Market segmentation is the process of dividing a broad market into distinct subgroups or segments that share common characteristics, needs, or desires. This strategic approach allows businesses to tailor their products, services, and marketing efforts to meet the specific demands of different customer segments, thereby achieving more effective targeting and differentiation.
Types of Market Segmentation
Demographic Segmentation
This type of segmentation divides the market based on variables such as age, gender, income, education, and family size.
Geographic Segmentation
Geographic segmentation involves dividing the market based on location, such as regions, cities, or neighborhoods.
Psychographic Segmentation
Psychographic segmentation takes into account psychological aspects like lifestyle, social status, activities, interests, and opinions.
Behavioral Segmentation
This involves segmenting the market based on consumer behaviors, including purchasing habits, brand loyalty, user status, and readiness to buy.
Implementing Market Segmentation
Steps in the Process
Market Research
Conduct extensive research to gather data on various consumer attributes.
Identify Segmentation Criteria
Choose the most relevant criteria that reflect consumer’s common characteristics or needs.
Segmentation
Divide the market using the selected criteria into distinct segments.
Evaluate Segments
Analyze the size, growth potential, and accessibility of each segment to determine their viability.
Select Target Markets
Choose the segments that the business can best serve efficiently.
Special Considerations
Data Quality
Ensure the accuracy and relevancy of the data used for segmentation.
Dynamic Nature of Markets
Be aware that market segments can change over time due to cultural shifts, technological advances, etc.
Examples of Market Segmentation
Example 1: Automotive Industry
An automotive company may segment its market into different groups such as luxury car buyers, environmentally conscious buyers, and budget-conscious buyers.
Example 2: Fast Food Industry
A fast food chain can segment its market by consumer preferences like health-conscious individuals, families with children, and young adults looking for quick meals.
Historical Context
Market segmentation has evolved as a critical aspect of marketing strategy since the mid-20th century. The concept was popularized by Wendell R. Smith in 1956 in his article “Product Differentiation and Market Segmentation as Alternative Marketing Strategies.”
Applicability
Market segmentation is applicable across various industries including retail, healthcare, technology, finance, and more. It helps businesses to:
- Enhance customer satisfaction
- Improve marketing efficiency
- Increase competitiveness
- Drive better financial performance
Comparisons with Related Terms
Market Targeting
While segmentation focuses on dividing the market into segments, targeting involves selecting the segments the company intends to serve.
Market Positioning
Positioning is about defining how a product fits within a chosen segment and how it differentiates from the competition.
FAQs
What is the primary goal of market segmentation?
Can a business target multiple market segments?
How often should businesses re-evaluate their market segments?
References
- Smith, Wendell R. “Product Differentiation and Market Segmentation as Alternative Marketing Strategies.” Journal of Marketing, 1956.
- Kotler, Philip, and Keller, Kevin Lane. “Marketing Management.” 15th Edition, Pearson, 2016.
Summary
Market segmentation is a vital marketing strategy that involves dividing a broad market into smaller segments based on shared characteristics. It enables businesses to tailor their offerings and marketing strategies to meet the specific needs of distinct groups, ultimately driving better engagement, satisfaction, and business success.
