion, race, and nationality. Demographic segmentation is often used because demographic variables are easier to measure than most other types of variables.

Psychographic Segmentation

Psychographic segmentation divides buyers into different groups based on social class, lifestyle, or personality characteristics. People within the same demographic group can exhibit very different psychographic profiles.

Behavioral Segmentation

Behavioral segmentation divides consumers into groups based on their knowledge, attitudes, uses, or responses to a product. Many marketers believe that behavioral variables are the best starting point for building market segments.

Bases for Segmentation in Business Markets

In addition to the bases mentioned for consumer markets, business markets can be segmented based on factors such as:

• Industry or market sector
• Size of the business
• Location
• The nature of the buying situation (e.g., a routine reorder vs. a new task)
• Purchasing strategies

Importance of Market Segmentation

Market segmentation allows companies to target different categories of consumers who perceive the full value of certain products and services differently from one another. Segmenting and targeting markets is more precise than mass marketing and can lead to stronger customer loyalty, increased sales, and a stronger brand.

Challenges in Market Segmentation

The main challenge in market segmentation is identifying the most effective segmentation variables that lead to identifiable, substantial, accessible, stable, and actionable segments. Another challenge is ensuring that the segmentation strategy is effectively implemented and that the segments are targeted with the appropriate marketing mix.

Conclusion

Market segmentation is a crucial process in modern marketing strategies. It enables businesses to tailor their marketing efforts to specific groups of consumers, leading to more efficient and effective marketing campaigns. By understanding the needs and wants of each segment, businesses can develop products, services, and marketing messages that appeal directly to the targeted audience.

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  STP Approach

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  1921 Model T Ford

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  1931 Ford Model A Deluxe Coupe

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  TV Penetration in US Households

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  Bases for Segmentation

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  Demographic Segmentation

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  Circle Spoke Diagram Target Market

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  Perceptual Map

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  Clustering