Essay Summary of Market Segmentation

Category: Market, Microeconomics
Last Updated: 17 Aug 2022
Essay type: Summary
Pages: 11 Views: 2012

Market segmentation is the process of dividing the market into parts that are different from one another. It is the identification of potential customers who would buy your products. Different customers have different needs and it is not possible to satisfy these needs by treating all customers in a similar way. Most organisations do not have all the resources to satisfy the needs of all the customers. Therefore, it is necessary to identify the similar groups of customers and to serve one or two group with the available resources.

When market segmentation is done well the members in each segment of the market are as similar to each other as possible inside a segment and are also as different as possible among segments. Levels of market segmentation: 1. Mass Marketing: providing the same product to all consumers. Example: Salt.  Segment marketing: providing different products to many segments. Niche Marketing: providing different products but to sub segments.  Micro-Marketing: providing product which are preferable to individual choices. Segmentation Variables: There are four important bases on which market segmentation are carried out amongst consumer markets.

They are as follows:

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  • Geographic
  • Demographic
  • Psychographic
  • Behavioural

Geographic segmentation: This kind of segmentation divides the market on the basis of geographical area. Marketers use geographic segmentation to divide the markets in geographical areas in order to be able to provide products to consumers depending on their different needs. Different geographical areas have different needs and wants. For example, people living in a village will not have the same needs and wants as the people living in a city. Therefore, it is important for marketers to divide the markets into geographical areas.

This can be done by region, size, climate, population, etc. A geographical area can be a city, country or just a small area in a city depending on the requirements and the similarity of consumer needs and wants. For example, McDonalds’ is a global organisation selling burgers in so many countries. It is known for its beef burgers but McDonalds’ in India does not sell beef burgers instead selling chicken burgers as it is against the Hindu religion to eat beef. Demographic segmentation: Demographic originates from the word demography which means the study of population.

This segmentation is done by dividing the market into parts based on the age, gender, income, family lifecycle, education, ethnicity, nationality, religion, etc. Demographic variables are one of the most popular for segmenting consumer groups. As these are common variables differentiating the needs and wants of people. Your browser may not support display of this image. . Examples of demographic segmentation include: Huggies diapers which provide an example for the age demographic segmentation as they produce products (diapers) for kids.

Also Marketers focus on the affluent market segments depending on the income, a good example is designer brands like Louis Vuitton providing luxury goods for consumers earning higher income. Gender segmentation is mostly used in the cosmetics industry or the clothing industry or even magazines, for example vogue has a separate magazine for men, i. e. “Vogue Men’s”. Psychographic segmentation: Psychographic segmentation divides the market on the basis of personality, social class and lifestyle. Lifestyle segmentation involves dividing the market depending on the way people live.

Marketers divide these segments on the basis of Activities-Interests-Opinions of the consumers. This includes what the interests of the consumers are, what the consumers prefer to buy and where he /she buy it from. Social Class is particularly based on the occupation of the consumer. This is divided into various classes such as: . Upper middle class . Middle class . Lower middle class . Skilled worked class . Working class . Subsistence Personality segmentation is the development of products based on personalities in order to match the target consumer personality.

For example, sports products are used by people having a sports personality. Behavioural segmentation: Behavioural segmentation refers to the purpose of a consumer buying a product or service. It is simply the benefit a customer seeks from a product he/she buys. Every customer looks for different benefits from different products. For example, a customer could seek various benefits from toothpaste purchased. Some buy it for teeth whitening, some for gum care, some to control tartar, some to freshen breath. Hence, the marketer needs to understand and segment the benefit sought by each customer.

Some more examples of behavioural segmentation include, airlines divided into first class, business class and economy class. Similarly restaurants have non-smoking seating as well as smoking seating. Based on these factors appropriate marketing mixes can be developed. There is another variable under the behavioural segmentation which is occasion. This determines the need for the product on the right time or occasion. For example, Christmas trees have the maximum demand during Christmas. Also the rate of usage of a product is another important variable. It divides the users into light, medium and heavy users.

