How do you pitch the new business marketing strategy?
- Your CEO finds it too aggressive?
- The Production Manager considers it too vague?
- Sales representative finds it too long?
An appropriate answer lies in the Strategy of Market Segmentation.
Here, it is possible to optimize messages for the target audience. It is convenient to bring everyone on the same page and achieve the greater good for the maximum.
Buyers in the market can be segregated based on needs, wants, location, attitudes, beliefs, purchasing power, and so on.
To serve the market to the maximum, it is imperative for any brand to go for Market Segmentation.
Connotation Of Market Segmentation
Market Segmentation is the strategy of divide and conquer. It divides the market to conquer it.
Market Segmentation enables the marketers:
- To give better attention to the selection of customers.
- To offer an appropriate marketing mix for each chosen segment having homogenous demand.
Each segment can be selected as a market target to be reached with a distinct marketing mix.
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.
The concept of market segment is based on the premise that the market of commodities is heterogeneous rather than homogenous. The market represents a group of customers having common characteristics. However, two customers are never similar in their nature, habits, hobbies, income, and purchasing techniques.
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.
Market Segments enable companies to create product differentiation strategies to target them.
“Market Segmentation is sub-dividing a market into distinct and homogeneous subgroups of customers, where any group can conceivably be selected as a target market to be met with distinct marketing mix”.Philip Kotler
The main aim of Market Segmentation is to prepare separate programs or strategies for all segments so that maximum satisfaction for consumers of different segments may be provided.
Characteristics Of Market Segmentation
It is easy to identify certain segmentation variables because they are easily visible and can well be observed.
The marketer must be able to measure the sales potential of the particular segment and determine the extent of influence of the marketing mix elements on the particular segment.
Marketers try to reach their consumers through differentiated marketing for differentiated consumer profiles
A market segment must have a large number of people with specific needs and interests.
The marketers want to be sure of the stability of the consumers in terms of their demographic and psychological characteristics.
Criteria For Effective Marketing Segmentation
1. Is it identifiable and measurable?
2. Is it economically accessible?
3. Are the segments of an economic size?
Importance Of Market Segmentation
Market Segmentation helps:
- Coordination of product and marketing appeals.
- Better position to spot marketing opportunities.
- Allocation of marketing budget.
- Meeting the competition effectively.
- Effective marketing programme.
- Evaluation of marketing activities.
Requisite Conditions For Effective Market Segmentation
The success of market segmentation can be evaluated by asking the following questions:
- Is it sizeable?
- Is it growing?
- Is it profitable?
- Is it accessible?
- Is it compatible?
Evaluation And Selection Of Market Segmentation
Any evaluation and selection of Market Segmentation are governed by three factors:
1. Segment Size and Growth
The company should do an analysis of current sales, projected sales, growth rates, and profit margins of different segments. The company will select that segments which have the right size and growth.
2. Segment Structural Attractiveness
The company’s long-run profit depends on the competitors in the segment. A segment is less attractive if there are already many strong and aggressive competitors.
An analysis of the competitors in each segment is required to help the managers to evaluate the strengths and weaknesses of their position.
Companies should consider the following five aspects:
- The threat of substitute products.
- The relative power of buyers.
- The relative power of suppliers.
- The threat of new entrants.
- The threat of segment revelry.
3. Company Objectives and Resources
The company must consider its own objectives and resources in terms of skill and resources in evaluating the market segment.
Market Coverage Strategies
- Undifferential Marketing
- Differential Marketing
- Concentrated Marketing
1. Undifferential Marketing
This focuses on the common needs of the consumers. It targets the whole market with one product that is common in the needs of consumers and not different products. This marketing strategy is cost-effective because of mass production, mass transportation, and mass advertising. This type of marketing can be done very successfully when the market is homogeneous.
2. Differential Marketing:
A company targets several market segments by providing different products to the market. Consequently, the company has a better return or higher sales and it gets a stronger position in each market segment.
3. Concentrated Marketing:
This type of marketing is for smaller companies or organizations with limited resources and skills. This offers the opportunity for smaller companies of entering the race of competing with larger companies.
Bases Of Consumer Market Segmentation
The 4 bases of Market Segmentation are:
- Geographic Market Segmentation
- Demographic Market Segmentation
- Psychographic Market Segmentation
- Behavioural Market Segmentation
The major variables that might be used in segmenting consumer markets are depicted below:
1. Geographic Segmentation
The market is segmented by dividing it into different geographical units such as nations, regions, states, countries, cities, or neighborhoods.
Geographic segmentation places emphasis on the right products in the right geographic areas at the right time.
Geographic segmentation enables a company to avoid areas where competition is severe and to select areas where competition is low.
2. Demographic Segmentation
Demographic segmentation involves dividing the market into groups based on different variables such as age, gender, family size, family life cycle, income, occupation, education, religion, race, and nationality.
