What is Segmentation?

Segmentation refers to a process of bifurcating or dividing a large unit into various small
units which have more or less similar or related characteristics.

Market Segmentation

 Market segmentation is a marketing concept which divides the complete market set up
into smaller subsets comprising of consumers with a similar taste, demand and
preference.

 A market segment is a small unit within a large market comprising of like minded
individuals.
 One market segment is totally distinct from the other segment.
 A market segment comprises of individuals who think on the same lines and have similar
interests.
 The individuals from the same segment respond in a similar way to the fluctuations in the
market.
 Market segmentation is one of the most efficient tools for marketers to cater to their
target group.
Need for Market Segmentation
 Market Segmentation helps the marketers to devise appropriate marketing strategies and
promotional schemes according to the tastes of the individuals of a particular market
segment. A male model would look out of place in an advertisement promoting female
products. The marketers must be able to relate their products to the target segments.

 Market segmentation helps the marketers to understand the needs of the target audience
and adopt specific marketing plans accordingly. Organizations can adopt a more focussed
approach as a result of market segmentation.

 Market segmentation also gives the customers a clear view of what to buy and what not
to buy. A Rado or Omega watch would have no takers amongst the lower income group
as they cater to the premium segment. College students seldom go to a Zodiac or Van
Heusen store as the merchandise offered by these stores are meant mostly for the
professionals. Individuals from the lower income group never use a Blackberry. In
simpler words, the segmentation process goes a long way in influencing the buying
decision of the consumers.

 Market segmentation helps the organizations to target the right product to the right
customers at the right time. Geographical segmentation classifies consumers according to
their locations. A grocery store in colder states of the country would stock coffee all
through the year as compared to places which have defined winter and summer seasons.
 Segmentation helps the organizations to know and understand their customers better.
Organizations can now reach a wider audience and promote their products more
effectively. It helps the organizations to concentrate their hard work on the target
audience and get suitable results.

Benefits of Market Segmentation

Marketing segmentation takes effort and resources to implement. However, successful

marketing segmentation campaigns can increase the long-term profitability and health of a
company. Several benefits of market segmentation include;

 Increased resource efficiency. Marketing segmentation allows management to focus on

certain demographics or customers. Instead of trying to promote products to the entire
market, marketing segmentation allows a focused, precise approach that often costs less
compared to a broad reach approach.

 Stronger brand image. Marketing segment forces management to consider how it wants
to be perceived by a specific group of people. Once the market segment is identified,
management must then consider what message to craft. Because this message is directed
at a target audience, a company's branding and messaging is more likely to be very
intentional. This may also have an indirect effect of causing better customer experiences
with the company.

 Greater potential for brand loyalty. Marketing segmentation increases the opportunity
for consumers to build long-term relationships with a company. More direct, personal
marketing approaches may resonate with customers and foster a sense of inclusion,
community, and a sense of belonging. In addition, market segmentation increases the
probability that you land the right client that fits your product line and demographic.

 Stronger market differentiation. Market segmentation gives a company the opportunity

to pinpoint the exact message they way to convey to the market and to competitors. This
can also help create product differentiation by communicating specifically how a
company is different from its competitors. Instead of a broad approach to marketing,
management crafts a specific image that is more likely to be memorable and specific.

 Better targeted digital advertising. Marketing segmentation enables a company to

perform better targeted advertising strategies. This includes marketing plans that direct
effort towards specific ages, locations, or habits via social media.

Types of Market Segmentation

There are four primary types of market segmentation. However, one type can usually be split
into an individual segment and an organization segment. Therefore, below are five common
types of market segmentation.
Geographic Segmentation

Geographic segmentation is technically a subset of demographic segmentation. This

approach groups customers by physical location, assuming that people within a given
geographical area may have similar needs. This strategy is more useful for larger companies
seeking to expand into different branches, offices, or locations.

Geographic segmentation divides the market on the basis of geography. This type of market
segmentation is important for marketers as people belonging to different regions may have
different requirements. For example, water might be scarce in some regions which inflates
the demand for bottled water but, at the same time, it might be in abundance in other regions
where the demand for the same is very less.

