HOW ARE CONSUMER MARKETS SEGMENTED?
CHRISTINE NYANDAT
26 Oct, 2013
Definition: Segmentation is a marketing term referring to the aggregating of prospective
buyers into groups (segments) that have common needs and will respond similarly to a
marketing action. Market segmentation enables companies to target different categories of
consumers who perceive the full value of certain products and services differently from one
another. Generally three criteria can be used to identify different market segments:
1) Homogeneity (common needs within segment)
2) Distinction (unique from other groups)
3) Reaction (similar response to market)
In other words: Market segmentation is a marketing strategy that involves dividing a
broad target market into subsets of consumers who have common needs, and then
designing and implementing strategies to target their needs and desires using media
channels and other touch-points that best allow to reach them.
Why is it important? Segmentation splits buyers into groups with similar needs and wants
to best utilize a firm's finite resources through buyer based marketing.
Segmenting example: Kellogg's Frosties are marketed to children, while Kellogg's Crunchy
Nut Cornflakes are marketed to adults. Both goods denote two products that are marketed
to two distinct groups of people, both with similar needs (a breakfast food), traits, and wants
Lecture notes
Market segmentation can be defined in terms of the STP acronym, meaning Segment,
Target and Position.
Benefits of Segmentation
While there may be theoretically 'ideal' market segments, in reality, every organization
engaged in a market will develop different ways of imagining market segments, and create
product differentiation strategies to exploit these segments. The market segmentation and
corresponding product differentiation strategy can give a firm a temporary commercial
advantage. Most market segmentations are the techniques used to attract the right
customer.
In essence, the marketing objectives of segmentation analysis are:
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To reduce risk in deciding where, when, how, and to whom a product, service, or brand
will be marketed
To increase marketing efficiency by directing effort specifically toward the designated
segment in a manner consistent with that segment's characteristics
Market segmentation is a twofold process that includes:
1. Identifying and classifying people into homogeneous groupings, called segments
2. Determining which of these segments are viable target markets.
The Segmented Market
The premise of segmenting the market theorizes that people and/or organizations can be
most effectively approached by recognizing their differences and adjusting accordingly. By
emphasizing a segmentation approach, the exchange process should be enhanced, since a
company can more precisely match the needs and wants of the customer.
While product differentiation is an effective strategy to distinguish a brand from
competitors', it also differentiates one product from another. For example, a company such
as Franco-American Spaghetti has differentiated its basic product by offering various sizes,
flavors, and shapes. The objective is to sell more products, to more people, more often. The
problem is not competition; the problem is the acknowledgment that people within markets
are different and that successful marketers must respond to these differences.
Business Administration > Introduction to Marketing > Segmentation
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HOW ARE CONSUMER MARKETS SEGMENTED?
CHRISTINE NYANDAT
26 Oct, 2013
Choosing a Target Market from within a Defined Segment
While it is relatively easy to identify segments of consumers, most firms do not have the
capabilities or the need to effectively market their product to all of the segments that can be
identified. Rather, one or more target markets (segments) must be selected. A company
selects its target market because it exhibits the strongest affinity to a particular product or
brand. It is in essence the most likely to buy the product.
While the market is initially reduced to its smallest homogeneous components (perhaps a
single individual), business in practice requires the marketer to find common dimensions
that will allow him to view these individuals as larger, profitable segments.
Criteria for Segmenting
An ideal market segment meets all of the following criteria:
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It is possible to measure.
It must be large enough to earn profit.
It must be stable enough that it does not vanish after some time.
It is possible to reach potential customers via the organization's promotion and
distribution channel.
It is internally homogeneous (potential customers in the same segment prefer the same
product qualities).
It is externally heterogeneous. In other words, potential customers from different
segments have different quality preferences.
It responds consistently to a given market stimulus.
It can be reached by market intervention in a cost-effective manner.
It is useful in deciding on the marketing mix.
Segmentation Strategies
There are two major segmentation strategies followed by marketing organizations: a
concentration strategy and a multi-segment strategy.
In the concentration strategy, a company chooses to focus its marketing efforts on only one
market segment. Only one marketing mix is developed. This strategy is advantageous
because it enables the organization to analyze the needs and wants of only one segment and
then focuses all its efforts on that segment. The primary disadvantage of concentration is
that if demand in the segment declines, the organization's financial position will also decline
(Figure 1).
In the multi-segment strategy, a company focuses its marketing efforts on two or more
distinct market segments. The organization does so by developing a distinct marketing mix
for each segment. They then develop marketing programs tailored to each of these
segments. This strategy is advantageous because it can increase total sales since more
marketing programs are focused at more customers. The disadvantage of this strategy is the
higher costs stemming from the need for multiple marketing programs.
Segmentation Bases
I.
