MARKET SEGMENTATION

The division of a market into different homogeneous groups of consumers is known as market
segmentation. Market segmentation is an adaptive strategy. The application of market
segmentation serves the purpose of developing competitive scope, which can have an effect on
competitive advantage.

A viability of market segment is based on these criteria:

1. The segment is measurable - The size, buying power and profiles of the segments need
measuring.
2. Certain segmentation variables are difficult to measure.
3. The segment is accessible or reachable by communication and distribution channels
4. The segment is stable or durable, not changing quickly
5. The segment is substantial in size to be profitable - The market segments are large or
profitable enough to serve.
6. The segment is unique or differentiable needs to serve

Market segmentation can be divided into consumer market segmentation and business market
segmentation. Business Market Segmentation is when segmentation is applied to businesses and
organizations on the bases of the following:

Geography: the regional variables such as regional economic growth, and customer
concentration, for example, in Nairobi or in Mombasa

Customer type: for example, the size of the organization, and the industry

Buyer behavior: for example, usage patterns, and order size

Levels of market segmentation

Because buyers have unique needs and wants, each buyer is potentially a separate market.
Ideally, then, a seller might design a separate marketing programme for each buyer. However,
although some companies attempt to serve buyers individually, many others face larger numbers
of smaller buyers and do not find complete segmentation worthwhile. Instead, they look for

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broader classes of buyers who differ in their product needs or buying responses. Thus, market
segmentation can be carried out at many different levels.
Mass marketing
Companies have not always practised target marketing. In fact, for most of the twentieth century,
major consumer-products companies held fast to mass marketing – mass producing, mass
distributing and mass promoting about the same product in about the same way to all consumers.
The traditional argument for mass marketing is that it creates the largest potential market, which
leads to the lowest costs, which in turn can translate into either lower prices or higher margins.
However, many factors now make mass marketing more difficult.
Segmenting markets
A company that practises segment marketing recognizes that buyers differ in their needs,
perceptions and buying behaviours. The company tries to isolate broad segments that make up a
market and adapts its offers to match more closely the needs of one or more segments.
Segment marketing offers several benefits over mass marketing. The company can market more
efficiently, targeting its products or services, channels and communications programmes towards
only consumers that it can serve best. The company can also market more effectively by fine-
tuning its products, prices and programmes to the needs of carefully defined segments. And the
company may face fewer competitors if fewer competitors are focusing on this market segment.
Niche marketing
It focuses on subgroups within these segments. A niche is a more narrowly defined group,
usually identified by dividing a segment into sub segments or by defining a group with a
distinctive set of traits who may seek a special combination of benefits.
Whereas segments are fairly large and normally attract several competitors, niches are smaller
and normally attract only one or a few competitors. Niche marketers have to understand their
niches’ needs so well that their customers willingly pay a price premium. For example, Ferrari
gets a high price for its cars because its loyal buyers feel that no other automobile comes close to
offering the product–service–membership benefits as Ferrari.
Micromarketing
Segment and niche marketers tailor their offers and marketing programmes to meet the needs of
various market segments. At the same time, however, they do not customize their offers to each
individual customer. Thus, segment marketing and niche marketing fall between the extremes of

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mass marketing and micromarketing. Micromarketing is the practice of tailoring products and
marketing programmes to suit the tastes of specific individuals and locations. Micromarketing
includes local marketing and individual marketing.
Local marketing
Local marketing involves tailoring brands and promotions to the needs and wants of local
customer groups – cities, neighbourhoods and even specific stores. Thus, IKEA customizes each
store’s merchandise and promotions to match its local clientele. C&A’s difficulties, which have
forced it to pull out of some European markets, have been blamed upon the centralization of their
buying in Brussels.
Local marketing has some drawbacks. It can drive up manufacturing and marketing costs by
reducing economies of scale. It can also create logistical problems as companies try to meet the
varied requirements of different regional and local markets. And a brand’s overall image may be
diluted if the product and message vary in different localities. Still, as companies face
increasingly fragmented markets, and as new supporting technologies develop, the advantages of
local marketing often outweigh the drawbacks.
Individual marketing
In the extreme, micromarketing becomes individual marketing – tailoring products and
marketing programmes to the needs and preferences of individual customers. Individual
marketing has also been labelled ‘markets-of-one marketing’, ‘customized marketing’ and ‘one-
to-one marketing’. The prevalence of mass marketing has obscured the fact that for centuries
consumers were served as individuals: the tailor custom-made the suit, the cobbler designed
shoes for the individual, the cabinet maker made furniture to order.

