Market Segmentation - Principles of Marketing | Principles of Marketing - B Com PDF Download

Introduction

Customer needs are the primary focus for all business decisions. As customer demand patterns change, companies must differentiate their products from those of competitors, leading to the need for market segmentation. Different customers require distinct versions of the same product, which has intensified competition in the market.

Market segmentation involves breaking down the entire market into various segments or sub-groups, each with different tastes, preferences, and choices. This variation necessitates a unique marketing mix for each segment. Target marketing, on the other hand, refers to the process of adjusting the marketing mix by differentiating products, communication methods, and other marketing variables to cater to specific segments.

Market segmentation is a valuable tool in marketing management. Fredrick F. Webster, in his book “Marketing for Managers,” describes market segmentation as a way to achieve maximum market response from limited marketing resources by recognizing differences in response characteristics across various market segments. It is a strategy of “divide and conquer” that tailors marketing strategies to the inherent differences in buyer behavior.

Meaning of Market Segmentation

Market segmentation is a marketing strategy that involves dividing a market into smaller, distinct groups of consumers who share similar characteristics and needs. The goal is to create targeted marketing programs for each segment to better satisfy customers.

Philip Kotler defines market segmentation as the process of dividing a market into subgroups of consumers with different needs, characteristics, or behaviors who may require different products or marketing approaches.

The American Marketing Association describes market segmentation as dividing heterogeneous markets into smaller customer groups with homogeneous traits that the firm can satisfy.

• Market segmentation involves categorizing customers based on factors such as income, age, gender, education, profession, religion, and location.
• The primary purpose of market segmentation is to develop tailored marketing strategies for each segment to enhance customer satisfaction.
• After segmenting the market, marketers select target segments for their marketing efforts.
• Target marketing involves identifying and evaluating the attractiveness of each segment and deciding which ones to pursue.
• Marketers then develop a marketing mix (product, price, place, and promotion) for each segment.
• The final step is positioning, which involves establishing a clear and distinct place for the product in the minds of target consumers relative to competitors.

Need for Segmentation

Market Segmentation is crucial for encouraging target consumers to purchase products. In the past, without segmentation, companies marketed their products through mass marketing, targeting all consumers in the same way. This approach was effective when consumer preferences were similar.

Early Examples

• Henry Ford pioneered market segmentation by offering the Model T car in any color desired by consumers, instead of just black.
• Coca-Cola initially sold its product in one standard bottle size through mass marketing.

Shift to Target Marketing

• As consumer awareness increased, companies shifted from mass marketing to target marketing and market segmentation.
• Companies now select specific market segments and tailor their products and marketing strategies accordingly.

Benefits of Market Segmentation

• Allows companies to focus on consumers who are more likely to purchase their products.
• Helps differentiate products from competitors through variations in styling, packaging, price, promotional activities, distribution methods, and after-sales services.

Modern Examples

• Today, Coca-Cola offers a variety of sizes, cans, and ingredients to satisfy different market segments.

Reasons for the Development of Market Segmentation

Market segmentation has become an integral part of marketing strategy for companies, including small manufacturers, allowing them to compete at a national level. Here are the key reasons for its development:

• Customer Orientation: Market segmentation helps manufacturers get closer to customers, understanding their needs and varying behaviors better. This aligns with the modern marketing concept adopted by many companies today.
• Increase in Competition: With the rise of substitutes for every product, competition has intensified. Markets have become consumer-oriented, and market segmentation is a strategy that helps attract more buyers.
• Use of Cost-Reducing Techniques: Businesses are focusing on cost-reducing techniques such as open shelf systems, self-service, and use-and-destroy packages. Market segmentation facilitates better adjustment between product and demand, encouraging its use.
• Increase in Purchasing Power: There has been a rapid increase in per-capita and family incomes, with more earning members in households. This makes it easier to segment the market based on income, catering to high, middle, and low-income groups.
• Technological Advancement: Technological progress has made it possible to produce goods at similar costs while meeting the diverse needs of market segments. Modern machinery and technology enable the fabrication of products tailored to different market demands.

Bases for Segmentation

Market segmentation involves identifying the criteria on which to divide the market into segments. Marketers can use various market bases or variables, either separately or in combination, to create their segmentation strategy.