Demographic segmentation has certain merits.
- Consumer needs, want, and usage rates often vary closely with demographic variables.
- Demographic variables are easier to measure than most other types of variables.
3. Psychographic Segmentation
In psychographic segmentation, buyers are divided into different groups based on social class, lifestyle, or personality characteristics. People belonging to the same demographic group may have very different psychographic characteristics.
4. Behavioural Segmentation
Behavioral segmentation involves dividing a market into groups based on consumer knowledge, attitude, use, or response to a product.
Business Market Segmentation
Business markets need to be segmented like consumer markets geographically. Alternatively, by benefits sought, user status, usage rate, and loyalty status. Some additional variables –Business Market Segmentation – are also used for segmenting business markets.
The table below cites examples of various criteria for the bases for business Market Segmentation.
5 Levels Of Market Segmentation
1. Mass Marketing
Mass marketing is the marketing of one single product through one strategy to the entire market.
Mass marketing believes that in the market there are most people who have similar kinds of characteristics, behavior, and consumption pattern. It does not differentiate the whole market on the basis of any factors such as consumer’s taste, need, preference, age, sex, etc. thus, it is also called undifferentiated marketing.
Mass marketing involves the mass level of activities such as mass production, distribution, and promotion of one product to all the potential buyers.
Mass marketing helps firms to –
- Get economies of scale.
- Get larger markets, more sales, and more profit.
- Create a high level of competition.
2. Segment Marketing
Segment marketing divides the whole market into its various segments on the basis of factors such as :
- Customers consumption patterns
- Purchasing power
- Spending pattern
- Social values
As segment marketing differentiates the entire market into many segments, it is also known as Differentiated Marketing.
The best and foremost attractive benefit of Segment Marketing is –
- It enables marketers to understand the actual problems of each segment –by reaching each of the markets, the firm can make more sales, satisfy each of the targeted segments,
- Increase the profit.
Nevertheless, for each market segment, the firm needs to adopt a separate marketing strategy which may be difficult to do for all the firms.
3. Niche Marketing
Niche marketing is the highly specialized level of Market Segmentation, where the marketer only focuses on specific customers, their distinct need, want, and characteristics.
The firm concentrates only on a specific market segment, thus it is also called Concentrated Marketing.
An example of niche marketing may be a sports car company, where the company will only focus on the need and requirements of sports personalities.
A niche is a closely defined group that seeks a distinctive mix of benefits. In niche marketing, the marketer caters to a very specific market segment that requires high-quality service and attention. In this case, customers may have specific types of needs, they may require some special types of services, and they become ready to pay a premium price for the product.
4. Local Marketing
Under local marketing. locally produced products are marketed in the same area. For example, farmer markets and sells his vegetables to his neighborhood, and his community’s people.
The market size in local marketing is very small. The production and distribution costs may be high to the local marketer due to low production. However, there is very low competition and there is a restriction for the competitors to enter such a local market.
5. Individual Marketing
In Individual Marketing, the marketer focuses on satisfying the need of a single customer. It is a micro marketing strategy- also referred to as one-to-one marketing and customized marketing.
The marketer individually visits, communicates, and offers his services to the target customer, through personalized messages.
3 Different Patterns of Market Segmentation
- Homogeneous Preferences:
This category reveals a market where all the consumers have roughly the same preference.
The market shows no natural segments, at least as far as the two attributes are concerned.
- Diffused Preference:
Consumer preferences may be scattered fairly evenly throughout the space with no concentration.
- Clustered Preference:
An intermediate possibility is the appearance of distinct preference clusters. They may be called natural market segments.
Strategies For Marketing Segmentation
There are Three Strategies identified for Market Segmentation:
1. Concentrated Marketing
This strategy aims to concentrate resources on one segment within the total market.
It is done on the basis of one marketing mix for the competitive advantage in a particular segment of the market.
2. Differentiated Marketing
This strategy covers the whole market for designing different products and marketing programs for different segments of the market.
It is suitable for medium and large-sized firms operating in many markets with a broad product line.
3. Undifferentiated Marketing
The company considers the whole market as its target and competes successfully using the same marketing mix.
Benefits Of Market Segmentation
A seller reaps the important benefits of the Market Segmentation:
- Develops a more effective marketing strategy.
- Creates well-focussed messaging.
- Increases response rates.
- Attracts the right customers.
- Improves brand loyalty.
- Expands market reach.
- Promotes new product development.
- Supports the decision-making process.
The technique of Market Segmentation is applied by marketers to accomplish greater penetration in the market.
It helps to maximize sales turnover and profits. Market Segmentation turns out to be a powerful and potent technique in the hands of marketers purely on account of its specific service characteristics— its VARIABILITY.
“Market Segmentation is natural result of the vast differences among the people.”Donald A. Norman