Businesses today are forced to leverage their presence across geographic boundaries. They have to identify their market appropriately, with their niche across horizons and leverage their marketing potentials to enhance their ROI.
It is not just enough if they identify the market but they should also approach it appropriately to prosper. Market Segmentation helps business to divide their potential customers into different groups based on certain characteristics. This would help them to target a particular segment more effective based on their needs and enhanced their customer base.
What is Market Segmentation?
Market Segment is the process of dividing the market into groups or segments based on the distinctive characteristics exhibited by the group. In market segmentation, the marketing efforts are tailor designed to meet the needs and requirements of that particular segment as opposed to mass marketing where the marketing activities are directed to the entire market.
Importance of Market Segmentation:
Market segmentation is an important marketing strategy to enhance the quantum of sales for business as people differ in their preferences and tastes.
- Market segment helps in personalizing all marketing campaigns according to the group.
- It saves time, money, energy and other resources of the businesses as the target market is segmented into groups. This is cost effective compared to targeting every customer individually.
- Grouping similar customers into one segment helps marketers to target them specifically and in a cost effective way.
- There is absolutely no risk of ineffective and unsuccessful marketing with market segmentation.
- There is a high success rate in such campaigns as they personalize strategies based on key information.
- Segmentation is used to prioritize the target audience, it helps in identifying the most prospective leads and all marketing resources are diverted in transforming them into customers.
- Market segmentation could also be related to Niche Marketing, which involves targeting a well-defined and specific segment of the market to find prospects.
Types of Market Segmentation:
There are different types of market Segmentation based on which businesses divide their customer base and allocate their marketing strategies appropriately.
In Geographical segmentation, the people are divided based on their location. This is based on the concept that people living in a particular geographical location would have similar buying habits compared to those living in other parts of the country.
For example, People living in Southern India may not have any need to buy snowboards or snow boots as it hardly snows in this part of the Country, all the equipment needed for snow sports may be required by those living in the hilly Northern parts where it snows considerably.
Another way of segmenting marketing based on geography is to target people living in urban and rural areas differently. Their needs and requirements are different and a fast food chain will have practically no influence on people living in rural areas who prefer eating organic and homemade food.
Segmentation based on Demographics:
Dividing people based on their age, gender, sex, occupation, education, income, community and social status, size of the family and marital status is the basis for demographic segmentation.
The idea of such segmentation is that the buying behavior of a consumer is defined by his demographics and other variables that could be easily measured. A number of e-commerce clothing merchants divide their online stores into different categories based on the age of its targets. A store specializing in new born essentials would target customers based on their marital status and social status.
Segmentation based on the psychology of consumers:
Psychological factors such as the personality and attitude of an individual and their lifestyle all decide their purchasing capacity. The personality refers to the attitudes, traits, and habits of the people and the market is accordingly segmented based on these traits.
Introverts buy products that help them to enjoy their own company whereas extroverts concentrate on things that they could share and enjoy with their friends. Even the person’s level of aggressiveness and ambitiousness decides on what products they concentrate on.
Lifestyle depends on how much the person is willing to spend on things that matter to him the most. Some elite stores would target elite people and concentrate less on others. Thus the beliefs, opinions, interests, and activities of people influence their buying power considerably.
Segmentation based on Behavior:
The individual’s knowledge about the product and its attitude towards the usage of the product is the basis for behavioral segmentation. Some of the variables that are associated with the behavior of the people are the occasions, status of the user, the rate of usage of the product, readiness stage to buy the product, brand loyalty, the attitude of the individual etc.
Based on behavior, buyers can be defined as those who buy the product occasionally, those who buy only if they would gain some benefit out of the product and other who buy out of interest irrespective of it being useful or not. Buyers can also be classified as potential users, first-time users, regular users, ex-users etc. paving way for marketers to segment the market under such domains. Often the market gets segmented based on the level of usage as,
- Moderate users
- Heavy users
- Occasional users.
Segmenting customers based on their geography, psychology, behavior, and demographics helps brands to plan and mediate their marketing strategies appropriately. This also helps them to concentrate specifically on a single group and profit from it rather than mediating its marketing potentials to the entire market loaded with a mixture of needs and desires.
Volume refers to the quantum of usage of a product. Customers are generally categorized into three types as,
- Medium users of a product
- Heavy users of a product
- Light users of a product.
In some instances, more than 80% of the product would be sold to just 20% of the group. Marketers generally segment their advertising strategies by associating it with the common characteristics of heavy users.
Airlines have frequent flyer option for their heavy users and mediate this strategy on the basis of segmentation. Marketers pay keen attention to the heavy users but other segments also pose opportunities for sales returns. Even the low user groups have potentials for sales returns as they could change into moderate or heavy users over time. Those who do not use a product owing to ignorance can be approached with extensive information and repeated advertising campaigns. This would help them overcome their resistance and gradually convert non-users into users.
