Market Segmentation

Performance Objectives
Students should be able to explain:
1. Meaning
2. Basic of segmentation
3. Geographical
4. Social-economic
5. Psychographic
6. Behavior
7. Characteristics

Content

Meaning

Basic of segmentation

Geographical

Social-economic

Psychographic

Behavior

Characteristics

Meaning of Market Segmentation

Market segmentation is the process of dividing a market of potential customers into groups, or segments, based on different characteristics. The segments created are composed of consumers who will respond similarly to marketing strategies and who share traits such as similar interests, needs, or locations.

Importance of Market Segmentation

Market segmentation makes it easier for marketers to personalize their marketing campaigns.
By arranging their company’s target market into segmented groups, rather than targeting each potential customer individually, marketers can be more efficient with their time, money, and other resources than if they were targeting consumers on an individual level. Grouping similar consumers together allow marketers to target specific audiences in a cost-effective manner.
Market segmentation also reduces the risk of an unsuccessful or ineffective marketing campaign. When marketers divide a market based on key characteristics and personalize their strategies based on that information, there is a much higher chance of success than if they were to create a generic campaign and try to implement it across all segments.

Marketers can also use segmentation to prioritize their target audiences. If segmentation shows that some consumers would be more likely to buy a product than others, marketers can better allocate their attention and resources.

Basic of Market Segmentation

As product markets tend to mature, customer needs often become more specialized. Depending on the level of competition in the product market, segmentation is the natural response of marketers to deal with the situation in the market. Market segmentation has become a norm today.

Market segmentation is based on the assumption that all the potential customers are not identical and that the firm should address their needs with appropriate product Land other marketing strategies or else should concentrate on only one single segment and tailor the strategy accordingly.

Market segmentation simply means dividing up a market into distinct groups that-(i) have common needs, and (ii) will respond similarly to a marketing action.
Segmentation process involves five distinct, steps:

• Finding ways to group consumers according to their needs.
• Finding ways to group marketing actions- usually the products offered- available to the organization.
• Developing a market-product grid to relate the market segments to the firm’s
• Selecting the target segments toward which the firm directs its marketing actions.
• Taking marketing actions to reach target segments.

Geographical Segmentation

Depending on their area of location, consumers are often found to have differences in their consumption behaviour. Marketers divide the markets into different geographical units at national, regional. State, local or neighbourhood level. These locations differ for their spread as well as for the extent and types of differences and the level of complexity.
The message and media strategies, therefore, differ for each of the locations. Small firms targeting a local area employ local media as against national marketers who develop specific advertising and marketing programmes for specific regions of the country. The multinational firm operating in different nations requires greater adaptations to suit the differences in culture and language.

Demographic or Social-economic Segmentation:

Consumers in a market have different demographic characteristics such as age, gender, income, religion, education, and occupation. These characteristics are easy to measure and are therefore most frequently used by marketers. One of the reasons for their popularity is that demographic characteristics are closely related to consumer needs, wants, and preferences.
This correlation between demographic characteristics and consumer behaviour lends support to this type of segmentation. For instance, income is a powerful predictor of consumer needs and wants. Demographic characteristics are very useful in locating the target market because they can be easily observed.

It is easier to locate consumers by age or income. Demographic variables, however, fail to describe how people within a segment think and feel. Very little insights can be gleaned in terms of their cognitive behaviour. Two people who belong to a particular income class are certainly similar with respect to income but may be radically different from each other in terms of their thinking.

If thinking has more influence on consumer behaviour, then demographic segmentation may offer little insights into strategy development. The intra- segment similarity produced by income is therefore superfluous.

Demographic bases of segmentation are briefly discussed here:

i. Age:
People in a market can be divided into different age categories. Age is taken as a variable to perform segmentation with the assumption that consumer needs vary across age groups. This is not an invalid supposition.
For instance, kindergarten, toys, and cartoon channels are directed at kids’ age group; while motorcycles and colleges are aimed at youths. Age-based classification produces segments such as infants, kids, teenagers, adults, and senior citizens.

ii. Gender:
It is one of the most palpable differences between people. Biological dissimilarity and social conditioning make men different from women. These differences manifest in their varying responsiveness to products and communication appeals. For instance, sanitary pads are purely female products.
Cultural conditioning and social roles also link product categories with specific genders. For example- jewellery, dolls, beauty products, homemaking goods, and hair care products have been conventionally linked with women, whereas products such as toy guns, automobiles, hardware, and consumer durables are connected with men. Gender-based segmentation easily divides the market to identify what products and services would typically appeal to these groups.
It must also be borne in mind that gender differences and roles are changing. Product classification based on gender is subtly undergoing a change. Therefore, product classification based on stereotypes may fail to capture the true essence of the market. Consider how cosmetics and beauty products have become gender-neutral over time.
This has given birth to a whole array of cosmetics and beauty brands that target men such as Fair and Handsome, Brylcreem, Gamier face wash, Nivea, VLCG, and Looks Salon. The reverse is also true; women have become a prime target for typical men’s products such as DSLR camera, scooters, and cars.

