Market segmentation

Market segmentation consists of dividing a heterogeneous market into a

number of smaller, more homogeneous submarkets.Almost any variable age, sex, product
usage, life style, expected benefit—may be used as a segmenting variable, but the logic
behind the strategy is always the same.
l Not all buyers are alike.
l Sub groups of people with similar behaviour, values, and/or backgrounds may be identified.
l The sub groups will be smaller and more homogeneous than the market as a whole.
l It should be easier to satisfy smaller groups of similar customers than a large group of dissimilar
customers.

Usually, marketers are able to cluster similar customers into specific market segments
with different, and sometimes unique, demands. For example, the computer software
market can be divided into two segments: the domestic market and the foreign market.
The domestic market can be segmented further into business users and home users.

Advantages of Market Segmentation

Helps distinguish one customer group from another within a given market.
Facilitates proper choice of target market.
Facilitates effective tapping of the market.
Helps ‘divide the markets and conquer them’.
Helps crystallise the needs of the target buyers and elicit more predictable responses from
them; helps develop marketing programmes on a more predictable base; helps develop
marketing offers that are most suited to each group.
Helps achieve the specialisation required in product, distribution, promotion and pricing for
matching the customer group and develop marketing offers and appeals that match the needs
of such group.
Makes the marketing effort more efficient and economic.
Helps concentrate efforts on the most productive and profitable segments, instead of frittering
them over irrelevant, or unproductive, or unprofitable segments.
Helps spot the less satisfied segments and succeed by satisfying such segment.
Brings benefits not only to the marketer but to the customer as well.
When segmentation attains high sophistication, customers and companies can choose each
other and stay together.

The requirements for effective market segmentation

Clearly Defined and Distinguishable Segment

The chosen segments should be clearly defined to avoid doubt about which part of the market, the firm's marketing
activities are aimed at. Otherwise there is a risk that market activities will "spill over" into different segments. If
there is more than one segment, you will need to assess whether each segment will require specific marketing. For
example if married and unmarried men behave similarly when purchasing shoes, there is little value in placing them
in different segments.

Measurability of Segment

Before embarking on a sales strategy it is important to know the size of existing sales in that segment. A firm also
needs to know how product sales are growing in the chosen segment. If you can not measure the growth rate, it will
be difficult to assess whether your chosen segment is profitable.

Accessibility of Segment

Accessibility includes communicating with your customers; communication is usually through the internet, TV,
radio. However if target customers do not use these things it will be difficult to communicate with them. Post is also
a challenge unless you can find out where people making up your market segment live. If you cannot target your
segment effectively through marketing communication your marketing strategy will fail.

The other aspect of accessibility is being able to distribute your product to your chosen segment. For example a shop
based in South London is unlikely to get a large number of customers from North England. In this instance the shop
will have to reassess its chosen segment or think about solutions to help accessibility such as selling to customers
through the internet.

Size and Suitability Of Segment

Firms need to ensure that the segment is suitable by ensuring that consumers making up the segment are likely to
buy the product and have the spending power to buy the product. There also needs to be an opportunity to increase
product sales within the chosen segment.

For example if the firm's chosen segment involves selling smart phones to people aged 20-30 who don't own a smart
phone. If 95% of this age group own a smart phone, the chosen segment will probably need to be reconsidered as
only 5% of the chosen segment don't own a smart phone.

On the other hand if the firm's marketing strategy involves persuading people to replace their smart phone it may be
a suitable segment as 95% of the segment are the type of people likely to buy smart phones.

Segment suitability also includes the size of the segment. If the segment is too small, potential for sales growth will
be limited. If is is too large, it will be difficult to create marketing activities to suit all of the groups included in the
segment.
Actionability of Segment

Even if all of the criteria listed above are satisfied a segment is unsuitable unless the business has the resources to
cater for the needs of the segment. For example a small business with a £45000 turnover may struggle to fulfill a
multi million pound manufacturing contract.

Market Segmentation: 7 Bases for Market Segmentation

Some of the major bases for market segmentation are as follows: 1. Geographic Segmentation 2. Demographic Segmentation 3. Psychographic
Segmentation 4. Behavioristic Segmentation 5. Volume Segmentation 6. Product-space Segmentation 7. Benefit Segmentation.

A large number of variables are used to segment a consumer market.

The most common bases for segmenting markets are as follows:

1. Geographic Segmentation:
Geographic location is one of the simplest methods of segmenting the market. People living in one region of the country have purchasing and
consuming habit which differs from those living in other regions. For example, life style products sell very well in metro cities, e.g., Mumbai,
Delhi, Kolkata and Chennai but do not sell in small towns. Banking needs of people in rural areas differ from those of urban areas. Even within a
city, a bank branch located in the northern part of the city may attract more clients than a branch located in eastern part of the city.

