Market Segmentation

Knowing about markets is important, business also need information about consumers. Not all of us like or buy the same things, for example all of us do not like the same food, music or clothes. Business need to find a way of grouping people with similar taste together. This is called segmentation.

Market segmentation is a basic process in strategic marketing in which a large market is divided into subsets or sub-groups of consumers. Each group has common needs and applications for the goods and services available in the market. Segmentation is done on the basis of different factors and the members in a particular segment usually share same characteristics.

Market Segmentation is the division of market into homogenous groups. It is identification of portions of market that are different from one an another. Is the technique used to enable a business to better target it products at the right customers

Economists view a product as differentiated if it is preferred by some buyers to similarly price rival brands on the ground of differences in the following:

  • physical aspects of the product
  • services offered
  • convenience in using or buying the product
  • image projected.

For example, markets can be segmented on the basis of age groups, sex, occupations, income levels and other such factors. This categorization helps the corporations to introduce the right set of products and services aimed at particular type of consumers. This helps to increase the market share of the company for those products and services.

A market is a place where buyers buy and sellers sell. In such a case, buyers and sellers both are at an advantage. However, to maximize sales, which eventually leads to increase in profit, is the very lasting objective of any seller/producer. For the purpose of sales maximization, sellers employ marketing, which is a process of commercially promoting, distributing and advertising a given product or service.

Why do businesses need to segment their markets? Because customers differ in:

  • Benefits they want
  • Amount they are able to or willing to pay
  • Media (e.g. television, newspapers, and magazines) they see
  • Quantities they buy
  • Time and place that they buy

The process of market segmentation, involves the creation of market segments or parts or sub-sets. A segment of the market is basically a sub-set, in terms of goods, service or product, of the entire market and is identified or created by the marketing department in such a manner that the individuals (or organizations) in that very segment would demand a certain set of goods and services that have similar features. In short, a segment is a division of market, the elements of which depict common needs. The meritorious features of a market segment includes the following:

  1. Geographically or product-wise or even need wise, a single market segment is distinct from other segments, though one can also count on the existence of some minute similarities.
  2. Products that are demanded by the consumers are homogeneous and in some cases also tend to have similar price levels.
  3. A product introduction into such a segment stimulates similar and almost congruent reactions from a majority of consumers.

There are some specialized theories upon which markets can be easily segmented into different sections. Market segmentation can be positive segmentation, negative segmentation or top-down segmentation. Companies also derive separate segmentation techniques for every product and brand. Market segmentation is usually done with the help of past data, on filed surveys and consumer interactions. Volumes of goods supply in every segment is made with the help of economic indexes and average income and demand figures.

As mentioned above, one of the basic objectives of market segmentation is to maximize sales and profits. Hence, the three important objectives of any segmentation process is to gain new customers, sustain the existing consumers and introduce newer products into the market for the existing consumers and thereby gain new consumers. The five step process of market segmentation goes as follows.

  1. The first step in the segmentation process is to establish the market and targeted consumers. This process involves tremendous paperwork and surveys. Economic and demographic factors are also analyzed in the process. In addition to that this step might also include advertising about the product
  2. The second step is often termed as market mapping and involves structuring the entire marketing procedures based upon the need of the said market. Logistics cost, retail and wholesale cost, etc, are some important parameters that are set up during this stage. Another very important factor involved in this step is the targeting of consumers who are also known as decision makers. The remaining three steps are derived on the basis of this step.
  3. The third step is entirely dependent upon the consumers as the demand by consumers and their suggestions are largely viewed, surveyed, taken into consideration and in many cases implemented.
  4. In this step, the actual segment begins to take shape as like-minded consumers having same demands are placed together and are analyzed as a group. Launching of a parallel or a totally new product is viewed in this situation. This segregation is often based upon economic indexes, demographic, geographic situations.
  5. The last step is catering to the needs of existing consumers and finding new markets. This step is purely the first step towards a new 5-step-cycle that begins with finding a new market.

Segmentation of market is in no way an easy task, as you need to consider several factors that range form current fashion, economic conditions, demographics and even simple logic that is used by consumers.


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