Concept of Market Segmentation


Market segmentation is the act of dividing the total market into different segments, which are definable, accessible, actionable, profitable and have growth potential. It can be defined as a process of grouping the customers into a number of different divisions on the basis of similar characteristics. Market segmentation is essential to identify market opportunities, to use available resources, and to form strategic planning. Geographic, demographic, psychographic, and behavioral differences are the basic market segmentation strategies. Customer may be of different types according to their needs, wants, interests, buying purposes, buying habits, age, gender, education, religion, income level, and place.

Market segmentation can be done on the basis of market and customer characteristics. For instance, the market can be segmented into three categories on the basis of income levels such as low-income level, middle-income level, and high-income level. Likewise, a market can be segmented into four categories on the basis of age such as children's market, teenagers' market, youths', and elders' market. Similarly, a market can be segmented into two categories on the basis of gender, they are females' market and the males' market.
According to Philip Kotler, " Market segmentation is the act of identifying and profiling distinct group of buyers who might require separate product and/ or marketing mixes. "

Objectives of market segmentation

The major objectives of market segmentation are as follows:
  1. Identification of market opportunity: Market segmentation divides the total market into different segments to identify market opportunity. It divides the total market with the view of strategy map of profitability. After analyzing market segment firm can choose the best segment and offer relevant products or services.
  2. Use of marketing resources: Marketers can use available marketing resources to satisfy the needs and wants of customers through market segmentation. Marketing decisions become significantly safer and more powerful in the market segment. It also reduces risk in deciding where, when, how, and to whom a product, service, or brand will be marketed.
  3. Evaluation of competition: There is keen competition everywhere. The objective of market segmentation is to an evaluation of the competitive environment and to reduce the negative effect of such competition. A firm can be a leader through proper and careful market segmentation.
  4. Strategic planning: Marketers can collect information about needs, behavior, buying capacity, buying motive of customers through market segmentation and proper study of such segments. This information will be very important for strategic planning. It increases marketing efficiency by directing effort, especially toward the designated segment in a manner consistent with that segment's characteristics.
  5. Market specialization: Another objective of market segmentation is market specialization. Strategic planning helps to attain market specialization. It reduces the negative effect of competition, reduces business risks, and assures the sale of products to survive, growth, and development.
  6. Effective marketing mix: Market segmentation helps to make an effective marketing mix through market segments research. It ensures the growth and development of a firm. A firm will be able to get competitive advantages.
  7. Environmental adaption: Final objective of market segmentation is to adopt environmental forces such as demographic, economic, political-legal, socio-cultural, and technological. As a result, a firm can enjoy beyond its limitations.

Process of market segmentation

A market segment is a process of dividing the total market into small segments having the same characteristics. The figure illustrates the process of market segmentation.

  1. Market survey: The first step of market segmentation is a market survey. A survey is a data collection tool to gather information about customers or market. Special attention should be paid to customers' needs and wants, features of the product, brand awareness, customers' attitudes towards products, features of customers, and preference patterns of customers at the time of the market survey. Apart from above, information about education, age, gender, fashion, custom, religion, purchasing power, buying behavior, buying motives, etc. of customers should be gathered. Tools of data collection should be reliable.
  2. Analysis: Although, the information is real and accurate, it has no meaning unless it is analyzed. So, the collected information should be carefully studied and analyzed. Statistical tools should be used while analyzing the information. An element which affects the demand of the product should be classified as general or specific elements. Then, the specific elements should be analyzed in reference to the needs and features of the customer.
  3. Profiling: Third stage of market segmentation is profiling. A market segment profile describes the similarities among potential customers within a segment and explains the differences among people and organizations in different segments. Variables for market segmentation can be geographic, demographic, psychographic, or behavioral.
  4. Selection of market segments: The fourth step of market segmentation is a selection of the market segment. In this stage, the profile of the market segment is evaluated carefully and one segment or more than that can be selected according to the needs. The selected market segment is the targeted market of a firm. While selecting market segment objectives and resources of the organization, the risk of the segment, profit, competition, government policy and rules, marketing environment, etc. should be considered.
  5. Product positioning: Final stage of market segmentation is product positioning. It is the process of developing a product image in relation to competitive products and developing a marketing mix for the target segment. Product positioning describes how a firm's products differ in relation to competitors. It is done after selecting the best market segment.


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