Consumer Market Segmentation

• Geographical Segmentation: Dividing the market based on location, such as regions, states, or cities. For example, woollen clothes are marketed in northern India, while fertilizers are targeted at rural areas.
• Demographic Segmentation: Segmenting the market based on demographic factors like age, gender, income, and family size. For instance, garments are marketed based on age and gender.
• Psychographic Segmentation: Dividing the market based on lifestyle, personality, and social class. This helps in targeting consumers with specific lifestyle preferences.

Industrial Market Segmentation

• Type of Business: Segmenting based on the type of industry or business.
• Usual Purchasing Procedure: Differentiating businesses based on their purchasing processes.
• Size of Users: Segmenting based on the size of the businesses or organizations.
• Geographical Segmentation: Similar to consumer market segmentation, but focused on industrial regions.

1. Demographic Segmentation: 

• Age: Age is a crucial factor in segmenting the market as it influences consumer behavior and preferences. Different age groups have varying needs and interests. For instance, products like baby food and diapers target infants and toddlers, while teenagers may be interested in trendy clothing and electronics. Young adults might prefer products like home appliances and fitness equipment, while middle-aged and older adults may focus on health-related products and retirement planning services. 
• Gender: Gender segmentation recognizes that men and women often have different preferences and buying behaviors. For example, skincare products may be marketed differently to men and women, with specific formulations and branding. Similarly, clothing and accessory brands often tailor their offerings based on gender. 
• Family Size: The size of a family can impact purchasing decisions significantly. Larger families may prioritize bulk purchases and value for money, while smaller families might focus on quality and premium products. For instance, grocery stores often offer family-sized packages to cater to larger households, while specialty stores may focus on niche products for smaller families. 
• Income: Income segmentation helps businesses target consumers based on their purchasing power. High-income individuals may be more inclined to buy luxury goods and services, such as high-end electronics, designer clothing, and exclusive experiences. In contrast, low- and middle-income consumers may prioritize affordability and value, leading to increased demand for budget-friendly options. 
• Occupation:. person’s occupation can influence their buying habits and preferences. For instance, professionals in high-stress jobs may seek products that promote relaxation and wellness, such as spa services and fitness memberships. Additionally, certain products may be marketed specifically to specific professions, such as work-from-home solutions for remote employees or tools and equipment for tradespeople. 

2. Psychographic Segmentation: Psychographic segmentation delves into the lifestyle, personality, and values of consumers. This approach helps businesses understand the motivations behind purchasing decisions. For instance, brands targeting environmentally conscious consumers may emphasize sustainability and eco-friendliness in their products and marketing messages. Similarly, products catering to adventure seekers may highlight durability and performance features, such as outdoor gear and travel equipment. 

3. Geographic Segmentation: Geographic segmentation considers the physical location of consumers and how it impacts their buying behavior. For example, companies may tailor their offerings based on regional preferences, such as winter clothing in colder regions and beachwear in warmer climates. Additionally, urban and rural consumers may have different needs and preferences, leading to variations in product offerings and marketing strategies. 

4. Income Segmentation: Income segmentation classifies consumers based on their income levels, which directly influence their purchasing power and preferences. For instance, luxury brands target high-income consumers with premium products and exclusive experiences, while budget-friendly brands cater to lower-income consumers with affordable options. Income segmentation helps businesses position their products effectively within the market. 

5. Social Class Segmentation: Social class segmentation divides consumers based on their social class, which is often determined by factors such as income, education, and occupation. Different social classes have distinct preferences and purchasing behaviors. For example, luxury brands may target the upper class with high-end products, while mass-market brands focus on the middle and lower classes with more accessible offerings. Social class segmentation allows businesses to tailor their marketing efforts to specific consumer segments. 

6. Behavioral Segmentation: Behavioral segmentation divides consumers based on their knowledge, attitudes, usage, or responses to a product. This approach helps businesses understand how consumers interact with their products and what motivates their purchasing decisions. For instance, brands may target heavy users with loyalty programs and incentives, while occasional users may be encouraged to try the product with promotional offers. Behavioral segmentation allows for more personalized and effective marketing strategies. 