iii. Income:
It is one of the critical determinants of consumer behaviour. Consumer segmentation based on income categories is useful in gaining insights about what kind of products are likely to be consumed. For instance, income’s influence on people determines what they use for transportation, that is, whether they use a cycle, moped, motorcycle, economy car, or a luxury car.
Marketers thus cater to different income groups by appropriately designing their products and services. For instance, HUL markets three variants of detergent power, namely Wheel, Surf, and Surf Excel that target the economy, middle, and top end of the market respectively.
Automobile marketers commonly use income-based segmentation to divide their market and sell different variants according to affordability. Income is believed to be the prime driver of consumption but it would be wrong to assume that it is the sole driver. Income determines affordability but consumption is influenced by other factors also.
It would be wrong to assume that people with high incomes are the only buyers of luxury cars and everybody at the lower end of the spectrum buys economy cars. Cars bought on loans suggest that people do jump income boundaries in their consumption behaviour. Similarly, some affluent people drive small cars too.

Psychographic Segmentation

Information about consumers’ psychographics or lifestyle factors adds richness to the demographic information because it attempts to explain that why demographically alike people buy different products or require different message appeals to approach them. Psychographic profiles are prepared on the basis of patterns of responses that emerge from people’s activities, interests and opinions called as AIO inventory.

With the help of various market analysis techniques, marketers identify such groups which exhibit unique lifestyle patterns and thus generate market segments based on differences in their lifestyle. Lifestyle as a segmentation variable is found useful mainly for product categories where the user’s self/image is important. When the differences in lifestyle are correlated with the consumers’ product, brand and/or media usage, it allows for a fine-tuning of marketing strategies, particularly media and message strategies.

Behavioural Segmentation:

This method of segmentation uses consumer behaviour aspects for dividing the market. Consumers differ their ways of usage and faithfulness to a product. Divid¬ing consumers into different groups based on behavioural aspects can help in appreciating their uniqueness and its marketing implications.

i. Usage Quantity:
Consumers in the market can be divided on the basis of usage quantity. One of the easiest ways to arrive at this division is by breaking the market into the light, medium, and heavy users.
For instance, market differences in usage can be detected in the consumption of cola. Some consumers occasionally drink cola with an average consumption of fewer than two litres in a month. Medium users group may consume two to four litres, whereas heavy consumers can consume more than five litres. Coca-Cola’s bigger pet bottles of one litre are aimed at heavy consumers.

ii. Occasion:
Marketers do not pre-specify the occasion of consumption of a product. Hence, a product category could be used on various occasions. The market can therefore be segmented on the basis of the occasion. For instance, soft drinks can be consumed at different occasions such as quenching thirst while out in the sun, entertaining guests at home, or with dinner.
Tropicana in its bid to expand consumption targeted morning breakfast with the message ‘Now breakfast shall win’. The occasion can also be linked to seasons. For instance, consumer durables, home decor, and wall paint are linked with festival seasons in India. Titan has also promoted watch buying for gifting.

iii. Loyalty:
Consumers exhibit different levels of allegiance to the brands consumed. The market could also be segmented on the basis of loyalty status. There are buyers who would never move -away from their preferred brand. They are called true or hard loyal. Consumers who do not care about what brand they consume switch from one brand to the other easily.
This set of consumers is called switchers. Loyalty-based segmentation has gained importance lately because loyal consumers are more profitable. Companies profile their consumers to identify loyalists so that they can be given preferential treatment. Loyalty cards and reward programmes are tools to gauge and manage loyal consumers.

iv. Benefits Sought:
Consumers may seek different benefits from a product. These differences provide a logical ground to divide a market on the basis of benefits sought. For instance, two groups of customers in the real estate market are investors and home buyers. Investors buy houses to multiply their investment whereas home buyers buy to live in the dwelling.
Similarly, some people buy gold and diamonds as jewellery while others buy to invest. Benefit segmentation is clearly visible in the toothpaste market. The segments include seekers of social benefit, protection benefit, and economic benefit.

Characteristics of Market Segmentation

• Measurable

Consumers who belong to a particular target market and segment should be clearly identifiable. The characteristics to include or exclude in the identification of a market segment are also well defined and measurable. Target markets are quantifiable in terms of population, income and age bracket, among other factors.

• Accessible

Market segments should be accessible in terms of geography and economy. To enable accessibility of goods and services, there should be the use of appropriate marketing strategies. This is because the marketing strategy used for one group should differ from the strategy used for another, as their needs differ. For example, different age groups have different fashions, styles and consume different products. The way of communicating to this market segment should correspond to the relevant needs of consumers in this segment

• Profitable

A market segment should be large enough to be worth pursuing. The main aim of market segmentation is to be able to tailor marketing techniques toward specific segments. This enables a firm to enjoy economies of scale while at the same time fulfilling consumers’ needs. The amount of disposable income the target market is willing to spend in purchasing the goods and services should be enough to enable the firm to earn profits. For example, if a product’s target market is young consumers, the price range should be attainable, considering that majority of the young people are dependent on their parents or guardians.

• Market Responsiveness

Consumers in a given market segment should be responsive to the products meant for them. Unless consumers in market segments are willing to respond to the products developed, there is little reason to develop these products. The success of products introduced in the markets depends on whether they meet consumer or organization needs. Consumers’ decisions on whether to purchase or not to purchase will be an indicator of the performance of the product in the market.