2. Demographic Segmentation:
Demographic variables such as age, occupation, education, sex and income are commonly used for segmenting markets.

(a) Age:
Teenagers, adults, retired.

(b) Sex:
Male and female.

(c) Occupation:
Agriculture, industry, trade, students, service sector, house-holds, institutions.

(i) Industrial sector:

Large, small, tiny.

(ii) Trade:
Wholesale, retail, exporters.

(iii) Services:
Professionals and non-professionals.

(iv) Institutions:
Educational, religions, clubs.

(v) Agriculture and cottage industries.

(d) Income Level:
Above Rs. 1 lakh per annum, Rs. 50,000 to Rs. 1 lakh, Rs. 25,000 to Rs. 50,000 per annum, i.e., higher, middle and lower.

(e) Family Life-cycle:
Young single, young married no children, young married youngest child under six, young married youngest child over six, older married with
children, older married no children under eighteen, older single, etc.

3. Psychographic Segmentation:
Under this method consumers are classified into market segments on the basis of their psychological make-up, i.e., personality, attitude and
lifestyle. According to attitude towards life, people may be classified as traditionalists, achievers, etc.

Rogers has identified five groups of consumer personalities according to the way they adopt new products:
(а) Innovators:
These are cosmopolitan people who are eager to try new ideas. They are highly venturesome and willing to assume the risk of an occasional bad
experience with a new product.

(b) Early Adopters:

These are influential people with whom the average person checks out an innovation.

(c) Early Majority:

This group tends to deliberate before adopting a new product. Its members are important in legitimising an innovation but they are seldom
leaders.

(d) Late Majority:

This group is cautious and adopts new ideas after an innovation has received public confidence.

(e) Laggards:
These are past-oriented people. They are suspicious of change and innovations. By the time they adopt a product, it may already have been
replaced by a new one. Understanding of psychographic of consumers enables marketers to better select potential markets and match the product
image with the type of consumer using it. For example, women making heavy use of bank credit cards are said to lead an active lifestyle and are
concerned with their appearance. They tend to be liberated and are willing to try new things.

Psychographic classification may, however, be an oversimplification of consumer personalities and purchase behaviour. So many factors
influence consumers that an early adopter of one product might well be a laggard for some other product and vice versa.

4. Behavioristic Segmentation:
In this method consumers are classified into market segments not the basis of their knowledge, attitude and use of actual products or product
attributes.

Any of the following variables might be used for this purpose:

(а) Purchase Occasion:
Buyers may be differentiated on the basis of when they use a product or service. For example, air travellers might fly for business or vacation.
Therefore, one airline might promote itself as a business flyer while another might target the tourists.

(b) Benefits Sought:

The major benefit sought in a product is used as the basis of classify consumers. High quality, low price, good taste, speed, sex appeal are
examples of benefits. For example, some air travellers prefer economy class (low price), while others seek executive class (status and comfort).

(c) User Status:

Potential buyers may be classified as regular users, occasional users and non-users. Marketers can develop new products or new uses of old
products by targeting one or another of these groups.

5. Volume Segmentation:
Consumers are classified light, medium and heavy users of a product. In some cases, 80 per cent of the product may be sold to only 20 per cent of
the group. Marketers can decide product features and advertising strategies by finding common characteristics among heavy users. For example,
airlines having ‘Frequent Flyer’ are using user rate as the basis of market segmentation. Generally, marketers are interested in the heavy user
group.

But marketers should pay attention to all the user groups because they represent different opportunities. The non-users may consist of two types
of people— those who do not use the product and those who might use it. Some may change over time from a non-user to a user.

Those who do not use due to ignorance may be provided extensive information. Repetitive advertising may be used to overcome inertia or
psychological resistance. In this way non-users can gradually be converted into users.

6. Product-space Segmentation:
Here the buyers are asked to compare the existing brands according to their perceived similarity and in relation to their ideal brands. First, the
analyst infers the latent attributes that consumers are using to perceive the brand. Then buyers are classified into groups each having a distinct
ideal brand in mind. The distinctive characteristics of each group are ascertained.

7. Benefit Segmentation:
Consumer behaviour depends more on the benefit sought in product/service than on demographic factors. Each market segment is identified by
the major benefits it is seeking. Most buyers seek as many benefits as possible. However, the relative importance attached to individual benefits
differs from one group to another. For example, some consumers of toothpaste give greater importance to freshness while other prefer taste or
brightness of teeth.

Research studies on benefit segmentation reveal that it is easier to take advantage of existing segment, then to create new segments. As no brand
can appeal to all consumers, a marketer who wants to cover the market fully must offer multiple brands.