The marketers must aim to attract the heavy users as they provide most of the business. Targeting: Targeting is the second stage of the segmenting-targeting-positioning-process (STP). Targeting takes place after a marketer has divided the market in to segments (segmentation). Targeting is understanding the needs and wants of the market segment and using the resources to meet these needs. In the process of targeting the marketer needs to select one of the segments of the market and use its resources to satisfy the needs and wants of that particular segment of the market.

There are different targeting approaches depending on the type of target markets. They are as follows: Your browser may not support display of this image.  The first approach is about a single product and a single segment of the market as shown in the above figure. This approach deals with just one target market and aims to produce one product to fulfil the demands of that particular market. For example: Benson and Hedges manufactures tobacco (cigarettes) for one market segment which is smokers.

They produce cigarettes which are consumed only by smokers. Hence, their target market is smokers. Therefore, they need to identify the needs and wants of smokers and come up with appropriate marketing mixes. This also includes customized products for individuals. An example of this is Levis Strauss, which makes personalised jeans for women. These are blue jeans customized to an individual’s preference of size and fit. Other examples of customized products include NikeiD custom shoes which allow its customers to design their own shoes. Your browser may not support display of this image.

The second approach is when one product is produced to satisfy the needs of many segments of the market. It is the one with single product and many segments. This can be related to mass marketing where one product is aimed at the entire market. Example: budget airlines like Easy Jet which provide cheap flights to many segments of the market. Nokia is another example which manufactures mobile phones for various different market segments. Your browser may not support display of this image.

The third and last approach is the multi-segment approach. This includes the marketing of many different products within one organisation to target several segments of the market. This example is very common with big brands which usually gain success in one product and then expand more differentiated products involving much more segments of the markets. Sony is a good example as they provide many different products for different target markets. Such as Sony Laptops, Digital cameras, Television, gaming, mobiles, etc. Also another potential example is Virgin which has various divisions targeting many segments in the market.

Some of which include Virgin media which serves as a mobile and broadband company, Virgin Atlantic consisting of airlines, Virgin Active which provides gym and health care, and many more. This in marketing terms is also known as diversification. Positioning: After dividing the market into segments and identifying the target markets, it is important to develop a marketing mix with the help of the positioning strategy. Marketing Mix: The marketing mix consists of the 4p’s of marketing which are used by marketers to achieve their objectives relating to the target market.

The variables of the marketing mix must meet with the needs of the target markets. These in other words are the ingredients of the offerings you make to the consumers. The elements of the marketing mix include:  Price: This determines the price of your product which is very important. It has to be compared to the price of your competitors. This being the only element in the marketing mix which creates revenue carries a lot of importance. It is quite difficult to determine the price; hence there are various strategies that can be used.  Market Skimming: high price and less supply Market penetration: low price and high supply Your browser may not support display of this image.

Product: This element is simply meeting the requirements of the target market in relationship to the desired product. It is necessary to identify the wants and needs of the target market and to develop the product according to these. This can be done with the help of the benefit sought variable of the behavioural segmentation which we saw earlier. Identifying the benefit sought from the product by the consumer it should be developed appropriately.

Also the company needs to know what the unique selling point is about their product which is different from the competitors.  Place: this refers to the distribution of the product by the company or business. Basically it is the location of the place where the products will be available to the consumers. There are different channels of distribution as shown in the diagram below: Your browser may not support display of this image. Promotion: Promotion can take place in the form of point of sale promotion, sponsorships, etc.

The benefits of goods and services needs to be told to the target market through promotion which could be through advertising through media, public relations is done by maintaining good relations with the media, sales promotion which is basically providing offers, coupons and so on for a short period, mailing by sending e-mail to large amount of people. This can be done now-a-days by purchasing databases. Positioning is how products appear compared to other products in the market. The main aim of positioning is to find out competitors position in the marketplace.