People belonging to different regions may have different reasons to use the same product as
well. Geographic segmentation helps marketer draft personalized marketing campaigns for
everyone.

Demographic Segmentation

Demographic segmentation is one of the simple, common methods of market segmentation.

This market segmentation strategy assumes that individuals with similar demographics will
have similar needs. Demographic segmentation divides the market on the basis of
demographic variables like age, gender, marital status, family size, income, religion, race,
occupation, nationality, etc. This is one of the most common segmentation practice among
marketers. Demographic segmentation is seen almost in every industry like automobiles,
beauty products, mobile phones, apparels, etc and is set on a premise that the customers’
buying behaviour is hugely influenced by their demographics.

Behavioural Segmentation

Behavioral segmentation relies heavily on market data, consumer actions, and decision-
making patterns of customers. This approach groups consumers based on how they have
previously interacted with markets and products. This approach assumes that consumers prior
spending habits are an indicator of what they may buy in the future, though spending habits
may change over time or in response to global events.

The market is also segmented based on audience’s behaviour, usage, preference, choices and
decision making. The segments are usually divided based on their knowledge of the product
and usage of the product. It is believed that the knowledge of the product and its use affect
the buying decision of an individual. The audience can be segmented into –

 Those who know about the product,

 Those who don’t know about the product,

 Ex-users,

 Potential users,

 Current Users,

 First time users, etc.

People can be labelled as brand loyal, brand-neutral, or competitor loyal. They can also be
labelled according to their usage. For example, a sports person may prefer an energy drink as
elementary (heavy user) and a not so sporty person may buy it just because he likes the taste
(light/medium user).

Psychographic Segmentation

Often the most difficult market segmentation approach, psychographic segmentation strives
to classify consumers based on their lifestyle, personality, opinions, and interests. This may
be more difficult to achieve, as these traits (1) may change easily and (2) may not have
readily available objective data. However, this approach may yield strongest market segment
results as it groups individuals based on intrinsic motivators as opposed to external data
points. Psychographic Segmentation divides the audience on the basis of their personality,
lifestyle and attitude. This segmentation process works on a premise that consumer buying
behaviour can be influenced by his personality and lifestyle. Personality is the combination
of characteristics that form an individual’s distinctive character and includes habits, traits,
attitude, temperament, etc. Lifestyle is how a person lives his life.

Personality and lifestyle influence the buying decision and habits of a person to a great
extent. A person having a lavish lifestyle may consider having an air conditioner in every
room as a need, whereas a person living in the same city but having a conservative lifestyle
may consider it as a luxury.

How to Determine Your Market Segment

There's no single universally accepted way to perform market segmentation. To determine

your market segments, it's common for companies to ask themselves the following questions
along their market segmentation journey.

Phase I: Setting Expectations/Objectives

 What is the purpose or goal of performing market segmentation?

 What does the company hope to find out by performing marketing segmentation?

 Does the company have any expectations on what market segments may exist?

Phase 2: Identify Customer Segments

 What segments are the company's competitors selling to?

 What publicly available information (i.e. U.S. Census Bureau data) is relevant and
available to our market?

 What data do we want to collect, and how can we collect it?

 Which of the five types of market segments do we want to segment by?

Phase 3: Evaluate Potential Segments

 What risks are there that our data is not representative of the true market segments?

 Why should we choose to cater to one type of customer over another?

 What is the long-term repercussion of choosing one market segment over another?

 What is the company's ideal customer profile, and which segments best overlap with this
"perfect customer"?
 Phase 4: Develop Segment Strategy

 How can the company test its assumptions on a sample test market?

 What defines a successful marketing segment strategy?

 How can the company measure whether the strategy is working?

Phase 5: Launch and Monitor

 Who are key stakeholders that can provide feedback after the market segmentation
strategy has been unveiled?

 What barriers to execution exist, and how can they can be overcome?

 How should the launch of the marketing campaign be communicated internally?

Bases Of Market Segmentation

Segmenting is dividing a group into subgroups according to some set bases. These bases range
from age, gender, etc. to psychographic factors like attitude, interest, values, etc.

