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Importance of Market Segmentation and Targeting
1. Benefits of Market Segmentation

Competitive advantage Market segmentation helps the company in product differentiation. A
company can enter a new market with an existing product by creating a different image, or
the company can develop a product to cater to the needs of a particular segment. This can
help the company in targeting another segment and reintroducing the product. If the company
is the first to enter the market, it can capture the largest market and develop a product to suit
every segment. This allows the company to hold a strong position in the market for a longer
period.
Increased sales and revenue Improved customer satisfaction, enhanced products or image
development, and the possibility for more effective competition through cost reduction all
lead to increasing sales and revenue. High market share can be achieved as we can produce
products to satisfy customer needs and wants.
Enhanced marketing efficiency Market segmentation can decrease the cost of promotion
since the product is well focused, and hence the promotion can be done more effectively. It is
very easy to identify the most cost-effective way to communicate with the customer. If the
selling company knows the product has a good prospect in areas having hot climatic
conditions, then promotions can be done during summer seasons, saving a lot of cost.
Improved customer satisfaction the needs and wants of customers are different in the market.
But a company cannot satisfy the needs of all consumers. By using market segmentation, the
organization can target only those customers they can serve best. A company is thus able to
serve the needs of a customer in a better way, and as a result, the customer is completely
satisfied with the product. In today's market, customers are the most important for any
product, and to keep them, the company has to offer different products for the same sort of
item to make sure that they are retained, and their needs are fulfilled.
1.1 Improved Customer Satisfaction

Improved customer satisfaction comes because customer needs are better met. Asking too
much or too little for a product will lead to unsatisfactory findings. When a market is broken
down into segments, the needs are more easily determined. From this, the company can better
design their product to meet the needs of the customer. This in turn should lead to the
customer feeling that the product was meant for them. It also reduces the chance that a firm
will lose a customer to a competitor. Often, in mass marketing, a customer is lost to a
competitor who has targeted that customer better. When every company is vying for the
customer's dollar, some will put a greater effort into satisfying their needs than others. The
company who has aimed their product at a specific segment will understand that segment's
needs better. Often it will go the extra step of conducting research with that segment to better
understand which may further increase the competition with competitors for that segment. All
this is beneficial for the customer, who in the end will have his/her needs better met. This all
relies on the fact that the company has segmented the market effectively and efficiently. This
should result in a win-win situation for both the customer and the company. Customer loyalty
is also often associated with high levels of satisfaction. An auto insurance customer who is
satisfied with price and level of service is less likely to switch to a competitor unless they can
better meet the customer’s needs.
1.2 Enhanced Marketing Efficiency

It often becomes cost effective to build products and services that are precisely based on the
defined needs of the customers. Market segmentation enables a company to spend its
marketing budget in a more efficient and effective manner. By being able to identify their
target market and understand their specific needs, a company can determine the exact amount
of promotion required to affect a sale and will be able to ascertain the most effective form
this promotion should take. This is essentially achieved through the matching of customer
needs with product benefits, a central aspect of the positioning process. This, in turn, can
result in the potential for a smaller scale company with a quality product to make inroads and
carve out a niche in an industry, enabling an increase in customer base and potential growth
later. Through these actions, it is likely that the company will also be able to take customers
from competitors who are offering an inferior product on the basis that it is perhaps
insufficiently targeted. Finally, on the basis that market segmentation identifies the varying
customer needs and wants, a company will be less likely to engage in activities that are
degrading in nature to the brand, for fear of alienating a particular customer group.
Enhanced marketing efficiency
1.3 Increased Sales and Revenue

Market segmentation can help a business identify underserved segments, which they can then
focus on to gain a competitive advantage. If the business has identified segments of the
market that are underserved, they may decide to launch a new marketing campaign or even a
new product aimed specifically at that segment. In doing so, they may be able to increase
their market share for that segment, which can be highly profitable. For example, Toyota
recently introduced a new sub-brand called Scion. The vehicles are being marketed to a
younger generation of drivers by emphasizing style, innovation, and value. Toyota is hoping
to steal some market share from Nissan and Honda, who currently have a strong hold on the
younger market. By taking sales away from their rivals, Toyota can effectively increase total
sales in the automotive industry. An increase in market share for a particular segment is not
the only way to increase sales, even if it is the most direct. By identifying segments with the
most growth potential, a company can alter or improve their product to better suit that
segment's needs. This may result in the need for product repositioning, a strategic decision to
alter a product's position in the market due to customer perception or changing market
conditions. The goal is to increase a product's relevance to the consumer to
obtain a higher sales volume for that product. Considering the varying needs and wants of the
customer, a company will often discover that they can extend the product line for a particular
brand by introducing different product models. This strategy is known as product line filling
and product line stretching. The result is increased sales volume and higher revenue for a
product that is now more relevant to a larger number of customers in a particular segment.
1.4 Competitive Advantage
Many firms fail in their attempts to become and remain profitable. They can fail for many
reasons, but one is far more common than the others. This is the failure to serve a particular
market. Serving a market means satisfying the low of certain group of consumers within a
given market. In essence, it is focusing on those consumers most likely to buy your product
rather than trying to serve all consumers. Firms that fail to use market segmentation often
attempt to serve too large of a market, and thus they fail to serve any group of consumers
effectively. Once a firm has chosen to enter one or more targeted markets, it will be in a far
better position to attain sustainable competitive advantage. Market segmentation and the
identification of target markets can be achieved at a variety of different levels. In some cases,
a single marketing mix will be enough to satisfy the low of an entire market. But in most
cases, to truly satisfy a market and gain its relative preference, the firm will have to
customize a separate marketing mix for each segment. Customization of this nature increases
cost. But it also greatly increases the probability of sale to the product and the probability of
brand loyalty. If successful, this strategy can help to fend off potential competitors by
increasing the cost of entry to the market - that is the cost of putting together a marketing mix
that will convince a significant number of consumers to switch brands. Switched on
consumers can also work as an effective barrier to entry by asking the new competitors mix is
insufficient compared to the incumbents mix. If the segment is attractive enough, there may
be instances where other firms attempt to serve it. But if the segment was a good fit with the
firm's resources and objectives, it will have already created a substantial position. The firm
will be in a strong position to repel any attacks on its market share, and due to its
understanding of the segment, it will be able to react quickly and effectively to any changes
in the segment. Finally, the identification of target market means that a firm can more
effectively use its scarce resources. A firm can use its understanding of a specific segment
and the attractiveness of that segment to help make decisions on the allocation of resources.
This is a vital aspect of strategy, and effective resource allocation is a key determinant of the
success or failure of a firm.

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Importance of Market Segmentation and Targeting

1. Benefits of Market Segmentation

1.1 Improved Customer Satisfaction

1.2 Enhanced Marketing Efficiency

Enhanced marketing efficiency

1.3 Increased Sales and Revenue

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