The products of competitors are positioned on the basis of their understanding of the needs and wants of the customers. Positioning is an important tool which helps the company to place an image of the product they are selling. This is very important as it decides the sale of the product. It is important for a company to define its product or service on the basis of the following:  Pricing: It is very important to define the price of the product for the customers to know if it is a luxury product or in the middle.* Quality: Does the product have a good quality? When it is referred to a food product this factor is most important.

It is important to provide the calories level, fat level, etc. Give the information about product warranty, return policies, etc.  Service: Do you provide customer service? * Distribution: Where is your available to customers? * Packaging: This makes an impact on the customer the most. The more attractive the product looks, the more people are willing to buy it. Positioning includes Brand positioning which is done with the help of a perceptual map shown below depending on the price and quality of the product: Your browser may not support display of this image.

Segmenting business markets: Segmenting is also carried out amongst businesses who sell their products to other businesses and not consumers. Segmenting a business market helps a company to analyze the market, select the finest markets for targeting, and then supervise marketing programs. The selection of the target markets for businesses is done in the same way as it is done for the consumers. But the segmentation process has some differences which include: a detailed understanding of the purchase process which is very different from the consumer market.

Also there are differences in the basis for segmentation and execution of segmentation. Demographics: Demographic segmentations also known as “firmographic” segmentation in the business to business markets are practical and may be enough. The gears of demographics in business to business segmentation include the size, the growth prospective and the location of the targeted process. This kind of segmentation often is not very difficult as the scope of competitors is few and it is not very restricted to copy. Unlike, behavioural segmentation needs to personalize and individualize products.

In this kind of situation it is very important to understand the needs of the target market but it is also important to know whose needs to take under consideration, the needs of the consumers or the needs of the production team? In this segmentation it is essential to group segments into industry types in order to understand the wants of the industry as a whole and develop a marketing mix that meets the requirements. This can also be done using the cluster analysis. Businesses need to understand the size of the buyer business and mould their goods accordingly.

For example, Xerox would not use the same amount of resources for selling a copier to a small business owner as to how much it would use for selling thousands of copiers to a big firm. Purchasing approaches: The needs of a business firm are well understood with the help of its purchasing process such as the power of buying products, the policies of purchasing, purchasing criteria. Depending on these factors there is a requirement for different marketing efforts. There are two stages in the purchase process, the first time buyers and the long time users. Both of these buyers have different expectations from the supplying business.

It is important to understand the stage of the firm to choose the right marketing approach. Factors based on situations: As seen in the consumer market situation affects the market segmentation, it is also prevalent in the business market segmentation. Urgency of delivery or demand of the product can affect the segmentation of the market. Benefits of STP (Segmentation-Targeting-Positioning) process: The process of STP allows an organisation to gain a competitive advantage in the market. Due to segmentation and targeting limited resources are used for the best purpose, targeting only those segments which provide potential customers.

This process allows the company to understand the potential and actual customers. A detailed understanding of the market allows the company to develop a suitable marketing mix which is appropriate for the needs and wants of the target market. When a company knows its market well, it is able to identify competitive products and develop responsive products. For example: after the launch of I-Phone most of its competitors which target the same market produced mobile phones similar to the I-Phone like the Blackberry storm. Conclusion: Successful companies need to understand the markets they serve and have to compare and contrast their marketing mix to the needs and wants of their market in a process which is target marketing.  Segmentation is the division of the market into small group on the basis of similar needs and wants in order to understand the requirements for the marketing process.  The process of target marketing is very important for business because it helps them understand and identify their potential customers giving them the opportunity to develop their marketing process or approach suitable to the needs and benefits sought by these potential customers.

This not only reduces the wastage of resources but also increases turnover.  Positioning is the process of displaying a product to a consumer. It includes advertising, creating an image of the product for the consumer. Effective positioning is when the company can tell what the consumer thinks about its products in comparison to those of the competitors.  Segmentation for business to business markets can be done in the way as for the consumer markets in all most all ways. But some bases for segmentation for the business markets involve demographics, purchase approach, situational factors, etc.


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