Bases of consumer market segmentation

There are four primary bases to segment the consumer market:

1. Geographic segmentation
2. Demographic segmentation
3. Psychographic segmentation
4. Behavioral segmentation

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1. Geographic segmentation

In geographical segmentation, market is divided into different geographical units like:

▪ Regions (by country, nation, state, neighborhood)

▪ Population density (urban, suburban, rural)
▪ City size (size of area, population size and growth rate)
▪ Climate (regions having similar climate pattern)

A firm, either serving a few or all geographic segments, needs to put attention on variability of
geographic needs and wants. After segmenting consumer market on geographic bases,
companies localize their marketing efforts (product, advertising, promotion and sales efforts).

2. Demographic segmentation

In demographic segmentation, market is divided into small segments based on demographic

variables like: Age, Gender, Income, Occupation, Education, Social class, Generation, Family
size, Family life cycle, Home ownership, Religion, Ethnic group/race, Nationality

Demographic factors are most important factors for segmenting the customers groups. Consumer
needs, wants, usage rate these all depend upon demographic variables. So, considering
demographic factors, while defining marketing strategy, is crucial.

3. Psychographic segmentation

In Psychographic Segmentation, segments are defined on the basis of social class, lifestyle and
personality characteristics. Psychographic variables include: Interests, Opinions, Personality,
Self-Image, Activities, Values, and Attitudes

A segment having demographically grouped consumers may have different psychographic

characteristics.

4. Behavioral segmentation

In this segmentation market is divided into segments based on consumer knowledge, attitude, use
or response to product. Behavioral variables include:

Occasions

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Buyers can be grouped according to occasions when they get the idea to buy, make their
purchase or use the purchased item. Occasion segmentation can help firms build up product
usage. For example, most people drink orange juice at breakfast, but orange growers have
promoted drinking orange juice as a cool and refreshing drink at other times of the day. Mother’s
Day and Father’s Day are promoted to increase the sale of confectionery, flowers, cards and
other gifts.
Benefits sought
A powerful form of segmentation is to group buyers according to the different benefits that they
seek from the product. Benefit segmentation requires finding the main benefits people look for
in the product class, the kinds of people who look for each benefit and the major brands that
deliver each benefit.
User status
Some markets segment into non-users, ex-users, potential users, first-time users and regular users
of a product. Potential users and regular users may require different kinds of marketing appeal.
For example, one study found that blood donors are low in self-esteem, low risk takers and more
highly concerned about their health; non-donors tend to be the opposite on all three dimensions.
Usage rate
Some markets also segment into light, medium and heavy-user groups. Heavy users are often a
small percentage of the market, but account for a high percentage of total buying. For example,
the owner of a pub in a mining town knows that 41 per cent of the adult population of the village
buy beer.
Loyalty status
Many firms are now trying to segment their markets by loyalty and are using loyalty schemes to
do it. They assume that some consumers are completely loyal – they buy one brand all the time.
Others are somewhat loyal – they are loyal to two or three brands of a given product, or favour
one brand while sometimes buying others. Still other buyers show no loyalty to any brand.
Buyer-readiness stage
A market consists of people in different buyer-readiness stages of readiness to buy a product.
Some people are unaware of the product, some are aware, some are informed, some are
interested, some want the product, and some intend to buy. The relative numbers at each stage
make a big difference in designing the marketing programme.