Market segmentation can be defined as the process of dividing a market into different homogeneous groups of consumers.
Market consists of buyers and buyers vary from each other in different ways. Variation depends upon different factors like wants, resources, buying attitude, locations, and buying practices. By segmentation, large heterogeneous markets are divided into smaller segments that can be managed more efficiently and effectively with products and services that match to their unique needs. So, market segmentation is beneficial for the companies serving larger markets.
Criteria for selecting Market Segments
A segment should be measurable. It means you should be able to tell how many potential customers and how many businesses are out there in the segment.
A segment should be accessible through channels of communication and distribution like: sales force, transportation, distributors, telecom, or internet.
Segment should not have frequent changes attribute in it.
Make sure that size of your segment is large enough to warrant as a segment and large enough to be profitable
Segments should be different in their response to different marketing efforts (Marketing Mix).
Consumer and business markets cannot be segmented on the bases of same variables because of their inherent differences.
Bases for Consumer Market Segmentation
There are number of variables involved in consumer market segmentation, alone and in combination. These variables are:
- Geographic variables
- Demographic variables
- Psychographic variables
- Behavioral variables
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 company, 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).
In demographic segmentation, market is divided into small segments based on demographic variables like:
- Social Class
- Family size
- Family life cycle
- Home Ownership
- Ethnic group/Race
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.
In Psychographic Segmentation, segments are defined on the basis of social class, lifestyle and personality characteristics.
Psychographic variables include:
- Self Image
A segment having demographically grouped consumers may have different psychographic characteristics.
In this segmentation market is divided into segments based on consumer knowledge, attitude, use or response to product.
Behavioral variables include:
- Usage Rate
- Product benefits
- Brand Loyalty
- Price Consciousness
- Occasions (holidays like mother’s day, New Year and Eid)
- User Status (First Time, Regular or Potential)
Behavioral segmentation is considered most favorable segmentation tool as it uses those variables that are closely related to the product itself.
Bases for Business Market Segmentation
Business market can be segmented on the bases consumer market variables but because of many inherent differences like
- Businesses are few but purchase in bulk
- Evaluate in depth
- Joint decisions are made
Business market might be segmented on the bases of following variables:
- Company Size: what company sizes should we serve?
- Industry: Which industry to serve?
- Purchasing approaches: Purchasing-function organization, Nature of existing relationships, purchase policies and criteria.
- Product usage
- Situational factors: seasonal trend, urgency: should serve companies needing quick order deliver, Order: focus on large orders or small.
- Geographic: Regional industrial growth rate, Customer concentration, and international macroeconomic factors.