Segmentation based on the Product:
In this type of marketing strategy, buyers are asked to compare the existing brands in contrast to their ideal brands or with their perceived similarity. The marketing analyst has to identify all the latent attributes that the consumer uses to perceive brands, and then they are classified into groups that have a distinct brand in their mind.
These distinctive characteristics are calculated and are compared with the existing brands and the results are made known to the consumers. If they ascertain that the difference is minimal then they are more likely to start using the existing brand.
Segmentation based on benefits:
More than demographics and psychological segmentations, what matters the most is the benefit segmentation as the behavior of the consumer depends on the benefits he would gain from the product or service. Almost all of the market segments are identified by the benefits they seek. Buyers seek many benefits but the relative importance associated with an independent benefit differs among groups.
For example, some users of a toilet soap brand give inherent importance to its aroma whereas others give importance to cleanliness and antiseptic benefits.
It is been proven that as far as benefit segmentation is concerned, it is a good idea to leverage on the existing segment rather than to create new segments as no brands would appeal to everyone. The marketer has to offer multiple brands to cover the entire segment.
Bases of Market Segmentation:
Marketers classify their audiences within a particular segmentation on the bases of certain characteristics. This helps them in addressing the needs of their target audience better and to leverage their marketing initiatives deep within a segment. The bases for market segmentation are,
The marketers divide the market into smaller groups based on gender. The idea behind this segmentation is that the interests and preferences of both men and women are different.
Marketing strategies for men would not work out for women as the former relies on details while the latter submits to rationale and sentiments. Also, men would not purchase a product meant for females and the reverse holds true too. This type of segmentation based on gender is important for brands that are associated with cosmetics, jewelry, apparels, footwear, sportswear etc.
The products, services and also the marketing strategy would be different for customers in different age groups. Infants and toddlers would be targeted by nappies and formula food and toys brands.
Pre-schoolers and school going children would be targeted by toys, books, school bags brands and teenagers would be targeted by cosmetics, apparels and foot wear brands etc.
Income is an important basis for market segmentation as it decides the purchasing power of the prospects. Individuals based on their monthly income levels are classified into three segments, namely high-income group, mid-income, and low-income groups. Brands catering to the high-income group would have elite brands and products that are pretty costly that the low-income group would not invest in.
Travel agencies have different holiday packages for bachelors, newly married couple and for couples with children. Similarly, hotel and hospitality industry also renders its services based on the marital status and the family size of their customers.
The nature of the job decides on the product they would be interested in to purchase. Products that appeal to students would not appeal for a professional office going, person.
The users of a product are generally differentiated into heavy, light and medium users. Based on the consumer’s awareness of the product, the marketing strategies could be mediated.
Marketers along with physical factors also segment the market based on the lifestyle of their consumers. Factors under lifestyle are hobbies, religion, income level, interests etc. that could affect the decision taken by the consumer psychologically.
Examples of Market Segmentation:
Almost all the existing businesses leverage in market segmentation. It has become a common practice with all the industries and it is not possible for any brand to approach the mass of people with the same set of marketing tactics. Some examples of market segmentation that has proven to be beneficial in escalating the profits of a business are discussed here,
A brand that sells beauty care products has to segment its market based on the volume of usage and based on the income level of its consumers. It cannot sell a lipstick product that cost 600 rupees to a girl of low-income group. Similarly, a food chain brand should segment its customers based on their age and target older age group consumers with organic, easily digestible and nutritious food and target its young consumer with fast foods and foods that could be taken on the move.
Another example is from an online travel agency that organized adventurous vacations for its consumers all over the world. It split its customers into three different segments as it is difficult to create packages that would appeal to all.
- Segment A consists of a newly married couple who would afford for exotic locations and adventurous trips.
- Segment B consists of families from medium income groups who wish to have kids friendly and safe vacation packages that would be fun and economical for them to travel with small children.
- Segment C consists of old people, retired from jobs, their places of interest would be devotional pilgrimages.
If the travel company fails to segment its consumers and offers the same package for all of them, then it would fail in its business.
The market segment is the proven convenient method to help marketers cut their costs and enhance their sales and boost their sales conversations. It allows them to be very specific with their marketing plans and bombards them with proven sales returns. It ultimately helps brands to target a niche by studying the user base after segmenting them into smaller units.
Consumers of business are divided into small groups based on their desires, preferences and shared needs. By segmenting its consumers, the business is able to adjust its products and alter its marketing techniques so as to appeal to each of this group more effectively.
Marketing by segmentation could also be referred to as targeted marketing which enables businesses to tailor their product and advertising skills according to demographics so as to enhance their sales returns.