7. Occasion Segmentation: Occasion segmentation focuses on the specific occasions or events that trigger consumer purchases. For example, products like chocolates and flowers are often purchased for special occasions like birthdays and anniversaries. Similarly, seasonal products like holiday decorations and summer apparel are marketed based on specific times of the year. Occasion segmentation helps businesses align their offerings with consumer needs during particular events. 

8. Benefit Segmentation: Benefit segmentation categorizes consumers based on the specific benefits they seek from a product. For instance, laundry products may be marketed based on benefits like cleaning power, fabric softening, and fresh scent. By understanding the key benefits that resonate with consumers, businesses can tailor their messaging and product features to meet specific needs. Benefit segmentation ensures that marketing efforts are aligned with consumer expectations and preferences. 

9. Usage Status Segmentation: Usage status segmentation divides consumers based on their usage status of a product, such as ex-users, current users, potential users, and first-time users. This approach helps businesses target specific groups with tailored messaging and offers. For example, reactivating ex-users may involve highlighting new features or improvements, while attracting potential users may require introductory offers and incentives. Usage status segmentation allows for more targeted and effective marketing efforts. 

10. Brand Loyalty Segmentation: Brand loyalty segmentation categorizes consumers based on their loyalty to specific brands, companies, or stores. Loyal customers may be targeted with exclusive offers and rewards, while non-loyal customers may require incentives to encourage brand switching. Understanding brand loyalty helps businesses tailor their marketing strategies to different consumer segments and foster long-term relationships. 

11. Multiple or Hybrid Segmentation: Multiple or hybrid segmentation involves using a combination of segmentation bases to identify more precisely defined target groups. Marketers often start with a single base and gradually incorporate multiple bases for a more comprehensive understanding of the market. For example, geo-demographic segmentation combines geographical and demographic factors to create detailed consumer profiles. Multiple segmentation allows for a more nuanced approach to targeting and positioning products within the market.

Segmentation Bases in Organisational Markets

Organisational markets include industrial, institutional, and resale markets. Let's explore the segmentation bases within these markets.

1. Industrial Markets

• Industrial markets are focused on meeting the needs of a company's customers.
• Marketers aim to keep production running smoothly by ensuring an adequate supply of materials and components.

2. Institutional Markets

• Institutional markets involve purchasing by public institutions such as police forces, fire services, local and central government agencies, and educational establishments.
• The key criterion for these purchases is staying within a predetermined budget limit set for expenditures.

3. Resale Markets

• Resale markets involve buying products in bulk from manufacturers with the intention of selling them to individual customers.

4. Geographic Segmentation

• Geographic segmentation divides markets based on the territories of salespersons, commonly referred to as areas or regions.
• In global marketing, different parts of the world are considered distinct segments.

5. Benefits Sought

• This form of segmentation focuses on the specific benefits customers seek from products or services.

6. Type of Customer

• Segmentation based on the types of customers includes retail customers, independent customers, multiple group customers, heavy engineering customers, and others.

7. Customer Size and Loyalty

• This segmentation criterion involves dealing directly with major accounts of the company.
• For example, customers who make large purchases are considered merit customers and are handled differently from those who make smaller purchases.

8. Usage Rate

• Segmentation based on usage rates distinguishes between light users and heavy users of products or services.

Similarity to Customer Markets

• The basis of segmentation for organisational markets is similar to that of customer markets.
• Sub-segmentation is also possible for smaller sub-segments within organisational markets.

Summary

Market segmentation is based on the understanding that customers have different and diverse needs. It is the initial step in target marketing, which involves identifying these varying needs. Market differentiation is also a form of segmentation strategy.

Segmentation is the starting point for applying a marketing strategy. Once segmentation occurs, marketers target the identified consumer group with an appropriate marketing mix to position the product as perceived by the target segments. The primary goal of market segmentation is to understand the different buying behaviors of consumers so that they can be reached easily with tailored marketing programs.

This approach allows even small manufacturers to compete in national markets. While market segmentation has its own benefits and costs, it is increasingly challenging for any firm to cover the entire market successfully. Segmentation helps manufacturers and marketers align their products with the actual needs of specific consumer groups. It also benefits consumers by ensuring they receive products that are best suited to their needs at the right price and quantity.