GEOGRAPHIC SEGMENTATION:
In geographic segmentation, the market is sub divided on the basis of area.
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Region: Regional segmentation is made because regional differences exist in respect
of demand for products. For example, buyers from south India are different from the buyers
in north.
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Urban / Rural: There are differences in buying behavior of urban and rural
Business Administration > Introduction to Marketing > Segmentation
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HOW ARE CONSUMER MARKETS SEGMENTED?
CHRISTINE NYANDAT
26 Oct, 2013
customers. Accordingly, marketing strategies must be designed depending upon their likes,
dislikes, moods, preferences, and fashions and buying habits.
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Locality: Consumer’s buying behavior is also reflected by the locality within a
particular city. For instance, there are differences in terms of buying patterns of people
residing at Parel and Parle, within a city like Mumbai.
II.
DEMOGRAPHIC SEGMENTATION:
Demography refers to study about the different aspects of population. Markets can be
divided on demographic factors like age, gender, education etc. The various demographic
factors are:
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Age: The primary method of analyzing markets by age is to divide the total population
into age groups and analyze the wants and needs of each group.
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Gender: Marketers devote much attention to male and female differences in
purchasing. Today, marketers segment female groups into college girls, working women,
housewives, etc. Again, male groups can be further classified.
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Income: Buying patterns depends on income of the consumers. No two individuals or
families spend money in exactly the same way. If a researcher knows a person’s income, he
can predict with some accuracy wants and needs of that person and how those wants are
likely to be satisfied.
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Education: Market can be segmented on the basis of education – matriculation or
less, undergraduates, graduates, post-graduation, etc. Most studies show that the highly
educated people spend more than the poorly educated in respect of housing, clothing,
recreation, etc.
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Family Size: The consumption patterns of certain products definitely vary with the
number of people in the household. Manufacturers of certain products such as ice-cream
market family packs.
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Family Life Cycle: The market can be segmented as bachelors, newly married
couples, married with grown up children, older married couples, etc. For selling tours and
vacations, Life Insurance policies etc., this segmentation is of use.
—
Race and Religion: Consumption patterns of certain products differ on the basis of
religion and race, such as alcohol and meat products.
III.
SOCIOGRAPHIC SEGMENTATION:
The market can be segmented on the basis of sociological factors such as:
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Cultural Influences: The marketer must consider cultural influences while
segmenting markets. People in urban areas are influenced to a certain extent by western
culture, whereas, many people in villages follow more or less traditional culture. Culture is
influenced by our socio-cultural institutions like family, religion, language, education, and so
on.
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Influence of Social Class: Buying behavior is reflected by the influence of social
class to which the consumers belong. The social class can be segmented as – lower -lower,
middle-lower, upper-lower, lower-middle, middle-middle, upper-middle, and lower-upper,
middle-upper and upper-upper. Firms dealing in clothing, home furnishing, automobiles,
etc. can design products for specific social class.
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Influence of Reference Groups: A reference group may be defined as a group of
people who influence a person’s attitudes, values and behavior. Consumer behavior is
influenced by the small groups to which they belong or aspire to belong. These groups
include family, religious groups, a circle of close friends or neighbors, etc. Each group
develops its own set of attitudes and beliefs that serve as guidelines for members’ behavior
IV.
PSYCHOGRAPHIC SEGMENTATION:
It refers to individual aspects like life style and personality.
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Life-Style: Sellers study the life-styles of the consumers. For example, a
Business Administration > Introduction to Marketing > Segmentation
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HOW ARE CONSUMER MARKETS SEGMENTED?
CHRISTINE NYANDAT
26 Oct, 2013
manufacturer of readymade garments may design his clothes differently matching different
life styles of college-students (more fashionable), office-goers (more sober) and so on.
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Personality: Personality characteristics such as leadership, independence,
masculine, impulsive, ambitious,-etc., do influence buying behavior.
V.
BEHAVIOURAL SEGMENTATION:
In this case, buyers are divided into groups on the basis of their response to the product –
usage rate, user status, loyalty status, buying motives, and so On.
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Usage Rate: One possible way to define target market is by product usage. There
can be heavy users, medium users, light users, and nonusers. Targeting on this basis may be
useful to the seller who wants to increase consumption by present users and to convince
and induce nonusers to become users.
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User Status: Market can be segmented on the basis of user status such as: non-user,
ex-user, potential user, first-time user, regular-user, & so on.
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Readiness Stage: Market can be segmented on the basis of people’s readiness to
buy the product. Some people are well informed and are interested to buy the product.
Some other may be well informed but not interested to buy the product.
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Buying Motives: Buyers buy the product with different buying motives such as
economy, convenience, prestige, etc. Accordingly promotional appeals can be directed to
the target audience.
Business Administration > Introduction to Marketing > Segmentation
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