Gender

Gender is one of the most simple yet important bases of market segmentation. The interests,
needs and wants of males and females differ at many levels. Thus, marketers focus on different
marketing and communication strategies for both. This type of segmentation is usually seen in
the case of cosmetics, clothing, and jewellery industry, etc.

Age Group

Segmenting market according to the age group of the audience is a great strategy for
personalised marketing. Most of the products in the market are not universal to be used by all the
age groups. Hence, by segmenting the market according to the target age group, marketers create
better marketing and communication strategies and get better conversion rates.

Income

Income decides the purchasing power of the target audience. It is also one of the key factors to
decide whether to market the product as a need, want or a luxury. Marketers usually segment the
market into three different groups considering their income. These are

 High Income Group

 Mid Income Group

 Low Income Group

This division also varies according to the product, its use, and the area the business is operating
in.

Place

The place where the target audience lives affect the buying decision the most. A person living in
the mountains will have less or no demand for ice cream than the person living in a desert.

Occupation

Occupation, just like income, influences the purchase decision of the audience. A need for
an entrepreneur might be a luxury for a government sector employee. There are even many
products which cater to an audience engaged in a specific occupation.

Usage

Product usage also acts as a segmenting basis. A user can be labelled as heavy, medium or light
user of a product. The audience can also be segmented on the basis of their awareness of the
product.

Lifestyle

Other than physical factors, marketers also segment the market on the basis of lifestyle. Lifestyle
includes subsets like marital status, interests, hobbies, religion, values, and other psychographic
factors which affect the decision making of an individual.

Limitations of Market Segmentation

The benefits above can't be achieved with some potential downsides. Here are some
disadvantages to consider when considering implementing market segmentation strategies.

 Higher upfront marketing expenses. Marketing segmentation has the long-term goal of
being efficient. However, to capture this efficiency, companies must often spend
resources upfront to gain the insight, data, and research into their customer base and the
broad markets.

 Increased product line complexity. Marketing segmentation takes a large market and
attempts to break it into more specific, manageable pieces. This has the downside risk of
creating an overly complex, fractionalized product line that focuses too deeply on
catering to specific market segments. Instead of a company having a cohesive product
line, a company's marketing mix may become too confusing and inconsistently
communicate its overall brand.

 Greater risk of misassumptions. Market segmentation is rooted in the assumption that

similar demographics will share common needs. This may not always be the case. By
 grouping a population together with the belief that they share common traits, a company
may risk misidentifying the needs, values, or motivations within individuals of a given
population.

 Higher reliance on reliable data. Market segmentation is only as strong as the

underlying data that support the claims that are made. This means being mindful of what
sources are used to pull in data. This also means being conscious of changing trends and
when market segments may have shifted from prior studies.

Target Marketing
Target Marketing refers to a concept in marketing which helps the marketers to divide the
market into small units comprising of like minded people. Such segmentation helps the
marketers to design specific strategies and techniques to promote a product amongst its target
market. A target market refers to a group of individuals who are inclined towards similar
products and respond to similar marketing techniques and promotional schemes.

Kellogg’s K Special mainly targets individuals who want to cut down on their calorie intake. The
target market in such a case would be individuals who are obese. The strategies designed to
promote K Special would not be the same in case of any other brand say Complan or Boost
which majorly cater to teenagers and kids to help them in their overall development. The target
market for Kellogg’s K Special would absolutely be different from Boost or Complan.

Jordan, a college student went to a nearby retail store to purchase a shirt for himself. The retailer
tried hard to sell a nice formal shirt to him, but somehow could not convince Jordan. Jordan left
the store sad and empty handed.

Basis of Target Marketing

 Age

 Gender

 Interests

 Geographic location

 Need

 Occupation

Need of Target Marketing

 Organizations can use similar kind of strategies to promote their products within a target
market.
  They can adopt a more focussed approach in case of target marketing. They know their
customers well and thus can reach out to their target audience in the most effective way.

How to create Target Market

 The organization must first decide who all individuals would fit into a particular segment.
A male and a female can’t be kept in the same segment. The first and the foremost step is
to decide on the target market.

 The next step is to identify need and preference of the target market. It is essential to find
out what the target market expects from the product.

 Once the target market is decided, organizations can decide on the various strategies
helpful to promote their product.